Case: NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134 ; (1996) 71 FCR 285
Outcome: applied
making and giving effect to that arrangement, as at November 2002, had the likely effect of substantially lessening competition in each of the following markets: 44.1 Sydney terminal services market; 44.2 Melbourne terminal services market; and 44.3 Brisbane terminal services market within the meaning of sub-sections 45(2)(a)(ii) and 45(2)(b)(ii) of the Act. THE LEGAL PRINCIPLES APPLICABLE TO DETERMINATION OF PENALTY The Act places on the Court the responsibility to determine the "appropriate" penalty in each particular case, having regard to "all relevant matters", including those specified in s 76(1): NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134 ; (1996) 71 FCR 285 at 290. Four relevant matters are specified in s 76(1), but the Court is not confined to them. A checklist of six additional matters was identified by French J in Trade Practices Commission v CSR Limited (1991) ATPR p41-076 at 52,152 52,153, to which judges have frequently made reference: see NW Frozen Foods at 292. As French J said in Trade Practices Commission v CSR at 52,152, the principal, and probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravener and others. That is to say, the quantum is informed by considerations of specific and general deterrence: Trade Practices Commission v Mobil Oil Australia Ltd [1984] FCA 363 ; (1984) 4 FCR 296 at 298. Much has been said in the authorities about the need to deter conduct which is antithetical to the promotion of competition and the seriousness of Parliament's intentions in that respect: NW Frozen Foods at 293 294; Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (2001) ATPR p41-815 at [13]; Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 at [22]; Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265 ; (2005) 215 ALR 301 at [39] . As Lindgren J observed in Australian Competition and Consumer Commission v Qantas Airways Ltd (2008) 253 ALR 89 at [25], the principles governing the imposition of penalties for contravention of Part IV should be considered in light of the most recent Full Court pronouncement in Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR p41-993. In that case, at [51], the Full Court listed six propositions that emerge from NW Frozen Foods . They were listed by Lindgren J in Qantas at [26] as follows:- (i) It is the responsibility of the court to determine the appropriate penalty; (ii) Determining the quantum of a penalty is not an exact science and the courts have acknowledged that within a permissible range, a particular figure cannot necessarily be said to be more appropriate than another; (iii) There is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy; (iv) The view of the regulator, as a specialist body, is relevant, but not determinative, and its views on matters within its expertise will usually be given greater weight than its views on more "subjective" matters; (v) The court examines all the circumstances of the case, and where the parties have advanced an agreed statement of facts, the court may act on it if it is appropriate to do so; and (vi) Where the parties have jointly proposed a penalty, it is not useful to investigate whether the court would have arrived at that precise figure; the figure will be appropriate if within the permissible range. The Full Court in Mobil Oil (2004) ATPR p41-993 also listed five further points which were usefully summarised by Lindgren J in Qantas at [27] as follows:- First, the rationale for giving weight to a joint submission on penalty is the saving in resources for the regulator and the court, which, in the case of the regulator, can be used to increase the likelihood that other contraveners will be detected and brought before the court. Second, the sixth proposition from NW Frozen Foods (see [26] above) does not mean that the court must commence its reasoning with the level of penalty proposed and limit itself to considering whether that penalty is within the permissible range: the court may, instead, address the question independently at the outset. Third, there was no suggestion in NW Frozen Foods that the admissions or statement of agreed facts had been "tailored or modified to reflect the difficulties faced by the [commission] in proving its case" (at [55]). Fourth, the regulator should always explain to the court the process of reasoning said to justify a discounted penalty (the court referred to Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd (2002) ATPR 41-851 ; [2001] FCA 1716 at [56] ). Fifth, there is nothing in NW Frozen Foods inconsistent with any of the following propositions: (i) The court may request the parties to provide additional evidence or information or to verify the information provided, in default of which the court may well not be satisfied that the proposed penalty is within the permissible range; (ii) If the absence of a contradictor inhibits the court in the performance of its duty under s 76 of the Act, it may seek the assistance of an amicus curiae or of an individual or body prepared to act or intervene under O 6 r 17 of the Federal Court Rules ; and (iii) If the court is disposed not to impose the agreed penalty, it may be appropriate for the parties or either of them to be given the opportunity to withdraw consent and for the matter to proceed as a contested hearing. THE COURT'S APPROACH TO AGREEMENT ON PENALTY The parties accept that the Court is not merely a "rubber stamp" for the agreement reached between them. It is for me to determine the appropriate penalties having regard to all the circumstances, and taking into account the propositions emerging from NW Frozen Foods , as further explained in Mobil Oil (2004) ATPR p41-993 . The summary of those propositions and further points set out above make clear the public interest factors which underlie the non-litigious resolution of enforcement proceedings and the regard which the Court will have to the views of the regulators. The essential question is not whether I would have, without the assistance of the parties, reached the precise figures agreed between them. Rather, it is whether those amounts are "within the permissible range" in all the circumstances: NW Frozen Foods at 291. In answering that question, it is open to me to commence with the amount of the proposed penalties and then determine whether they fall within the permissible range. Alternatively, it would be permissible to address the appropriate range independently and then determine whether the proposed penalty falls within that range: Mobil Oil (2004) ATPR p41-993 at [54]. THE PARTIES' SUBMISSIONS ON MATTERS RELEVANT TO CONSIDERATION OF PENALTY It is convenient to set out in full the content of [55] [58] and [76] [106] of the Joint Submissions. As noted at paragraph 5 above, an important component of the proposed resolution of these proceedings is the lodgement by AAT of the authorisation application pursuant to s88 of the Act. This is the first occasion on which a court has been required to decide upon the appropriate penalty in such circumstances. In the unusual circumstances of this case, the Commission, Patrick and P&amp;O jointly submit that the primary reason for imposition of the penalty sought in this case is, by way of general deterrence, to deter corporations from risking contraventions of the Act which may otherwise obtain the benefit of an authorisation from the Commission, whether with or without conditions. Patrick and P&amp;O could have sought authorisation for the Arrangement during the relevant period. Patrick and P&amp;O accept that they ought to have sought an authorisation from the Commission for the Arrangement so as to avoid risking contravention of the Act. On the other hand, the Commission accepts that, whilst the terms of the Arrangement were not provided to it for scrutiny in the context of an application for authorisation, it is relevant on the issue of penalty that the conduct did not result from a secret, collusive agreement. In these circumstances, general deterrence will be served by the penalty proposed to be imposed upon the Second and Seventh Respondents, who were directly involved in the conduct at the relevant time. It is submitted that no punitive element is warranted in the penalty awarded by the Court, as there has been no flagrant or wilful contravention of the Act by Patrick, P&amp;O or any related body corporate. ... The conduct which is subject to penalty was engaged in by Patrick and P&amp;O over a period of 14 months, approximately seven to eight years ago. It comprised an agreement between Patrick and P&amp;O to rationalise automotive terminal infrastructure, including by the formation of a joint venture company to provide automotive terminal services in each of the three ports. The three ports constitute the main Australian destinations for importation of motor vehicles. Patrick and P&amp;O intended to make the Arrangement, proceeded to do so and to give effect to it. The volume of commerce, measured by gross sales revenue over the relevant period in the markets affected by the conduct in question, cannot be accurately calculated by Patrick by reference to its audited accounts for the relevant period because Patrick compiled those accounts on an aggregated basis for its whole stevedoring business of which automotive stevedoring was a small proportion. On the basis of the aggregated information contained in its management accounts for the financial year 2001/2002 for its automotive, bulk and general stevedoring division, Patrick estimates that total gross revenue for automotive stevedoring services in the three ports did not exceed approximately $15 million for that financial year. Similarly P&amp;O did not during the relevant period keep accounting records which adequately identified revenues from its automotive stevedoring businesses for each of the three ports. No accounts were kept separately for "automotive terminals" or "automotive stevedoring" businesses. For the years ended 31 December 2001 and 31 December 2002 P&amp;O estimates that total revenues from its automotive terminal and stevedoring businesses for the three ports were $14 million and $15 million respectively. Whilst the conduct had the likely effect of substantially lessening competition in the relevant terminal services markets, the Commission accepts, for the purpose of these proceedings only, that the objectives of Patrick and P&amp;O in entering the Arrangement were likely to have included increasing efficiencies by gaining access to scarce port land and the superior terminal in each port, and improving utilisation of that land. The increased capacity of the joint venture to invest in infrastructure, due to the increased volume of business, was also harnessed. In this respect, regard was had by Patrick and P&amp;O to the desire of the Sydney Ports Corporation and the Port of Brisbane Corporation to have one automotive terminal only, with a view to achieving such efficiencies. The Commission's case was that the conduct of Patrick and P&amp;O, including the creation of AAT, led to a substantial lessening of competition in terminal services markets in each of the three ports. On this issue, the Commission's position was (and remains) that whether the impugned conduct led to the gaining of efficiencies or other public benefits is irrelevant to whether or not there had been a substantial lessening of competition in relevant terminal services markets for the purposes of s45 of the Act. Rather, those matters are only able to be brought to account in the context of an authorisation application made under Part VII of the Act. On the other hand, Patrick and P&amp;O proposed to lead evidence that the relevant markets were no less competitive in future with the impugned conduct than without the impugned conduct, and argue that the operations of AAT resulted in increased efficiencies to customers, being shipping lines and importers, and stevedores (including potentially third party stevedores). Further, they contend that, to the extent such efficiencies could be established, they should be taken into account in the determination of whether or not there had been a substantial lessening of competition in the relevant terminal services markets. The resolution of the proceedings in the manner the Commission, Patrick and P&amp;O propose leaves to the authorisation process currently underway the determination of the question of whether any lessening of competition arising from the operations of AAT (at least in the future) is outweighed by any public benefits able to be established (including any efficiencies). There is no dispute between the Commission, Patrick and P&amp;O that these matters can properly be raised in the authorisation process. Patrick and P&amp;O do not admit that the conduct in fact affected competition in contravention of the Act. Rather it has been admitted that the conduct had the likely effect of affecting competition substantially, as at November 2002. In the proposed resolution of these proceedings, the other allegations in the Second Further Amended Statement of Claim will be dismissed, and accordingly it is not necessary for the Court to consider the purpose or actual effect on competition in any market of the conduct, nor any conduct occurring after November 2002. The Amount of Loss or Damage Caused The Commission, Patrick and P&amp;O jointly submit that it is not possible to determine whether any quantifiable loss or damage was caused by the impugned conduct. P&amp;O and Patrick admit only that the Arrangement was likely to have the effect of substantially lessening competition in the terminal services market and do not admit that it had the effect of causing loss or damage. The Circumstances in which the Conduct took Place The conduct was not clandestine. It was openly conducted between the parties, and was known in the market to have occurred, by customers of Patrick and P&amp;O, the relevant ports corporations, and competitors, such as Toll. Customers were informed of the Arrangement at the time the Arrangement was first contemplated by Patrick and P&amp;O. Degree of power, market share and ease of entry into the terminal services markets Approximately 70% of motor vehicles sold in Australia were imported and 85% of those imported motor vehicles were delivered through the three ports. In the ports of Sydney and Brisbane, Patrick and P&amp;O were the sole providers of automotive terminal services. In the port of Melbourne, Patrick and Toll were the main providers of automotive terminal services. As noted at paragraph 17 above, there were substantial barriers to entry into each of the terminal services markets. The size and financial circumstances of the Contraveners The Second Respondent is a subsidiary of Asciano, a publicly listed company of some size and repute. The Second Respondent has made a separate submission, which includes some confidential material, which relates to the financial circumstances of the corporate group of which the Second Respondent is a member. The Sixth to Eighth Respondents are each ultimate subsidiaries of DP World Ltd which is a substantial listed company in Dubai conducting a container terminal business worldwide. Participation of Senior Management The conduct admitted by Patrick and P&amp;O was carried out by senior management employed at the relevant time. None of the individual executives involved in the conduct remain in the employ of Patrick, or any of the Asciano owned group of companies, or any of the P&amp;O companies owned by DP World. None of the current directors of Asciano were directors of Patrick at the relevant time. Asciano's ownership of Patrick arose from a hostile public company take-over by Toll, and accordingly Toll was not in a position to perform due diligence on the target companies, the First to Fifth Respondents, or to satisfy itself about the compliance with the Act of any of the terms of any arrangements entered into by those companies. It is acknowledged that some shareholders in Asciano may have held shareholdings in the Respondents during the relevant period. For the most part however, the current shareholders in Asciano are public shareholders, whose investment in Asciano would be diminished by reason of the award of any substantial penalty against Patrick. The shareholders of P&amp;O are now completely different to those at the relevant time as set out in paragraphs 11 to 13 above. Culture of Compliance with the Trade Practices Act Asciano retains specialist external legal counsel to conduct trade practices training with its staff on an annual basis and requires all relevant staff, including managers and directors, to attend such training. Training materials are supplied to staff which includes material relevant to compliance with Part IV of the Act generally, as well as in relation to the type of conduct the subject of these proceedings and the availability of authorisation under s88 of anti-competitive conduct on public interest grounds. The DP World group had no involvement in these alleged contraventions or knowledge about them prior to the Commission commencing its investigation of the matter. The DP World corporate respondents, and the DP World Group generally, have taken considerable steps to co-operate with the Commission and have sought to deal with the Commission in an open manner. For example, DP World proactively approached the Commission to bring to a close the long standing Section 155 investigation regarding the container terminal landside interface. DP World has since made considerable efforts to advise the Commission of developments in the container terminal landside interface bearing in mind the various State Government and Port Authority initiatives. The DP World respondents have a corporate culture conducive to compliance with the Act. This is evidenced by DP World providing training to both senior management and compliance training at each of its terminals in 2008 for all personnel likely to be involved in those areas considered appropriate (especially the landside interface). DP World's senior management and its worldwide legal counsel have made it clear to DP World in Australia they wish DP World to engage with the Commission to improve the level of communication. Co-operation and Contrition These admissions have been made well before hearing of the matter, and accordingly will result in a significant saving in court time, and costs and expense to the Commission in continuing to pursue the matter through the courts. Patrick and P&amp;O, as shareholders in AAT, support AAT pursuing its application for authorisation of AAT pursuant to section 88 of the Act, and will incur further costs during that process. The Commission accepts that the decision of Patrick and P&amp;O to agree to resolve these proceedings in this way has saved considerable Court time and Commission resources. Similar Conduct in the Past The Court has not previously found that any of Patrick, Asciano, P&amp;O or DP World have contravened the Act. CONSIDERATION As the authorities make clear, the determination of the amount of a penalty cannot be an exact science: NW Frozen Foods at 290; Mobil Oil (2004) ATPR p41-993 at [51]. The determination of the amount is not done by the application of a formula and the courts have recognised that, within a certain range, one figure "cannot be incontestably said to be preferable to another": Trade Practices Commission v TNT Australia Pty Limited (1994)] ATPR p41-375 at 40,165. The principle of parity of penalty for similar offences is an important one, but as Burchett and Kiefel JJ observed in NW Frozen Foods at 295, things are rarely equal where contraventions of the Act are concerned. Their Honours went on to say that the quantum of penalties imposed in other cases can seldom be of much direct assistance. Here, the question of quantification of the penalty falls to be considered in light of the fact that the conduct in question is admitted to be likely to have had the effect of substantially lessening competition, but no admission is made that this was the purpose, or that it actually had that effect. It is also to be borne in mind that the Commission accepts, for the purpose of these proceedings, that the objectives of Patrick and P&amp;O in entering into the arrangement were likely to include increased efficiencies, as stated in [80] of the Joint Submissions. The Commission's position is that the suggested increased efficiencies are irrelevant to the question of whether there was a substantial lessening of competition. Patrick and P&amp;O dispute that proposition. But the fact that they do so is, no doubt, one that would have informed the negotiation process. So too is the fact that the parties were still in dispute as to whether the impugned conduct had the proscribed purpose or actual effect on competition. What seems to me to be of particular importance is that the parties have agreed that the effect on competition of any continuing conduct by AAT at the terminals in Melbourne, Brisbane and Port Kembla, and any public benefit said to arise from such conduct, will be dealt with pursuant to the Commission's power to grant an authorisation under s 88 of the Act. An application for authorisation has now been made, so that the question of public benefit will be considered by the Commission under s 90 of the Act. Section 90(6) provides that the Commission shall not grant authorisation unless it is satisfied in all the circumstances that the proposed conduct would result, or be likely to result, in a benefit to the public that would outweigh the detriment constituted by the lessening of competition; see also s 90(8). Other important factors are the 14-month duration of the contravening arrangement, which was comparatively short, and the estimated revenue from the automotive terminal and stevedoring businesses at the ports in question. Whilst the total annual value of retail motor vehicle sales in Australia is approximately $25 billion, of which a substantial percentage constitutes vehicles imported through the ports of Brisbane, Sydney and Melbourne, the estimates of gross revenue for stevedoring services is quite small. Patrick estimates that its total gross revenue from stevedoring services in the three ports did not exceed about $15m for the financial year 2001 to 2002. P&amp;O estimates total revenues not exceeding $15m in each of the years in question. Another important factor is that the conduct was not clandestine. It was known in the market and customers were informed of the arrangement when it was first contemplated. It is common ground that Patrick and P&amp;O's customers were large shipping lines which have contractual and other commercial relations with large global motor vehicle manufacturers which export vehicles to Australia. None of the customers appears to have made any complaint about the conduct of Patrick and P&amp;O notwithstanding the fact that approximately seven years have passed since it was first made known to them. This is not to understate the seriousness of the conduct which has been admitted but it does distinguish it from the clandestine behaviour which is at the heart of price fixing cartels. It is therefore a factor (though of course not the only one) which informs the imposition of a much lower penalty than was ordered in Australian Competition and Consumer Commission v Visy Industry Holdings Pty Limited (No 3) (2007) ATPR p42-185 and ACCC v Qantas. Other relevant factors include those that are referred to at [92] [106] of the Joint Submissions set out above. In addition, as is stated in the Joint Submissions, the admissions of liability have been made well before the hearing and will result in significant saving of court time, costs and expenses to the Commission. This is an important aspect of public policy to which the majority judges referred in NW Frozen Foods at 291. As their Honours said, the beneficial consequences which flow from the settlement would be jeopardised if corporations were to conclude that proper settlements were clouded by unpredictable risks. As Burchett and Kiefel JJ observed in NW Frozen Foods at 291:- The Court will not depart from an agreed figure merely because it might otherwise have been disposed to select some other figure, or except in a clear case. It is also relevant to the quantum of the penalty that Patrick and P&amp;O have each agreed to pay a contribution of $100,000 towards the Commission's costs of the proceedings. The factors to which I have referred above satisfy me that the penalties to be imposed on Patrick Stevedores and P&amp;O Ports are within the permissible range in all the circumstances.