ACCC v Visy Industries Holdings Pty Ltd (No 3)

[2007] FCA 1617 (2 November 2007)

Facts

The ACCC and Visy tendered an agreed statement of facts. The ACCC alleged Visy engaged in price fixing and market sharing in the market for the supply of corrugated fibreboard packaging (CFP) with Amcor between January 2000 and October 2004. Visy admitted liability. Amcor was not pursued by the ACCC because they applied (successfully) for leniency under the ACCC's existing Leniency Policy for Cartel Conduct.

Justice Heerey categorised the conduct as follows:

There was an understanding pursuant to which Amcor and Visy 'agreed to maintain their respective market shares and not to deal with each other's customers' and, if a customer changed suppliers, 'the firm receiving that new customer would provide one of its own to the other by way of "compensation". In effect, there would be a swapping of customers (although the customers were not to know this). Further, Visy and Amcor would collaborate with each other in order to increase prices." (para 4)
Annual Price Increase Understandings agreed in each of 2000, 2001, 2002 and 2003 (para 5)
Customer Price Understandings 'whereby prices were agreed in respect of particular customers' (para 6)
Compensation Undertakings involving customer exchanges where particular customers changed suppliers.

His Honour went on to set out these understandings in some detail.

Reasons for judgment (Heerey J)

Note: the conduct occurred prior to the introduction of new cartel laws in 2009; consequently the matter was considered under s 45 (with the help of the deeming provision for price fixing that then existed in s 45A).

Briefly:

Visy was guilty of 69 contraventions of the TPA (the conduct was admitted).
The agreed penalty against Visy of $36m was appropriate and reflected the fact that 'this must be, by far, the most serious cartel case to come before the Court in the 30 plus years in which price fixing has been prohibited by statute.' [para 320]
No individual penalty was sought against Mr Pratt because the burden of Visy's penalty would fall on him personally [para 294]. However, his Honour also doubted the remorse and contrition of Mr Pratt, noting the contrition that was expressed 'probably has a substantial element of regret at being found out' [para 322] and that public statements made by Mr Pratt were 'hardly consistent with a frank admission of wrongdoing' [para 324]
Individual penalties of $1.5million and $500,000 were awarded against Mr Debney (CEO) and Mr Carroll (General Manager) respectively.
The Court made orders for declarations as to contraventions, injunctions and an order for a trade practices compliance program. Visy was also ordered to pay the costs of the ACCC. [para 333]

Contravention

Justice Heerey held that the Understandings between Visy and Amcor constituted a contravention of s 45 and, insofar as they involved customer swaps, they contained an exclusionary provision (defined in s 4D) (para 291). Justice Heerey's orders, agreed by the parties, included declarations that Visy had committed 69 contraventions.

Penalties

Although Visy was held to have committed 69 contraventions, Heerey J noted that s 76(3) 'provides that a person is not liable for more than one pecuniary penalty in respect of the same conduct' with the result that penalties could only 'be imposed for a total of 37 contraventions by Visy.' (para 292)

His Honour also noted that although Mr Pratt (director of Visy (a private company owned by the Pratt family) at the time) was knowingly concerned in Visy's giving effect to the Undertaking, the ACCC did not seek to impose a pecuniary penalty on him because, as he and his family were the owners of Visy, the burden of the penalty faced by Visy would 'fall on him personally' (para 294).

At the time the conduct occurred the maximum penalty applicable was $10m for a corporation and $500,000 for an individual. The ACCC proposed (and Visy did not contest) a penalty of $36 million (para 298).

His Honour noted the factors to be taken into account by s 76(1) when determining penalties. He also noted other factors to be taken into account (based on decisions in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076, at 52,152-52,153; Australian Competition and Consumer Commission v NW Frozen Foods Pty Ltd (1996) ATPR 41-515 at 42,444-42,445). Collectively, the factors to consider are:

(i) the nature and extent of the act or omission constituting the contravening conduct; (para 302; reflecting s 76(1))

(ii) the nature and extent of any loss or damage suffered as a result of the contravening conduct; (para 302; reflecting s 76(1))

(iii) the circumstances in which the act or omission took place; and (para 302; reflecting s 76(1))

(iv) whether the contravenor has previously been found by the Court to have engaged in similar conduct. (para 302; reflecting s 76(1))

(v) the size of the contravening company; (para 303)

(vi) the degree of its power, evidenced by its market share and the ease of entry into the market; (para 303)

(vii) the deliberateness of the contravention and the period over which it extended; (para 303)

(viii) whether the contravention arose out of the conduct of senior management or at a lower level; (para 303)

(ix) whether the company had a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; (para 303)

(x) whether the contravenor has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention; (para 303)

(xi) similar conduct in the past; (para 303)

(xii) financial position; (para 303)

(xiii) deterrent effect. (para 303)

His Honour also noted that, while the 'agreed penalty' proffered by the parties is relevant, it is not decisive 'since the responsibility of imposing penalties is conferred on the Court' (para 305).

Nature of cartel conduct

His Honour then described the harmful effects of cartel conduct:

[Para 306] Cartel behaviour of the kind with which this case is concerned is extremely destructive of the competition on which the prosperity of a free market economy depends. Often the profits can be immense, and the risk of detection slight. Of its nature, cartel behaviour is likely to occur in secret and between parties who seek mutual benefit. In the present case, detection occurred purely by chance when Amcor’s solicitors, in the course of quite unrelated litigation, stumbled across incriminating material. Even then the present resolution may not have been reached were it not for two additional factors. First, the Commission’s immunity policy and, secondly, the fact that there were not only witnesses prepared to give evidence, but also tape recordings of damning conversations.

[Para 307] The progressive increase in the maximum penalties mentioned above shows how gravely the legislature regards this kind of conduct. Price fixing and market sharing are not offences committed by accident, or in a fit of passion. The law, and the way it is enforced, should convey to those disposed to engage in cartel behaviour that the consequences of discovery are likely to outweigh the benefits, and by a large margin.

[Para 308] Critical to any anti-cartel regime is the level of penalty for individual contravenors. We tend to overlook the fact that corporations are constructs of the law; they only exist and possess rights and liabilities as a consequence of the law. Heavy penalties are indeed appropriate for corporations, but it is only individuals who can engage in the conduct which enables corporations to fix prices and share markets.

[Para 309] Many countries with free market economies have recognised this reality by enacting laws which make cartel conduct by individuals subject to criminal sanctions, including imprisonment.

Visy's conduct

Referring to Visy's conduct Heerey J observed:

[para 312] Every day every man, woman and child in Australia would use or consume something that at some stage has been transported in a cardboard box. The cartel in this case therefore had the potential for the widest possible effect.

His Honour observed that the ACCC did not allege that any particular Visy customer suffered particular loss. However, he noted [my emphasis throughout]:

[para 314] that is not to say that the conduct in which Visy engaged was victimless. The whole point of price fixing and market sharing is to obtain the benefit of prices greater than those which would be obtained in a competitive market. It must follow that customers pay more than they would in a competitive market, and so suffer loss. The conduct involved here was inherently likely to cause loss. The fact that no particular loss has been alleged in respect of any particular customer cannot alter that.

[para 315] The cartel here went on for almost five years. Had it not been accidentally exposed, it would probably still be flourishing. It was run from the highest level in Visy, a very substantial company. It was carefully and deliberately concealed. It was operated by men who were fully aware of its seriously unlawful nature.

[para 316] It is appropriate to make some allowance for the fact that the respondents have admitted liability and thus saved a great deal of public expense for a trial which could well have lasted six months or more. Traditionally criminal courts are inclined to give less weight to a plea of guilty when it does not result from genuine remorse, repentance or contrition: ... Also the weight to be given to an admission of guilt might be less when it comes late, or when it is virtually bowing to the inevitable.

[para 317] ... the principal positive defence pleaded, and maintained until recently, was that any communications between Visy and Amcor were "commercial tactics" against Amcor aimed at "camouflaging" what Visy was doing and a means of obtaining "market intelligence" from its rival

[para 318] In light of what is now admitted to be the facts, it may be doubted that this John Le Carré defence had any prospects of success. Section 45 prohibits contracts, arrangements or understandings containing provisions of a specified kind, whether or not a party harboured a secret intention to cheat. Moreover, entering into a prohibited contract, arrangement or understanding is a free-standing contravention in itself, whether or not it has been given effect. In any case, a contract, arrangement or understanding can still be given effect even if there is some cheating between the parties ... or the cartel does not work as well as some of the parties might have hoped.

[para 319] The corporate culture of Visy in relation to its obligations under the Trade Practices Act was non-existent. None of the most senior people hesitated for a moment before embarking on obviously unlawful conduct. There was in evidence a Visy document entitled "Trade Practices Compliance Manual" dated February 1998. It was signed by Mr Pratt. It bears a distribution list, signed by Mr Debney, with the names of 50 or so personnel covering every State and Head Office. On the front cover it is said: This is an important document. It is essential that it be read and understood by you. Visy Industries requires strict compliance with its policy on the Trade Practices Act. The document includes the stern warning that price fixing and market sharing are "strictly prohibited" and that readers of the document "must never make (such) arrangements with a competitor". Further, it is said Visy personnel should avoid all contact with competitors or their employees other than contact approved by senior management or Visy Industries’ Legal Counsel. All necessary contact with competitors should be conducted in formal settings. I doubt that Westerfolds Park and the Cherry Hill Tavern could be regarded as formal settings. The Visy Trade Practices Compliance Manual might have been written in Sanskrit for all the notice anybody took of it.

[para 320] Parity with penalties imposed in other cases is a relevant consideration. ... Ultimately each case turns on its own facts. Suffice it to say that the penalty proposed is more than twice the highest previous penalty imposed by this Court. That is reflective of the fact that this must be, by far, the most serious cartel case to come before the Court in the 30 plus years in which price fixing has been prohibited by statute.

[para 321] The penalty of $36 million proposed for Visy is appropriate in the circumstances. ...

Individual conduct

Justice Heerey noted that [my emphasis]

[para 322] Visy, Mr Pratt, Mr Debney and Mr Carroll through their counsel accepted responsibility for their conduct. They expressed contrition, accepted the serious nature of the contraventions and accepted that they warranted a very substantial penalty. They apologised for their conduct, regretted the circumstances which had occurred and repented their contraventions. They accepted that they stepped "well over the line of the boundaries prescribed by the Act". However, contrition here probably has a substantial element of regret at being found out.

[para 323] While Mr Pratt’s conduct, as revealed in the statement of agreed facts, was limited to the one meeting with the Amcor CEO ... that was of major importance to the operation of the cartel. It would not be expected that somebody in his position would get involved in the day to day running of the cartel .... Yet he gave his personal sanction to this obviously unlawful arrangement and an assurance of its continued operation. It would not have continued without his approval.

[para 324] In a public statement which went out to Visy staff and customers over Mr Pratt’s name as Chairman ... and after it had become public knowledge that the respondents would admit liability, it was said:

Visy takes its obligations under the TPA very seriously. The company deeply regrets what happened and its poor appreciation of the complexities and application of the various provisions. ... Visy’s actions were motivated by a desire to take advantage of our competitor.

... the statement is hardly consistent with a frank admission of wrongdoing.

[para 325] More importantly, there is nothing complex about the law that prohibits price fixing and market sharing. Mr Debney and Mr Carroll certainly knew about this law. That is why they met with their competitor in parks and suburban hotels and used pre-paid mobile phones. There cannot be any doubt that Mr Pratt also knew that the cartel, to which he gave his approval, and in which he has admitted to being knowingly concerned, was seriously unlawful.

[para 326] There is also the factor that the cartel was to operate for Mr Pratt’s personal benefit, via his ownership, or part ownership, of Visy. This was not the case of an employee acting out of some misguided sense of corporate loyalty.

His Honour then noted that Mr Debney was joint instigator of the cartel (para 327) and that he directed his subordinate, Mr Caroll, or operate the cartel (para 327). Heerey J accepted the proposed penalty of $1.5 million against Mr Debney. He also accepted the proposed penalty of $5000,000 against Mr Carroll.

Heerey J also noted that the penalties imposed on Mr Debney and Mr Caroll were going to be borne by Visy or a related entity (para 329) and noted that such indemnities would now be unlawful by virtue of ss 77A and 77B, but as those provisions only apply to conduct occurring after 1 January 2007 they could not be applied to prevent the indemnity in this case (para 329). However, his Honour considered that s 199A(2)(c) of the Corporations Act 2001 (Cth) would prevent such an indemnity in relation to the conduct of Debney and Carroll (para 331).

Order summary

Penalties summary

Visy to pay a pecuniary penalty of $36million [para 38]

Debney to pay a pecuniary penalty of $1.5million [para 39]

Carroll to pay a pecuniary penalty of $500,000 [para 40]

Injunctive orders

Justice Heerey ordered [para 41] that Visy be permanently restrained from:

(a) making a contract or arrangement or arriving at an understanding with Amcor containing one or more of the following provisions or provisions to like effect, namely that:

(i) Visy and Amcor permit each other to maintain approximately their current share of the market in Australia for the supply of CFP;

(ii) Visy and Amcor not seek to enter into contracts for the supply of CFP with each other's CFP customers;

(iii) if, for one reason or another, Visy entered into a contract for the supply of CFP with a CFP customer of Amcor, then Visy not prevent or seek to prevent Amcor from entering into a supply contract with a customer or customers of Visy in order to replace the share of the CFP Market that Amcor had lost as a result of losing the supply contract to Visy;

(iv) if, for one reason or another, Amcor entered into a contract for the supply of CFP with a CFP customer of Visy, then Amcor not prevent or seek to prevent Visy from entering into a supply contract with a customer or customers of Amcor in order to replace the share of the CFP Market that Visy had lost as a result of losing the supply contract to Amcor; or

(v) Visy and Amcor collaborate with each other in order to increase the prices at which they supplied CFP in the CFP Market from their then current levels;

(b) giving effect to any contract, arrangement or understanding with Amcor containing any provision or provision to like effect as one or more of the provisions set out in sub-paragraph (a) above;

(c) requesting Amcor to quote a price or prices to a purchaser or potential purchaser of CFP at or above a level proposed by Visy;

(d) requesting Amcor to compensate Visy for the loss by Visy to Amcor of any account for the supply of CFP; or

(e) communicating to Amcor any price or prices at which Visy supplies or proposes to supply CFP to a customer or customers in Australia pursuant to any contract, arrangement or understanding with Amcor containing any provision referred to in sub-paragraph (a) above or provision to like effect.

Justice Heerey further ordered [para 42] that Pratt, Debney and Carroll be permanently restrained 'from being in any way, directly or indirectly, knowingly concerned in, or party to, any conduct of Visy in':

(a) making a contract or arrangement or arriving at an understanding with Amcor containing one or more of the following provisions or provisions to like effect, namely that:

(i) Visy and Amcor permit each other to maintain approximately their current share of the market in Australia for the supply of CFP;

(ii) Visy and Amcor not seek to enter into contracts for the supply of CFP with each other's CFP customers;

(iii) if, for one reason or another, Visy entered into a contract for the supply of CFP with a CFP customer of Amcor, then Visy not prevent or seek to prevent Amcor from entering into a supply contract with a customer or customers of Visy in order to replace the share of the CFP Market that Amcor had lost as a result of losing the supply contract to Visy;

(iv) if, for one reason or another, Amcor entered into a contract for the supply of CFP with a CFP customer of Visy, then Amcor not prevent or seek to prevent Visy from entering into a supply contract with a customer or customers of Amcor in order to replace the share of the CFP Market that Visy had lost as a result of losing the supply contract to Amcor; or

(v) Visy and Amcor collaborate with each other in order to increase the prices at which they supplied CFP in the CFP Market from their then current levels;

(b) giving effect to any contract, arrangement or understanding with Amcor containing any provision or provisions to like effect as one or more of the provisions set out in sub-paragraph (a) above;

(c) requesting Amcor to quote a price or prices to a purchaser or potential purchaser of CFP at or above a level proposed by Visy;

(d) requesting Amcor to compensate Visy for the loss by Visy to Amcor of any account for the supply of CFP; or

(e) communicating to Amcor any price or prices at which Visy supplies or proposes to supply CFP to a customer or customers in Australia pursuant to any contract, arrangement or understanding with Amcor containing any provision referred to in sub-paragraph (a) above or provision to like effect.

Other orders

Justice Heerey further ordered that Pratt and the first, second and third respondents implement, within four months, and undertake, for a period of three years, a trade practices compliance program in a form agreed by the ACCC with regard to s 45 of the TPA. This was to occur at Mr Pratt's expense [para 43]

Visy was also ordered to pay the costs of the ACCC of and incidental to this proceeding [para 44]