FEDERAL COURT OF AUSTRALIA Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission [2003] FCAFC 2 TRADE PRACTICES – penalty – extent to which size of corporation and capacity to pay may be taken into account – relevance of parent company's resources in determining penalty to be imposed on subsidiary – role of parity principle. Trade Practices Act 1974 (Cth), ss 45(2), 76(1) Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (2001) ATPR ¶ 41-815, referred to. Australian Consumer and Competition Commission v ABB Transmission and Distribution Limited (2001) ATPR ¶ 41-839, referred to. Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238, cited. NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, applied. Trade Practices Commission v CSR Ltd [1991] ATPR 41-076, cited. Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2002] ATPR 41-851, cited. R v Tiddy (1969) SASR 575, cited. Pye Industries Sales Pty Ltd v Trade Practices Commission (1979) ATPR ¶ 40-124, cited. J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532, cited. Postiglione v The Queen (1997) 189 CLR 295, cited. Lowe v The Queen (1984) 154 CLR 606, cited. K Yeung, "Quantifying Regulatory Penalties: Australian Competition Law Penalties in Perspective" (1999) 23 Melb ULR 440 D I Baker and B A Reeves, "The Paper Label Sentences: Critiques" (1977) 86 Yale LJ 619 John C Coffee, "'No Soul to Damn: No Body to Kick' An Unscandalized Inquiry into the Problem of Corporate Punishment" (1981) 79 Mich LR 386 SCHNEIDER ELECTRIC (AUSTRALIA) PTY LTD v AUSTRALIAN COMPETITION AND CONSUMER COMMISSION V 367 of 2002 BLACK CJ, SACKVILLE & MERKEL JJ MELBOURNE 14 FEBRUARY 2003 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V367 OF 2002 BETWEEN: SCHNEIDER ELECTRIC (AUSTRALIA) PTY LIMITED ACN 004 969 304 APPELLANT AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION RESPONDENT JUDGE: BLACK CJ, SACKVILLE AND MERKEL JJ DATE OF ORDER: 14 FEBRUARY 2003 WHERE MADE: MELBOURNE THE COURT ORDERS THAT: 1. The appeal be allowed. 2. Order 15 of the orders made by the primary Judge on 17 May 2002 be amended to substitute the sum of $5,500,000 for the sum of $7,000,000. 1. The respondent pay the appellant's costs of the appeal. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V367 OF 2002 BETWEEN: SCHNEIDER ELECTRIC (AUSTRALIA) PTY LIMITED ACN 004 969 304 APPELLANT AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION RESPONDENT JUDGES: BLACK CJ, SACKVILLE AND MERKEL JJ DATE: 14 FEBRUARY 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT BLACK CJ: 1 I agree with the learned primary judge that the present case involves "exceptionally serious" contraventions of the Trade Practices Act 1974 (Cth): Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) (2002) 190 ALR 169 at [50]. Nevertheless, for the reasons given by Merkel J, with which I agree, the appeal must be allowed and a penalty of $5.5 million should be substituted for the penalty of $7 million imposed by the primary judge. The respondent should pay the appellant's costs of the appeal. I certify that the preceding one (1) numbered paragraph is a true copy of the Reasons for Judgment herein of the Honourable Chief Justice Black. Associate: Dated: 13 February 2003 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V367 OF 2002 BETWEEN: SCHNEIDER ELECTRIC (AUSTRALIA) PTY LIMITED ACN 004 969 304 APPELLANT AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION RESPONDENT JUDGES: BLACK CJ, SACKVILLE AND MERKEL JJ DATE: 14 FEBRUARY 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT sackville j: 2 I agree with the conclusions reached by Merkel J and, in general, with his Honour's reasons. I wish, however, to add some observations of my own explaining my reasons for joining in the proposed orders. 3 The authorities have emphasised that the object of penalties imposed by s 76 of the Trade Practices Act 1974 (Cth) ("TP Act") is to deter repetition of contraventions of the Act: Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238, at 240, per Goldberg J (and cases cited there). However, different views have been expressed as to whether there is any room for the Court to regard penalties as punishment for contravening conduct: see NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, at 296-297, per Burchett and Kiefel JJ (the purpose of the penalties "is not punishment"); cf at 299, per Carr J; cf ACCC v Australian Safeway, at 241, per Goldberg J (punishment may have a role to play in determining penalties). 4 There may be less to this apparent difference of opinion than appears at first glance. Even proponents of the deterrence theory have acknowledged that the deliberateness of the contravention and the period over which it has extended are matters to be taken into account in determining penalty: Trade Practices Commission v CSR Ltd [1991] ATPR 41-076, at 52,152-52,153, per French J; NW Frozen Foods v ACCC, at 292, per Burchett and Kiefel JJ. This acknowledgement is hardly surprising, given that s 76 of the TP Act itself requires the nature and extent of the act or omission and the circumstances in which the act or omission took place to be taken into account. As Karen Yeung has observed: "the deliberateness of the contravention is irrelevant to the deterrence model. Because the deterrence model assumes that each actor is rational, all contraventions are assumed to be deliberate. By contrast, the deliberateness of a contravention lies at the core of the concept of culpability, which is fundamental to a determination of the penalties levied in accordance with the desert model [theory of penalty-setting]." (K Yeung, "Quantifying Regulatory Penalties: Australian Competition Law Penalties in Perspective" (1999) 23 Melb ULR 440, at 473.) 5 Whatever theory is adopted, the present case involved, as the primary Judge found, "exceptionally serious" contraventions of the TP Act. What otherwise would have operated as a competitive market for the supply of distribution transformers was turned into a cartel by reason of those contraventions. The cartel effectively operated between 1993 and mid-1999, although the appellant ("Schneider") joined it only in mid-1995. The primary Judge also found that "the value of the affected commerce was very great". The evidence did not permit a finding as to the precise financial impact of the cartel on consumers of distribution transfers, but his Honour did say that the "losses could be high". Nor did the evidence permit a finding as to the net benefit obtained by each of the participants from their contraventions of the TP Act. However, as Merkel J has explained, the gross sales made or expected to be made as a result of the contravening tenders totalled at least $169 million, of which Schneider's share was some $29 million. 6 The collusive tendering arrangement to which the appellant was a party and the consequent destruction of a competitive market strikes at the very heart of the objectives of the TP Act. If the character of the offence is the "central determinant" of the penalty decision (see D I Baker and B A Reeves, "The Paper Label Sentences: Critiques" (1977) 86 Yale LJ 619, at 622), as it must be in the absence of ameliorating circumstances, the conduct of each of the corporations participating in the arrangement should have attracted a very substantial penalty. Given the number of contraventions and bearing in mind the maximum penalty of $10 million for each act or omission to which s 76 applies (see s 76(1A)(b)), I agree with Merkel J that, in the absence of extenuating circumstances, a penalty of at least $10 million would have been appropriate for each such participant. 7 There was no cross-appeal by the respondent ("ACCC") against the pecuniary penalties imposed on Wilson Transformer Company ("WTC") ($2.5 million, to be paid in three instalments) or on A W Tyree Transformers Pty Ltd ("Tyree") ($3.5 million). The Court therefore did not have the benefit of full argument as to whether those penalties were justifiable. However, Mr McClintock SC, who appeared with Mr White for the ACCC, suggested that the penalties imposed on WTC and Tyree were not inappropriate and that their position was different from that of Schneider. 8 In the case of the WTC, the primary Judge was considerably influenced by his concern that any penalty should not affect WTC's ability to trade. In particular, his Honour thought it would be "incongruous" if a penalty for a contravention of the TP Act had an anti-competitive effect. I am by no means sure that I share that concern, at least where, as may well have been the case here, the contravener has managed to survive largely by being party to a long-term collusive arrangement which sheltered it from the rigours of a competitive market. Nonetheless, it is clearly appropriate to take into account a contravener's capacity to pay a penalty. The fundamental reason for doing so, apart from the futility of imposing uncollectable penalties, is the "externality problem": that is, the increased likelihood of the cost of deterrence being passed onto or borne by others who are not culpable, notably creditors and innocent employees of the company: John C Coffee, "'No Soul to Damn: No Body to Kick'" An Unscandalized Inquiry into the Problem of Corporate Punishment" (1981) 79 Mich LR 386, at 400-405. 9 In fixing Tyree's penalty, the primary Judge took into account the fact that it earned "modest profits" and had net assets of only $3.5 million on 30 June 2000. His Honour also referred to evidence from Tyree's financial controller that it might take the company a very long period to pay a penalty of $5 million if it had to be financed out of cash flow. It would seem that his Honour was concerned that a penalty larger than $3.5 million would impose significant financial burdens on Tyree, although he did not go so far as to say that the company could not survive the imposition of a greater penalty. 10 Mr Jackson QC, who appeared with Mr Anderson for Schneider, stressed the parity principle, which has been held to apply to the imposition of penalties under s 76 of the TP Act: NW Frozen Foods v ACCC, at 295; Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2002] ATPR 41-851, at 44,539, per curiam. He pointed out that the primary Judge had found that there was not much in the conduct in which the corporations engaged to distinguish them. Indeed, as Mr Jackson submitted, if anything, Schneider's conduct was somewhat less serious than that of WTC and Tyree because it was involved in the collusive conduct for a shorter period and derived less revenue than the others from sales entered into in consequence of the collusive conduct. Moreover, all the contraveners had co-operated with the ACCC and had joined in the preparation of an agreed statement of facts. For these reasons, he submitted that the penalty imposed on Schneider should be no greater than that imposed on Tyree. 11 The parity principle does not necessarily require corporations guilty of similar contraventions of the TP Act to incur the same or similar penalties. The test suggested by Burchett and Kiefel JJ in NW Frozen Foods v ACCC (at 295), was that "there should not be such an inequality as would suggest that the treatment meted out has not been even-handed". As their Honours pointed out, it is a rare case in which the circumstances of a contravention are identical and a variety of factors may play a part in determining the appropriate penalty. 12 In the present case, it is clear enough that the penalties imposed on both WTC and Tyree were substantially less than would have been imposed had they been more substantial corporations with a greater capacity to pay the heavy penalties their conduct otherwise would have warranted. The apparently very low penalty imposed on WTC is explicable on the basis of his Honour's implicit finding that a greater penalty would have affected its ability to trade. In the absence of such a finding in relation to Tyree, there is much to be said for the view that a penalty of $3.5 million did not adequately reflect the seriousness of its contraventions, even taking into account the burden of such a penalty on a relatively small corporation and other ameliorating factors. 13 In my view, there is an important difference between the position of WTC and Tyree, on the one hand, and Schneider on the other. The difference is that there is no issue about Schneider's capacity to pay any penalty that can reasonably be imposed on it in respect of its contraventions. This difference seems to me to justify Schneider receiving a significantly greater penalty than either WTC or Tyree, notwithstanding that its culpability was, if anything, somewhat less than that of its co-contraveners. It does not offend the parity principle to impose on a contravener whose capacity to pay is not in doubt a penalty greater than that imposed on a contravener whose conduct is similar but who could not bear the higher penalty without being subjected to financial hardship (as the primary Judge seems to have found in Tyree's case). 14 The parity principle does, however, require that some account be taken of the penalties imposed on WTC and Tyree, particularly the latter. The penalty imposed on Schneider should not be disproportionate, taking into account the differences between its capacity to pay and the respective capacities to pay of its co-contraveners. If the penalty imposed on Schneider were fixed without regard to that imposed on Tyree, there is a risk that each contravener would be seen to have been judged by somewhat different standards. 15 In my view, the figure of $5.5 million suggested by Merkel J takes into account the seriousness of Schneider's contraventions, the benefits it received from its conduct and the goal of general deterrence, yet does not produce a penalty that is disproportionate to that imposed on WTC and Tyree. I agree with Merkel J that a penalty of $5.5 million is also consistent with that imposed on Alstom Australia Ltd in respect of its involvement in the two tenders relating to distribution transformers. 16 I should add two further comments. First, I agree with Merkel J for the reasons his Honour gives that the size of Schneider's parent company, however measured, is not a material factor in determining the appropriate penalty to be imposed on Schneider itself. 17 Secondly, I would not place particular emphasis on the size of Schneider's Australian business, as such, as an additional factor distinguishing it from WTC and Tyree. Schneider's size and profitability doubtless explain why it did not dispute its capacity to pay any penalty that might reasonably be expected to be imposed and, to that extent, its size has already been taken into account. As I have said, from the point of view of deterrence, it is the nature of the contravening conduct that is the central determinant in determining an appropriate penalty. The size of a corporation may bear on the assessment of the seriousness of the contravening conduct, as when a large corporation has substantial market power which it uses to intimidate or cajole others to join in contravening conduct. But I doubt that the fact that Schneider's Australian business (only a small portion of which was concerned with distribution transformers) was larger than the business conducted by WTC and Tyree is, of itself, a reason to distinguish between them on the question of penalties. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville. Associate: Dated: 13 February 2003 IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY V367 OF 2002 BETWEEN: SCHNEIDER ELECTRIC (AUSTRALIA) PTY LIMITED ACN 004 969 304 APPELLANT AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION RESPONDENT JUDGE: BLACK CJ, SACKVILLE AND MERKEL JJ DATE: 14 FEBRUARY 2003 PLACE: MELBOURNE REASONS FOR JUDGMENT MERKEL J: 18 The appellant ("Schneider") has appealed to the Full Court against the imposition upon it, pursuant to s 76 of the Trade Practices Act 1974 (Cth) ("the TPA"), of a pecuniary penalty of $7 million: see Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559 which is now reported at (2002) 190 ALR 169. 19 The background to the appeal is as follows. It appears that between 1993 and 1999 the major competitors in the market for the sale of distribution transformers in Australia entered into a market sharing and price fixing arrangement pursuant to which they agreed to discuss future tenders for the supply of distribution transformers with the object of not genuinely competing for contracts that were traditionally supplied by one of those competitors. The arrangement involved each of the competitors retaining its own customers, either by the other competitors refraining from tendering for a particular contract or by submitting tenders at a price higher than that which would be submitted by the competitor whose customer was calling for the tender. 20 The competitors allegedly involved in the arrangements were ABB Power Transmission Pty Ltd (which has since been placed in liquidation), ABB Transmission and Distribution Pty Ltd ("ABB"), Wilson Transformer Company Pty Ltd ("WTC"), Schneider, AW Tyree Transformers Pty Ltd ("Tyree") and Alstom Australia Limited ("Alstom"). The principal arrangement resulted in side arrangements being entered into from time to time between some of the competitors in relation to particular tenders. The arrangement did not necessarily apply to all tenders. 21 The approximate market shares of the competitors in 1993 and 1999 were pleaded to be as follows: Company 1993 1999 ABB 30% 28% WTC 30% 27% Schneider 13% 19% Tyree 23% 23% Alstom 4% 3% 22 In the reasons for judgment of the primary judge the market shares of WTC, Schneider and Tyree for 1993 were stated to be 17 per cent, 16 per cent and 15 per cent respectively and for 1999 were stated to be 25 per cent, 22 per cent and 23 per cent respectively. 23 It appears that a similar arrangement was entered into between major competitors in the market for the sale of power transformers in Australia. The primary judge described the Australian markets for distribution and power transformers as follows: "30. A transformer is a piece of equipment used for transforming the voltage of electricity between the voltage at which it is generated or used and the voltage at which it is transmitted. There are, in Australia, two markets for the supply of transformers. One is a market for the supply of what the industry refers to as "power transformers" and the other is for the supply of "distribution transformers". The difference between these transformers lies in the rating. Speaking generally, a transformer that has a rating of up to 10 MVA (megavolt ampere) and a primary voltage of 11, 22 or 37 kV (kilovolt) is in the distribution transformer market, and those with higher ratings are in the power transformer market. This case is concerned with the distribution transformer market. 31. Distribution transformers are manufactured with various power ratings and may be mounted on poles, on pads or located in compact substations. Distribution transformers are typically produced in batches, and are of standard form and design. They are sold principally to electricity distribution utilities and other industrial users, usually after a tendering process. The total annual value of sales of distribution transformers in Australia is around $100 million." 24 The respondent ("the ACCC") commenced a proceeding in the Court against, inter alia, ABB, WTC, Schneider, Tyree and Alstom claiming that, by making and giving effect to the arrangements in respect of distribution transformers, they contravened ss 45(2)(a)(i) and (ii) and 45(2)(b)(i) and (ii) of the TPA. The ACCC also brought the proceeding against certain officers of the competitors claiming that they had been, directly or indirectly, knowingly concerned in, or party to, the conduct that contravened s 45(2) of the TPA. The ACCC claimed declaratory and injunctive relief and pecuniary penalties pursuant to s 76 of the TPA. The ACCC also commenced a similar proceeding against Alstom, WTC and ABB and their officers in relation to their market sharing and price fixing arrangements in respect of power transformers. 25 Section 45(2) of the TPA provides: "A corporation shall not: (a) make a contract or arrangement, or arrive at an understanding, if: (i) the proposed contract, arrangement or understanding contains an exclusionary provision; or (ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or (b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision: (i) is an exclusionary provision; or (ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition." 26 Section 76(1) of the TPA provides that if the Court is satisfied that a person has contravened, inter alia, s 45 of the TPA or has been in any way, directly or indirectly, knowingly concerned in, or party to, such a contravention: "…the Court may order the person to pay to the Commonwealth such pecuniary penalty, 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…to have engaged in any similar conduct." 27 Section 76(1A) provides that a pecuniary penalty payable under s 76(1) by a body corporate that relates to, inter alia, s 45 is not to exceed $10 million for each act or omission to which the section applies and s 76(1B) provides that the pecuniary penalty payable under s 76(1) by a person other than a body corporate is not to exceed $500,000 for each act or omission to which the section applies. 28 Alstom arrived at a settlement with the ACCC in respect of the ACCC's claims concerning the market sharing and price fixing arrangement for power transformers and joined with the ACCC in applying to the Court for consent orders for declaratory and injunctive relief and for the imposition of penalties in amounts suggested by the parties to be appropriate. Alstom was a substantial company which had a 20 to 30 per cent share of the relevant market. The arrangement admitted to involved three competitors, which collectively controlled 90 per cent of the market for power transformers, and operated from 1989 to 1995. The agreed statement of facts gave 25 examples of tenders allocated between those competitors from late 1993 to late 1995. Most of the successful tender prices exceeded $1 million. The primary judge, in considering previous TPA penalties for anti-competitive conduct, stated that he was "left with the distinct impression that current penalties are on the low side" (at [13]) but accepted that the proposed penalties fell within the range of penalties that the Court considered was appropriate. His Honour imposed the proposed penalty of $5.5 million on Alstom and of $150,000 on its managing director, who was involved in the contravention: see Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (2001) ATPR ¶ 41-815 ("ACCC v ABB (No 1)"). 29 Alstom also settled the ACCC's claims against it in the proceeding in respect of the arrangements for distribution transformers. Alstom, which admitted to holding 3 to 4 per cent of the Australian market for distribution transformers, claimed it was not a party to the arrangements generally but admitted to making and giving effect to the arrangements in respect of two tenders, one in 1994 and the other in 1996. The 1994 tender, which had a total value of $13.1 million, resulted in Alstom being successful in gaining business worth $1.915 million. The 1996 tender had a value of $7.6 million but Alstom's tender was not accepted. The primary judge imposed the proposed penalty, which was $1.5 million in respect of Alstom: see Australian Consumer and Competition Commission v ABB Transmission and Distribution Limited (2001) ATPR ¶ 41-839. 30 ABB wished to contest the ACCC's claims and successfully applied to have the two proceedings against it transferred to the Sydney registry of the Court. 31 A different situation arose in respect of WTC, Schneider and Tyree. Those companies, and their officers involved in the contraventions of s 45(2), admitted the facts that established their contraventions in respect of distribution transformers and agreed to the declaratory and injunctive relief that was appropriate, but did not reach agreement with the ACCC on the quantum of the penalties to be imposed. When that question came on for hearing before the primary judge the parties presented opposing cases on the issue of quantum. 32 The primary judge approached the question of penalties on the basis suggested by the parties and applied by him in respect of the contraventions of s 45(2) by Alstom, namely that it was appropriate to impose a single penalty upon each of the relevant respondents for all of their contraventions. The primary judge observed that in such circumstances "it is necessary to ensure that the penalties in aggregate are just and appropriate". His Honour also accepted that (at [40]): "[W]here other things are equal persons concerned in the same crime should receive the same punishment; and where other things are not equal a due discrimination should be made: R v Tiddy (1969) SASR 575, 577". 33 The primary judge compared the circumstances of WTC, Tyree and Schneider, observing that WTC and Tyree were private companies in which the shares were tightly held but that Schneider was a subsidiary of a large international public company. His Honour stated at [40]: "Here it would not be right to impose the same penalty on each corporation, although there is not much in the conduct in which they engaged that distinguishes them. A penalty that would be quite significant for the two small corporations will be relatively inconsequential to the third. Put differently, the parity principle should not prevent the court from carefully assessing the significance of a particular penalty for a particular corporation. And in the case of a contravention of antitrust legislation where deterrence is the main object of the penalty, that object would not be achieved if a small penalty was imposed on a large corporation just because that penalty was imposed on a co-offender. It would be equally inappropriate to use the parity principle to impose a crushing penalty on a small corporation." 34 His Honour then turned to consider the capacity of each of the corporate respondents to bear the penalty and accepted that "any substantial penalty will effect [WTC's] ability to compete in the market, and may even lead to its ultimate closure". Although the evidence was not to the effect that Tyree had the same difficulties there was evidence that it did not have substantial net assets and would have difficulty funding a substantial penalty out of cash flow. Schneider's position was different in that it did not provide details of its assets but did not suggest that it was unable to meet any penalty that may be imposed. 35 The primary Judge explained the penalties he was imposing and the reasons for arriving at the amounts of those penalties at [49]-[50]: "49. At last I come to the real task at hand, which is to fix the penalties. Having given the matter anxious consideration I will impose the following penalties: · WTC $2.5 million (to be paid in three instalments) · Mr Wilson $125,000 · Tyree $3.5 million · Mr Boyce $150,000 (to be paid in two instalments) · Schneider $7.0 million · Mr Stocker $150,000 (to be paid in two instalments) 50. In arriving at these amounts, I have been particularly influenced by the following factors: (1) To begin with, the contraventions are exceptionally serious. The cartel operated for many years, committing a large number of offences, and the value of the affected commerce was great. So one must have in mind very large penalties before any discounting takes place. (2) The size of WTC and Tyree, and their profitability. I was particularly concerned to ensure the penalty would not affect WTC's ability to trade. It would certainly be incongruous if a penalty for an anti-trust violation had an anti-competitive effect. On the other hand, WTC's assets were significantly diminished by the dividends that were paid out of profits, and if the penalty requires Mr Wilson to return some of those funds, that will not be an unjust result. (3) Mr Wilson will bear the brunt of the penalty imposed on his company, so while his penalty is less than that imposed on the other individuals, in a very real sense it is significantly higher. (4) In the case of Schneider, having regard to the parity principle and that it was involved in the contraventions for a shorter period than the other corporate respondents, the penalty is lower than would otherwise be justified. (5) None of the corporate respondents has a significant degree of power in the distribution transformer market, although as I have said, when operating as a cartel they assumed that power. (6) While it has not been possible to determine the extent of losses suffered by consumers in a market that has an annual turnover of $100 million, those losses could be high. (7) The significant cooperation of these respondents with the Commission in its investigation of the contraventions, a factor which the Commission itself correctly regards as warranting a significant discount. (8) It is unlikely that the respondents will offend again, so specific deterrence is not a relevant consideration. (9) The corporate respondents have implemented a compliance program. These programs are not really there for the education of directors, but for managers and other executives. So, the implementation of such a program tends to minimise the risk of future contraventions." 36 In support of its appeal Schneider claims that the primary judge misapprehended the facts in relation to the benefit it received from its contraventions, erred in principle by taking into account the size of its parent company and misapprehended, and as a consequence, failed to apply, the parity principle in circumstances where its application was called for. 37 The misapprehension of fact relied upon by Schneider was that his Honour acted on the basis that the benefits received by Schneider from its contraventions, in addition to the amount received from the contracts awarded to it, included "a further $20-$25 million in future sales" (at [35]), whereas it had been agreed between Schneider and the ACCC that the amount Schneider expected to receive from future sales was the sum of $3,321,000. 38 It appears that after the hearing before the primary judge, but prior to his Honour handing down his decision, Schneider and the ACCC amended the agreed statement of facts reducing the amount expected to be received by Schneider in respect of future sales from $20-$25 million to $3.321 million, but for some unexplained reason the amendment did not come to his Honour's attention or was overlooked by his Honour. 39 An appellate Court may interfere with the penalty imposed if it is shown that the trial judge fell into error by acting on a wrong principle, by a misapprehension of the facts, by taking into account irrelevant material or by failing to take into account relevant material: see Pye Industries Sales Pty Ltd v Trade Practices Commission (1979) ATPR ¶ 40-124 at 18,325-7, J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 at 574 and Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd (2002) ATPR ¶ 41-851 ("ACCC v Ithaca Ice Works") at 44,539. 40 Senior counsel for Schneider handed a table to the Full Court which set out the comparative positions of WTC, Tyree and Schneider in relation to their contraventions of s 45(2): WTC Tyree Schneider Started Mid 1993 Mid 1993 Mid 1995 No. of Tenders 24 18 14 Value of Tenders $350M $318M $226M Sales $74M $52M $25.8M Future Sales $13M $1M $3.321M Market Share 17 15 16 Penalty $2.5M $3.5M $7M 41 The "No of tenders" and "value of tenders" relate to the tenders of the particular respondent which contravened s 45(2). "Sales" relate to the actual sales achieved by the particular respondent from the contravening tenders and "future sales" relate to the amount of future sales expected to flow from those actual sales. 42 It is apparent from the table that the sales made, or expected to be made, as a result of the contravening tenders totalled $87 million in respect of WTC, $53 million in respect of Tyree and $29.121 million in respect of Schneider. However, as a result of the primary judge not taking into account the agreed amendment in respect of Schneider's future sales from $20-$25 million to $3.321 million his Honour arrived at his decision on the basis that the sales that would be received by Schneider from the tenders, in respect of which it had been successful, could total up to $50.8 million rather than $29.121 million. 43 The difference is substantial and was a matter that Schneider was entitled to have taken into account in its favour in respect of penalty. For example, WTC was involved in contravening tenders with a value of $350 million and received a total expected benefit in respect of sales of $87 million but was subjected to a penalty of $2.5 million (payable in three instalments) whereas Schneider was involved in contravening tenders with a value of $226 million and received a total expected benefit of $29.121 million in respect of sales but was subjected to a penalty of $7 million. Further, Tyree which received a total expected benefit of $53 million, was subjected to a penalty of $3.5 million. 44 The benefits the parties received from their contraventions were plainly relevant to the quantum of the penalty. Further, Schneider's actual and expected sales supported its claim that it participated in the contravening arrangements for a shorter period and to a lesser extent than WTC and Tyree. Thus, the quantum of the benefits Schneider received was also capable of being relevant to his Honour's observation that there is not much in the conduct in which WTC, Tyree and Schneider engaged that distinguished them. 45 The agreement as to the substantially reduced amount in respect of expected sales was relevant material that, for whatever reason, his Honour failed to take into account and, as a consequence, he misapprehended a relevant fact. Accordingly, Schneider is entitled to succeed on its appeal and it falls to this court to determine the penalty that is appropriate in all the circumstances. 46 Section 2 of the TPA provides that the object of the Act "is to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection". An arrangement operating for a substantial period of time in which all the major competitors in a particular market in Australia agree to share custom in that market by each competitor maintaining its traditional customers and refraining from bidding for tenders or pre-arranging prices for, and thereby rigging, tenders to achieve that objective, is plainly antithetical to that object. Although ABB is contesting its participation in the arrangements, the admissions made by WTC, Tyree and Schneider have been on the basis that the arrangements have been between all of the major participants in the relevant market. 47 In the present case the nature and extent of the contravening conduct, the extent of the loss and damage suffered as a result of it (and for which there does not appear to have been recompense), the absence of extenuating or exculpatory circumstances, and the need to deter not only the offenders but others who may be disposed to engage in conduct of a similar kind, has led me to conclude that the contraventions are extremely serious and call for the imposition of penalties that are substantial. 48 In NW Frozen Foods Pty Limited v Australian Competition and Consumer Commission (1997) ATPR ¶ 41-546 at 43,581- 43,583 Burchett and Kiefel JJ summarised the principles that have been applied when imposing a pecuniary penalty under s 76 of the Act. As their Honours explained, deterrence is one of the primary objects of a pecuniary penalty under s 76 of the TPA. In that context, the size of the contravening corporation is relevant because, as was observed by the primary judge at [40], that object would not be achieved where a small penalty is imposed on a large corporation. While Schneider did not challenge the potential relevance of its size, it challenged the primary judge's reliance on it being a subsidiary of a large international public company, contending that his Honour erred in stating that the size of the parent cannot be ignored when assessing the penalty that should be imposed on the subsidiary. 49 The size of a parent may be of relevance where, for example, the parent bore some responsibility for the subsidiary's conduct or where it is relevant to the subsidiary's capacity to meet a substantial pecuniary penalty. However, I do not regard the size of Schneider's parent company, or of the group of which it forms part, to be a relevant factor in the present case for three reasons. First, it is not suggested that the parent had any involvement in Schneider's contraventions. Second, Schneider did not put in issue its capacity to pay any penalty that may be imposed. Third, it is clear that Schneider operates a substantial business in Australia in its own right. In 2000 it employed 420 employees and had an annual turnover in excess of $200 million. Since 1996, other than in 2000, it has regularly earned net annual profits before tax well in excess of $18 million. Thus, the present case is not one in which it is necessary to determine the circumstances in which the size of a parent of an offending subsidiary will be relevant to the quantum of the penalty that is appropriate. 50 Having regard to the matters set out in [27]-[31] a penalty of at least $10 million dollars would be appropriate for the major participants in the arrangements. Of course, the circumstances of any particular participant and the need to ensure that the penalty is not unduly oppressive could justify a discount from that figure. 51 As was pointed out by the primary judge, Schneider has co-operated with the ACCC and implemented a trade practices compliance program. It has also agreed to subject itself to appropriate injunctive relief for four years. However, although Schneider was a major participant in the arrangements only between 1995 and 1999, its participation would have assisted in ensuring the continuity of the arrangements until 1999. Schneider is entitled to some discount on the basis of the above factors and, in particular, the shorter period of its participation which resulted in the benefits actually received by Schneider being substantially less than those received by WTC and Tyree. I would add, however, that it is likely that an additional benefit all of the participants were likely to have enjoyed as a result of the arrangements was the maintenance generally of inflated prices for distribution transformers in Australia during the period in which the arrangements operated. 52 Notwithstanding the views I have expressed as to the quantum of the penalty (prior to discounting for the factors to which I have referred) that I see as appropriate for the major participants, the primary judge imposed substantially smaller penalties on WTC and Tyree in the present proceeding and on Alstom in the present proceeding and the analogous proceeding concerning power transformers. The smaller penalty imposed on Alstom in that proceeding was the ACCC's suggested penalty. The smaller penalties imposed on WTC and Tyree in the present proceeding were opposed by the ACCC. However, as none of the penalties have been the subject of an appeal they stand as the penalties the Court has imposed on the major participants in relation to their contravening arrangements concerning distribution and power transformers. 53 Schneider submits that it would have a legitimate grievance if its penalties were disproportionate to those imposed on WTC and Tyree. Schneider's submission raises the application of the parity principle to the circumstances of the present case. The principle was summarised by Dawson and Gaudron JJ in Postiglione v The Queen (1997) 189 CLR 295 at 301: "The parity principle upon which the argument in this Court was mainly based is an aspect of equal justice. Equal justice requires that like should be treated alike but that, if there are relevant differences, due allowance should be made for them. In the case of co-offenders, different sentences may reflect different degrees of culpability or their different circumstances. If so, the notion of equal justice is not violated." (footnotes omitted) 54 In Lowe v The Queen (1984) 154 CLR 606 at 610 Gibbs CJ observed that the reason why an appellate court interferes, where the parity principle is not properly applied, is that: "…it considers that the disparity is such as to give rise to a justifiable sense of grievance, or in other words to give the appearance that justice has not been done." 55 Mason J observed at 612: "It has therefore been generally accepted that it is preferable to error (sic) the side of leniency and eliminate or diminish the sense of grievance and appearance of injustice by reducing the more severe penalty in appropriate cases." 56 Brennan J (at 617) referred to a "justified sense of unfair treatment" and Dawson J (at 623) referred to a "justifiable sense of grievance on the part of the offender" where the parity principle has not been properly applied. 57 The parity principle also applies to pecuniary penalties imposed under s 76 of the TPA. In ACCC v Ithaca Ice Works at 44,539 the Full Court stated: "25. It is also common ground that it is appropriate to take into account in fixing penalties the penalties imposed on respondents who have been found to have committed similar contraventions. As Burchett and Kiefel JJ said in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1997) ATPR 41-546 at 43,583; (1996) 71 FCR 285 at 295: "A hallmark of justice is equality before the law, and, other things being equal, corporations guilty of similar contraventions should incur similar penalties: Trade Practices Commission v Axive Pty Ltd (at 42,795). There should not be such an inequality as would suggest that the treatment meted out has not been even-handed: cf the criminal law case Lowe v The Queen (1984) 154 CLR 606…" 26. Of course, as their Honours point out in the passage that thereafter followed, it would be a rare case where contraventions were identical. Consequently, factors such as differing circumstances, differing market power, and differing size and responsibility will all play a part in determining the appropriate penalty to be imposed upon different respondents." 58 Thus, Schneider is entitled to have the Court take into account the penalties fixed on WTC and Tyree. However, the penalties imposed on Alstom are also relevant. While Schneider's shorter and lesser role is a significant factor in its favour, its size and undoubted capacity to pay any penalty have the consequence that the very substantial discount apparently given for those factors by the primary judge to WTC and Tyree is not applicable to Schneider. Further, although the parity principle warrants a substantial discount in the present case it ought not to be so substantial that the penalty loses its deterrent value, particularly in respect of those who might be disposed to engage in similar conduct. 59 In my view any penalty less than $5.5 million would not sufficiently take into account the seriousness of Schneider's contravening conduct, the substantial benefits it received, the losses caused by that conduct and the need to deter it and others from engaging in conduct of a similar kind in the future. While that penalty is substantially above that imposed on WTC and Tyree it is consistent with the penalties imposed on Alstom in respect of its arrangements concerning power and distribution transformers. Also, although I accept the importance of the parity principle, its application should not result in penalties that are inappropriate in the circumstances of the case. Put another way, if the penalties imposed on some participants are inadequate it does not follow that the penalties imposed on all participants must also be inadequate. In any event, for the reasons set out above the penalty I regard as appropriate has been arrived at by having regard to the parity principle and making allowances for the different circumstances and size of Schneider. 60 For the above reasons I have concluded that the appeal should be allowed, the order of the trial judge imposing a pecuniary penalty of $7 million should be set aside and, in lieu thereof, an order should be made that a penalty of $5.5 million be imposed on Schneider in respect of its contravening conduct. Schneider has succeeded on its appeal and is entitled to an order that the ACCC pay its costs of the appeal. 61 Before departing from the present case it is appropriate to observe that there is some force in the observations of the primary judge in ACCC v ABB (No 1) at 42,938 that current penalties in Pt IV prosecutions appear to be "on the low side". It may well be that a lower "tariff" has emerged, in part, as a result of the Court's acceptance of settlements arrived at by the ACCC and the subsequent use of the penalties resulting from those settlements in fixing penalties for similar offences. It is important for the Court, when considering penalties in analogous cases to distinguish between the prior acceptance by the Court of the ACCC's proposed penalty resulting from a settlement and the penalty the Court has itself determined to be appropriate. In the former instance the Court is merely determining whether the penalty is within the range of penalties the Court would consider appropriate: see ACCC v ABB (No 1) at [4] and the cases there cited. In the latter instance the Court is imposing the penalty it regards as appropriate. In that context it is appropriate to emphasise the need to ensure that penalties are not fixed in sums that do not have adequate regard to the nature and extent of the contravention, the losses caused by the contravention and the need to deter not only the offending parties but also others from engaging in similar conduct. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel. Associate: Dated: 13 February 2003 Counsel for the Appellant: Mr DF Jackson QC with Mr SM Anderson Solicitor for the Appellant: Truman Hoyle Counsel for the Respondent: Mr BR McClintock SC with Mr ST White Solicitor for the Respondent: Deacons Date of Hearing: 21 November 2002 Date of Judgment: 14 February 2003