FEDERAL COURT OF AUSTRALIA ACCC v The Tasmanian Salmonid Growers Association Ltd [2003] FCA 788 TRADE PRACTICES – agreement of trade association of salmon farmers to limit supply – incorrect legal advice as to per se contravention – agreed orders – whether Court a rubber stamp Federal Court of Australia Act 1976 s 21 Trade Practices Act 1974 ss 45(2)(a)(ii), s 45(2)(a)(ii), 80(1)(e), 83, 86C(2)(b), 87B Yorke v Lucas (1985) 158 CLR 661 applied Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2002] FCA 619 cited AUSTRALIAN COMPETITION & CONSUMER COMMISSION V THE TASMANIAN SALMONID GROWERS ASSOCIATION LIMITED AND TASSAL LIMITED T2 of 2003 HEEREY J 1 AUGUST 2003 MELBOURNE (HEARD IN MELBOURNE (AND HOBART BY VIDEOLINK)) IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY T2 OF 2003 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT AND: THE TASMANIAN SALMONID GROWERS ASSOCAITION LIMITED (ACN 009 590 729) FIRST RESPONDENT TASSAL LIMITED (ACN 009 548 770) SECOND RESPONDENT JUDGE: HEEREY J DATE OF ORDER: 1 AUGUST 2003 WHERE MADE: MELBOURNE (HEARD IN MELBOURNE (AND HOBART BY VIDEO LINK)) THE COURT ORDERS THAT: 1. The Court finds the following facts for the purposes of s 83 of the Trade Practices Act 1974 (the Act) (a) At all material times: (i) The first respondent was a trade association of salmonid growers in Tasmania, predominantly atlantic salmon growers. (ii) The second respondent was an atlantic salmon grower in Tasmania and a member of the first respondent. (iii)The Board of Directors of the first respondent ('the Board') consisted predominantly of representatives of each of the atlantic salmon growing businesses in Tasmania, including the second respondent. (iv)These businesses competed with each other in the market for the supply of atlantic salmon to retailers and wholesalers. (b) In early February 2002 the Board was aware of a forecast price decrease for atlantic salmon due in part to an increase in the production of their members which was greater than the increase in demand for their products. (c) At a board meeting on 14 February 2002, the Board of the first respondent unanimously agreed that members of the first respondent who were farmers of atlantic salmon would 'grade out at least ten percent of the 2001 year class of salmon by 31 July 2002' and if a review found it necessary, a further five per cent would be graded out; that the fish to be graded out would be solely selected from fish that would have otherwise reached market; and that the fish graded out would be discarded in a manner that ensured they would not indirectly reach market ('the grading agreement'). (d) In or about April 2002 the second respondent gave effect to the grading agreement by grading out in the order of 70 tonnes of its 2001 atlantic salmon stock. THE COURT DeCLARES THAT: 2. By encouraging and facilitating the making of an arrangement or understanding by the second respondent and its competitors to limit the supply of atlantic salmon by grading out atlantic salmon stocks, which arrangement or understanding would be likely to have the effect of controlling or maintaining the price of atlantic salmon, the first respondent was, for the purposes of s 80(1)(e) of the Act, knowingly concerned in the making of an arrangement or understanding which contravened s 45(2)(a)(ii) of the Act. 3. By making an arrangement or understanding with its competitors to limit the supply of atlantic salmon by grading out atlantic salmon stocks, which arrangement or understanding would be likely to have the effect of controlling or maintaining the price of atlantic salmon, the second respondent contravened s45(2)(a)(ii) of the Act and by grading out approximately 70 tonnes of its 2001 atlantic salmon stock pursuant to that arrangement or understanding the second respondent contravened s 45(2)(b)(ii) of the Act. THE COURT ORDERS BY CONSENT THAT: 4. The first respondent (whether by its directors, employees or agents or otherwise howsoever) be restrained for a period of four years from being involved in any way in the making of a contract, arrangement or understanding between competitors to limit the supply of atlantic salmon, or to fix, control or maintain the price of atlantic salmon, by grading out atlantic salmon stocks. 5. The second respondent (by itself, its officers, agents or howsoever otherwise) be restrained for a period of four years from making or giving effect to a contract, arrangement or understanding between competitors to limit the supply of atlantic salmon, or to fix, control or maintain the price of atlantic salmon, by grading out atlantic salmon stocks. 6. The first respondent will establish, and maintain for a period of three years from the date of this order, a trade practices compliance program requiring that: (a) once a year all the directors of the first respondent attend a seminar conducted by a suitably qualified person solely addressing the Act and covering Part IV of the Act, the first such seminar to be held within two months of the date of this order; (b) within two months of the date of this order the first respondent acquire and provide to each director, and thereafter maintain for the duration of the compliance program, a manual that sets out the provisions of Part IV of the Act and provides commentary on scenarios relevant to the fish farming industry. 7. The first respondent pay the sum of $3000 and the second respondent pay the sum of $5,000 towards the applicant's costs of the action. AND THE COURT NOTES 8. That the second respondent has given the applicant an undertaking pursuant to s 87B of the Act to establish and maintain a trade practices compliance program. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA TASMANIA DISTRICT REGISTRY T2 OF 2003 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT AND: THE TASMANIAN SALMONID GROWERS ASSOCAITION LIMITED (ACN 009 590 729) FIRST RESPONDENT TASSAL LIMITED (ACN 009 548 770) SECOND RESPONDENT JUDGE: HEEREY J DATE: 1 AUGUST 2003 PLACE: MELBOURNE (HEARD IN MELBOURNE (AND HOBART BY VIDEO LINK)) REASONS FOR JUDGMENT INTRODUCTION 1 The applicant Australian Competition and Consumer Commission (the Commission) has alleged contraventions by the second respondent Tassal Limited of s 45(2)(a) of the Trade Practices Act 1974 (the Act) and the first respondent The Tasmanian Salmonid Growers Association Limited's involvement (within the meaning of s 75B of the Act) in those contraventions. The alleged contraventions were constituted by an arrangement or understanding between competitors, including the second respondent, to grade out atlantic salmon in order to ameliorate a reduction in price caused by an oversupply and the giving effect to that arrangement or understanding by the second respondent. 2 The second respondent admits the contravention of s 45(2)(a)(ii) of the Act set out in [21] below and the contravention of s 45(2)(b)(ii) of the Act set out in [22] below. The first respondent admits that it was a person involved in the second respondent's contravention of s 45(2)(a)(ii) of the Act. The parties have reached agreement as to the terms of suggested orders they seek and have submitted a Minute of Agreed Orders setting out the terms ofagreed orders suggested for the Court's consideration and, if appropriate, its approval. 3 The agreed orders jointly requested by the parties include: (a) findings of fact for the purposes of s 83 of the Act; (b) declarations under s 21 of the Federal Court of Australia Act 1976, (c) injunctions under s 80 of the Act; (d) a probation order under s 86C(2)(b) of the Act as against the first respondent and the noting of a s 87B undertaking by the second respondent; and (e) an order for costs in favour of the Commission. 4 The parties submit that the Court should proceed to the making of orders against the respondents from the standpoint that all of the allegations against the respondents in the Statement of Claim are admitted except where they are inconsistent with these submissions. THE CONTRAVENING CONDUCT 5 The first respondent operated as a trade association of farmers of atlantic salmon in Tasmania. Its Board of Directors included representatives of several atlantic salmon growing businesses in that State. These businesses were competitors for the supply of atlantic salmon to retailers and wholesalers throughout Australia. At all material times the Chairman of the Board was not a director of any of those atlantic salmon growing businesses. The day to day operations of the first respondent were managed by an employed Executive Officer. 6 In 2001 the first respondent became aware of an oversupply of atlantic salmon being produced by its members. The first respondent was concerned that the oversupply might cause an unsustainable drop in prices at a time when the financial viability of some of its members was precarious. 7 In response, the first respondent developed and implemented a generic marketing campaign which was intended to increase demand throughout Australia for Tasmanian grown atlantic salmon. However, the campaign was not able to increase demand by an amount that would absorb the over production by the members of the first respondent. 8 On 14 January 2002, the first respondent held a strategy meeting of some of its members and staff. The meeting determined that a cull of atlantic salmon stocks would alleviate the problem. The Executive Officer of the first respondent was directed to produce an estimate of the percentage of atlantic salmon stock that would need to be culled. 9 By a memo dated 24 January 2002 from the Chairman of the first respondent to all directors the Chairman provided industry data and an analysis which estimated there would be an oversupply of 1,080 tonnes of the 2000 year class and that even if 2001 smolt numbers did not increase over 2000 there would still be a considerable increase in the total amount of fish available for the market. 10 On or about 30 January 2002 the Executive Officer of the first respondent sought legal advice about the trade practices implications of a recommendation to members to grade out fish stocks. The advice was to the effect that such a recommendation would not constitute a per se contravention of the Act. 11 In early February 2002 the first respondent's Executive Group formed the view that a reduction in fish numbers was required so as to ensure the financial viability of the salmon farming industry in Tasmania and agreed that this should be achieved by the five major growers grading out ten per cent salmon from the 2001 year class with subsequent decision by the end of May about a possible grading out of a further 5 per cent. This information was reported to a board meeting of the first respondent on 14 February 2002 along with advice that the first respondent had taken legal advice that this discussion of supply was within the Act. 12 At that board meeting on 14 February 2002 the Board adopted a formal resolution (the grading agreement) that all members of the first respondent who were farmers of atlantic salmon would "grade out at least ten per cent of the 2001 year class of salmon by 31 July 2002' and, if a further review by 31 May 2002 found it necessary, an additional 5 per cent would be graded out. It was also part of the grading agreement that only atlantic salmon that would otherwise have reached market would be graded out and that graded out salmon would be discarded in a manner that ensured they did not reach market. 13 At the direction of the Board, the Executive Officer of the first respondent prepared and distributed to its member atlantic salmon growers a written agreement reflecting the terms of the grading agreement. Some of the growers signed the agreement and returned it to the first respondent. 14 On 15 April 2002 a member of the first respondent (not the second respondent) obtained independent legal advice which concluded that the grading agreement went further than the mere recommendation envisaged by the original legal advice and was likely to constitute a per se contravention of s 45 of the Act in that the agreement sought to limit supply and control or maintain price. 15 In or about April 2002 the second respondent gave effect to the grading agreement by grading out in the order of 70 tonnes of its 2001 atlantic salmon stock and on 24 April 2002 the second respondent publicly referred to the industry grading agreement, indicating that it intended to include the cost of the grading out in the current year. 16 On 6 May 2002 the Commission wrote to the second respondent and advised that the grading agreement was being investigated. 17 At a Board meeting on 16 May 2002 a member of the Board tabled the legal advice referred to in [14] above. 18 The Board directed that in view of that legal advice the grading agreement should be treated as a recommendation only with no obligation on members of the first respondent to comply and that growers should advise the Board individually whether they intended to undertake the grading out envisaged in the grading agreement. 19 On 28 May 2002 the Commission wrote to the first respondent and advised that the grading agreement was being investigated. 20 On 25 June 2002 receivers and managers were appointed to the second respondent by the ANZ Banking Group Ltd as secured creditor. CONTRAVENTIONS 21 The arrangement or understanding to remove at least ten per cent of the 2001 year class salmon from the market constituted a contravention of s 45 of the Act because it was a provision which had, or would be likely to have, the effect of substantially lessening competition within the meaning of s 45(2)(a)(ii) and s 45A(1) of the Act. In the circumstances in which the arrangement or understanding was reached, the first respondent was a person involved (within the meaning of s 75B of the Act) in the contravention of s 45(2)(a)(ii) of the Act by the second respondent. Involvement requires knowledge of the essential facts constituting the contravention but not that the conduct amounted to a contravention: Yorke v Lucas (1985) 158 CLR 661. The facts demonstrate that the first respondent, through its Board of Directors and its staff, was fully aware of and took positive steps to facilitate the making of the grading agreement. 22 The giving effect to the arrangement or understanding by the second respondent by grading out approximately 70 tonnes of its 2001 atlantic salmon stock constituted a contravention by the second respondent of s 45(2)(b)(ii) of the Act. 23 The second respondent admits its contraventions of the Act alleged at pars 16 and 17 of the Statement of Claim and the first respondent admits its involvement in the second respondent's contravention of s 45(2)(a)(ii) of the Act alleged at par 18 of the Statement of Claim. THE NEGOTIATED SETTLEMENT PROCESS 24 In Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2002] FCA 619 at [33] - [34] Weinberg J pointed out that, as the authorities presently stand, the Court is bound to impose an agreed pecuniary penalty unless it is so clearly beyond the permissible range that the Court would depart from it. His Honour observed that there are dangers associated with that approach. The Court may be seen as a rubber stamp, simply approving a decision taken at an executive level by a non-judicial body charged with investigating and prosecuting contraventions of the Act. I agree with those comments. As his Honour points out, there are important parallels between fixing a pecuniary penalty under s 76 and the ordinary sentencing process of the criminal law, which is quintessentially a matter for the court. Indeed, it is not easy to discern a practical difference. Yet criminal courts in Australia would usually not consider their sentencing discretion restricted in any way by an agreement between prosecution and defence. 25 Nevertheless in the present case I think the orders proposed are appropriate in the circumstances. ORDERS SOUGHT BY CONSENT 26 Minute of Agreed Orders provides for findings of fact, declarations, injunctions, a probation order under s 86C(2)(b) of the Act, the noting of a s 87B undertaking and an order in respect of costs. Findings of Fact 27 The findings of fact sought in the Minute of Agreed Orders are the facts agreed by the Commission and the respondents and constitute the basic facts pertaining to the contraventions. Declarations 28 Declarations that the conduct of the second respondent contravened s 45(2)(a)(ii) and (b)(ii) of the Act and that the conduct of the first respondent amounted to being knowingly concerned in the contravention of s 45(2)(a)(ii) of the Act by the second respondent are proposed in the Minute of Agreed Orders. Injunction 29 Injunctions restraining the respondents for a period of four years from being involved in any similar conduct are proposed in the Minute of Agreed Orders. I am satisfied that the form of the injunctions sought sufficiently identifies the conduct sought to be restrained. Pecuniary Penalty 30 No pecuniary penalty is sought against the respondents because: (a) the first respondent (of which the second respondent was a member) sought legal advice prior to facilitating the making of the grading agreement, albeit that the contravening conduct was different from that on which the advice was based; (b) until further legal advice was obtained the first respondent and its members believed that they were acting in good faith and lawfully. Upon receiving the further legal advice the first respondent ensured that the status of the grading agreement was changed to an industry recommendation which it believed would not contravene the Act; (c) the change in status of the grading agreement took place before a majority of the members of the first respondent gave effect to it. Furthermore, in giving effect to the agreement the second respondent did not grade out the full ten per cent of its 2001 stock. Therefore, the grading agreement in its original form had little or no effect on the supply of atlantic salmon and no detrimental effect on purchasers of the product; (d) the respondents co-operated with the Commission's investigation and provided it with requested documents promptly; (e) the first respondent is a "not for profit" organisation established over 12 years ago to support and represent its industry members by working with the Federal and State governments with regard to atlantic salmon legislative issues, undertaking atlantic salmon research and development, maintaining an atlantic salmon health surveillance program and atlantic salmon brood stock programs; (f) in the 2003 financial year seventy-six per cent of the first respondent's membership income was committed to strategic projects, research and development and atlantic salmon stock health monitoring programs; (g) despite excessive industry debt levels and a lack of profitability the atlantic salmon industry in Tasmania has maintained its commitment to pay membership levies to the first respondent as part of a strategy to return the industry to financial viability at some point in the future; and (h) the second respondent is under external administration by receivers and managers because of its poor financial situation. At the date of appointment of the receivers and managers its financial situation showed an estimated shortfall of $19.5 million. Probation Order 31 The agreed orders provide for a probation order under s 86C(2)(b) of the Act against the first respondent for a period of three years. A probation order is a non-punitive order made by the Court for the purpose of ensuring that a person does not engage in the contravening conduct, similar conduct or related conduct during the period of the order. An order directing the establishment of a compliance program is specifically included in the definition of 'probation order' in s 86C(4) of the Act. 32 The form of probation order proposed is not onerous. It requires the first respondent to establish a fairly minimal compliance program for its directors by providing each of them with a manual dealing with Part IV of the Act and requiring them to attend, for each of the three years of the program, an annual seminar about the Act covering, at a minimum, Part IV of the Act. 33 The Commission and the first respondent submit that the compliance program embodied in the probation order is appropriate in all the circumstances. s 87B Undertaking 34 The second respondent has given the Commission an undertaking under s87B of the Act to establish a compliance program in similar terms to that set out in the probation order proposed against the first respondent. The court is asked to note that this undertaking has been given. This course is proposed instead of a probation order to allow more flexibility because the second respondent is under external administration by receivers and managers and its future as a company is uncertain. Costs 35 An order that each of the respondents pay an agreed amount towards the costs of the Commission in respect of the action is sought. There is no reason why costs should not follow the event and it is submitted that it is appropriate that the respondents contribute to the costs of the Commission. Orders 36 The Court finds the following facts for the purposes of s 83 of the Trade Practices Act 1974 (the Act) (a) At all material times: (i) The first respondent was a trade association of salmonid growers in Tasmania, predominantly atlantic salmon growers. (ii) The second respondent was an atlantic salmon grower in Tasmania and a member of the first respondent. (iii) The Board of Directors of the first respondent ('the Board') consisted predominantly of representatives of each of the atlantic salmon growing businesses in Tasmania, including the second respondent. (iv) These businesses competed with each other in the market for the supply of atlantic salmon to retailers and wholesalers. (b) In early February 2002 the Board was aware of a forecast price decrease for atlantic salmon due in part to an increase in the production of their members which was greater than the increase in demand for their products. (c) At a board meeting on 14 February 2002, the Board of the first respondent unanimously agreed that members of the first respondent who were farmers of atlantic salmon would 'grade out at least ten percent of the 2001 year class of salmon by 31 July 2002' and if a review found it necessary, a further five per cent would be graded out; that the fish to be graded out would be solely selected from fish that would have otherwise reached market; and that the fish graded out would be discarded in a manner that ensured they would not indirectly reach market ('the grading agreement'). (d) In or about April 2002 the second respondent gave effect to the grading agreement by grading out in the order of 70 tonnes of its 2001 atlantic salmon stock. THE COURT DECLARES THAT: 37 By encouraging and facilitating the making of an arrangement or understanding by the second respondent and its competitors to limit the supply of atlantic salmon by grading out atlantic salmon stocks, which arrangement or understanding would be likely to have the effect of controlling or maintaining the price of atlantic salmon, the first respondent was, for the purposes of s 80(1)(e) of the Act, knowingly concerned in the making of an arrangement or understanding which contravened s 45(2)(a)(ii) of the Act. 38 By making an arrangement or understanding with its competitors to limit the supply of atlantic salmon by grading out atlantic salmon stocks, which arrangement or understanding would be likely to have the effect of controlling or maintaining the price of atlantic salmon, the second respondent contravened s45(2)(a)(ii) of the Act and by grading out approximately 70 tonnes of its 2001 atlantic salmon stock pursuant to that arrangement or understanding the second respondent contravened s 45(2)(b)(ii) of the Act. THE COURT ORDERS BY CONSENT THAT: 39 The first respondent (whether by its directors, employees or agents or otherwise howsoever) be restrained for a period of four years from being involved in any way in the making of a contract, arrangement or understanding between competitors to limit the supply of atlantic salmon, or to fix, control or maintain the price of atlantic salmon, by grading out atlantic salmon stocks. 40 The second respondent (by itself, its officers, agents or howsoever otherwise) be restrained for a period of four years from making or giving effect to a contract, arrangement or understanding between competitors to limit the supply of atlantic salmon, or to fix, control or maintain the price of atlantic salmon, by grading out atlantic salmon stocks. 41 The first respondent will establish, and maintain for a period of three years from the date of this order, a trade practices compliance program requiring that: (a) once a year all the directors of the first respondent attend a seminar conducted by a suitably qualified person solely addressing the Act and covering Part IV of the Act, the first such seminar to be held within two months of the date of this order; (b) within two months of the date of this order the first respondent acquire and provide to each director, and thereafter maintain for the duration of the compliance program, a manual that sets out the provisions of Part IV of the Act and provides commentary on scenarios relevant to the fish farming industry. 42 The first respondent pay the sum of $3000 and the second respondent pay the sum of $5,000 towards the applicant's costs of the action. AND THE COURT NOTES 43 That the second respondent has given the applicant an undertaking pursuant to s 87B of the Act to establish and maintain a trade practices compliance program. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey. Associate: Dated: 31 July 2003 Counsel for the Applicant: M O'Bryan Solicitor for the Applicant: Australian Government Solicitor Counsel for the first Respondent: A Walker Solicitor for the first Respondent: CN Dockray Solicitors Counsel for the second Respondent: W Kelcey Solicitors for the second Respondent: Gadens Lawyers Date of Hearing: 28 July 2003-07-28 Date of Judgment: 1 August 2003