Federal Court of Australia

Australian Competition and Consumer Commission v Delta Building Automation Pty Ltd (No 2) [2024] FCA 580

ORDERS

THE COURT DECLARES THAT:

1.    The first respondent, Delta Building Automation Pty Ltd (Delta), engaged in attempted cartel conduct in relation to a tender for the replacement of a building management system (BMS) at the National Gallery of Australia (NGA) in Canberra:

(a)    by attempting to make an arrangement or arrive at an understanding containing a cartel provision in contravention of section 45AJ of the Competition and Consumer Act 2010 (Cth) (CCA); and

(b)    by attempting to induce a person to make an arrangement or arrive at an understanding containing a cartel provision in contravention of section 45AJ of the CCA.

2.    The second respondent, Mr Timothy Davis, in his capacity as the sole director of Delta, engaged in attempted cartel conduct in relation to a tender for the replacement of a BMS at the NGA by attempting to induce a person to make an arrangement or arrive at an understanding containing a cartel provision in contravention of s 45AJ of the CCA.

THE COURT ORDERS THAT:

Pecuniary Penalties

3.    Delta pay to the Commonwealth of Australia a pecuniary penalty of $1,500,000 within 60 days of the making of these orders, being by or before 3 August 2024, in respect of its two attempted contraventions of section 45AJ of the CCA.

4.    Mr Timothy Davis pay to the Commonwealth of Australia a pecuniary penalty of $120,000 within 60 days of the making of these orders, being by or before 3 August 2024, in respect of his attempted contravention of section 45AJ of the CCA.

5.    The respondents have leave to make an application to pay the above penalties by instalment, within 14 days of these orders or such further time as may be allowed, including by way of further orders agreed with the applicant, such application being able to be made by way of an email to the associate to Justice Bromwich, copied to the applicant.

Injunctions

6.    The first respondent, Delta Building Automation Pty Ltd (Delta), and its officers, employees, and agents, be restrained from communicating with or to any competitors or potential competitors, either directly or via a third party, the tender price or terms or any proposed tender price or terms for any upcoming or ongoing tender for the installation, replacement or ongoing maintenance of a building management system (BMS) in the Australian Capital Territory for a period of 3 years from the date of this order, unless expressly authorised in writing by the Australian Competition and Consumer Commission (ACCC).

7.    The second respondent, Mr Timothy Davis, be restrained from communicating with or to any competitors or potential competitors of Delta, whether himself, through an agent, or through officers, employees or agents of Delta Building Automation Pty Ltd, or otherwise, or via a third party, the tender price or terms or any proposed tender price or terms for any upcoming or ongoing tender for the installation, replacement or ongoing maintenance of a BMS in the Australian Capital Territory for a period of 3 years from the date of this order, unless expressly authorised in writing by the ACCC.

8.    These orders be served in person upon Mr Davis, which shall be taken to be effective service upon, and notice to, Delta.

9.    Within seven days of being served with the orders as amended on 21 June 2024 and stamped with that date, Mr Davis file an affidavit annexing a copy of these orders and acknowledging receipt of them by him in his own capacity and on behalf of Delta.

Competition Law Compliance Program

10.    For 3 years from the date of this order, Delta, at its own expense, establish, administer and comply with the following policies contained within Exhibit CD-1 to the affidavit of Craig Davis sworn 31 October 2023:

(a)    the policy titled “Competition and Compliance Policy – Rev 1” at pages 410 to 412 of Exhibit CD-1; and

(b)    the policy titled “Complaints Handing Policy – Rev 1” that appears at pages 413 to 415 of Exhibit CD-1.

Costs

11.    Delta and Mr Timothy Davis pay the applicant’s costs of, and incidental to, this proceeding.

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

REASONS FOR JUDGMENT

BROMWICH J:

1    In August 2023, following a contested liability trial in this proceeding brought by the Australian Competition and Consumer Commission (ACCC), alleging contraventions of s 45AJ of the Competition and Consumer Act 2010 (Cth) (CCA) I handed down judgment in favour of the ACCC: Australian Competition and Consumer Commission v Delta Building Automation Pty Ltd [2023] FCA 880 (ACCC v Delta No 1). The two respondents are Delta Building Automation Pty Ltd and Mr Timothy (Tim) Davis, the sole director and managing director of Delta. ACCC v Delta No 1 includes findings of three attempts at cartel conduct by way of attempted contract bid rigging and attempted inducement of contract bid rigging by Delta via Mr Davis, and of attempted inducement of contract bid rigging by Mr Davis in his own capacity. These are the reasons for the declarations to be made and other remedies to be imposed, following a partially contested hearing on civil penalties and related relief.

2    The attempted cartel conduct concerned the tender process for the contract to replace and to maintain the building management system (BMS) for the original part of the building housing the National Gallery of Australia (NGA) in Canberra. Throughout this judgment I refer to the contract as the BMS contract, and the attendant tender process as the BMS tender. Following the findings in ACCC v Delta No 1, I will make agreed declarations to the effect that:

(a)    Delta, via Mr Davis, engaged in attempted cartel conduct in relation to the tender for a contract for the replacement and ongoing maintenance of a BMS at the NGA in Canberra:

(i)    by attempting to make an arrangement or reach an understanding containing a cartel provision in contravention of s 45AJ of the CCA; and

(ii)    by attempting to induce, Mr Antony (Tony) McEvilly, the general manager of a competitor company in the Canberra BMS industry, Logical Electrical Solutions Pty Ltd (LES), to make an arrangement or reach an understanding containing a cartel provision in contravention of section 45AJ of the CCA; and

(b)    Mr Davis, in his own capacity as the sole director of Delta, engaged in attempted cartel conduct in relation to that contract tender by attempting to induce Mr McEvilly to make an arrangement or reach an understanding containing a cartel provision in contravention of s 45AJ of the CCA.

The remedies dispute and its resolution

3    The ACCC no longer seeks a disqualification order against Mr Davis preventing him from managing a corporation for a period of three years, which was part of the relief sought in the originating application.

4    The parties agree that the findings of contravention made in ACCC v Delta No 1, and the declarations it is agreed should be made, mean that pecuniary penalties under s 76(1) of the CCA should be imposed upon both Delta and Mr Davis, payable to the Commonwealth. However, the quantum and means of determining that quantum is contested. The issues in contest concern fundamental points of principle in the assessment of the need for deterrence, the nature and extent of the evidence required to prove any advantage to the respondents that could have resulted had the attempts succeeded, and what conclusions could and should be reached in that regard on the available evidence. For the reasons below, in addressing and resolving those issues I have decided that the pecuniary penalties to be imposed should be less than that sought by the ACCC and more than that sought by the respondents, being the sum of $1,500,000 to be paid by Delta and the sum of $120,000 to be paid by Mr Davis.

5    I decline to order injunctive relief against the respondents of the breadth sought by the ACCC and opposed by the respondents. However, I am satisfied that more confined injunctions are appropriate, confined to communicating information to competitors and prospective competitors that should ordinarily never be communicated in the first place. The reasons for that conclusion are also below. That said, there is always a possibility of a situation in which such a communication may be necessary and appropriate, such as for a joint bidding arrangement of some kind. It is therefore appropriate to provide for an exception to the undertaking that would permit the respondents to engage in communications that would otherwise breach the injunction, provided the communication is sanctioned by the ACCC.

6    It was common ground, after ACCC v Delta No 1 was delivered, that a trade practice compliance program should be ordered in accordance with a regime implemented by Delta, along with training, and that the respondents should pay the ACCC’s costs of the proceeding. These are self-evidently appropriate agreed orders and accordingly no reasons are required for making them.

Summary of the contravening conduct found in ACCC v Delta No 1

7    The following brief summary of the key aspects of the contravening conduct is drawn from ACCC v Delta No 1, which should be read with these reasons.

8    The contravening conduct took place during a brief meeting at a coffee shop in Canberra on 18 December 2019. The meeting took place between Mr Davis and Mr McEvilly in their capacity as senior officers of competing BMS supply companies, Delta and LES respectively. The meeting had been arranged the previous day by Mr Davis ringing Mr McEvilly and asking to meet. The meeting took place in the context of what had occurred in relation to the contract and procurement process over several months before that meeting, as detailed in ACCC v Delta No 1 at [131] to [206]; see also [112] to [130].

9    The meeting was brief, taking less than 20 minutes, with the key conversation taking only a small portion of that time. The short duration of the meeting was mainly due to Mr McEvilly’s swift rejection of what Mr Davis had proposed, such that the attempts immediately failed. That the attempts failed so quickly does not stand to Mr Davis’ credit, but it is still the case that it was not a protracted effort which in turn may have fed into the analysis of what might be a necessary penalty for deterrence purposes.

10    Mr McEvilly’s affidavit evidence about the meeting and his understanding of what had taken place, reproduced in ACCC v Delta No 1 at [331]-[332], was to the effect that Mr Davis tried to get LES not to compete for the forthcoming BMS contract tender for the NGA. In summary, Mr Davis:

(a)    asserted to Mr McEvilly that there would be only two tenderers (in context meaning Delta and LES);

(b)    asserted to Mr McEvilly that Delta would win the tender “even from second place”, meaning Delta would be selected even if its bid was less competitive than LES’s bid; and

(c)    offered payment, apparently as compensation so that LES was not wasting its time, which Mr McEvilly took to mean, and I found apparently did mean, that Mr Davis intended that no LES bid would take place at all, or no true bid by LES would take place.

11    The main point to note is that the substance of the outcome sought by Mr Davis was that the replacement BMS contract process would be a two-horse race in which one horse, LES, either ultimately did not run at all, or ran lame.

12    Mr McEvilly’s evidence was that he immediately refused Mr Davis’ offer, saying that he (in context meaning LES) would put in a competitive bid to try to win the tender. Mr Davis gave a benign and exculpatory account of the conversation. Mr McEvilly’s evidence in chief in his first affidavit was found not to have been displaced by cross-examination and was accepted and preferred to the account that Mr Davis gave: ACCC v Delta No 1 at [384]-[385].

13    Other aspects of the trial evidence will be addressed in the course of considering the competing submissions on the pecuniary penalties to be imposed, especially on the appropriate quantum required for the purposes of deterrence.

Remedies hearing facts and evidence

14    In the greater part, the facts are no longer in dispute following ACCC v Delta No 1, as opposed to what to make of them for the purpose of assessing an appropriate penalty and the other relief sought by the ACCC. The parties rely upon a penalty hearing court book, which includes the pleadings, a statement of agreed facts largely confined to financial information pertaining to Delta and Mr Davis of a kind that was largely not relevant at the liability trial (with certain prior estimates of income and the like being confirmed as final by a supplementary statement of agreed facts), the submissions, five additional affidavits including exhibits for four of them, which were read without objection or cross-examination, and a bundle of tender and other documents. The facts relied upon by both sides are also derived from the trial evidence.

15    The additional affidavit evidence in summary comprised:

(a)    further financial information about Delta and Mr Davis;

(b)    evidence from the capital works project director at the NGA as to the importance of the BMS to the NGA, especially for environmental control to protect the art collection; and

(c)    evidence as to compliance training, and compliance and complaint policies, implemented by Delta after the ACCC v Delta No 1 was delivered, using an external specialist in competition law, formerly a senior investigations official at the ACCC, Mr Michael Terceiro.

General principles for pecuniary/civil penalties

16    The ACCC made submissions regarding the generally applicable principles relevant to determination of the appropriate pecuniary penalty in attempt cases, which were not disputed, those in summary being that:

(a)    Under the CCA’s civil penalties regime, the purpose of a penalty is principally deterrence of further contravention of the CCA: Australian Building and Construction Commissioner v Pattinson [2022] HCA 13; 274 CLR 450 at [9], [15], [40]-[41] (Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ).

(b)    Deterrence, both specific (to the contravenor) and general (of others), is hence the primary objective to be taken into account in assessing the appropriate penalty: Australian Competition and Consumer Commission v BlueScope Steel Ltd (No 6) [2023] FCA 1029 (BlueScope (No 6)) at [25] (O’Bryan J).

(c)    The penalty must not be so low that it may be regarded by the contravenor as “an acceptable cost of doing business”: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; 287 ALR 249 at [62]-[63] (Singtel Optus v ACCC) cited in Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 at [65] (French CJ, Crennan, Bell and Keane JJ) (ACCC v TPG) and Pattinson at [17]. This is ultimately another facet of deterrence.

(d)    The appropriate penalty “is one that strikes a reasonable balance between oppressive severity and the need for deterrence in respect of a particular case”: Pattinson at [46]. Whether a penalty would be considered “oppressive” is not to be determined by whether or not the contravenor has the capacity to pay a certain penalty: BlueScope (No 6) at [143]. A company’s financial circumstances will be relevant for the determination of an appropriate penalty. An oppressive penalty is one which went beyond what was necessary for the purposes of deterrence: Pattinson at [40] citing NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 293 (Burchett and Kiefel JJ).

(e)    Tn determining a penalty, the Court should have regard to the statutory maximum penalty as one of the relevant factors. While this is not the sole factor to be considered, there should be “some reasonable relationship between the theoretical maximum and the final penalty imposed”: Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; (2016) 340 ALR 25 at [55] and [155]-[156], cited in Pattinson at [53].

(f)    The relevant factors for the determination of penalty include, but are not limited to, the “French factors”, being those articulated by French J in Trade Practices Commission v CSR Ltd [1990] FCA 762; [1991] ATPR ¶41-076 at 52,152, quoted with approval in the joint judgment in Pattinson at [18] as informing the assessment of “a penalty of appropriate deterrent value”, and noting at [19] that this list of possible relevant considerations is not a legal checklist:

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 and disciplinary or other corrective measures in response to an acknowledged contravention.

9.    Whether the company has shown a disposition to co-operate with the authorities responsible for enforcement of the Act in relation to contravention.

(g)    Determination of an appropriate civil penalty requires a multi-factorial approach, “identifying and balancing all the factors relevant to the contravention, and where the result is arrived at by a process of ‘instinctive synthesis’ of the relevant factors”: BlueScope (No 6) at [32], citing Reckitt Benckiser at [44].

(h)    No discount will apply due to the contravention being in the nature of an attempt, rather than a completed contravention. Such a discount is not contemplated by the CCA, with s 76(1)(b) indicating instead that the approach to assessing a penalty for, and the maximum penalty applicable to, an attempt is the same as that for a completed contravention.

(i)    Where a pecuniary penalty is imposed as one part of penalty orders, the non-pecuniary orders are a relevant consideration for the Court’s assessment of the level of penalty required to achieve general deterrence: see, e.g., Australian Competition and Consumer Commission v Ashton Raggatt McDougall Pty Ltd [2023] FCA 351; 167 ACSR 376 at [83]; Australian Competition and Consumer Commission v First Class State Roofing Pty Ltd [2022] FCA 1093 at [17]. Thus, such orders as compliance programs and injunctions may affect the level of penalty having “appropriate deterrent value” in all the circumstances.

(j)    While comparable cases may be used as a guide to assess the appropriateness of a pecuniary penalty, each case will turn on its own facts and there is no requirement for consistency in the size of penalties applied from case to case, rather there must be consistency in legal principle applied to reach those penalties: see Australian Competition and Consumer Commission v Employsure Pty Ltd [2023] FCAFC 5; Singtel Optus v ACCC at [60] (Keane CJ, Finn and Gilmour JJ) and Australian Competition and Consumer Commission v Woolworths [2016] FCA 44 at [129], [133].

17    The ACCC submits that s 76(1)(a)(i) and 76(1)(b) of the CCA provides, in summary, that if the Court is satisfied that a person has contravened a provision of Part IV (other than ss 45AF or 45AG), or attempted to do so, the Court may:

order the person to pay to the Commonwealth any such pecuniary as the Court determines to be appropriate, in respect of each act or omission by the person to which this section applies, as the Court determines to be 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 this Part or Part XIB to have engaged in any similar conduct.

18    The ACCC submits that in this case, where the offending conduct is an attempt to induce, the Court must have regard to the potential profit or other benefit that the contravenor intended to achieve, had the conduct succeeded rather than ending at the attempt stage. It follows, the ACCC submits, that in order for the penalty not to be considered “an acceptable cost of doing business” it must exceed the intended potential benefit to the contravenor, relying upon ACCC v BlueScope (No 6) at [153] (O’Bryan J), citing the Full Court in both Reckitt Benckiser at [153] and Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159; 258 FCR 312. This aspect of the ACCC’s argument is contested. The matters that may be taken into account in determining the potential benefit, including whether that benefit should be limited to gross profit, are discussed in greater detail below.

Pecuniary/civil penalty dispute

19    Section 76(1) of the CCA provides for the imposition of pecuniary penalties, also referred to as civil penalties, in a sum that the Court determines to be appropriate, for acts or omissions arising out of contraventions of numerous provisions of that Act. This includes the present contraventions of s 45AJ. One of the mandatory statutory considerations for the determination of the appropriate penalty is the nature and extent of any loss or damage suffered as a result of any such act or omission. As the present contraventions were all attempts, it is common ground that there was no such actual loss or damage, such that this mandatory consideration is not engaged.

20    It is also common ground that what may have been obtained by Delta had the attempts succeeded was a generally relevant consideration, given that the relevant matters are not confined to those mandated by s 76(1). However, there is a live dispute as to the metes and bounds of that consideration, and what is necessary to prove it, being part of what is summarised below and then addressed in some detail.

21    The ACCC seeks a penalty of $2.5 million against Delta (out of a statutory maximum per contravention of $10 million, since increased to $50 million) and of $150,000 against Mr Davis (out of a statutory maximum at the time of his contravention of $500,000, since increased to $2.5 million) as being the level of penalties necessary to meet the requirements of specific and general deterrence. The respondents seek a penalty of $300,000 to $400,000 against Delta and of $60,000 against Mr Davis, describing the penalties sought by the ACCC as excessive.

22    I therefore turn to the considerations relevant to penalty determination in this case, both agreed and disputed, including the “French Factors” reproduced at [16(f)] above, which, as also noted, were quoted with approval by the joint judgment of six justices of the High Court in Pattinson as a non-exhaustive list of considerations that may be taken into account in determining what is an appropriate penalty in the circumstances of a particular case: see [18]-[19].

Maximum penalty

23    Following Pattinson (at [53]-[55]), it is clear that the maximum penalty is one of the yardsticks to be taken into account in determining an appropriate pecuniary penalty to impose, but also that it does not constrain the exercise of the discretion beyond requiring a reasonable relationship between that maximum and the penalty imposed in the sense of taking into account the circumstances of the contravenor and the circumstances of the contravening conduct: see Pattinson at [55], [71]-[72].

24    As noted above, the maximum penalty faced by Delta is $10 million per contravention, because only s 76(1A)(aa)(i), as in force at the time of the contraventions, applies as a fixed statutory maximum and the alternatives means of determining a maximum under the then subparagraphs (ii) and (iii) referrable to the benefits obtained or turnover as a proxy for benefits obtained do not apply to attempts which did not produce any actual benefits. That is also the practical overall maximum faced by Delta as the two contraventions amounted to different ways of characterising and sanctioning the same conduct.

25    The ACCC submits that the penalty it seeks against Delta of $2.5 million is only 25% of the applicable maximum, which accounts for Delta’s size and financial circumstances and the magnitude of the benefit that Delta stood to gain. The ACCC contends that all of the other factors that it relies upon would support a higher penalty, and that if Delta were a larger company, the appropriate penalty would be one closer to the maximum penalty.

26    The respondents do not contest the approach of reducing the level of penalty according to Delta’s size and financial circumstances, as well as Mr Davis’ financial position in regard to the penalty to be applied to him. The respondents contend that this gives rise to a reduced calculus for deterrence, relying upon Australian Competition and Consumer Commission v BAJV Pty Ltd [2014] FCAFC 52; [2014] ATPR ¶42-470 at [43]:

Counsel for the Commission emphasised, unsurprisingly, the importance of general deterrence in this area of the law. As the High Court has recently emphasised: “General and specific deterrence must play a primary role in assessing the appropriate penalty in cases of calculated contravention of legislation where commercial profit is the driver of the contravening conduct”: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 304 ALR 186, 199 [65]. We accept that, in giving effect to the objects of the TP Act and the ACL so far as they involve the conduct of trading corporations, the perception by the wider business community of the firmness with which the court will deal with established contraventions must be regarded as of the utmost significance. However, an observer, from that community, of the outcome of the present case as reflected in the judgment of the primary Judge would note that a small to medium sized family company was subjected to a penalty appropriate to its then size and circumstances. He or she would have no basis to assume that the penalty which might be imposed on a larger company in otherwise similar circumstances would be of the same order. Indeed, the very point, made in CSR and subsequent cases, that size is relevant in the context of deterrence will, in this way, be achieved by taking into account a contravener’s size at the time when the penalty comes to be imposed.

27    Care must be taken in having regard to penalty decisions that precede Pattinson to ensure that no vestige of proportionality to the seriousness of the contravening conduct now proscribed remains: see Pattinson at [10]. The ACCC submitted, in the course of oral argument, that while the above passage from BAJV in not objectionable as a general statement of principle applicable to specific deterrence (and subject to a different argument below on the topic of revenue rather than profit as a commercial objective), for general deterrence to be sufficiently general, the penalty imposed cannot turn on only the particular circumstances of an individual company or reflect the consequences of its specific financial decisions, because that would confuse general and specific deterrence.

28    The ACCC contends that difficulty in paying a given penalty is not a relevant consideration when it comes to general deterrence. I accept that is generally correct, and am prepared to allow the respondents to seek to pay the penalties imposed by way of instalments. However, I also give some weight to the respondents’ submission to the effect that there is some scope for other would-be or might-be contravenors to scale the penalty imposed to their own circumstances. That is, that contravenors who are much larger than Delta should be taken to assume that they will be facing a larger penalty due to their greater size. However, it remains the case that the headline figure is the one most likely to be noticed by any would-be contravenor.

29    An important point to emerge is that a larger and/or wealthier contravenor is likely to require a larger penalty to achieve specific deterrence: see Fair Work Ombudsman v Commonwealth Bank of Australia [2024] FCA 81 at [39] and [65], citing Pattinson at [60]. The maximum penalty, and the proposed penalty measured against that in terms of there being a reasonable relationship between the two, remains an important consideration in arriving at the final decision on quantum.

30    In a case concerning a smaller contravenor involving conduct for which there is a substantial need for general deterrence, the penalty imposed to meet the needs of general deterrence, including as a proportion of the maximum penalty, may subsume and exceed the penalty required for specific deterrence alone. Conversely, for a larger contravenor, the penalty imposed to meet the needs of specific deterrence, including as a proportion of the maximum penalty, may subsume and exceed the penalty required for general deterrence alone. This case more readily falls within the first category, because the penalty necessary for general deterrence, even allowing for the scaling by larger would-be contravenors, may exceed that required for specific deterrence alone.

Seriousness of the contraventions

31    Following Pattinson, the relevance of the seriousness of a contravention is no longer directed in any way to any question of proportionality between the seriousness of the conduct and the penalty, but rather is confined to the extent to which there is a need for deterrence, both general and specific. The ACCC contends that the need for both forms of deterrence is at a high level. The respondents contend that it is lower, especially for specific deterrence because of the training and compliance and complaint policies that have been implemented, but also that the need for general deterrence is relatively modest.

32    It is not readily apparent why the need for general deterrence can properly be regarded as relatively modest. In Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; 262 FCR 243, the Full Court observed at [257] that cartel conduct is generally regarded as the “most pernicious of all breaches of competition law”, “often attended by secrecy” and “notoriously difficult to identify”. Picking up on that theme, the ACCC characterises Delta’s conduct as “hard core cartel conduct of the most pernicious kind”, isolating the features present to support that in this case of being deliberate, covert, intended to secretly prevent the NGA from receiving the benefits of competition, carried out by Delta’s most senior officer, reflective of the absence of any culture of compliance and without any demonstration of contrition. The ACCC contends that these characteristics give rise to a real and substantial need for general deterrence, and also specific deterrence.

33    In developing that argument, the ACCC contends, apparently endeavouring to avoid proportionality reasoning as proscribed by Pattinson, that:

(a)    The conduct could be seen as more serious than that addressed in the penalty judgment in BlueScope (No 6) because the primary respondent in that case was only attempting to reach an agreement with individual suppliers to raise general market prices over time, falling short of what this case entailed, namely, attempting in effect to monopolise a transaction or deny a customer the benefits of competition for that transaction. This distinction is well-made as far as it goes, even though as the respondents point out, the conduct overall in BlueScope (No 6) involved nine separate attempts (one of which was closer to the present) over a much longer period of time and the respondent was a much larger company.

(b)    The conduct in this case was driven by desperation to win the tender, referring to ACCC v Delta No 1 at [211] and the trial transcript at page 307 at lines 32 to 37, which is relevant to setting a penalty not just aimed at deterring a rational (or ambivalent) person from committing a contravention of the kind in this case, but also less considered persons driven by strong commercial considerations alone – that is, deterring the desperate as well.

(c)    Relying upon an affidavit from the NGA about the importance of its BMS, the conduct was also directed to a public institution spending taxpayer’s money, with the real potential for bid rigging to cause significant detriment to governments, taxpayers, consumers and businesses, especially in the context of publicly funded tenders and the need to maintain confidence in those running tenders, other tenderers and, in this context, the public, citing Ashton Raggatt at [58]-[59] and [63].

34    By contrast, the respondents in substance characterise the conduct in a more benign way, focussing on it taking place over a very short period of time at a single meeting, without any substantial premeditation or repetition, and without any resulting loss or damage. They contend that Delta is a small to medium sized business and that Mr Davis is of relatively modest financial circumstances, and that the need for specific deterrence is low in light of the corrective measures already taken, justifying a lower penalty.

35    As to the specific additional points of emphasis relied upon by the ACCC, in addition to pointing out aspects in which the BlueScope (No 6) conduct was arguably more serious, noted above at [33(a)], the respondents point out that if the attempts had succeeded, it would have at most improved the prospects of Delta winning the tender, as acknowledged by the ACCC in its written submissions. That characterisation needs to be approached with a measure of context and therefore qualification. Deterrence may be seen to be influenced by its inhibiting effect on any motivation for contravening, because that can in turn be expected to influence – that is to say, deter – like conduct. In this case, as I inferred in ACCC v Delta No 1 from Mr Davis’s own words emerging from Mr McEvilly’s accepted evidence, Mr Davis was trying to ensure that Delta would be the only effective bidder out of Delta and LES, described by the ACCC at the trial as a two-horse race. If that had been fully achieved, the NGA BMS tender would have been a farce and the outcome in Delta’s favour largely assured.

36    Of course, even if Mr McEvilly had agreed to what was proposed, the outcome of successfully rigging the tender bid was not certain. But it must have been seen by Mr Davis as being a sufficiently valuable outcome to be worth trying and thus to have been motivational. The objective of deterrence is to alter the risk/benefit equation, by elevating perceived risk. The objective is to cause potential contravenors to weigh any potential benefits against the risk of a sanction and related consequences of contravention against the potential benefit of the conduct in any assessment of whether to engage in it. The less likely detection, the greater must be the consequences in order to deter. A lower probability of detection, and hence sanction, will mean risk associated with a high penalty is more important compared to conduct with a high likelihood of detection: see Fair Work Ombudsman v 85 Degrees Coffee Australia Pty Ltd [2024] FCA 576 at [36]-[37].

37    If a potential contravenor is desperate, this may influence them to accept a higher level of risk and/or less commercial reward, than they otherwise would. I therefore agree with the ACCC that the assessment of the penalty required for deterrence in this case should take into account the effect the penalty may have on the desperate as compared to the rational. But such a feature can only be one factor to be weighed in the balance. In this case, it has limited practical work to do because of the dominance of general deterrence.

38    The respondents contend that the desperation on the part of Mr Davis to win the tender meant that it was not possible to know whether, and if so to what extent, Delta would have raised its tender price had the attempt succeeded. While it is correct that such certainty is not possible, the Court is necessarily required to make some assessment of what was reasonably likely, and able to be perceived as being reasonably likely, in order to evaluate the extent of the deterrence required. This is especially so for general deterrence, given the difficulties of the ACCC detecting or otherwise becoming aware of such conduct in the first place, and the related difficulties in investigation to the point of having a viable case to litigate.

39    A problem with the respondents’ reasoning is that ACCC v Delta No 1 included (at [149]) a finding that Mr Davis’ (and therefore Delta’s) desperation was driven by a desire to return the NGA BMS contract process to a proxy of the situation that had been thought to prevail in mid-September 2019, by which Delta would be the only effective contractor. In that case, there would inevitably have been more scope to increase the tender price and thereby the profitability of the contract. It is the scope for this proscribed behaviour to inhibit competitive processes and outcomes that lies at the heart of needing to deter it.

40    The bid rigging was directed to the NGA, a major public institution. The ACCC advanced this as a reason for requiring a higher deterrent penalty. The respondents submit that it is incorrect to posit that a higher penalty should be imposed depending on the identity of the target of the conduct, using the example of Canberra Airport as a private institution as being not materially different from the NGA as a public institution. That is then advanced as a further reason why the focus for deterrence should be on actual loss or damage.

41    While I accept that public institutions are not in a wholly different category to private institutions, I consider that some additional weight on the need for deterrence and therefore the level of appropriate penalty can be given to the risk to public money, to the public functions and services provided by public institutions, and, of perhaps greatest significance to the importance of public confidence in government tender processes because this goes to confidence in the integrity of government as a whole. This because predating upon public bodies in this way diverts funds from what should be predominantly beneficial public uses, albeit that some private institutions may not be materially different in this regard, such as airports. All that last point means is that some kinds of bid rigging in the private sector will have that additional feature to be taken into account.

42    Government tender processes that are perceived as being corrupt or corruptible by bid rigging are likely to result in the opposite of deterrence, encouraging competitors to attempt such arrangements or understandings and share the spoils of higher prices thereby extracted, or to avoid missing out on a contract that has other attractions, such as little risk of not being paid. A stern penalty approach helps to convey that this sort of conduct is simply not “worth the candle” because of the possible severity of the consequences: Australian Securities and Investments Commission v Vizard [2005] FCA 1037; 145 FCR 57 at [48].

43    With the above qualifications in mind, I consider that the core of the competing general stances are not wholly incompatible and both have some force to be taken into account in the final analysis. The question of the need for specific deterrence in light of the corrective measures taken by Delta since ACCC v Delta No 1 is addressed below. I consider that while the contravening conduct did take place over a short period of time and at a single meeting, as already observed above, the duration was largely a function of Mr McEvilly rejecting Mr Davis’s proposal out of hand. The respondents’ submission, in substance that the conduct occurred over a short period of time being less than a day between the phone call arranging the meeting and the meeting itself, meaning that the penalty should be lower, must be understood in the context of that short time period being the result of Mr Davis formulating a particular response to the shift by the NGA to a tender rather than dispensing with that requirement as Mr Davis had hoped for. It was still a somewhat pre-meditated, if hasty and ill-considered, response, for which a specific meeting was called by Mr Davis.

44    The issue of Delta’s size and financial circumstances has been addressed above, and is revisited in more detail below. This does have a bearing on the size of the penalty required to specifically deter, with the same reasoning applying to Mr Davis’ financial circumstances and specific deterrence. However, the main point that I take from this is that none of these features substantially detract from the need for general deterrence arising from this case.

45    The respondents were only an acceptance away from having advanced in a material way towards rigging the NGA tender for a replacement of the BMS for the original gallery, striking at the heart of the proscription designed to retain competition in contract tenders, competition being the very reason for having tenders in the first place. The conduct was undeniably deliberate and covert, even if it was apparently not long in the planning due to the urgency of the emerging problem of a perceived shift by the NGA towards a tender process. I readily infer that what was intended was, by secrecy, to prevent the NGA from receiving the benefits of competition in its contract letting processes, by rendering the tender process a farce or a fiction.

46    The conduct was carried out by Delta’s most senior officer. It did reflect, at that time, an absence of any effective culture of compliance at Delta when it came to abiding by the competition law prohibition on bid rigging. As the conduct was denied and defended at trial, as was the respondents’ right, necessarily there is an absence of mitigating contrition as relevant to the extent of the need for deterrence, ameliorated to some extent by the implementation of a training, compliance and complaints program conducted by a respected former senior official at the ACCC. These characteristics do give rise to a real and substantial need for general deterrence, and a lesser need for specific deterrence, although specific deterrence remains relevant and important to reduce the residual risk of recurrence.

Likely benefits if the attempted contraventions had succeeded

47    It is convenient to commence this part of these reasons by reference to the more restrictive approach to determination of relevant benefit for the purpose of penalty urged by the respondents. They contend that consideration of what Delta stood to gain if the attempts had succeeded to the point of the tender being rigged should be confined to the likely net profit attainable, and in the alternative the likely gross profit attainable, had it secured the contract by a rigged tender process. While not overtly advanced as a mitigating factor, the fact of there being no net profit actually obtained is relied upon to similar effect. The respondents object to the ACCC’s wider approach, which at its core, is to go beyond profit to wider considerations of revenue and also such things as cashflow, reputation, prestige and, perhaps implicitly, market share.

48    The respondents first cast the consideration of what might reasonably have been obtainable as going too far beyond the mandatory consideration of any loss or benefit in s 76(1) of the CCA, contending that the provision is primarily directed to actual loss or damage, and that consideration of the flip side of prospective benefit should be confined to prospective profit as a matter of principle. The respondents secondly contend that the ACCC’s evidentiary and reasoning foundation for establishing the wider basis it relies upon falls short of what is required.

49    As to the first point, I am unable to accept that s 76(1) implicitly precludes the ACCC from advancing a case on penalties upon a wider basis than anticipated profit, whether or not the case is one of an attempt or a consummated contravention. The terms of s 76(1) refer to “any” loss or damage suffered, expressly contemplating that this will only be present some of the time. When loss or damage is present, it must be considered. In some cases, beyond the present circumstances, the absence of any loss or damage may even amount to mitigation on penalty: see Construction, Forestry, Maritime, Mining and Energy Union v Fair Work Ombudsman (The Botany Cranes Case) [2023] FCAFC 40; 297 FCR 438 at [178]-[189]. But the absence of a consummated contravention, such that no actual loss or damage was suffered, does not preclude consideration of a wider basis for prospective benefit in deciding what level of penalty is required to deter the impugned conduct from being repeated. It is important that even an attempt to contravene is deterred, as that in turn has the capacity to reduce the occurrence of consummated contraventions.

50    The availability of wider considerations than profit in actual contravention cases, not just attempts, has been acknowledged in other cases. A leading example is Cement Australia, in which contracts for the supply of flyash used in the manufacture of cement were found to have the purpose or likely effect of substantially lessening competition, so it was not a cartel case. As the Full Court pointed out in that case, a judge determining a pecuniary penalty under s 76(1) has considerable flexibility in addressing the non-mandatory consideration of expected benefits, acknowledged by their Honours at [457] as none-the-less a relevant factor. However, the evidence the ACCC relied upon in that case as to both loss or damage was found to lack a sufficiently probative methodology: Cement Australia at [501].

51    While it may have been possible for the ACCC in Cement Australia to measure benefits derived, or market harm suffered, even if the identity of those who might have entered the market was unknown, the Full Court held that the criticisms of the primary judge, that his Honour had to do his best with a less than systematic approach to quantifying damages were unwarranted, especially in the context of the piecemeal analysis advanced by the ACCC: Cement Australia at [503]. Their Honours concluded that the primary judge did not err in finding that “the exercise undertaken by the ACCC was flawed and did not permit any reliable quantification of loss or damage or the economic effects of the conduct”: Cement Australia at [508].

52    The point of referring to these aspects of the Full Court’s decision in Cement Australia is that proof of loss, damage or benefit turns on the evidence and arguments relied upon in the case at hand. None of this necessarily requires high levels of precision or certainty. There is room for inferences to be drawn and predictions to be made as to likely perceived benefits, going to the question of motivation and thus deterrence. As the Full Court in Cement Australia more generally pointed out in part of [509]:

Depending upon the context and the exercise, more or less precision in the assessment may be justified. At the end of the day the task is principally an evaluative exercise for the trial judge. And in any event it is only one input into a broader evaluative exercise being the setting of the pecuniary penalty itself, with any input only being weighed as part of an intuitive synthesis approach. Precision in the quantification of one of the inputs may be unrealistic given the broader nature and context of the task in setting a penalty. Of course, if probative evidence enabling greater precision is available, then more detailed quantification may be appropriate.

53    What matters is that the penalty is not regarded as merely an acceptable cost of doing business: Pattinson at [17] referring to ACCC v TPG Internet Pty Ltd at [66] which in turn approved the statement by the Full Court in Singtel Optus v ACCC at [62]. That in turn may be influenced by the contravenor’s likely or inferred perception of the benefits to be obtained from the conduct and the result sought to be obtained. Such benefits may not even necessarily be financial, even if that is not the most common, let alone immediate or short-term, benefit. The nature of the benefits accrued, or in the case of an attempt, that could accrue, may vary from case to case. As was pointed out in Reckitt Benckiser at [153], acknowledged and endorsed in Cement Australia at [467], and applied in BlueScope (No 6) at [28], the sanction for the conduct must be substantial relative to the benefit, including in the sense of possible gain, to be made from that conduct, even if that most commonly will be financial in nature. Non-financial benefits, including benefits with no immediately ascertainable dollar value, may properly be able to be taken into account in arriving at an appropriate deterrent penalty.

54    An intention to profit will be most relevant in a case in which that is most likely the driving motivation, such as price fixing, but there may be other or different benefits that are relevant in another case where other objectives are in play. That may include such things as revenue, increasing market share, increasing operating scale, improving cashflow to cover fixed costs so that future contracts can be assessed by reference primarily to marginal costs, and so on. It may also extend to collateral benefits, such as those arising from obtaining a prestigious contract, which may be relied upon by the potential contravenor to characterise itself as a trusted supplier of services to certain customers, such as high profile or high-status customers or those belonging to a class of customers within a particular sector of the economy or a particular market. What matters is the range of the likely motivating benefits or perceived benefits that need to be outweighed by the penalty imposed so as to deter both the contravenor before the Court, and any would-be contravenor from engaging in like conduct.

55    If motivating features are not taken into account, and as a result the penalty is lower, the deterrent effect may be less than is really required. That is because the penalty must exceed the benefit, or in the case of an attempt, the perceived benefit, both as to specific and general deterrence. Possible financial benefits will most easily justify a higher penalty, largely because of the greater ease of quantification in dollar terms, this being capable of being measured against risk of that penalty being imposed. However, that does not prevent the Court deciding upon a level of penalty that takes into account non-financial benefit motivations. If the risk of detection is low, the penalty will need to be correspondingly higher to account for that. Otherwise, it may remain worthwhile to take a chance that the conduct may be discovered and the penalty imposed to secure the full range of likely or anticipated benefits. After all, at the time of contemplating engaging in contravening conduct, which is when deterrence is most likely to be effective, the contemplated benefits may only be perceived or at least uncertain, even if sometimes they can be reliably predicted: Reckitt Benckiser at [153]. Contrary to the respondents’ submission, this does not mean that only net benefit, in the sense of net or even gross profit, will be in contemplation.

56    Any future potential contravenor may weigh up the chance of an uncertain benefit against the risk of a substantial but still uncertain penalty. If the risk of the latter is seen to be great enough, the chance of a benefit may not be great enough to encourage a contravening or attempted contravening action and, if so, the conduct is more likely to be deterred. Deterrence may be seen to be at its most effective when such contemplation is likely to be in play. Bid rigging, by its very nature, is planned at least to some degree, because it is directed to subverting a planned competitive process.

57    The second limb of the respondents’ objection is directed to a contention that the approach now taken by the ACCC is akin to the approach it took in Cement Australia, criticised by the Full Court at [503], as noted above, again relying on a “piecemeal analysis”. This was found to fall short of being a probative measure of, relevantly, the asserted benefits obtained from the actual contravening conduct found to have taken place. That was a criticism of the sufficiency of evidence to support the penalty case advanced, largely because the ACCC had relied upon evidence that was found to fall short of providing, in certain respects, a sound enough foundation for proving the loss or damage that had been incurred, or benefits that had been obtained, that would not have been incurred or obtained upon the counterfactual basis of the contravening conduct not having occurred. The respondents rely upon somewhat similar asserted inadequacies and uncertainties to impugn the basis for the asserted benefits that the ACCC now advance. I now turn to that evidence and competing arguments on the possible benefits if the attempts had been successful to the point of resulting in a rigged tender and Delta consequently being the ultimate contractor for the NGA contract to replaced and maintain the BMS for the original gallery.

58    The ACCC advances three distinct possible benefits had the attempts been successful, and winning the tender for the installation of the new BMS at the NGA and possibly also winning the parallel tender for the five-year contract for the service and maintenance contract, had ensued:

(a)    income from the work of installing the new BMS at the NGA, for which a sensible estimation can be made, precision not being possible for an event that necessarily did not occur;

(b)    income from the maintenance contract; and

(c)    the obtaining of the prestigious BMS upgrade contract and the collateral benefits that would bring.

59    Each of those benefits advanced by the ACCC are challenged by the respondents.

Installation income benefit

60    The ACCC’s argument is that the final competitive tender that was submitted by Delta in August 2020 is an appropriate starting point. The penalty hearing court book includes a Delta spreadsheet used to calculate the costings for its tender, revealing a contract tender price of $745,298.09 (which was rounded up to $745,300, excluding GST, in the tender bid submitted, also in the court book, and also recorded in ACCC v Delta No 1 at [227]), of which the gross margin was 18% or $137,388. The competing bid by LES was $1,070,465 (including GST), so $973,150 ex GST: ACCC v Delta No 1 at [228].

61    The ACCC submits that Delta’s ultimate competitive tender price was considerably lower than the contract price would have been had the attempted bid rig been successful, because, by the time the bids were lodged, Delta knew that there were two other tenderers: LES and Control & Electric. That was known because of a site walk-through attended by their representatives on 13 August 2020, about two weeks before Delta submitted its tender: ACCC v Delta No 1 at [224], [227]. The ACCC therefore submits that it is not unreasonable to find that Delta’s contract price if the bid had been rigged would have materially exceeded $1 million, given that is around the figure of the competitive bids that were ultimately made by the other two tenderers. The respondents dispute this upon the basis that this would constitute approximately a 34% mark up on Delta’s actual tender price, being what Delta evidently regarded as a competitive price, and that the other bid prices were the product of competitors with different cost structures, submitting that there is no evidentiary foundation for the $1 million figure advanced by the ACCC.

62    The respondents, in addition to their argument that the ACCC’s methodology for calculating that 34% increase on the actual tendered price was flawed, argue that Delta’s desperation to win the tender, a concern that the bid price would be scrutinised, and the fact that the form of the bid tender was not known at the time of the attempt mean that a rigged tender, if the contravention had succeeded, could have been more, less, or the same as the actual bid made after the attempt failed, but submit that I cannot conclude that it would have exceeded the bid Delta ultimately made. Delta submitted that “it is not possible to know whether, and if so to what extent, Delta may have increased its price”, from that actually tendered, using the amount actually tendered by Delta in its calculations for the suggested penalty it submitted.

63    The parties in their submissions have reasoned in a way that suggests the tender bid actually made by Delta is a relevant consideration for determining the benefit that could have been gained by bid rigging if successful, be that through revenue or profit. I accept that the bid Delta made can assist in determining the scale of the bid that likely would have been made on the counterfactual had the rig bid attempt succeeded. Beyond that, I am unable to agree with the respondents’ argument, and with an important qualification, prefer and accept the approach urged by the ACCC.

64    I infer that the point of attempting, or attempting to induce, bid rigging is not just to secure a contract at the same price offered if there was competition, but to be able to charge a premium due to the absence of competition. I can see no cogent reason for Delta to have behaved irrationally by confining itself to a lower price where the constraints of competition were absent, and, importantly, known to be absent. Delta made a bid in the eventual tender for approximately $750,000. While a particular contract price would not have been known by Mr Davis, and therefore Delta, as at the time of the 18 December 2019 meeting, the later bid prices in the competitive tender that did follow can be used as one of a number of factors to be taken into account for the purpose of penalty determination, given that a rigged price would almost certainly have been greater than a competitive price. I more comfortably draw that inference in the absence of any evidence to contradict it, noting that such evidence may not have been easy to adduce.

65    The ACCC reinforces its argument by reference to the financial positions of Delta and Mr Davis, to demonstrate Delta’s need to secure and thereby do more work in the face of declining revenue and increasing costs. By agreed facts, and supplementary affidavit evidence, the following financial position for Delta and Mr Davis emerges and is relied upon by the ACCC:

Part C: Financial position of Delta

5 During the period 1 July 2018 to 30 June 2022, Delta’s reported total trading income by financial year was as follows:

5.1. $9,645,808.36 for the financial year ending 30 June 2019;

5.2. $7,481,215.14 for the financial year ending 30 June 2020;

5.3. $6,683,842.44 for the financial year ending 30 June 2021; and

5.4. $12,425,238.93 for the financial year ending 30 June 2022.

6 Delta estimates that Delta’s total trading income for the financial year ending 30 June 2023 was $10,210,924.03.

7 During the period 1 July 2018 to 30 June 2022, Delta’s operating profit or deficit after income tax by financial year was as follows:

7.1. $199,381.81 (profit) for the financial year ending 30 June 2019;

7.2. $442,746.04 (deficit) for the financial year ending 30 June 2020;

7.3. $76,617.29 (profit) for the financial year ending 30 June 2021; and

7.4. $1,286,099.62 (profit) for the financial year ending 30 June 2022.

8 Delta estimates that Delta’s operating profit after income tax for the financial year ending 30 June 2023 was $57,806.45.

9 During the period 1 July 2018 to 30 June 2022, Delta’s net assets at the end of each financial year [were] as follows:

9.1. $2,573,038.61 at the end of 30 June 2019;

9.2. $1,900,292.57 at the end of 30 June 2020;

9.3. $1,736,909.86 at the end of 30 June 2021; and

9.4. $2,323,009.48 at the end of 30 June 2022.

10 Delta estimates that Delta’s net assets at the end of 30 June 2023 were $2,012,066.55.

Part D: Financial position of Mr Davis

Mr Davis’ salary from Delta and taxable income

11 During the period 1 July 2018 to 30 June 2022, Mr Davis’ taxable income by financial year was as follows:

11.1. $190,985 for the financial year ending 30 June 2019, of which $156,000 was earned by way of salary from Delta;

11.2. $192,708 for the financial year ending 30 June 2020, of which $156,000 was earned by way of salary from Delta;

11.3. $193,214 for the financial year ending 30 June 2021, of which $156,004 was earned by way of salary from Delta; and

11.4. $216,722 for the financial year ending 30 June 2022, of which $173,418 was earned by way of salary from Delta.

12 Mr Davis estimates that his taxable income for the financial year ending 30 June 2023 was $214,501. His salary from Delta for that financial year was $175,001.

The Davis Family Trust

…

18 The beneficiaries of the Davis Family Trust include (amongst other persons):

18.1. the Specified Beneficiaries (Mr Davis and Mrs Davis); and 18.2. the parents, grandparents, brothers, sisters, spouses, widows, widowers, children, grandchildren, uncles, aunts and cousins of the Specified Beneficiaries and the spouse’s widows.

19 During the period 1 July 2018 to 30 June 2022, the total income of the Davis Family Trust was as follows:

19.1. $208,528.12 for the financial year ending 30 June 2019, of which $14,000 was dividends paid by Delta;

19.2. $373,747.45 for the financial year ending 30 June 2020, of which $231,000 was dividends paid by Delta; and

19.3. $332,725.72 for the financial year ending 30 June 2021, of which $168,000 was dividends paid by Delta; and

19.4. $663,964.00 for the financial year ending 30 June 2022, of which $602,000 was dividends paid by Delta.

20 During the period 1 July 2018 to 30 June 2022, the Total Assets of the Davis Family Trust was as follows:

20.1. $2,750,625.56 for the financial year ending 30 June 2019;

20.2. $1,482,949.61 for the financial year ending 30 June 2020;

20.3. $1,665,681.11 for the financial year ending 30 June 2021; and

20.4. $1,763,146.37 for the financial year ending 30 June 2022.

21 In the period 1 July 2018 to 30 June 2022, Mecserv made distributions from the Davis Family Trust to Mrs Davis and the children of Mr Davis and Mrs Davis as follows:

21.1. $16,897.47 to Mrs Davis for the financial year ending 30 June 2019;

21.2. $182,166.48 to Mrs Davis and $149,045.30 to the children for the financial year

ending 30 June 2020;

21.3. $61,119.58 to Mrs Davis and $122,239.14 to the children for the financial year

ending 30 June 2021; and

21.4. $538,732 to Mrs Davis and $85,000 to the children for the financial year ending 30 June 2022.

22 Mr Davis did not receive any trust distributions from the Davis Family Trust in the financial years ending 30 June 2019, 2020, 2021 or 2022.

Family home

23 Mr Davis is not the registered proprietor of any real property.

24 Mr Davis resides at a property in Ainslie, ACT. The registered proprietor of that property is Mrs Davis.

Davis Bros Super Fund

25 Mr Davis is a member of a self-managed super fund (SMSF), being the Davis Bros Super Fund. Mrs Davis is also a member of the SMSF, as are each of Mr Davis’ brothers, namely, Mr Glenn Davis and Mr Craig Davis.

…

27 As at 30 June 2022, the total liability for accrued benefits allocated to members’ accounts was $2,524,972.76. Of this amount, the liability for accrued benefits allocated to:

27.1. Mr Davis as at 30 June 2022 was $932,619.98; and

27.2. Mrs Davis as at 30 June 2022 was $290,349.49.

28 Neither Mr Davis nor Mrs Davis has ever received a distribution from the SMSF.

66    The ACCC point out that from the difference between [5.1] and [5.2] reproduced above, Delta’s trading income declined between the 2019 financial year and the 2020 financial year by about $2.1 million, or about 22 percent; and that [11.2] shows that in the 2020 financial year Mr Davis earned a salary from Delta of $156,000. The ACCC also rely upon the financial statements for Delta for the year ending 30 June 2020 to the same effect as recording the decline of trading income from just over $9.6 million in the 2019 financial year to just under $7.5 million in the 2020 financial year, an increase in wages over the same period from about $2.6 million to about $3.07 million and an increase in superannuation costs of about $100,000. The point of this is to emphasise that securing the BMS contract would have provided a real financial advantage to Delta in terms of revenue and cashflow, enabling bills to be paid and other fixed costs to be met, which can be as important to a company as profit. The respondents sought to discount the significance of these figures, but I am satisfied that they serve to elevate the importance of revenue to Delta and therefore the value to it in terms of motive in securing the BMS contract, including by way of bid rigging, and this feature therefore contributes to the assessment of the need for deterrence and the level of penalty required to achieve it.

67    I do not accept the respondents’ alternative argument that, even if revenue is considered, it is necessary to convert it into profit before it can be taken into account. That is overworking the point, and introducing a level of unreality to the situation. While the benefit of profit was inevitably part of the motive, in this case I am satisfied that the focus can properly also extend to the benefit of revenue in the particular circumstances of this case. But it is not a simple dollar for dollar relationship between revenue and penalty amount, as opposed to feeding into the necessary process of instinctive synthesis in arriving at a deterrent penalty figures.

Maintenance income benefit

68    The ACCC’s argument is that in addition to the installation contract, the NGA called for tenders for the maintenance contract of five years, at a cost of $4,950 per month (near enough to $5,000 per month for present purposes), which was to increase to by 1.5% from 1 September 2021, and by 1.5% from 1 July for the balance of the contract term. Using the rounded up figure of $5,000 per month, and then ignoring the subsequent increases, and ignoring the scope for charges for additional labour, produces a contract worth about $60,000 per annum over five years, or some $300,000 over that period, excluding GST. The ACCC also submits that:

(a)    this sum is also likely to understate the potential benefit to Delta; and

(b)    the maintenance contract would likely also have been longer than 5 years, and could have been for as long as a further 10-15 years, up to 20 years being the life of a BMS.

69    The ACCC therefore submits that the overall benefit of winning the upgrade tender would have materially exceeded $1.3 million, and that taking into account another $700,000 for an extended maintenance contract, it was not fanciful to suggest that the total value to Delta could have approached $2 million.

70    The respondents characterise the ACCC’s case on the maintenance contract as depending on a projection that was highly unlikely, pointing to the short life of Delta’s maintenance contract for the Honeywell BMS that was going to be replaced. Reliance is also placed on the finding made in ACCC v Delta No 1 at [166] about the uncommercial nature of that prior maintenance contract. I did not find those arguments compelling, not least because the evidence about a maintenance contract for the Honeywell BMS that was overdue for decommissioning and intended to be replaced offers little assistance in relation to a maintenance contract for the new BMS.

71    I find that it would have been rational and more cost effective for the NGA to grant the maintenance contract to the installer, not least because it would eliminate maintenance problems being able to be blamed on the installer, as well as such practical things as the contractor having knowledge of the new BMS. In any event, the focus remains on motivation, and therefore on what Delta could reasonably have anticipated the NGA to do. It would have been within the reasonable contemplation of Mr Davis and thus Delta that if they secured the installation contract, they would also be much more likely to secure the maintenance contract. The figure of some $300,000 for the value of that contract is a reasonable sum to take into account in assessing the level of penalty required. However, I consider that an extension of the maintenance contract beyond the contract tender terms and into the distant future crosses into speculation and should not be taken into account.

Prestigious contract benefit

72    The short point taken by the ACCC is that there would have been an intangible benefit to Delta in the Canberra BMS market in having a valuable and prestigious customer like the NGA: see ACCC v Delta No 1 at [19]. The value is that prestige would have made Delta more likely to secure other BMS contracts in Canberra. The respondents in oral submissions accepted that prestige may be a kind of economic benefit that is difficult to quantify, but in this case in the context of Canberra where there are many other building of a similar scale where these kinds of systems are supplied, it is not a factor which would lead to a significant uplift. I find that prestige is an intangible benefit, which may, nonetheless, be taken into account in assessing the level of penalty required to deter.

The likely overall revenue benefits that Delta could have been secured by bid rigging

73    I find that the benefits that Delta could reasonably have had in contemplation as the benefit to flow from successful bid rigging was revenue of as much as $1.3 million, and that this is an appropriate figure to take into account in assessing the level of penalty required for specific and general deterrence. But the synthesis reasoning is not as blunt in providing a potential dollar benchmark, such as setting a penalty to meet or exceed that sum in the same way as might be able to be done with profit. Revenue is not as inherently potent a motivator as profit, but nor is profit necessarily enough to cover the extent of the motivating benefits reasonably able to be in contemplation. I am not satisfied that profit, even gross profit, on its own provides a sufficient benchmark to use as part of the process in arriving at the penalty necessary to achieve the level of deterrence required. The likely benefits of revenue likely in excess of $1 million (Delta’s competitive bid of about $750,000 and a five-year maintenance contract with revenue of about $300,000) and potentially up to $1.3 million if Delta’s rigged bid was as much as LES’ competitive bid approaching $1 million, and the likely intangible benefits from obtaining a prestigious contract with the NGA, should be taken into account in determining the level of penalty necessary to advance the level of general and specific deterrence required.

74    The motivating benefits of revenue and profit are not mutually exclusive, but rather closely related benefits to be met and offset by a deterrent penalty, both in this case as a matter of specific deterrence and in the case of other would-be contravenors, considering their own circumstances, and motivations. In any given case, these positive outcomes may be evaluated in some way, however fleeting, against the demotivating risks of penalty, time, legal costs, distraction from business activities, and damage to reputation and even business viability flowing from regulator activities, including detection, investigation, proceedings being commenced and contraventions being proven. Also relevant to the question of the likely motivation to contravene is the gross profit, in this case actually calculated by Delta in determining the competitive contract price. That gross profit figure of over $137,000, was very likely to have been substantially exceeded in relation to a non-competitively determined contract price as a result of successful bid rigging. That gross profit benefit should also be taken into account in determining the level of penalty necessary to advance the level of general and specific deterrence required.

Size of Delta

75    Delta’s size and correspondingly its income and financial resources are relevant to the determination of penalty because this will necessarily affect the assessment of what is required to achieve specific deterrence and also general deterrence for similar companies, and also larger companies if they were to scale the penalty upwards, as discussed earlier in these reasons at [28]. By the end of the 2020 financial year, during which the contravening conduct occurred, Delta employed 41 permanent employees, seven part-time employees and a single casual employee. Those employment numbers remained substantially the same by the end of the 2023 financial year, being 40 permanent employees, four part-time employees and one casual employee. For the 2020 financial year, Delta’s reported total trading income was almost $7.5 million, with its total annual trading income increasing since then to over $10.2 million for the 2023 financial year. Except for the 2020 financial year, Delta had an operating profit for each of the financial years ending 2018 to 2023, and a gross profit for all of the 2018 to 2023 financial years. I infer that the operating deficit for the 2020 financial year is most likely explained by the commencement of the Covid-19 pandemic.

76    Delta's more recent profits have apparently been adversely affected by costs associated with the conduct of the ACCC investigation and this proceeding, with annual expenditure on legal fees for the financial years 2018 to 2020 not exceeding $9,000 but for each of the following three financial years 2021 to 2023 being, respectively, over $61,000, over $514,000 and over $112,000. I infer that this increase in legal expenses is connected to the investigation and litigation which occurred during those years, a point raised by the ACCC and not disputed by the respondents. I accept the ACCC’s submission that those expenditures need to be disregarded for the purposes of assessing capacity to pay a penalty because they are past costs unlikely to be incurred in the future, necessarily upon the presumption that specific deterrence is successful.

77    Delta’s net assets by the end of the 2020 financial year were just over $1.9 million, increasing to just over $2 million by the end of 30 June 2023. Delta has paid substantial dividends to its shareholders in the financial years from 2018 to 2023: $275,000 in 2018, $20,000 in 2019, $230,000 in 2020, $240,000 in 2021, $700,000 in 2022 and $25,000 in 2023. The significantly larger dividend in 2022 is not explained but I note that the liability trial occurred that year. What matters is that Delta has paid almost $1.5 million in dividends in the past six years, which is relevant to its capacity to pay a penalty and therefore the likelihood that it will be paid. Any substantial penalty may require Delta to forgo paying dividends for a period of time, which will provide a significant deterrent sting to Delta and a significant measure of general deterrence to other would-be contravenors. In assessing the appropriate penalty, I will have regard to these figures to ensure that the final figure arrived at will not be beyond Delta's capacity to pay, with this being specifically provided for in any event by giving leave to seek to pay by instalments. It will also ensure that the penalty imposed will not be oppressive in the sense identified by the High Court in Pattinson at [40]-[41].

Involvement of senior management

78    The contraventions were via or by Mr Davis, the most senior officer of Delta. That is a feature that in this case increases the level of penalty that is needed to achieve deterrence.

Culture of compliance

79    I am satisfied that the contravening conduct probably would not have taken place if Delta had a sufficient culture of compliance in relation to competition law requirements. The conduct also involved features that were wholly improper, although I have accepted that Mr Davis did not appreciate this at the time: ACCC v Delta No 1 at [389]-[390]. I found this to be reflective of how driven Mr Davis was to secure the BMS contract, which in this context is relevant to the continuing need for specific deterrence, tempered by the training, compliance and complaint processes now in place, which are not suggested by the ACCC to be deficient in any way. While the contraventions did occur in the context of there not being an apparent culture of compliance, I consider that material steps have been taken to remedy this, and that this is likely to have a material effect on the risk of recurrence and therefore on the level of penalty needed for specific deterrence, noting compliance orders are agreed to by the respondents which will give weight to that consideration. If that does not work, the penalty response in a future like case is likely to be severe.

Cooperation

80    The respondents conceded by the time of the trial that the evidence established that Delta and LES were in competition with one another in the BMS industry in Canberra, and that Mr Davis acted on behalf of and with the authority of Delta, obviating the need for the ACCC to prove these facts. The respondents therefore conducted the trial in a way that met and comfortably exceeded their obligations as litigants under ss 37M and 37N of the Federal Court of Australia Act 1976 (Cth). The trial was undoubtedly shorter and more efficient than it would have needed to be had those concessions not been made and the trial not been conducted in that cooperative way.

81    While I would have been inclined to give some credit to the respondents for the cooperative way in which they conducted this hearing, I am fettered by binding Full Court authority in Rural Press Ltd v Australian Competition and Consumer Commission [2002] FCAFC 213; 118 FCR 236 at [164]-[166], precluding this being taken into account in that way. I note however that I do take into account the respondents’ cooperation insofar as it can be seen to be some indication of a reduced likelihood of recurrence and therefore a reduced need for specific deterrence, which is different to the proscription identified in Rural Press. By that approach, I am not satisfied that being able to depart from Rural Press would have made a material difference to the penalty I have arrived at. In other cases, adherence to Rural Press might well make a greater difference.

Contrition

82    There is no real scope for contrition in a case which has been defended and in which an appeal against the liability findings may yet be filed following the final orders to be made consequent upon this judgment. That is not a matter of aggravation, but rather an absence of mitigation. I have not treated this as a feature either increasing or reducing the level of penalty required to be imposed, especially in relation to general deterrence.

No prior contraventions

83    It is accepted that there have been no prior contraventions by either respondent. If there had been, that would likely have given rise to a greater penalty being required for deterrence to be effective.

Mr Davis – factors different from Delta

84    With appropriate adjustment, most of the above features going to the consideration of an appropriate penalty for Delta also apply to Mr Davis. That has been referred to in these reasons. As already noted, the maximum penalty for Mr Davis as at December 2019 was $500,000. That has since increased five-fold. It follows that a future like contravention by him, or by another person of a like kind, is likely to be correspondingly greater.

85    It is not in doubt that Mr Davis was the pivotal person in the contravening. It was his conduct that was the contravening conduct, and through him, the contravening conduct of Delta.

86    Mr Davis has a substantial taxable income of about $200,000 per annum and a substantial superannuation balance, and has not suggested he cannot pay a substantial penalty. There is no evidence of any liabilities, albeit he appears to have arranged his affairs to have few assets in his own name, his home being in his wife’s name and there being a family trust with distributions to family members. Any appropriate penalty will need to be a significant burden in order to provide the necessary deterrent effect.

Penalty determination

87    Weighing up all the competing considerations as assessed above, and applying conventional instinctive synthesis to produce the final figures, I have concluded that the following penalties are appropriate in all the circumstances to achieve the remaining necessary degree of specific deterrence, and more importantly in this case and in all the circumstances, to meet the paramount requirements of general deterrence:

(a)    for Delta, a pecuniary penalty of $1.5 million;

(b)    for Mr Davis, a pecuniary penalty of $120,000.

Both penalties are to be paid to the Commonwealth within 60 days, while giving leave to seek payment by instalments.

88    By way of a general indication, and remaining open to persuasion either by the ACCC or by the respondents as to a different payment time period and therefore monthly rate of payment, if such instalment payments were sought, I presently have in mind that payment in full would take place over a 12-month period commencing no later than a month after the date of this judgment, and therefore at the rate of $125,000 per month by Delta, and $10,000 per month by Mr Davis, in default of agreement to the contrary to commence from no later than 4 July 2024.

89    If an appeal is lodged within the time allowed by the Federal Court Rules 2011 (Cth), or such further time as may be allowed, I am presently amenable to granting a stay on the payment of the penalty upon suitable security being lodged with the Court. I remain open to being persuaded to the contrary on both a stay and security.

Injunction

90    This Court has power under s 80 of the CCA to grant the injunctions the ACCC seeks, restraining the respondents from directly or indirectly communicating with competitors of Delta about their intention to tender, or the terms (including as to price) to be offered in any tender, for the installation, replacement or maintenance of a BMS in the ACT. The injunctions are sought for a period of three years. I am satisfied that there would be the necessary nexus between the circumstances that gave rise to this proceeding and the terms of the injunctions proposed: see Australian Competition and Consumer Commission v Fisher & Paykel Customer Services Pty Ltd [2014] FCA 1393 at [60], citing Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd (1997) 78 FCR 197; FCA 871 at 203-204; Australian Competition and Consumer Commission v Albert (2005) 223 ALR 467; FCA 1311 at [45]; and Australian Competition and Consumer Commission v Artorios Ink Co Pty Ltd (No 2) [2013] FCA 1292 at [61]. The ACCC’s stated purpose of the injunctions is deterrence, consistently with the purpose of pecuniary penalties, as noted by Lindgren J in Australian Competition and Consumer Commission v Qantas Airways Ltd [2008] FCA 1976; 253 ALR 89 at [78].

91    The respondents oppose the injunctions as not being necessary for an isolated event which occurred over four years ago, with little likelihood of repetition. They also submit that as a practical matter the injunctions sought are too broad and, insofar as they restrain directly or indirectly telling a competitor about an intention to tender, would preclude attending on-site walks attended by such competitors. That point is well made, and ironically enough could be anti-competitive in its effect if, for example, it precluded Delta attending site inspections because that might convey interest in tendering to competitors.

92    I am not satisfied that the grant of the breadth of the injunctions sought by the ACCC in this case is either necessary or appropriate. While it is true that the contraventions were by Delta’s most senior official, it is not a large company and there is no real risk of repetition except by those who were involved, directly or indirectly, with the present contraventions. I rate the risk of repetition both as relatively small, and well able to be addressed by the deterrent effect of the penalties to be imposed. That said, there is no immediately apparent legitimate reason for the communication to any competitor of the prices or terms of any proposed tender, and it would be a foolish and senseless act to communicate in that way without a good reason unrelated to anti-competitive motivations, not least because of the risk of such a communication itself constituting a contravention, especially in light of this case.

93    I am also concerned about Mr Davis’s inability to recognise the impropriety of aspects of what took place in the course of the events leading to the contraventions.

94    I have concluded that a confined and clear restraint to deter obviously inappropriate and potentially improper communication to competitors of tender terms or prices, including proposed tender terms or prices, is appropriate. I am therefore satisfied that injunctions to that effect are of value in reinforcing the deterrent effect of the penalties to be imposed. I would, however, temper the restriction by allowing the ACCC to approve a communication otherwise proscribed by the injunctions, to allow future flexibility.

Conclusion

95    I will make the declarations of contravention as set out in the orders portion of this judgment, subject to either party satisfying me that a change in expression or detail needs to be made. I decline to grant the injunctions of the breadth sought by the ACCC, but am satisfied as to the effective and valuable deterrence to be had from restraining the respondents from communicating to any competitor in the BMS industry in the Australian Capital Territory the price or terms of any tender bid, unless it is approved by the ACCC.

96    Delta must pay a pecuniary penalty of $1.5 million and Mr Davis a pecuniary penalty of $125,000, both within 60 days. Subject to persuasive arguments to the contrary, I am presently amenable to:

(a)    considering and granting an application for payment of the pecuniary penalties by instalments over a 12-month period;

(b)    granting a stay of the penalty payments if any appeal is filed, subject to the provision of appropriate security.

Associate:

Dated:    4 June 2024