JUDGMENT No. saccd! cloud wcdten TRADE PRACTICES - restrictive trade practices - arrangements or understandings containing exclusionary provisions or substantially lessening competition - individual knowingly concerned in, or party to, contravention by corporation - pecuniary penalty to be imposed on individual - determination of appropriate amount. Trade Practices Act 1974 ss 4D, 45, 45A and 76. Trade Practices Commission v CSR Limited (1991) ATPR 41-076 TRADE PRACTICES COMMISSION v &_ ORS No NG 574 OF 1994 LINDGREN J AS GPAL SYDNEY REGISTRY 24 NOVEMBER 1994 IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 574 of 1994 GENERAL DIVISION ) BETWEEN: TRADE PRACTICES COMMISSION Applicant CC (NEW SOUTH WALES) PTY LIMITED formerly known as _ CONCRETE CONSTRUCTIONS (NSW) PTY LIMITED First Respondent PETER WOOLLARD Second Respondent HOLLAND STOLTE PTY LIMITED Third Respondent GRAHAM RONALD DUFF Fourth Respondent MULTIPLEX CONSTRUCTIONS PTY LIMITED Fifth Respondent GEOFFREY THOMAS PALMER Sixth Respondent LEIGHTON CONTRACTORS PTY LIMITED Seventh Respondent LEONARD DIXON Eight Respondent THE AUSTRALIAN FEDERATION OF CONSTRUCTION CONTRACTORS Ninth Respondent RUSSELL NORMAN RICHMOND Tenth Respondent CORAM: LINDGREN J PLACE :* SYDNEY DATE: 24 November 1994 THE COURT: * - ORDERS that within 28 days of 24 November 1994, the tenth respondent pay to the Commonwealth a pecuniary penalty of $10,000.00 in respect of all his acts and omissions referred to in the amended statement of claim filed on 17 November 1994 in these proceedings constituting his being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by all and any of the first, third, fifth, seventh and ninth respondents of all and any of sub-paragraphs 45 (2) (a) (i), 45 (2) (b) (4), 45 (2) (a) (41) and 45 (2) (b) (ii) of the Trade Practices Act 1974 (Cth). NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) NEW SOUTH WALES DISTRICT REGISTRY ) No NG 574 of 1994 GENERAL DIVISION CORAM: PLACE: DATE: LINDGREN J SYDNEY 24 NOVEMBER 1994 ) BETWEEN: TRADE PRACTICES COMMISSION Applicant CC (NEW SOUTH WALES) PTY LIMITED formerly known as CONCRETE CONSTRUCTIONS (NSW) PTY LIMITED First Respondent PETER WOOLLARD Second Respondent HOLLAND STOLTE PTY LIMITED Third Respondent GRAHAM RONALD DUFF Fourth Respondent MULTIPLEX CONSTRUCTIONS PTY LIMITED Fifth Respondent GEOFFREY THOMAS PALMER Sixth Respondent LEIGHTON CONTRACTORS PTY LIMITED Seventh Respondent LEONARD DIXON Eight Respondent THE AUSTRALIAN FEDERATION OF CONSTRUCTION CONTRACTORS Ninth Respondent RUSSELL NORMAN RICHMOND Tenth Respondent MATURE OF PROCEEDINGS - - The applicant ("also referred to as "the Commission") commenced these proceedings by application filed on 30 August 1994 seeking one set of remedies against the corporate respondents, that is to say, the first, third, fifth, seventh and ninth respondents, and another set of remedies against the individual respondents, that is to say, the second, fourth, sixth, eighth and tenth respondents. With the application was filed a statement of claim. According to this pleading each individual respondent was at all material times employed by the corporate respondent named in the title to the proceedings immediately preceding his name. Accordingly, and so the statement described them, at all material times Woollard was employed by Concretes, Duff was employed by Hollands, Palmer was employed by Multiplex, Dixon was employed by Leightons and Richmond was employed by the AFCC. As well, it was pleaded that all acts alleged in the statement of claim were performed by the individual respondents in their capacities as employees of their respective corporate employers. These reasons relate only to a pecuniary penalty of $10,000, which, on 24 November 1994, I ordered under s 76 of the Trade Practices Act 1974 (Cth) ("the Act") that Richmond, who had been at all material times employed by the AFCC as its "National Executive Director", pay to the Commonwealth within 28 days of 24 November 1994. The following is an account of the facts as pleaded in the statement of claim (see later as to the amended statement of cos claim). At all material times Concretes, Hollands, Multiplex and Leightons carried on business as building and construction contractors in New South Wales and were members of the AFCC. On or about 11 August 1988, Australian Construction Services ("ACS"), part of the Commonwealth Department of Administrative Services, for and on behalf of the Commonwealth of Australia, invited Concretes, Hollands, Multiplex and Leightons ("the Tenderers") to submit tenders for a building project known as the Commonwealth Offices-Haymarket ("the Haymarket Project"). In or about September or October 1988, John Cunningham ("Cunningham"), Director of Special Projects with the AFCC, for and on behalf of the AFCC, contacted the Tenderers and notified them of his intention to conduct a meeting of them in relation to the Haymarket Project prior to the closing date for tenders. The Tenderers accepted Cunningham's invitation. The intention of Cunningham and of each of the Tenderers in the setting up of, and agreement to attend the meeting, was that the Tenderers would be enabled to take into account in the preparation of their tenders any matters agreed at the meeting, which they expected, would include arrangements or understandings on the subjects of a "special fee" payable by the successful Tenderer to the AFCC, and unsuccessful tenderers' fees payable by the successful Tenderer to the three unsuccessful Tenderers. Prior to the proposed meeting, Richmond instructed Cunningham to propose that the successful Tenderer should pay to the AFCC a special fee of $1,000,000.00. The meeting took place in September or October 1988 and was attended by Woollard of Concretes, Duff of Hollands, Palmer of Multiplex, Dixon of Leightons and Cunningham of the AFCC ("the Meeting") when it was agreed that each Tenderer would, if its tender was accepted, pay a special fee to the AFCC of $1,000,000.00 ("the Special Fee"), would take its obligation to do so into account in the preparation of its tender, and would not disclose to ACS the terms of the arrangement or understanding or the fact that the Meeting had taken place. After that agreement ("the Special Fee agreement") had been reached, Cunningham was asked to leave the room which he did and the Meeting resumed between the four representatives of the Tenderers who agreed that the successful Tenderer would pay to each of the unsuccessful Tenderers an unsuccessful tenderer's fee of $750,000.00 ("the UTF"), and that each Tenderer would take this obligation into account in the preparation of its tender, and would not disclose to ACS the terms of the arrangement or understanding or the fact that the Meeting had taken place ("the UTFs agreement"). The Tenderers did take into account the arrangements or understandings reached at the Meeting in the preparation and submission of their tenders; ACS awarded the contract to Hollands; Richmond caused or procured the AFCC by its National Executive Committee to ratify and levy the Special Fee on Hollands; in or about January or February 1989 Hollands paid $200,000.00 or $300,000.00 to the AFCC as part of the Special Fee; subsequently over a period from 24 July 1989 to 1 February 1990 the AFCC sent a series of invoices of $100,000.00 each to Hollands which it paid on account of the Special Fee; Concretes, Multiplex and Leightons each sent to Hollands a number of invoices purporting to be for "consultancy services" which had in fact not been provided and were never intended to be provided and which in fact represented parts of the respective UTFs and totalled in each case $750,000.00 which Hollands paid. The statement of claim further alleged that the conduct pleaded constituted various contraventions of the Act. After three earlier directions hearings, at a directions hearing on 29 September 1994, when the Commission and Richmond were each represented by senior counsel, by consent, orders were made against Richmond in terms of paragraphs 7, 8, 9 and 10 of the application. Paragraphs 8, 9 and 10 provided for injunctive and declaratory relief not presently relevant. By paragraph 7, however, the Commission had sought: "A pecuniary penalty in respect of each instance in which the Respondent: (a) has induced a person to contravene; (b) has attempted to induce a person to contravene; or (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of, a provision of section 45 of the Trade Practices Act 1974 including its extended operation by virtue of sections 4D and 45A as alleged in the Statement of Claim." I noted that the amount of the pecuniary penalty referred to remained to be determined on a date to be fixed. An amended statement of claim was filed on 17 November 1994. It made no alteration to the allegations of facts which I recounted earlier, but is the pleading which now gives content to the reference in paragraph 7 of the application quoted above to contravention of a provision of s 45 of the Act as .extended by ss 4D and 45A of the Act. Sub-section 45 (2) prohibits corporations from making certain contracts or arrangements or arriving at certain understandings and from giving effect to certain provisions of contracts, arrangements or understandings. In substance, sub- section 45 (2) is directed against provisions of contracts, arrangements and understandings which are likely to deprive markets of the benefits of competition. There are two evils against which the section is directed and by reference to which such provisions are defined: "exclusionary provisions" on the one hand and provisions which "substantially lessen competition" in a market on the other. Section 4D prescribes the circumstances in which = an exclusionary provision will exist. An exclusionary provision is a "collective boycott" between competitors directed to preventing, restricting or limiting the supply or acquisition of goods or services. The objective is to protect the "competitors" against competition between themselves, at the expense of their customers. Section 45A provides that price fixing is, for the purposes of s 45, deemed to have the purpose, or to have or be likely to have the effect, of substantially lessening competition. Section 76 provides relevantly that although it is only a corporation which can "contrayene"" the prohibitions expressed "in sub-section 45 (2), pecuniary penalties may be imposed not only upon those who have contravened, attempted to contravene, or conspired with others to contravene a provision of Part IV (in which s 45 occurs), but also upon various classes of "accessories". Paragraph (e) of sub-section 76 (1) targets a person who "has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision". It is by means of this paragraph that the Pleading seeks to draw in Richmond. Relevantly, it is, in effect, pleaded that Richmond was "knowingly involved in each of the contraventions by each of AFCC and each of the Tenderers" and that by engaging in the conduct pleaded against him Richmond was "directly or indirectly knowingly concerned in, and party to, the Tenderers and the AFCC making and arriving at the arrangements or understandings ..." in contravention of s 45. On the hearing senior counsel for the Commission made it clear that he relied only on the Special Fee agreement and not on the UTFs agreement in relation to Richmond. At the relevant time, s 76 provided that if the Court was satisfied that a person had been in any way, directly or indirectly, knowingly concerned in or _ party to, the contravention of a provision of Part IV, the Court might order the person to pay to the Commonwealth such pecuniary penalty 'in respect of each act or omission by the person to which the section applied, as the Court determined "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 that person ha[d] previously been found by the Court in proceedings under this Part to have engaged in a similar conduct". At all material times, s 76 provided that the pecuniary penalty payable by a person other than a body corporate was not to exceed $50,000.00 for each act or omission to which the section applied. The only issue before me on 24 November 1994 was that of the amount of the pecuniary penalty which Richmond was to be ordered to pay. I ordered that he pay within 28 days from 24 November 1994 a pecuniary penalty of $10,000.00 to the Commonwealth in respect of all the acts and omissions pleaded against him in the amended statement of claim and indicated that I would publish my reasons later. These are those reasons. -10- Agreement between the Commigsion and Richmond on desirable amount of pecuniary penalty. The Commission submitted that a penalty of $10,000.00 was appropriate. Although Richmond made submissions directed to the imposition of no more than a modest penalty, he did not submit that any particular amount less than $10,000.00 should be imposed. In effect, the parties were agreed that $10,000.00 was an appropriate penalty. Of course, the amount of penalty is a matter for the Court, and no doubt without the parties' suggestion, I may have arrived at a different amount, more or less than $10,000.00. But a series of single judge decisions in this area have consistently treated it as proper for the Court to be informed of and treat as relevant, the parties' agreement on an appropriate amount, and further, if the agreed amount is within the range of amounts which the Court would have had in mind ordering in any event, to make an order for payment of the agreed amount: see Trade Practices Commission v Allied Mills Industries Pty Ltd (No 5) (1981) 60 FLR 38 (FCA/Sheppard J) at 41; Commerce Commission v New Zealand Milk Corporation Ltd [1994] 2 NZLR 730 (HC of NZ/FC); Trade Practices Commission ov Hymix Industries Pty Ltd, unreported, FCA/Lockhart J, 25 August 1994. -1l1- Matters relevant to the quantum of pecuniary penalty - The passage from s 76 quoted earlier requires the Court to have regard "to all relevant matters" including those specified. In Trade Practices Commission v CSR Limited (1991) ATPR 41-076 at 52,152-52,153, French J listed nine matters to which the Court will have regard in its assessment of "a penalty of appropriate deterrent value" of which the first three are mentioned in s 76: "1. The nature and extent of the contravening conduct. 2. The amount of loss or damage caused. 3. The circumstances in which the conduct took place. 4. The size of the contravening company. 5. The degree of power it has, as evidenced by its market share and ease of entry into the market. 6. The deliberateness of the contravention and the period over which it extended. 7. Whether the contravention arose out of the conduct of senior management or at a lower level. 8. Whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention. 9. Whether the company has shown a disposition to co- operate with the authorities responsible for the enforcement of the Act in relation to the contravention." Although useful as reminders, statements of factors likely to be found relevant cannot be exhaustive. Moreover, the passage quoted in particular was directed to corporate contraveners. In Trade Practices Commission v Caravella (1994) ATPR 41-293 (FCA/Spender J) and Trade Practices Commission v Prestige Motors Pty Ltd (unreported, 18 November 1994, Lee J), penalties which had not been the subject of agreement with the Commission were imposed on individuals in respect of their liability under s 76 as "accessories". In each case the extent to which an individual's conduct contributed to the contravention by the corporation was treated as significant in the quantification of penalty. Submissions of the Commission Senior counsel for the Commission submitted as follows: It could not allege that Richmond had been present at the Meeting; Richmond had offered to co-operate and to provide a witness statement; The Commission might well have discontinued against Richmond but sought a modest penalty instead; On the evidence (referred to below) Richmond would not find it easy to pay any penalty; The Commission "knew" that Richmond would not have withdrawn his defence byt for the Commission's agreeing to make a submission in favour of a modest penalty; Although the amended statement oof claim pleaded contravention of more than one provision, there was only one factual matter to be taken into account and that was Richmond's conduct in relation to the Special Fee, namely his instructing Cunningham to propose that there be a Special Fee of $1,000,000.00 (sub-section 76 (3) provides that where conduct constitutes a contravention of two or more provisions of Part IV, a person is not liable to more than one pecuniary penalty under s 76 in respect of the same conduct). Submissions of Richmond Senior counsel for Richmond submitted as follows: (a) (b) Richmond did not admit all the allegations pleaded and consented to an order against him under s 76 as sought by the Commission on the basis of those allegations without admitting their truth (see later); Richmond's role was minor; (c) The case was not one of conscious wrongdoing on Richmond's part; (d) Richmond's personal position (see below) warranted imposition of only a modest penalty. Richmond's personal position. There was tendered a statement relating to Richmond's personal position. He was born at Gunnedah, New South Wales in November 1945 and so was just under 44 years at the time of the contraventions. He was raised on the land, attending an agricultural high school before attending the University of New England at Armidale where he graduated with the degree of Bachelor of Agricultural Economics in 1967. Upon graduation he took up a scholarship with the Hunter Valley Research Foundation in Newcastle and for three years researched into the rural concerns of the day. In the early 1970's he transferred to the New South Wales Department of Agriculture as an Economist and then as Senior Economist in the Division of Marketing and Economics. In these two agriculture-oriented roles he authored more than 50 publications with specialisation in the economics of flood irrigation. He became Assistant Director with the AFCC in 1977. In 1978 he married. He and his wife have two children. - 15 - He became Executive Director of the AFCC in 1981 and National Executive Director in 1983. - In the late 1980s and early 1990s, Richmond recognised that the AFCC had largely achieved its goals and should move to dissolve itself. He convinced its members of the wisdom of this course, and this resulted in his retrenchment in July 1993. After being unemployed for some ten months, earlier this year (1994) he was appointed General Manager of Rehabilitation Tasmania Pty Ltd and as such he is the chief executive of a private hospital specialising in rehabilitation. The shareholders are the Tasmanian State Government and the Motor Accidents Insurance Board. He has substantial responsibilities for the overseeing of the treatment of public and private patients. Richmond now permanently resides in Tasmania and it was submitted that he "is looking forward to making a positive contribution to the local community". Richmond has a half interest in a house and its contents in Hobart, the half share being worth approximately $135,000.00, in total, cash at the bank of $2,576.00 and superannuation and pension entitlements. - 16- zs The facts of the alleged contraventions by the corporations and of Richmond's involvement were not proved before me by evidence. Rather, the hearing proceeded on the basis that Richmond no longer traversed, for the purpose only of the fixing of penalty, the allegations made by the Commission in its amended statement of claim: see Order 11 r 13 (1) of the Federal Court Rules. Accordingly, although it is necessary for me in fixing the amount of the pecuniary penalty payable by Richmond to refer to the relevant "facts" of the case, it must be understood that the basis for these "facts" is the Commission's allegations in its pleadings and Richmond's non- traversal of them for the limited purpose of the quantification of pecuniary penalty. The arrangements or understandings pleaded are of a serious nature. They involved the payment by Hollands of a Special Fee of no less than $1,000,000.00 to the AFCC, and UTFs totalling no less than $2,150,000.00 to Concretes, Multiplex and Leightons. The inference is that the tenders submitted, including Hollands', were $3,150,000.00 more than what they would have been but for the arrangements or understandings. This was, of course, a gross imposition on the Commonwealth and so upon the people of Australia. In dealing with Richmond alone, I am to disregard the UTFs. Nevertheless, the corruption of market forces even to the extent of $1,000,000.00 in the interests of an association of construction contractors and to the detriment of the Commonwealth deserves the strongest condemnation. Richmond was part of this. It is difficult to avoid the impression that Richmond, who was once of a mind to study and engage in research, became, by virtue of his employment by the AFCC, infected by the moral insensitivity which, at least in the respect revealed in the proceedings, apparently characterised the construction industry at the time. Although Richmond nominated the amount of the Special Fee to be paid to his employer, in substance his employer was an instrument of the very construction contractors which would be conspiring against the Commonwealth's interest in the integrity and reliability of the tender process, one of which would be paying the Special Fee to the AFCC. He and the AFCC appear to have been in one sense, "arms" of the Tenderers. There is no suggestion that the AFCC dominated the Tenderers, forcing them to accept the Special Fee agreement against their wills. Rather, the pleadings give the impression that the adding of the Special Fee onto the amounts of their tenders and the concealed payment of it to "their" association, were readily accepted by the Tenderers as though they constituted a normal practice. I accept that Richmond's involvement in the contravention was - 18 - not as vital as was that of others. Not only did he not attend the Meeting, but as, I pointed in the course of submissions, according to the pleading it was Cunningham who initiated the Meeting, Richmond's role being to instruct him to propose $1,000,000.00 as the amount of the Special Fee. I also accept that after a period of unemployment Richmond is again now seeking to make "a positive contribution to the local community" and that his means would justify a relatively modest level of penalty. Importantly, Richmond "has shown a disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention". His consenting to orders at such an early stage of the proceedings has made for a saving in cost and time. In all the circumstances I think that the fixing of the pecuniary penalty in an amount of $10,000.00 as suggested by the parties is an appropriate exercise of my discretion. The Commission has not sought an order that Richmond pay its costs or any part of them, no doubt because he consented to orders against him so early in the proceedings and because the proceedings continue on foot as against others. - 19 - CONCLUSION - There will be an order that Richmond pay a pecuniary penalty to the Commonwealth of $10,000.00 in respect of all the acts and omissions alleged against him in the amended statement of claim as constituting his being knowingly concerned in, or party to, contraventions by all and any of the AFCC, Concretes, Hollands, Multiplex and Leightons of sub-paras 45 (2) (a) (i), 45 (2) (b) (i), 45 (2) (a) (ii) and 45 (2) (b) (ii) of the Act, and that he have a period of 28 days from 24 November 1994 in which to pay that amount. I certify that this and the preceding 18 pages are a true copy of the Reasons for Judgment of the Honourable Justice Lindgren. Dated: 29 November 1994 Heard: 24 November 1994 Place: Sydney Decision: 24 November 1994 Appearances: Mr C A Sweeney OC instructed by Australian Government Solicitor appeared for the applicant. Mr B H K Donovan QC instructed by Alan John Cullen appeared for the 10th respondent.