FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v NQCranes Pty Ltd [2022] FCA 1383

ORDERS

THE COURT DECLARES THAT:

1.    On 26 August 2016, the Respondent (NQCranes), by signing a written agreement described as a distributorship agreement (Distributorship Agreement) with MHE-Demag Australia Pty Ltd (ACN 000 406 717) (Demag), which contained a clause providing that in Territory 2 (the State of Queensland south of Gladstone and Newcastle), NQCranes and Demag will operate in the Service markets in a co-ordinated approach so that their current customers are not targeted by the other and that for potential future customers the two organizations will ensure that their energies are focused on the other service competitors and not each other:

(a)    made a contract or arrangement which contained a provision that had the purpose of directly or indirectly allocating between NQCranes and Demag, persons or classes of persons, being customers of NQCranes and Demag who had acquired or who were likely to acquire servicing of overhead cranes from NQCranes or Demag in the State of Queensland south of Gladstone and in the Newcastle region, within the meaning of s 44ZZRD(3)(b)(i) of the Competition and Consumer Act 2010 (Cth) (CCA);

(b)    in consequence, because NQCranes and Demag were in competition with each other, or but for the Distributorship Agreement, would have been, or would have been likely to be, in competition with each other within the meaning of s 44ZZRD(4) of the CCA in relation to the servicing of overhead cranes in the State of Queensland south of Gladstone and in the Newcastle region, within the meaning of s 44ZZRD(1) of the CCA made a contract or arrangement with Demag containing a cartel provision; and

(c)    thereby contravened s 44ZZRJ of the CCA.

THE COURT ORDERS THAT:

Pecuniary Penalty

2.    NQCranes pay to the Commonwealth of Australia a pecuniary penalty of $1,000,000 in respect of the contravention of s 44ZZRJ of the CCA referred to in paragraph 1 of this Order with such payment to be made in five equal instalments with the first instalment to be paid within 14 days of this Order and subsequent payments to be made in no more than 12 month intervals from that date.

Compliance Plan

3.    Pursuant to s 86C of the CCA, NQCranes establish and maintain for a period of three years a competition law education, training and compliance program in accordance with the terms of Annexure A to this Order.

Costs

4.    NQCranes pay $50,000 as a contribution to the ACCC’s costs of and incidental to the proceeding, within 14 days of this Order.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

ANNEXURE A

Competition Law Compliance Program

NQCranes will establish a Competition and Consumer Compliance Program (Compliance Program) that complies with each of the following requirements:

Appointments

1.    Within one month of the date of final Orders being made in NSD1144/2020 (the Relevant Date), NQCranes will appoint a director or a senior manager of the business to be responsible for the development, implementation and maintenance of the Compliance Program (the Compliance Officer).

Compliance Officer Training

2.    Within two months of the Relevant Date, NQCranes will ensure that the Compliance Officer attends practical training focusing on Part IV (restrictive trade practices) of the Competition and Consumer Act 2010 (Cth) (CCA).

3.    NQCranes will ensure that the training is administered by a suitably qualified compliance professional or legal practitioner with expertise in competition and consumer law.

Staff Training

4.    NQCranes will cause all employees of NQCranes whose duties could result in them being concerned with conduct that may contravene Part IV of the CCA to receive regular (at least once a year) training administered by the Compliance Officer (once trained) or a qualified compliance professional or legal practitioner with expertise in competition and consumer law, that focuses on Part IV of the CCA.

Complaints handling

5.    Within three months of the Relevant Date, NQCranes will develop procedures for recording, storing and responding to competition law complaints (Complaints Handling System).

Reports to Directors/Governing Body

6.    NQCranes will ensure that the Compliance Officer reports to NQCranes’s director(s) or governing body every three months on the continuing effectiveness of the Compliance Program.

Compliance Review

7.    NQCranes will, at its own expense, cause an annual review of the Compliance Program (the Review) to be carried out in accordance with each of the following requirements:

Compliance Reports

8.    NQCranes will use its best endeavours to ensure that within 14 days of a Review, the Reviewer includes the following findings of the Review in a report to NQCranes (Compliance Report):

NQCranes’s Response to Compliance Reports

9.    NQCranes will ensure that the Compliance Officer, within 14 days of receiving the Compliance Report:

10.    NQCranes will implement promptly and with due diligence any recommendations made by the Reviewer in the Compliance Report to address a Material Failure.

Reporting Material Failures to the ACCC

11.    Where a Material Failure has been identified by the Reviewer in the Compliance Report, NQCranes will:

Provision of Compliance Program documents to the ACCC

12.    NQCranes will maintain a record of and store all documents relating to and constituting the Compliance Program for a period not less than five years.

13.    If requested by the ACCC during the period of five years NQCranes will, at its own expense, cause to be produced and provided to the ACCC copies of all documents constituting the Compliance Program, including:

ACCC Recommendations

14.    NQCranes will implement promptly and with due diligence any recommendations that the ACCC may make that the ACCC deems reasonably necessary to ensure that NQCranes maintains and continues to implement the Compliance Program in accordance with the above requirements.

REASONS FOR JUDGMENT

ABRAHAM J:

1    The applicant, the Australian Competition and Consumer Commission (ACCC), alleged that the respondent, NQCranes Pty Ltd (NQCranes), contravened the cartel provisions in Div 1 in Pt IV of the Competition and Consumer Act 2010 (Cth) (CCA). Following a court-ordered mediation, this proceeding proceeded by way of joint submissions, a statement of agreed facts and an agreed proposal as to relief. The ACCC alleged, and NQCranes conceded, that NQCranes contravened the cartel provisions by making an agreement, namely the Distributorship Agreement executed on 26 August 2016 with MHE-Demag Australia Pty Ltd (ACN 000 406 717) (Demag), which contained what the parties referred to as the “Co-Ordinated Approach Provision”, a cartel provision.

2    NQCranes admitted that the Co-Ordinated Approach Provision had the purpose of directly or indirectly allocating between NQCranes and Demag, persons or classes of persons, being customers of NQCranes and Demag, who had acquired or who were likely to acquire servicing of overhead cranes from NQCranes or Demag in the State of Queensland south of Gladstone and in the Newcastle area, within the meaning of s 44ZZRD(3)(b)(i) of the CCA. NQCranes also admitted that the Co-Ordinated Approach Provision was a cartel provision within the meaning of s 44ZZRD( 1) and that by entering into the Distributorship Agreement, it made a contract or arrangement which contained a cartel provision, and thereby contravened s 44ZZRJ of the CCA. I note that from 6 November 2017 the Competition and Consumer Amendment (Competition Policy Review) Act 2017 (Cth) changed the numbering of Div 1 of Pt IV of the CCA, and as a result s 44ZZRD is now s 45AD and s 44ZZRJ is now s 45AJ. Although some of the facts relevant to the conduct of this proceeding occurred after this date, the conduct constituting the contravention was NQCranes entering into the Distributorship Agreement containing a cartel provision on 26 August 2016, and therefore I will use the former numbering.

3    It falls to consider the appropriate relief.

4    The parties jointly seek a declaration in relation to the conduct, and agree that a pecuniary penalty order be made against NQCranes in the amount of $1,000,000 in respect of the contravention. The parties also seek a non-punitive order providing for NQCranes to establish and maintain a competition law education, training and compliance program and an order that NQCranes pay $50,000 as a contribution to the ACCC’s costs of and incidental to the proceedings.

5    Having scrutinised the relevant material relied on in the context of the relevant legal principles, for the reasons given below, I am satisfied that it is appropriate to make the orders agreed to by the parties.

Agreed Facts

6    As noted at [1] above, the parties provided an agreed statement of facts, and the following summary is taken from that document.

7    NQCranes, at all material times, supplied goods and services in trade or commerce in Australia in connection with: the design, manufacture and supply of new overhead cranes (or parts thereof); the servicing of overhead cranes; and the supply of spare parts for overhead cranes.

8    Demag at all material times supplied goods and services in trade or commerce in Australia in connection with: the supply of new overhead cranes (or parts thereof) and material-handling equipment; the servicing of overhead cranes and material-handling equipment; and the supply of spare parts for overhead cranes and material-handling equipment.

Relevant goods and services provided by NQCranes and Demag

Overhead cranes

9    Overhead cranes can be described as fixed cranes used to handle heavy loads, which usually include a hook-and-line mechanism that runs along a horizontal beam, which runs along two widely separated rails.

10    Overhead cranes are usually installed in large warehouses and are often used as a part of production processes, transporting semi-finished goods between workstations. They are also used in storage facilities and major mining and constructions projects.

11    The design, manufacture and supply of overhead cranes involves, amongst other things:

(a)    manufacturing and installing crane steelwork; and

(b)    installing "crane kits", which typically comprise a hoist, the electrics and the drives of a crane.

Servicing of overhead cranes

12    Servicing of overhead cranes involves, among other things, providing the service of crane servicing to customers, including inspection services, 24-hour emergency break down services, and repair, refurbishment, upgrading and replacement of cranes and the associated supply and sale of spare parts.

13    A summary of the various categories of overhead crane servicing is provided below.

(a)    Inspection services, which can be further broken down into:

(i)    periodic inspections, which involve visual and operational checks of the components of a crane and issuing a report recommending what maintenance and/or repair work needs to be done (if any). The frequency of these inspections depends on how the crane is used, how often it is used as well as the Original Equipment Manufacturer requirements. Periodic inspections are often quarterly;

(ii)    third party inspections, which involve an annual audit of a customer's maintenance and inspection program by a "third party" service provider (that is, inspections by a service provider not conducting the periodic inspections for the same customer); and

(iii)    major assessments, which are required when there is less than 30% of the "design life" of an overhead crane remaining or every 7 to 10 years for a crane's hoist and every 25 years for a crane's structure, and which involve an in-depth check of the components of a crane under the supervision of an engineer and issuing a detailed report signed off by the engineer;

(b)    24-hour emergency breakdown services; and

(c)    Repair, refurbishment, upgrades and replacements.

14    Depending on the type of overhead crane servicing undertaken, the activity of servicing overhead cranes sometimes involves the supply of spare parts and other times does not. For example:

(a)    Periodic inspections do not ordinarily involve the supply of spare parts. A periodic inspection would typically only require the technician to inspect the overhead crane to ascertain whether any repair or maintenance work was required and, if it was required, whether any spare parts needed to be used. A technician would not typically carry out any repair work or maintenance work "on the spot". Rather, the technician would generally prepare a report about the inspection which included recommendations as to which repair or maintenance work needed to be done and which spare parts were required (if any).

(b)    Third party inspections do not involve the supply of spare parts because they only involve an audit of a customer's overhead crane maintenance and inspection program.

(c)    Major assessments do not ordinarily involve the supply of spare parts because any necessary repair or maintenance work is not carried out "on the spot". Rather, a major assessment report makes recommendations as to which repair or maintenance work needs to be done and the spare parts required.

(d)    A significant proportion of servicing involving emergency breakdowns requires the use of spare parts, however, this is not always the case.

(e)    Some planned repairs may not require the use of spare parts. For example, where the scope of the work is an adjustment rather than a replacement — such as a brake adjustment. The majority of repair, refurbishment, upgrades and replacement services would involve the supply of spare parts.

Markets

15    At all material times, there were the following markets in Australia within the meaning of s 4E of the CCA:

(a)    a market for the design, manufacture and supply of overhead cranes that included, at least, Queensland and the Newcastle region; and

(b)    a market for the servicing of overhead cranes (which included both the provision of overhead crane services with and without the supply of spare parts), that included, at least, the regions south of Gladstone in Queensland and the Newcastle region in New South Wales (Overhead Crane Servicing Market).

16    At all material times, each of NQCranes and Demag supplied servicing of overhead cranes in regions including in Queensland south of Gladstone and Newcastle.

17    NQCranes admits that at all material times, NQCranes and Demag were in competition with each other, or but for the distributorship agreement described below, would have been, or would have been likely to be, in competition with each other, within the meaning of s 44ZZRD(4) of the CCA, as in force prior to 6 November 2017 (s 45AD(4) of the CCA since 6 November 2017), in the Overhead Crane Servicing Market.

Distributorship Agreement

18    In or around 2015, Demag and NQCranes entered into negotiations in relation to a proposed distributorship agreement whereby NQCranes would distribute Demag products, including cranes and spare parts for cranes, to be supplied by Demag to NQCranes.

19    The personnel from NQCranes involved in the negotiations with Demag in connection with, and the drafting of, the proposed distributorship agreement included representatives of the senior management team at NQCranes, being:

(a)    NQCranes's managing director, Mr Wayne Pidgeon; and

(b)    NQCranes's operations manager, Mr Addo Romyn.

20    Mr Pidgeon and Mr Romyn have been employed by NQCranes since 3 June 1993 and since 3 June 1999, respectively.

21    On 26 August 2016, NQCranes and Demag signed a written agreement, described as a distributorship agreement (Distributorship Agreement).

22    In the Distributorship Agreement, NQCranes is referred to as "the Distributor" and Demag is referred to as "the Supplier".

23    Clause 2 of the Distributorship Agreement defined the two territories relevant to the agreement as follows:

2. Territory of Agreement

Territory 1: State of Queensland excluding the area south of Gladstone on a non-exclusive basis.

Territory 2: State of Queensland south of Gladstone and Newcastle on a non-exclusive basis

24    Clause 3 of the Distributorship Agreement provided the following in terms of the scope of the agreement.

3. Scope of Agreement

The Distributor is hereby given the right to sell Demag products in the above territories and must do so exclusively except under the following situations:

1. Spare parts for non-MHE-Demag/Donati equipment

2. MHE-Demag/Donati equipment is not technically feasible. These products are as on the attached Appendix A.

Distributor to become the exclusive MHE-Demag Service agent for Territory 1. Schedule of rates to be agreed upon Appendix B). MHE-Demag to transfer service clients and service technicians to Distributor for Townsville and Mackay initially with the aim of transferring all remaining Gladstone service work over in the next 12-18 months.

Distributor and MHE-Demag to co-ordinate a unified sales strategy for Territory 1 so that customer requirements are met (further discussions required). All cranes sold by MHE-Demag and all other equipment by distributor. All new crane enquiries will be passed directly to MHE-Demag for quoting and booking orders. In return any successful sales will have a "For Service call NQCranes" sticker affixed to the product prior to commissioning.

For Territory 2 distributor and MHE-Demag will operate in the Service markets in a co-ordinated approach so that their current customers are not targeted by the other. For potential future customers the two organizations will ensure that their energies are focused on the other service competitors and not each other.

For Territory 2 all new crane enquiries will be passed directly to MHE-Demag for quoting and booking orders. In return any successful sales will have a "For Service call NQCranes" sticker affixed to the product prior to commissioning.

The facility for fabricating cranes in Paget by the Distributor will be considered by the Supplier in all cases for cranes in Territory 1 and will be in the preferable place of manufacture when it is not beneficial to bring the cranes or equipment directly from Malaysia. Joint NQCranes / MHE-Demag signage to be displayed on the new cranes for the territory.

(emphasis added)

25    The paragraph of clause 3 which reads:

... For Territory 2 distributor and MHE-Demag will operate in the Service markets in a co-ordinated approach so that their current customers are not targeted by the other. For potential future customers the two organizations will ensure that their energies are focused on the other service competitors and not each other...

is what the parties, and now I, refer to as the Co-Ordinated Approach Provision, being the cartel provision in the Distributorship Agreement.

26    NQCranes admits that:

(a)    the Co-Ordinated Approach Provision had the purpose of directly or indirectly allocating between NQCranes and Demag, persons or classes of persons, being customers of NQCranes and Demag who had acquired or who were likely to acquire servicing of overhead cranes from NQCranes or Demag in the State of Queensland south of Gladstone and in the Newcastle area, within the meaning of s 44ZZRD(3)(b)(i) of the CCA;

(b)    the Co-Ordinated Approach Provision was a cartel provision within the meaning of s 44ZZRD(1); and

(c)    by entering into the Distributorship Agreement, NQCranes made a contract or arrangement which contained a cartel provision, and thereby contravened s 44ZZRJ of the CCA.

27    Demag first proposed the Co-Ordinated Approach Provision to be included in the Distributorship Agreement.

The legal contravention

28    The parties contended that their joint submissions provide an appropriate basis for the Court to conclude that, by entering into the Distributorship Agreement with the Co-ordinated Approach Provision, NQCranes contravened s 44ZZRJ as alleged by the ACCC (and admitted by NQCranes). The parties rely upon the statement of agreed facts as evidence pursuant to s 191 of the Evidence Act 1995 (Cth). In deciding whether consent orders conform to legal principle, the Court may treat the consent of NQCranes to the agreed orders as involving an admission of all facts necessary or appropriate to the granting of the relief sought: Thomson Australian Holdings Pty Ltd v TPC [1981] HCA 48; (1981) 148 CLR 150 at 164 per Gibbs CJ, Stephen, Mason and Wilson JJ.

29    Having considered the statement of agreed facts, and the joint submissions, in light of the relevant statutory provisions and legal principles, I am satisfied of the contravention as admitted.

Legal principles concerning relief

30    Recently, in Australian Securities and Investments Commission v Commonwealth Securities Limited [2022] FCA 1253, I summarised the principles relevant to imposing a pecuniary penalty order and other orders of the nature sought in this case. The principles referred to below, with the exception of my discussion of the principles relevant to the compliance program sought in this proceeding, reflect, in large part, relevant aspects of that summary.

Pecuniary penalty

31    The maximum penalty for a breach of s 44ZZRJ in this case is $10,000,000: CCA s 76(1A)(aa)(i).

32    In the context of maximum penalties in criminal jurisdiction, in Markarian v R [2005] HCA 25; (2005) 228 CLR 357, the plurality relevantly observed at [31]:

…careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick.

33    The High Court’s reasoning in Markarian at [31] has routinely been adopted in the context of a civil penalty: Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; (2016) 340 ALR 25 at [154]-[155]; Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53; (2018) 260 FCR 68 at [55].

34    The purpose of a pecuniary penalty order is primarily protective, in promoting the public interest in compliance by deterrence from further contravening conduct: Australian Building and Construction Commission v Pattinson [2022] HCA 13; (2022) 399 ALR 599 at [15]. A penalty of appropriate deterrent effect “must be fixed with a view to ensuring that the penalty is not such as to be regarded by [the] offender or others as an acceptable cost of doing business”: Pattinson at [17] citing Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249 at [62].

35    The assessment of penalty of appropriate deterrent value will have regard to a number of factors including: (1) the nature and extent of the contravening conduct; (2) the amount of loss or damage caused; (3) the circumstances in which the conduct took place; (4) the size of the contravening company; (5) the degree of power it has, as evidenced by its market share and ease of entry into the market; (6) the deliberateness of the contravention and the period over which it extended; (7) whether the contravention arose out of the conduct of senior management or at a lower level; (8) whether the company has a corporate culture conducive to compliance, as evidenced by educational programs or other corrective measures in response to an acknowledged contravention; and (9) whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to contravention: Pattinson at [18]. These are not to be considered as a rigid list of factors to be ticked off: Pattinson at [19], but rather are to inform a multifactorial investigation that leads to a result arrived at by a process of “instinctive synthesis” addressing the relevant considerations: Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; (2016) 340 ALR 25 at [44].

36    The principles to be applied in considering a jointly proposed penalty, such as in this case, were considered in Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 (DFWBII), where the majority observed at [46]:

[T]here is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers. As was recognised in Allied Mills and authoritatively determined in NW Frozen Foods, such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention.

37    Further, their Honours said at [58]:

... Subject to the court being sufficiently persuaded of the accuracy of the parties’ agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and ... highly desirable in practice for the court to accept the parties’ proposal and therefore impose the proposed penalty.

38    Those observations about the desirability of acting upon agreed penalty submissions were made in the context of a broader recognition that as a civil litigant in civil proceedings, civil penalties are but one of numerous forms of relief which regulators can pursue, and it is entirely orthodox for regulators to make submissions as to that relief: see DFWBII at [24], [57]-[59], [63], [103], [107]. Those principles to be applied in considering a jointly proposed penalty were recently considered in Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission [2021] FCAFC 49; (2021) 284 FCR 24 at [124]-[131], referring to NW Frozen Foods Pty Ltd v Australian Competition Commission [1996] FCA 1134; (1996) 71 FCR 285 and Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72; (2004) ATPR 41-993. A number of points were highlighted including: first, the Court must be satisfied that the penalty proposed by the parties is appropriate: at [125]; second, if persuaded of the accuracy of the parties’ agreement as to facts and that the proposed penalty is an appropriate remedy, it is highly desirable for the Court to accept the proposal: at [126]; third, in considering whether the proposed penalty is appropriate, it is necessary to bear in mind that there is no single appropriate penalty, but rather a permissible range. The proposed penalty may be “an” appropriate penalty if it falls within that range: at [127]; fourth, the Court should generally recognise that it most likely was a result of compromise and pragmatism on the part of the regulator, and while the regulator must estimate the penalty necessary to achieve deterrence, the Court must assess the proposed penalty on its merits, being wary of the possibility that the regulator may have been too pragmatic: at [129]; fifth, the Court’s task is not limited to simply determining whether the jointly proposed penalty is within the permissible range, though that might be expected to be a highly relevant and perhaps determinative consideration. The overriding statutory directive is for the Court to impose a penalty which is determined to be appropriate having regard to all relevant matters: at [131].

Declarations

39    The Court’s power to grant declaratory relief pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) "is a very wide one" and the court is "limited only by its discretion": Seven Network Ltd v News Ltd [2009] FCAFC 166; (2009) 182 FCR 160 at [1016]. Three requirements need to be satisfied before making declarations: (1) the question must be a real and not a hypothetical or theoretical one; (2) the applicant must have a real interest in raising it; and (3) there must be a proper contradictor. Other factors relevant to the exercise of the discretion include: (a) whether the declaration will have any utility; (b) whether the proceeding involves a matter of public interest: ASIC v Pegasus Leverages Options Group Pty Ltd [2002] NSWSC 310; (2002) 41 ACSR 561 at 571; and (c) whether the circumstances call for the marking of the Court’s disapproval of the contravening conduct: Australian Securities and Investments Commission v Monarch FX Group Pty Ltd [2014] FCA 1387; 103 ACSR 453 at [63]; Australian Securities and Investments Commission v Stone Assets Management Pty Ltd [2012] FCA 630; (2012) 205 FCR 120 at [42].

Compliance program

40    The Court may, on application by the ACCC, make one or more of the orders specified in s 86C(2) of the CCA against a person who has contravened 44ZZRJ (which as noted above is now s 45AJ): s 86C(1). Section 86C(2)(b) gives the Court the power to make a probation order against such a person, and a definition for “probation order” is given in s 86C(4). Relevantly, s 86C(4) provides:

In this section… probation order, in relation to a person who has engaged in contravening conduct, means an order that is made by the Court for the purpose of ensuring that the person does not engage in the contravening conduct, similar conduct or related conduct during the period of the order, and includes:

(a) an order directing the person to establish a compliance program for employees or other persons involved in the person’s business, being a program designed to ensure their awareness of the responsibilities and obligations in relation to the contravening conduct, similar conduct or related conduct; and

(b) an order directing the person to establish an education and training program for employees or other persons involved in the person’s business, being a program designed to ensure their awareness of the responsibilities and obligations in relation to the contravening conduct, similar conduct or related conduct; and

(c) an order directing the person to revise the internal operations of the person’s business which lead to the person engaging in the contravening conduct.

41    Courts have often held before that a compliance program, such as the one agreed by the parties in the present case, falls within the ambit of a probation order as defined in s 86C(4): see for example ACCC v B & K Holdings (Qld) Pty Ltd [2021] FCA 260 at [104] per Derrington J; ACCC v Anglo Estates Pty Ltd [2005] FCA 20; (2005) ATPR 42-044 at [46] per French J; ACCC v Sontax Australia (1988) Pty Ltd [2011] FCA 1202 at [35]-[38] per Gordon J.

42    The Court should have in mind when imposing compliance plans on respondents to regulatory proceedings that a compliance program must have a connection with the contravening conduct that has been found: Sontax at [36]; ACCC v Z-Tek Computer Pty Ltd [1997] FCA 871; (1997) 78 FCR 197 at 205. The compliance program should set out the steps to be taken with sufficient clarity so that it is able to be performed: Sontax at [36]; citing Australian Competition and Consumer Commission v LG Electronics Australia [2006] FCA 1118 at [14]. Orders should be expressed with sufficient precision to enable a breach of the order to be readily ascertained and effectively punished: ACCC v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [24]. It should also be in the public interest that the respondent undertake the program: LG Electronics Australia at [14]; Sontax at [36].

Joint submissions on relief

43    The parties submitted that the proposed penalty of $1,000,000 is appropriately tailored to the gravity of the contravention in all the circumstances and is sufficient to achieve specific and general deterrence. It was submitted that this level of penalty will send a clear message of deterrence to NQCranes and the business community more generally about the importance of ensuring that common business arrangements, such as distributorship agreements, do not extend into impermissible restraints on competition between competitors.

44    The parties submitted as the contravention is the making of a contract or arrangement, namely the Co-Ordinated Approach Provision in the Distributorship Agreement, the duration and scale of the offending conduct may be considered to be relatively confined.

45    It was accepted that the contravening conduct was not deliberate in the sense that the senior managers at NQCranes involved in the decision to enter into the Distributorship Agreement were unaware that the Co-Ordinated Approach Provision was capable of contravening the CCA. However, the senior managers at NQCranes understood the practical meaning and effect of the Co-Ordinated Approach Provision and agreed to its inclusion in the Distributorship Agreement. It was submitted that there was no evidence that NQCranes obtained legal advice in relation to the terms of the Distributorship Agreement prior to entry into it, however it was accepted that NQCranes could have sought advice in relation to the legality of it, including as to whether doing so would or could potentially result in NQCranes contravening s 44ZZRJ of the CCA. NQCranes referred to the backgrounds of the senior managers to put this submission in context.

46    It was submitted that the conduct was isolated. The conduct was not covert insofar as it was contained in a formal contract or arrangement entered into between NQCranes and Demag, but was covert insofar as customers or potential customers of NQCranes and Demag for the servicing of overhead cranes would not have been aware of the Co-ordinated Approach Provision.

47    The negotiation of the Distributorship Agreement involved NQCranes’s senior management, namely Mr Pidgeon, NQCranes’s managing director, and Mr Romyn, NQCranes’s General Manager. Messrs Pidgeon and Romyn were also involved in reviewing and drafting the terms of the Distributorship Agreement. The Distributorship Agreement was executed on behalf of NQCranes by Mr Pidgeon.

48    It was accepted that it was Demag who first proposed the Co-Ordinated Approach Provision to be included in the Distributorship Agreement.

49    There were submissions, agreed facts and unchallenged evidence as to NQCranes’s size and financial position. NQCranes is a family run company based in Mackay, Queensland. Over time, NQCranes has grown to operate branches in addition to Mackay, in Townsville, Cairns, Emerald, Rockhampton, Gladstone, Brisbane and Newcastle. It has less than 100 employees across the locations identified above. NQCranes recorded revenues in the order of $26 million in 2020 and $22 million in 2021. The profit recorded in NQCranes’s audited profit and loss statement was in the order of $1 million in 2020 and $95,000 in 2021. NQCranes’s profitability varied significantly over a number of years. For example, while net operating profit after income tax in 2020 was $1,080,556, net operating profit after income tax in 2021 was $94,396.00.

50    The parties submitted that while NQCranes’s 2021 Balance Sheet shows a net asset position of $4,605,935.00, a substantial portion of the assets are trade receivables and other ($6,076,887.00), which is future cashflow for business operations. So that any penalty can be funded from future profitability, and given the variability of that profit, it was submitted that a five year period to pay the penalty is appropriate.

51    It was submitted that if NQCranes is not provided with time to pay, the penalty will need to be paid from working capital and there is a very real prospect that if that were to occur, that NQCranes would be unable to meet its other expenses as and when they fell due and would need to enter some form of external administration.

52    It was accepted that NQCranes has meaningfully engaged with the ACCC insofar as: NQCranes participated meaningfully in settlement discussions at court-ordered mediation; and as a result of the mediation, agreement was reached to resolve these proceedings on the basis of the proposed declaratory relief, without the need for a contested hearing.

53    It was submitted that this admission of culpability is reflected in the reduction from the penalty that the ACCC would otherwise have submitted as appropriate in a contested outcome.

54    It was accepted that at the time of negotiation and entry into the Distributorship Agreement, NQCranes had no competition law knowledge, training or compliance programs. NQCranes has subsequently taken steps to establish and implement a compliance system in connection with the restrictive trade practices provisions in the CCA including: on 10 December 2020, providing competition law compliance training for senior managers and sales people which was provided by Cooper Grace Ward solicitors; in March 2021, engaging solicitors to assist in designing and implementing a Competition and Consumer Law Compliance Program; and implementing the Competition and Consumer Law Compliance Program and, in particular, appointing a Competition Law Compliance Manager.

55    NQCranes has not previously been found to have contravened the CCA.

Consideration

56    Having considered the facts as agreed, the joint submissions as to penalty, the evidence relied on and the relevant principles, I am satisfied that it is appropriate to make the orders and declarations sought.

57    It is evident from the joint submissions that the parties have given close and careful consideration to the relevant issues, with one of the parties being the ACCC, a specialist regulator, to the appropriate declarations, orders and pecuniary penalties. It is timely to recall that in DFWBII at [60]-[61] the High Court noted the relevance of the fact that a specialist regulator is able to offer “informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance”, albeit that such submissions will be considered on the merits in the ordinary way.

58    This is isolated conduct being a single contravention that occurred over a limited time. The only contravention is that NQCranes entered into a contract containing a cartel provision. The contravention does not allege that the cartel provision was put into effect. I accept that although senior management were involved in negotiating the cartel provision, NQCranes was not aware that the Co-Ordinated Approach Provision, which was part of the Distribution Agreement, was capable of contravening s 44ZZRJ of the CCA. There was no compliance training at NQCranes. The backgrounds of the senior managers was that they started as crane technicians who worked their way up in the company. That does not excuse the lack of knowledge, but rather it highlights the responsibility on those in such positions to be aware of their legal obligations and ensure compliance. Nonetheless, it does provide the context in which the conduct occurred. That said, the conduct was deliberate, and the provision, although initiated by Demag, was agreed to by NQCranes knowing its effect. The purpose of the Co-Ordinated Approach Provision was to directly or indirectly allocate between NQCranes and Demag, persons or classes of persons, being customers of NQCranes and Demag who had acquired or who were likely to acquire servicing of overhead cranes from NQCranes or Demag in the State of Queensland south of Gladstone and the Newcastle area.

59    Shortly after the proceeding commenced in October 2020, NQCranes took steps to implement a compliance system, with training commencing on 10 December 2020. I accept that NQCranes has been proactive in this regard. This is relevant to NQCranes’s attitude to the contravention and the likelihood of any further contravention.

60    There are no prior contraventions, and NQCranes has co-operated with the ACCC by participating in mediation which resulted in them admitting the contravention, and this matter proceeding by way of a statement of agreed facts and joint submissions. This occurred before trial dates had been set and saved significant time and resources.

61    The statement of agreed facts recites the size, nature of the company and its financial position. This is also supported by unchallenged evidence by affidavit providing the relevant financial records from 2013 and explaining, inter alia, that the respondent will need time to pay the penalty. I accept this evidence.

62    It is important to recognise that NQCranes’s financial position does not excuse its contravening conduct, nor lessen the primary importance of deterrence in the penalty imposed. The possibility that a pecuniary penalty may have a likely adverse consequence on NQCranes does not prevent the Court from determining an appropriate penalty: ACCC v Cryosite [2019] FCA 116; (2019) 135 ACSR 231 at [78]. Logically that must be so, for otherwise it would undermine the objective in imposing penalties for such contraventions. It has been accepted that it is relevant for the Court to consider NQCranes’s financial position in considering whether the proposed penalty is likely to be sufficient to achieve specific deterrence: Cryosite at [79].

63    Taking into account the relevant factors, I accept that the penalty of $1,000,000 is appropriate. I am satisfied that it reflects the seriousness of the contravention, yet recognising the mitigating factors present. In the circumstances, it satisfies the element of deterrence required, and is a sufficient sting to ensure that the penalty amount is not such as to be regarded by the parties or others as an acceptable cost of doing business. Weighing all the relevant factors, bearing in mind the protective and deterrent purpose of a pecuniary penalty, as applied to the facts of this case, I am satisfied that the agreed penalty is appropriate.

64    I am satisfied on the evidence, that the agreement that the penalty be paid in instalments is appropriate given the financial evidence.

65    I note that in Volkswagen, the Court observed that where a court is persuaded by the accuracy of the parties’ agreement as to facts and consequences, and that the agreed penalty proposed is an appropriate remedy in all the circumstances, as in this case, it is highly desirable in practice for the Court to accept the parties’ proposal and therefore impose the proposed penalty: Volkswagen at [124]-[129] and see also DFWBII at [46] and [58].

66    I am also satisfied that it is appropriate to make the declaration in the terms sought. The terms identify with precision the conduct that contravened the CCA and is directed to the determination of an extant legal controversy. The applicant, the ACCC, has an obvious interest, as the statutory regulator discharging its functions in the public interest, in bringing the proceedings and seeking an appropriate declaration. These proceedings are a matter of public interest, and the circumstances of the contraventions call for marking of the Court’s disapproval of the conduct. Consequently, the declarations sought have significant utility. I am satisfied that it is in the interests of justice to make the declarations sought.

67    The parties also seek an order that NQCranes establish and maintain a competition law education, training and compliance program for employees, contractors and other persons involved in NQCranes’s business, including training to be provided annually for a period of three years by suitably qualified persons, with the compliance plan being reviewed by an independent and suitably qualified compliance professional. I accept there is a clear nexus between the compliance program and the contravening conduct. The program is primarily directed at training employees, contractors and other persons involved in NQCranes’s business as to their competition law obligations in order prevent the same or similar wrongdoing in the future. I accept it will enhance company-wide awareness of responsibilities and obligations in relation to the contravening conduct or similar or related conduct. Given the circumstances of the contravention, and the terms of the proposed compliance program, I am also satisfied that the orders sought with respect to the compliance programs should be made.

68    In relation to the compliance program, the parties seek that a condition be imposed on NQCranes such that they must: maintain a record of and store all documents relating to and constituting the compliance program for a period not less than five years; and if requested by the ACCC during the period of five years NQCranes will, at its own expense, cause to be produced and provided to the ACCC copies of all documents constituting the compliance program (collectively, the “additional orders”)

69    I note that the Court can make probation orders pursuant to s 86C(2)(b) of the CCA for a maximum period of three years. These additional orders are sought in relation to record keeping in respect to the compliance program, as opposed to the program itself. The precise basis of the Court’s power to impose these additional orders, which are to be found in Annexure A to the orders of this judgment, was not argued before me, as the parties were in agreement. In any event, I am of the view that at least the Court’s jurisdiction to make all orders that it thinks appropriate, so long as that relief does not extend beyond what is appropriate for the protection and enforcement of the right or subject matter in issue, gives me the power to make the additional orders described at [69] above: Federal Court of Australia Act s 23; Jackson v Sterling Industries Ltd [1987] HCA 23; (1987) 162 CLR 612 at 620-621 per Brennan J. In the circumstances, it is appropriate to make the orders which extend beyond three years. First, in circumstances where NQCranes have contravened the CCA, it is sensible to make orders giving the ACCC some level of oversight of their compliance program to ensure compliance with it. The record keeping sought enables monitoring of their compliance. Second, if there was no order that records be kept, and if requested, provided to the ACCC, for a period longer than three years, there would be no mechanism for the ACCC to review NQCranes’s execution of its compliance program in the final year of the compliance programs. Therefore, in my opinion, if I did not make these additional orders, the proper execution and oversight of the balance of the compliance program would be undermined. For these reasons, I am of the view that the Court has power to make the additional orders sought and I will make such orders.

Conclusion

70    As explained above, I am satisfied that the agreed orders are, in the circumstances of this case, appropriate. I make the orders in the terms sought. This includes the costs order sought.

Associate:

Dated:    23 November 2022