The wide-reaching consequences of cartel conduct, taking advantage of the ACCC Immunity Policy and the importance of a corporate culture of trade practices compliance
On 2 November 2007, the Federal Court of Australia in Australian Competition and Consumer Commission v Visy Industries Holdings Pty Limited (No 3) [2007] FCA 1617, held that Visy committed 69 contraventions of the Trade Practices Act 1974 (Cth) (TPA) for engaging in price fixing and market sharing with Amcor. The pecuniary penalties imposed on Visy and some of its senior officers were substantially higher than any fines previously imposed.
Facts
The Visy companies and Amcor companies held 90 per cent of the corrugated fibreboard packaging market in Australia. Between January 2000 and October 2004, companies in the Visy group and certain officers of those companies engaged in price fixing and market sharing with companies in the Amcor group, contrary to section 45 of the TPA.
The contraventions of the TPA fall into four categories:
- The Over-Arching Understanding, made in early 2000, under which Amcor and Visy agreed to maintain their respective market shares and not to deal with each other’s customers.
- The Annual Price Increase Understandings whereby increases in prices were agreed in each of the years 2000, 2001, 2002 and 2003.
- The Customer Price Understandings whereby prices were agreed in respect of particular customers.
- Compensation Understandings whereby, in respect of particular customers who had changed from one supplier to the other, that supplier would provide another customer or customers in exchange.
At the time of the contraventions, Mr Pratt was a director of Visy, which is a private company owned by Mr Pratt and his family. The companies in the Visy group and certain officers who were respondents to these proceedings admitted liability in October this year. The parties tendered an agreed statement of facts and asked the Court to impose penalties and make other appropriate orders.
ACCC Immunity Policy
The Australian Competition and Consumer Commission (ACCC) did not proceed against those on the Amcor side of this cartel because, in late 2004, Amcor approached the ACCC and admitted liability. In unrelated litigation Amcor had sued former executives and obtained a Court order for a search of their premises. Incriminating material was discovered, including tape recordings of conversations, on its solicitor’s advice Amcor approached the ACCC. The ACCC gave Amcor the benefit of its Leniency Policy for Cartel Conduct published in 2003 (note the Leniency Policy has been replaced by the Immunity Policy published in 2005).
Accessories
Under section 76(1)(e) of the TPA a person who has been knowingly concerned in, or a party to, a contravention of certain provisions of the TPA, including section 45, is liable to a pecuniary penalty.
Mr Pratt was knowingly concerned in Visy’s giving effect to the Over-arching Understanding, however the ACCC did not wish to seek the imposition of a pecuniary penalty on Mr Pratt because he and his family are the owners of Visy and the burden of the penalty on the company (including legal costs) will fall on him personally. The Court recognised that it is legitimate to avoid double counting where an individual contravener is an owner of a corporate contravener.
Two senior officers of Visy, namely the Chief Executive Officer and General Manager, were also knowingly concerned in, or a party to, 14 and 49 contraventions, respectively and pecuniary penalties were imposed on them accordingly.
Assessment of penalties by the Court
The maximum penalties applicable at the time of the contraventions were, in respect of each contravention $10 million for a corporation and $500,000 for an individual. However, as from 1 January 2007 the penalties for a corporation may exceed $10 million. Where the Court can determine the benefit obtained as a result of the contravening conduct, the maximum penalty is three times the value of that benefit. Where the Court is unable to assess the gain, the penalty is 10 per cent of the annual turnover of the corporation or group.
The fact that the ACCC and the respondent parties had submitted a penalty as agreed between themselves was a relevant factor considered by the Court but not conclusive, since the responsibility of imposing penalties is conferred by the TPA on the Court.
The following factors were considered by the Court in assessing the penalties to be imposed.
- Detection of the contraventions in this case occurred purely by chance when Amcor’s solicitors, in the course of unrelated litigation, stumbled across incriminating material.
- The cartel had the potential for the widest possible effect.
- The cartel went on for almost five years and had it not been accidentally exposed, it would probably still be flourishing.
- The cartel was run from the highest levels of Visy, a very substantial company.
- The cartel was carefully and deliberately concealed.
- The cartel was operated by men who were fully aware of its seriously unlawful nature.
- Visy and the senior officers of Visy, who were also respondents to these proceedings, admitted liability and thus saved a great deal of public expense for a trial which could have lasted six months or more. However, "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".
- In light of what has been admitted to be the facts by the parties, the defence pleaded by Visy and the other respondents, and maintained until recently, had very limited prospects of success.
- The corporate culture of Visy in relation to its obligations under the TPA was non-existent. There was a Visy document entitled "Trade Practices Compliance Manual" dated February 1998, signed by Mr Pratt and distributed to 50 or so personnel covering every State and Head Office. However, the Court noted that "the Visy Trade Practices Compliance Manual might have been written in Sanskrit for all the notice anybody took of it".
- Parity with penalties imposed in other cases is a relevant consideration. The penalty proposed in this case is more than twice the highest previous penalty imposed by this Court. This is reflective of the fact that this must be, by far, the most serious cartel case to come before the Court in the 30 or more years in which price fixing has been prohibited by statute.
The Court decided that the following penalties proposed by the parties as agreed between them were appropriate:
- The penalty of $36 million proposed for Visy’s conduct is appropriate in the circumstances.
- The Chief Executive Officer of Visy at the time was a joint instigator of the cartel and he directed his subordinate, the General Manager, to operate it. He sometimes personally participated in it and as a senior officer of a large company operating in a market which affects the whole community, his conduct showed no regard for the law. The penalty of $1.5 million is appropriate as against the Chief Executive Officer of Visy.
- Although the General Manager of Visy at the time committed the largest number of contraventions, because of his lower position in the company and the fact that he was not an instigator, he was considered less blameworthy than Mr Pratt or the Chief Executive Officer. However, as he engaged over a long period in knowingly unlawful conduct, the penalty of $500,000 is appropriate.
Lessons to be learned
1. Seriousness of cartel conduct and wide reaching consequences
Cartel behaviour of the kind engaged in by Visy and Amcor is extremely destructive of the competition on which the prosperity of a free market depends. The increases in the maximum penalties show how gravely the legislature regards this kind of conduct.
Prior to this case, the highest an individual had been fined for this kind of conduct was around the $150,000 mark. In this case, the Chief Executive Officer was fined $1.5 million and the General Manager was fined $500,000. Whilst Mr Pratt was not fined as an individual, a penalty of $36 million was imposed on his company, Visy. This order of fines has set a new benchmark for the consequences of engaging in cartel conduct.
Beyond the $36 million penalty imposed on Visy in this case, there are flow-on effects for Visy as a result of this decision. Visy is joined to the so-called Amcor class action launched in April last year by thousands of customers of Visy and Amcor, which puts the total damages sought for inflated prices paid for corrugated cardboard at anywhere between $300 million and $700 million. If the class action is successful, Visy and Amcor would bear the costs passed onto other businesses as a result of the cartel.
A $120 million claim has also been lodged by Cadbury Schweppes, claiming that the anti-competitive conduct extended beyond the cardboard market into PET containers and aluminium cans for drinks.
2. Taking advantage of the ACCC Immunity Policy
Amcor approached the ACCC and admitted liability. The ACCC applied its Leniency Policy for Cartel Conduct, now replaced by the Immunity Policy published in 2005, under which the first party to disclose a cartel of which the ACCC is unaware will receive an immunity, provided that it:
- is not the "clear leader"
- gives full and frank disclosure, and
- continues to cooperate with the ACCC.
The ACCC did not proceed against Amcor and no penalties were imposed on Amcor by the Court. However, this did not protect Amcor from the massive class action and other damages claims that have been launched against it by its customers.
If you become aware that your company or individuals within your company have engaged in cartel behaviour, you should seek advice as quickly as possible about approaching the ACCC to take advantage of the ACCC Immunity Policy.
3. Does your company have a culture of trade practices compliance?
One of the factors which the Court took into account in assessing the penalties is whether the company had a corporate culture conducive to compliance with the TPA, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.
Even though Visy had a Trade Practices Compliance Manual, the Court noted that none of the most senior people hesitated for a moment before embarking on obviously unlawful conduct. It seemed that His Honour regarded non-compliance as an aggravating factor in assessing the penalties to be imposed.
If your company does not have a culture of trade practices compliance, you should seek advice as soon as possible to not only have a written Trade Practices Compliance Manual but to put in place programs and processes to ensure compliance by all personnel.
For further information, please contact your usual PricewaterhouseCoopers adviser or:
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Michael Daniel, Partner
PricewaterhouseCoopers Legal
Commercial and Regulatory Litigation
Tel +61 2 8266 6618 |
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Shameela Karunakaran, Solicitor
PricewaterhouseCoopers Legal
Commercial and Regulatory Litigation
Tel +61 2 8266 6897 |
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