FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Barton Mines

Corporation & Ors [2006] FCA 1264

Trade Practices – restrictive trade practices - exclusionary provision - penalties under s 76 of the Trade Practices Act (Cth) for contraventions of Part IV – effect of agreement between the parties on joint submissions proposing particular orders – object of ensuring compliance with the Act by deterrence

Held – exclusionary provision in the contract constituted a breach of s 45(2)(a)(i) of the Act

Trade Practices Act 1974 (Cth)

ACCC v Midland Brick Company Pty Ltd (2004) 207 ALR 329

ACCC v Francis (2004) 142 FCR 1

NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285

Rural Press Limited v ACCC (2003) 216 CLR 53

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v BARTON MINES CORPORATION & ORS

VID 191 OF 2005

TRACEY J

22 SEPTEMBER 2006

MELBOURNE

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 191 OF 2005

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:

BARTON MINES CORPORATION & ORS

Respondent

JUDGE:	TRACEY J
DATE OF ORDER:	22 SEPTEMBER 2006
WHERE MADE:	MELBOURNE

THE COURT ORDERS THAT:

1. Paragraphs 1 and 2 of the orders made on 8 August 2005 are set aside.

2. The Applicant is given leave to discontinue the proceeding in respect of all claims made against the Third Respondent, and the proceeding to that extent is hereby discontinued, with no order as to costs on the condition that the Applicant takes no steps to reinstitute the proceeding or institute other proceedings against the Third Respondent in relation to the matters that are the subject of the claims made against the Third Respondent in the Statement of Claim.

3. The Applicant is given leave to file and serve an Amended Application and Amended Statement of Claim.

4. The First and Second Respondents are given leave to file and serve an Amended Defence.

5. The Court declares that the First and Second Respondents contravened s 45(2)(a)(i) of the Trade Practices Act 1974 (Cth) (‘the Act’) by making an arrangement with Garnet International Resources Pty Ltd (‘GIRL’) and GMA Garnet Pty Ltd (‘GMA’), a joint venture company owned in equal shares by the Second Respondent and GIRL, that contained a provision to the effect that:

(a) the First and Second Respondents and their related bodies corporate would not sell, market or distribute alluvial garnet to customers in Western Australia and the Northern Territory; and

(b) GMA would not sell, market or distribute alluvial garnet to customers in Queensland, New South Wales, Victoria, Tasmania and South Australia.

Being an exclusionary provision within the meaning of s 4D of the Act by reason of that provision having the purpose of preventing the supply of alluvial garnet by the First and Second Respondents and their related bodies corporate to customers in Western Australia and the Northern Territory and of preventing the supply of alluvial garnet by GMA customers in Queensland, New South Wales, Victoria, Tasmania and South Australia.

6. The Court orders that each of the First and Second Respondents, by its directors, employees and agents or otherwise howsoever, be restrained for a period of two years from making or arriving at a contract, arrangement or understanding, two or more of the parties to which are, or are likely to be, or but for any provision of any contract, arrangement or understanding would be or would likely to be, in competition with each other in relation to the supply of alluvial garnet in Australia and which contains a provision that has the purpose of preventing, restricting or limiting:

(a) the supply by all or any of the parties to the contract, arrangement or understanding, or by any body corporate related to any such parties, of alluvial garnet to customers located within a specific geographic region within Australia, or to particular persons or classes within Australia; or

(b) the supply by all or any of the parties to the contract, arrangement or understanding, or by any body corporate related to any such parties, of alluvial garnet to customers located within a specific geographic region within Australia, or to particular persons or classes of persons within Australia, in particular circumstances or on particular conditions,

provided that the First and Second Respondents will not be restrained from making a contract, arrangement or understanding as described above if giving effect to the provision described above would constitute the practice of exclusive dealing within the meaning of s 47 of the Act.

7. The Court orders that the First Respondent pay to the Commonwealth a pecuniary penalty in respect of the conduct referred to in paragraph 5 in the total amount of $762,500 within 60 days of the date of this order.

8. The Court orders that the Second Respondent pay to the Commonwealth a pecuniary penalty in respect of the conduct referred to in paragraph 5 in the total amount of $762,500 within 60 days of the date of this order.

9. The Court orders that the First and Second Respondents pay to the Applicant by way of contribution to the Applicant’s costs an amount fixed at $75,000.

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

IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY	VID 191 OF 2005

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:

BARTON MINES CORPORATION & ORS

Respondent

JUDGE:	TRACEY J
DATE:	22 SEPTEMBER 2006
PLACE:	MELBOURNE

REASONS FOR JUDGMENT

1 The Australian Competition and Consumer Commissioner (‘the ACCC’) made application to the Court on 15 March 2005 for various remedies for alleged breaches, by the Respondents, of s 45(2) of the Trade Practices Act 1974 (‘the Act’). The remedies sought included declarations, injunctions and the imposition of pecuniary penalties. The proceeding continued as a defended matter until March this year when an Amended Application, an Amended Statement of Claim and an Amended Defence were provided to the Court. It was foreshadowed that leave to file these documents would be sought. The Amended Defence, in substance admitted the allegations made by the ACCC. In its Amended Application the ACCC considerably narrowed the range of remedies which it was seeking. At the same time an agreed statement of facts and joint written submissions were filed. The submissions were made in support of proposed orders to be made by consent to resolve the proceeding.

2 A copy of the agreed statement of facts, which I accept, is attached to these reasons.

3 Section 45(2) of the Act prohibits corporations from making contracts or arrangements if those contracts or arrangements contain,inter alia, provisions restricting the supply of goods to particular persons or classes of person. The maximum pecuniary penalty for contravention of s 45(2) of the Act is $10 million. Section 76 of the Act directs the Court to determine a penalty which is appropriate ‘having 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 [Part VI] to have engaged in any similar conduct.’

4 As the agreed statement of facts discloses the First and Second Respondents were party to an arrangement, entered into on or about 26 March 2002, under which it was agreed that the First and Second Respondents and their related bodies corporate would not sell, market or distribute alluvial garnet to customers in Western Australia and the Northern Territory and that another company which was party to the arrangement, GMA Garnet Pty Ltd, would not sell, market or distribute alluvial garnet to customers in Queensland, New South Wales, Victoria, Tasmania and South Australia. The purpose of these arrangements was to prevent the supply of alluvial garnet by the First and Second Respondents and their related bodies corporate to customers in Western Australia and the Northern Territory and of preventing the supply of alluvial garnet by GMA Garnet Pty Ltd to customers in Queensland, New South Wales, Victoria, Tasmania and South Australia. Another company which was party to the arrangement was Garnet International Resources Pty Ltd. The First and Second Respondents admit that, but for the terms of the arrangements just mentioned, Garnet International Resources Pty Ltd would have been likely to have been a supplier of alluvial garnet in Australia in competition with GMA Garnet Pty Ltd. The arrangements thus also had the purpose of preventing such competition.

5 The parties have agreed on the form of a declaration and injunctions and the proposed quantum of pecuniary penalties which it is submitted should be imposed on the First and Second Respondents. It has been agreed that the proceeding be discontinued in respect of all claims made against the Third Respondent.

6 It is proposed that there be a declaration that the First and Second Respondents contravened s 45(2)(a)(i) of the Act by making the arrangement with Garnet International Resources Pty Ltd and GMA Garnet Pty Ltd that contained the exclusionary provisions referred to in [4] above.

7 In my opinion the proposed declaration is appropriate in the circumstances. It serves the public interest by making it plain that conduct of the kind admitted by the First and Second Respondents contravenes the Act: see ACCC v Midland Brick Company Pty Ltd (2004) 207 ALR 329 at 333; Rural Press Limited v ACCC (2003) 216 CLR 53 at 91.

8 The injunctive relief proposed would restrain the First and Second Respondents from again engaging in the admitted conduct in contravention of s 45 of the Act. The injunction is expressed to operate for two years. It would not operate to preclude the making of contracts or arrangements which would not constitute a contravention of s 45 of the Act by reason of the provisions of s 45(6) of the Act.

9 In my opinion it is appropriate that an injunction should be made in the form proposed. It is clearly expressed so as to make it plain to the First and Second Respondents what conduct on their parts is proscribed: see ACCC v Francis (2004) 142 FCR 1 at 39.

10 It is proposed that each of the First and Second Respondents should pay a pecuniary penalty of $762,500 within 60 days of the day of the Order of the Court.

11 As already noted, the Court is empowered, by s 76 of the Act, to impose pecuniary penalties which it determines to be appropriate in cases such as the present. In a proceeding in which the parties reach agreement and propose that specific penalties should be imposed, the Court’s response is guided by the principles outlined in the joint judgment of Burchett and Kiefel JJ in NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285 at 291. Their Honours said:

‘There is an important public policy involved. When corporations acknowledge contraventions, very lengthy and complex litigation is frequently avoided, freeing the Courts to deal with other matters, and investigating officers of the Australian Competition and Consumer Commission to turn to other areas of the economy that await their attention. At the same time, a negotiated resolution in the instant case may be expected to include measures designed to promote, for the future, vigorous competition in the particular market concerned. These beneficial consequences would be jeopardised if corporations were to conclude that proper settlements were clouded by unpredictable risk. A proper figure is one within the permissible range in all the circumstances. The Court will not depart from an agreed figure merely because it might otherwise have been disposed to select some other figure, or except in a clear case.’

12 I have concluded that, in the present proceeding the penalties proposed are appropriate having regard to these principles and to the following considerations which are peculiar to this case, namely:

· The Respondents admitted the contraventions and cooperated with the Commission in the ensuing enquiry.

· The Respondents cooperated in the negotiation of a settlement.

· The Respondents had not previously been involved in any alleged contraventions of Part IV of the Act.

· The financial position of the Respondents.

· Although it is admitted that the arrangement was entered into, no allegation has been made that any third party suffered specific loss or damage as a result of the two Respondents giving effect to the policy.

· Whilst it has been agreed that the parties entered the arrangement consciously and deliberately for commercial purposes, it is not alleged that the First and Second Respondents were conscious that the terms of the arrangements contravened the Act.

· The principal negotiators for each of the First and Second Respondents were both resident in the United States of America at the time at which the arrangement was entered into.

· The amount of the penalties, in my view, is, in each case, sufficient to have a deterrent effect on both the First and Second Respondents and other corporations.

13 For these reasons the proposed Directions and Orders will be made.

I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice TRACEY.

Associate:

Dated: 3 October 2006

Counsel for the Applicant:	Michael O’Bryan

Solicitor for the Applicant:	Deacons

Counsel for the Respondents:	Matthew Connock

Solicitor for the Respondents:	Allens Arthur Robinson

Date of Hearing:	22 September 2006

Date of Judgment:	22 September 2006

Attachment A

1 The Applicant, the Australian Competition and Consumer Commission (“ACCC”), is a body corporate established by section 6A of the Trade Practices Act 1974 (Cth) (“TPA”).

Barton Mines Corporation

2 Barton Mines Corporation (“Barton Mines”) is a private company based in the State of New York in the United States of America (the “USA”) whose principal business is the production and sale of garnet for industrial abrasive uses. Barton Mines’ operations were commenced by the Barton family in 1878 and they have developed its business over five generations of family ownership. Barton Mines’ registered office is located at 1557 State Route 9, Lake George, New York.

3 Barton Mines, through its wholly-owned subsidiaries, owns and operates a hard rock garnet mining and milling operation in the Adirondack Mountains in the State of New York, USA.

4 Barton Mines and its wholly-owned subsidiaries trade under the name “The Barton Group”. The Barton Group’s operations are primarily conducted in the USA.

Barton International Inc

5 B-L (Australia) Inc (“BLA”) was incorporated in Delaware, USA on 12 September 1988 and was a wholly subsidiary of Barton Mines. It was registered in Australia as a foreign registered company on 8 December 1988.

6 Barton Joint Venture Corporation (“BJVC”) was incorporated in Delaware, USA on 12 September 1988 and was a wholly owned subsidiary of Barton Mines. It was registered in Australia as a foreign registered company on 8 December 1988.

7 On and from 30 June 2002 (the “Merger Date”) BLA merged with BJVC in accordance with section 253 of the General Corporation Law of the State of Delaware. BLA was the merged surviving corporation of the merger.

8 On and from the Merger Date, BJVC ceased to exist and all outstanding shares of capital stock of BJVC were cancelled. BJVC were deregistered in the USA on 30 June 2002 and in Australia on 21 October 2003. BLA became the successor to the property, rights and liabilities of BJVC.

9 On the Merger Date BLA, the merged surviving corporation, changes its name to Barton International Inc (“Barton International”). It is registered in Australia as a foreign registered company (ARBN 009 475 138) and its registered office is located at Unit 16, Lakeside Corporate, 24 Parkland Road, Osborne Park, Western Australia 6017.

Barton International (Australia) Pty Ltd

10 Barton International (Australia Pty Ltd (“Barton Australia”) was incorporated in Australia on 24 April 2002 and is and was at all relevant times a wholly owned subsidiary of Barton Mines and BLA/Barton International.

GMA Garnet Pty Ltd

11 GMA Garnet Pty Ltd (“GMA”) was incorporated in Australia on 3 October 1998 (ACN 009 344 227).

12 From 24 February 1999 to 26 March 2002, GMA’s shareholders were:

(a) HGL Limited (“HGL”) (ACN 009 657 961), an investment company, which held a 50% interest through its wholly owned subsidiary, Garnet Producers NL (“GPNL”) (ACN 008 471 832); and

(b) BJVC and BLA which held interests of 13.83% and 36.17% respectively.

13 From 26 March 2002 to 31 March 2005 GMA’s shareholders were:

(a) Garnet International Resources Pty Ltd (“GIRL”), which on 26 March 2002 acquired the 50% interest of GMA that was ultimately held by HGL; and

(b) BJVC and BLA, which held the interests in GMA noted above until the Merger Date (30 June 2002), whereupon Barton International became the owner of the 50% interest in GMA.

Garnet International Resources Pty Ltd

14 GIRL was incorporated on 10 February 1998 (ACN 081 244 715). Its directors as at 22 March 2002 were Mr Wolfhart Putzier, Mr Hans Michael Jebsen, Mr Johann Heinrich Jessen, Mr Torsten Ketelsen and Mr Uwe Hanns Petersen (the “GIRL directors”)

15 From 26 March 2002 until 31 March 2005, GIRL:

(a) owned 50% of GMA; and

(b) was the exclusive distributor of GMA garnet produced from mining tenements located at Port Gregory, Western Australia (described further below and referred to herein as “GMA garnet”) principally to the Middle East, Europe and South East Asia.

16 On 31 March 2005 GIRL acquired Barton International’s 50% interest in GMA.

Garnet

17 Garnet is a naturally occurring mineral. The garnet produced by a subsidiary of Barton Mines in the Adirondack Mountains is known as “hard rock” garnet. The garnet mined in Port Gregory, Western Australia is known as “alluvial” garnet. Most garnet mined in the world is alluvial. Hard rock is generally more angular and sharper than alluvial garnet and is sold for different applications at significantly higher prices. Alluvial garnet is most commonly used as both an abrasive in the preparation of surfaces (garnet blasting) and as an abrasive in waterjet cutting.

18 Alluvial garnet is also used in other applications including:

(a) concrete and floor finishing products;

(b) anti-slip coatings;

(d) water purification;

(e) glass preparation; and

(f) electronic component surfacing.

19 Alluvial garnet is most commonly used in the following industries:

(a) shipbuilding/ship repair;

(b) industrial painting contracting;

(d) oil and gas industry (on-shore and off-shore) for cleaning drill pipes and well casings;

(e) aircraft and motor vehicle manufacturers;

(f) ceramic and glass producers;

(g) electronic component manufacturers; and

(h) filtration parts.

Worldwide garnet production

20 The principal garnet mines in the world are currently operating in:

(a) Port Gregory, Western (alluvial);

(b) India (alluvial);

(d) China (hard rock)

In addition, there are similar mining operations in Canada, Chile, the Czech Republic, Pakistan, Russia, South Africa, Spain, Thailand, Turkey, and the Ukraine.

21 The Port Gregory mine in Western Australia and Indian producers are the largest producers of garnet in the world, the former representing around 35% of total world production in 2004 and the latter, approximately 50%.

22 GMA garnet and Indian garnet are from the same geological group. Known as almandine alluvial garnet, this garnet is the hardest variety in the alluvial garnet family.

23 Indian garnet competes around the world with GMA garnet, including Australia, Japan, Taiwan, Europe, Canada, USA, the Middle East and Africa.

The Australian garnet industry

24 In 2004 Australian industrial users purchased approximately 53,000 tonnes of garnet per annum, which was sourced approximately as follows:

(a) 36,000 tonnes of GMA garnet; and

(b) 17,000 tonnes from India.

25 In 2004 industrial users in Queensland, New South Wales, Victoria, Tasmania and South Australia (the “Eastern and Southern States of Australia”) purchased approximately 35,000 tonnes of garnet per annum, of which 15,000 tonnes were imported from India.

26 In 2004 industrial users in Western Australia and the Northern Territory purchased approximately 18,000 tonnes of garnet per annum, of which 2,000 tonnes were imported from India.

27 Based on this tonnage, sales of garnet to distributors in Australia generate gross revenue in the order of AUD$12.8 million per annum. In approximate terms, gross revenue can be calculated as follows:

(a) GMA garnet

(i) 20,000 tonnes (the Eastern and Southern States of Australia) x

AUD$270 per metric tonne = AUD$5.4 million;

(ii) 16,000 tonnes (Western Australia and Northern Territory) x

AUD$230 per metric tonne = AUD$3.7 million;

(b) imported garnet 17,000 tonnes (Australia wide) x $AUD$220 per metric tonne

= AUD$3.7 million.

Substitutes for garnet as an abrasive

28 In most parts of the world, garnet is considered substitutable for abrasives such as silica sand, coal slag, copper and other mineral slag, ilmenite, crushed glass, staurolite and high pressure water as well as quartz sand and manufactured abrasives such as fused alumina oxide and silicon carbide. Silica sand and mineral slag continue to be the most widely used media in blasting worldwide.

29 In Australia, garnet is the preferred alternative to conventional abrasives such as silica sand and copper slag. Use of silica sand as abrasive was banned in Australia progressively during the 1990’s. Environmental concerns have also reduced the user of copper slag as abrasive in Australia. Copper slag, however, is currently imported into Australia and remains a substitute for garnet in some applications.

30 Ilmenite, a by-product of mineral sands production, is also used in small quantities as an abrasive in Queensland.

31 Crushed glass is also used in small quantities as an abrasive along the Eastern Seaboard and in the Northern Territory.

32 Staurolite, an aluminosilicate mineral with similar chemical and physical properties to garnet, is also used as an abrasive in Australia.

33 High pressure water may also be used as an abrasive in some applications, and steel shot may also be used in other specific applications.

34 In coated abrasives, garnet falls between low-cost quartz sand and more costly manufactured abrasives, such as fused alumina and silicon carbide.

35 In addition, ilmenite, magnetite and plastics compete as filtration media; diamond, corundum and fused aluminium oxide compete for glass grinding and for many lapping operations. Emery is a substitute in non-skid surfaces.

Port Gregory mine – plant ownership

36 Garnet as first mined in Port Gregory in 1969 on a small scale by Target Minerals N.L.

37 In 1988 BJVC and BLA jointly acquired a 50% interest in the garnet mine in Port Gregory from Target Petroleum. At the time of this acquisition the Port Gregory mine produced less than 10,000 tonnes of garnet per annum.

38 Shortly thereafter Target Petroleum sold its remaining 50% interest in Port Gregory to HGL’s wholly owned subsidiaries GPNL and Garnet Millers Australia Pty Ltd ) (”GMAPL”) (ACN 008 908 227).

39 On 4 June 1998, BJVC, BLA, GPNL and GMAPL restructured from a production joint venture to a partnership (the “Garnet Partnership”) to conduct a business of exploring for, mining, processing and selling garnet

40 The terms of the garnet Partnership were recorded in a Partnership Agreement dated 4 June 1998 (the “Partnership Agreement”).

41 Pursuant to clause 3 of the Partnership Agreement, the partners owned the following interests in the Garnet Partnership:

(a) BJVC – 13.83%;

(b) BLA – 36.17%; and

42 Pursuant to clause 4 of the Partnership Agreement, the partners agreed that the assets of the Garnet Partnership would be held in the names of all the parties as tenants in common in accordance with their percentage interests in the Garnet Partnership.

43 On 25 June 1998, GONL acquired GMAPL’s interest in the Garnet Partnership.

Port Gregory mine – plant operations

44 From its formation, the Garnet Partnership engaged in the mining of garnet from tenements owned by the Garnet Partnership and located around Port Gregory, Western Australia.

45 The garnet ore is quarried from open pits by front end loader. It is then treated through a wet plant on site at Port Gregory and later through a dry plant at Geraldton.

46 Pursuant to clause 9 of the Partnership Agreement, the partners agreed that they might engage or appoint a person to carry out such duties or functions in relation to the management or conduct of the business of the Garnet Partnership as the partners may determine.

47 On 24 February 1999, BJVC, BLA, and GPNL entered into a Mining Services and Processing Agreement whereby they engaged GMA for a term of 30 years to provide to the Garnet Partnership all services required for and incidental to the day to day operation of that part of the business of the Garnet Partnership that involved exploring for, mining and processing garnet and other products including the mining of garnet and the processing and packaging of garnet.

48 At all material times between 24 February 1999 to 31 March 2005 GMA mined GMA garnet on behalf of its shareholders pursuant to this Mining Services and Processing Agreement.

Distribution of GMA garnet

49 From its formation, the Garnet Partnership engaged in the processing and selling of GMA garnet to various distributors for distribution within and outside Australia.

50 At all relevant times from April 1991, GMA Garnet (Europe) GmbH (“GMAGE”), a company owned by the GIRL directors, was the exclusive distributor of GMA garnet in Europe.

51 At all relevant times from January 1990, Ketelsen Enterprises Pty Ltd (“Ketelsen Enterprises’), a company controlled by one of the GIRL directors, Torsten Ketelsen, was the exclusive distributor of GMA garnet in the Middle East. At all relevant times from September 1994, Ketelsen Enterprises was also a distributor of GMA garnet in South East Asia.

52 At all relevant times since 1991 until 24 April 2002, Barton Mines Company, LLC (an affiliate of BLA) distributed GMA garnet to North and South America. At all relevant times since April 2002, Barton Australia distributed GMA garnet to North and South America and North Asia.

53 On 24 February 1999, BJVC, BLA and GPNL entered into an Exclusive Distributorship Agreement whereby they agreed to appoint GMA as the exclusive distributor on behalf of the Garnet Partnership of all garnet and other products produced by or on behalf of the Garnet Partnership throughout the world, including Australia. GMA was entitled to appoint sub-distributors and agents in connection with the distribution of garnet and other products produced by or on behalf of the Garnet Partnership. The appointment of GMA as the exclusive distributor on behalf of the Garnet Partnership did not interfere with the distribution arrangements referred to in paragraphs 49 to 51.

GIRL’s acquisition of a 50% interest in the Garnet Partnership and GMA and the Perth Arrangement

54 Pursuant to the Partnership Agreement, BLA and BJVC had a pre-emptive right to acquire GPNL’s interest in the Garnet Partnership and its shares in GMA if GPNL decided to exit the Garnet Partnership.

55 In November 2000, two of the GIRL directors (Mr Wolfhart Putzier and Mr Torsten Ketelsen) contacted the Barton Group and inquired as to its attitude regarding them acquiring GPNL’s interest in the Garnet Partnership and GMA should GPNL be willing to sell.

56 The GIRL directors established that GPNL was willing to sell its share in the Garnet Partnership and GMA to them. Following negotiations, BLA and BJVC agreed not to exercise their pre-emptive right over GPNL’s interest in the Garnet Partnership and their shares in GMA.

57 Pursuant to a sale agreement between GMAPL, GPNL, GIRL and various other persons dated 6 December 2001 (the “Sale Agreement”), GIRL agreed to acquire GPNL’s 50% interest in the Garnet Partnership and its to% shareholding in GMA. The Sale Agreement was completed on 26 March 2002, and on that date Mr Wolfhart Putzier and Mr Torsten Ketelsen were appointed directors of GMA.

58 Immediately prior to completion of the Sale of Agreement:

(a) GMA was the exclusive distributor of GMA garnet in Australia;

(b) BLA and BJVC did not supply GMA garnet in Australia (other than in their capacity as partners in the Garnet Partnership in respect of the supply of GMA garnet by the Garnet Partnership to GMA);

(d) GMAGE was the exclusive distributor of GMA garnet in Europe;

(e) Ketelsen Enterprises was the exclusive distributor of GMA garnet in the Middle East. It was also a distributor of GMA garnet in South East Asia; and

(f) GIRL did not supply GMA garnet in Australia, however, but for the provisions of the Perth Arrangement described below, there was a real possibility that GIRL would supply garnet in Australia.

59 BLA and BJVC’s agreement not to exercise their pre-emptive right was conditional upon GIRL, Barton Mines, BJVC, BLA and GMA making an arrangement concerning the future operation of the Garnet Partnership and GMA. GIRL, Barton Mines, BJVC, BLA and GMA made such an arrangement on or about the completion of the Sale of Agreement on 26 March 2002. The substance of the arrangement was recorded in a document dated 13 March 3003 signed by GIRL, Barton Mines (under its trading name, The Barton Group), BJVC and BLA (the “Perth Arrangement”).

60 It was a term of the Perth Arrangement that each partner (being BJVC and BLA on the one hand and GIRL on the other hand) agreed to purchase from the Garnet Partnership and GMA in each financial year a minimum amount of GMA garnet equal to the greater of:

(a) 50,0000 tonnes; or

(b) the lowest amount purchased by either partner during the previous year.

61 It was also a term of the Perth Arrangement that each of the parties to it and their related bodies corporate agreed not to sell, market or distribute alluvial almandite garnet abrasive and related products and components to customers within various geographic territories within Australia and the rest of the world, subject to limited exceptions as follows:

(a) GIRL and its related bodies corporate agreed not to sell, market or distribute alluvial almandite garnet abrasive and related products and components to customers within the areas marked blue and purple on the map attached as Annexure A to the document dated 13 March 2002, which included all of Australia, for the period until 2 years after it ceased to own an interest in the Garnet Partnership and GMA;

(b) Barton Mines, BJVC, BLA and their respective related bodies corporate agreed not to sell, market or distribute alluvial almandite garnet abrasive and related products and components to customers within the areas marked red and purple on the map attached as Annexure A to the document dated 13 March 2002, which included all of Western Australia and Northern Territory, for the period until 2 years after they ceased town an interest in the Garnet Partnership and GMA; and

(c) GMA agreed not to sell, market or distribute alluvial almandite garnet abrasive and related products and components to customers within the areas marked red and blue on the map attached as Annexure A to the document dated 13 March 2002, which included the Eastern and Southern States of Australia.

62 The Perth Arrangement was entered into on behalf of Barton Mines, BJVC and BLA by Charles Bracken, the Chairman of Barton Mines, and James Nash, President of BLA (subsequently Barton International), both of who reside and are based in the United states of America. The arrangement was also approved by the board of directors of Barton Mines, the members of which also reside and work in the United States of America.

63 At the time the Perth Arrangement was entered into, the Barton Group had no employees in Australia, and only one full time and three part time employees thereafter.

64 Details of the acquisition and revised distribution arrangements were published shortly after the Perth Agreement was entered into on websites operated by GMA, GMAGE and Jebsen & Jessen (GmbH & Co) KG (Jebsen & Jessen) (a company controlled by two of the GIRL directors). The GMA website contained a world map which directed customers to GIRL, GMA or Barton according to the allocated distribution areas. The GMAGE website stated that GMA Garnet ‘will henceforth be distributed by GIRL in Europe, the Middle East, South East Asia and Africa’ and that ‘The Barton Group will control distribution in North Asia, Eastern Australia as well as North and South America.’ The Jebsen & Jessen website referred to the acquisition and distribution in the following terms:

Early this year, the shareholders of Jebsen & Jessen Hamburg together with their partner in GMA Garnet Europe formed a holding company Garnet International Resources Pty Ltd (GIRL) in Perth, Western Australia. Effective April 1, 2002, GIRL acquired a 50% stake in GMA Garnet Australia, which owns and operates the mine and processing facilities where GMA Garnet is produced. GMA’s facilities are located five hundred kilometres north of Perth. The Barton Group, a US-based leader in industrial garnet abrasives, holds the remaining 50% of GMA Garnet Australia. GMA’s Australian Garnet will henceforth be distributed by GIRL in Europe, the Middle East, South East Asia and Africa. The Barton Group will control distribution in North Asia, Eastern Australia as well as North and South America.

Notification of the Perth Arrangement to the Commission

65 The arrangement came to the Commission’s attention on or about 18 April 2004 as a result of an application for leniency by a party to the Perth Arrangement other than the Barton Respondents.

Sale of Barton International’s interest in the Garnet Partnership and GMA

66 Pursuant to an agreement between Barton International and GIRL dated 21 February 2005, on 31 March 2005:

(a) Barton International sold its interests in the Garnet Partnership to GIRL

(b) the Garnet Partnership was dissolved;

(d) Barton International novated its interest in:

(i) the Exclusive Distributorship Agreement dated 24 February 1999; and

(ii) the Mining Services and Processing Agreement dated 24 February 1999;

to GIRL.

67 The Barton Group no longer has any employees in Australia and no longer sells any garnet to Australian customers.

Financial position of Barton Mines and Barton International

68 The financial position of Barton Mines and Barton International is presented in Confidential Attachment A.

Co-operation by The Barton Group

69 The Barton Group has fully co-operated with the ACCC in its investigation of this matter.

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