FEDERAL COURT OF AUSTRALIA Australian Competition and Consumer Commission v Visy Paper Pty Ltd (No 2) [2004] FCA 1471 TRADE PRACTICES – pecuniary penalties – attempts to enter and attempts to induce entry into a contract containing an 'exclusionary provision' – criteria to be taken into account – significance of legal uncertainty – Trade Practices Act 1974 (Cth), s 76(1) Trade Practices Act 1974 (Cth) ss 45(2)(a)(i), (6), 76 Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 followed NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 cited Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2002] ATPR 41-851 cited Minister for the Environment and Heritage v Greentree (No 3) [2004] FCA 1317 cited Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529 followed Australian Competition and Consumer Commission Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 cited Australian Competition and Consumer Commission v George Weston Foods Ltd [2000] ATPR 41-763 followed Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170 cited J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission [2000] ATPR 41-758 cited Australian Competition and Consumer Commission v The Tasmanian Salmonid Growers Association Ltd [2003] ATPR 41-954 cited Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 cited BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452 cited AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v VISY PAPER PTY LTD and Ors NSD 1244 of 1998 SACKVILLE J SYDNEY 18 NOVEMBER 2004 IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1244 of 1998 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT AND: VISY PAPER PTY LTD FIRST RESPONDENT WILLIAM GUTHRIDGE SECOND RESPONDENT STEPHEN RICHARDS THIRD RESPONDENT JUDGE: SACKVILLE J DATE OF ORDER: 18 NOVEMBER 2004 WHERE MADE: SYDNEY THE COURT DECLARES THAT: 1. The First Respondent, Visy Paper Pty Ltd ('Visy'): (a) by sending the six draft contracts set out in the Schedule hereto to Northern Pacific Paper Pty Ltd ('NPP'), each containing a provision that had the purpose of preventing, restricting or limiting NPP, a competitor of Visy in relation to the acquisition of recyclable waste paper, from acquiring recyclable waste paper from customers of Visy or from persons with whom Visy has entered into discussions or negotiations to become a customer ('NPP non-competition clause'), with the intention of making a contract with NPP on the terms in each draft contract, and (b) by endeavouring to persuade NPP to enter into a contract in terms of the six draft contracts set out in the Schedule hereto, including the NPP non-competition clause, with the intention of making a contract with NPP on the terms in each draft contract, attempted to contravene s 45(2)(a)(i) of the Trade Practices Act 1974 (Cth) ('TP Act') and attempted to induce NPP to contravene s 45(2)(a)(i) of the TP Act. 2. The second respondent ('Mr Guthridge') by, on behalf of Visy: (a) supervising the sending to NPP of the six draft contracts set out in the Schedule hereto, each containing the NPP non‑competition clause; and, (b) by endeavouring to persuade NPP to enter a contract in terms of the six draft contracts set out in the Schedule hereto including the NPP non-competition clause; with the intention of NPP making a contract with Visy in terms of the draft contracts, including the NPP non-competition clause, attempted to induce NPP to contravene s 45(2)(a)(i) of the TP Act. 3. The third respondent ('Mr Richards') by, on behalf of Visy: (a) supervising the sending to NPP of the six draft contracts set out in the Schedule hereto, each containing the NPP non‑competition clause; and, (b) endeavouring to persuade NPP to enter a contract in terms of the six draft contracts set out in the Schedule hereto including the NPP non‑competition clause; with the intention of NPP making a contract with Visy in terms of the draft contracts, including the NPP non‑competition clause, attempted to induce NPP to contravene s 45(2)(a)(i) of the TP Act. THE COURT ORDERS THAT: 4. Visy, by itself, its directors, servants, agents or otherwise, be restrained for a period of four years from: (a) attempting to make a contract or arrangement or arrive at an understanding to acquire recyclable waste paper from any person; (b) inducing or attempting to induce any person, being a corporation, to make a contract or arrangement or arrive at an understanding for Visy to acquire recyclable waste paper from the person; or (c) making a contract or arrangement or arriving at an understanding to acquire recyclable waste paper from any person; if: (d) the person is competitive with Visy in relation to the acquisition of recyclable waste paper; and (e) the contract, arrangement or understanding contains a provision that has the purpose of preventing, restricting or limiting the person from acquiring recyclable waste paper from particular persons or classes of persons, including customers of any of the parties to the contract, arrangement or understanding. 5. Mr Guthridge be restrained for a period of four years from inducing or attempting to induce any corporation to make a contract or arrangement or arrive at an understanding with him or any person or corporation on whose behalf he is acting (in each case referred to as the 'acquirer') by which the acquirer will acquire recyclable waste paper from the corporation if: (a) the corporation is competitive with the acquirer in relation to the acquisition of recyclable waste paper; and (b) the contract, arrangement or understanding contains a provision that has the purpose of preventing, restricting or limiting the corporation from acquiring recyclable waste paper from particular persons or classes of persons, including customers of any of the parties to the contract, arrangement or understanding. 6. Mr Richards be restrained for a period of four years from inducing or attempting to induce any corporation to make a contract or arrangement or arrive at an understanding with him or any person or corporation on whose behalf he is acting (in each case referred to as the 'acquirer') by which the acquirer will acquire recyclable waste paper from the corporation if: (a) the corporation is competitive with the acquirer in relation to the acquisition of recyclable waste paper; and (b) the contract, arrangement or understanding contains a provision that has the purpose of preventing, restricting or limiting the corporation from acquiring recyclable waste paper from particular persons or classes of persons, including customers of any of the parties to the contract, arrangement or understanding. 7. Visy pay to the Commonwealth a pecuniary penalty of $500,000 in respect of its acts set out in paragraph 1. 8. Mr Guthridge pay to the Commonwealth a pecuniary penalty of $10,000 in respect of his acts set out in paragraph 2. 9. Mr Richards pay to the Commonwealth a pecuniary penalty of $15,000 in respect of his acts set out in paragraph 3. 10. Visy: (a) at its own expense, implement within two months of this order and subsequently maintain for three years, a trade practices compliance program in relation to Part IV of the Act ('the Program'); (b) use its best endeavours to ensure the Program is compliant with the Australian Standard on Compliance Programs (AS 3806-1998) to reduce the risk of a repeat of contraventions of Part IV of the TP Act; (c) include in the Program the following elements: (i) a procedure enabling a review of all written and oral contracts, arrangements or understandings with respect to the acquisition or proposed acquisition of recyclable waste paper to ensure that they comply with Part IV of the TP Act, prior to them being made or arrived at; (ii) the maintenance of written records documenting the details of the reviews undertaken; (d) permit the applicant ('ACCC') to inspect, upon reasonable notice in writing, the written records referred to in subpar (c)(ii). 11. Visy pay the costs of the ACCC in an amount to be agreed, or, if unable to be agreed, to be taxed. schedule (a) Exclusive Collection Agreement (First ECA) sent on or about 16 October 1996. (b) Exclusive Collection Agreement (Second ECA) sent on 6 December 1996. (c) Exclusive Collection Agreement (Third ECA) sent on 6 January 1997. (d) Exclusive Collection Agreement (Fourth ECA) sent on 22 January 1997. (e) First Supply Agreement sent on 27 March 1997. (f) Second Supply Agreement sent on 30 April 1997. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 1244 of 1998 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT AND: VISY PAPER PTY LTD FIRST RESPONDENT WILLIAM GUTHRIDGE SECOND RESPONDENT STEPHEN RICHARDS THIRD RESPONDENT JUDGE: SACKVILLE J DATE: 18 NOVEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT Course of the Proceedings 1 On 20 November 2000, I dismissed proceedings brought by the applicant ('ACCC') against the first respondent ('Visy'), the second respondent ('Mr Guthridge') and the third respondent ('Mr Richards'): Australian Competition and Consumer Commission v Visy Paper Pty Ltd (2000) 186 ALR 731 ('ACCC v Visy (No 1)'). The ACCC had sought declarations, restraining orders, pecuniary penalties and other orders against the respondents. 2 An appeal by the ACCC to the Full Federal Court was allowed on 10 August 2001: Australian Competition and Consumer Commission v Visy Paper Pty Ltd (2001) 112 FCR 37 (Hill and North JJ; Conti J dissenting). The Full Court ordered that the matter be remitted to me to consider the question of what, if any, pecuniary penalties should be imposed for the breaches which had been committed by the respondents (at 55 [75]). A further appeal, by special leave, to the High Court was dismissed on 8 October 2003: Visy Paper Pty Ltd v Australian Competition and Consumer Commission (2003) 201 ALR 414 (Gleeson CJ, McHugh, Gummow, Kirby and Hayne JJ; Callinan J dissenting). 3 The proceedings were subsequently re-listed before me to consider what orders should be made, including the question of the pecuniary penalties to be imposed (if any) pursuant to s 76(1) of the Trade Practices Act 1974 (Cth) ('TP Act'). The parties filed written submissions and supplemented those submissions with oral argument at a hearing on 6 October 2004. 4 The respondents did not dispute that declarations should be made and injunctions should be granted substantially in the terms submitted by the ACCC to be appropriate. The parties ultimately agreed on the terms of the declarations and injunctions and I am satisfied that they are appropriate. However, the parties were at issue on the appropriate pecuniary penalties and on one aspect of orders requiring Visy to implement a trade practices compliance program. 5 The nature of the proceedings was described in ACCC v Visy (No 1), at 732 [2]-[7]. It is convenient to repeat that description here: '[Visy], among its other activities, collects and processes recyclable waste paper and cardboard for supply to its paper mills. At all material times, its business included acquiring recyclable waste paper (including cardboard) in the Sydney metropolitan region. [Mr Guthridge] was appointed national general manager of Visy on 1 May 1996 and, from that time, had the day-to-day management and control of Visy's operations in relation to the acquisition of recyclable waste paper. [Mr Richards] became national operations manager of Visy in March 1996. From the beginning of 1997, Mr Richards held the position of general manager of the Northern Region, including New South Wales. Between September 1996 and April 1997, Visy carried on negotiations with Northern Pacific Paper Pty Ltd ("NPP"). NPP's business included the collection of waste paper products in the Sydney metropolitan region. In the course of these negotiations, Visy presented to NPP a series of draft written agreements. The draft agreements included terms described as "non-competition" clauses. None of the proposed agreements was ever entered into by the parties. The ACCC alleges that, by carrying out the negotiations with NPP and, in particular, by proffering the draft agreements to NPP on six separate occasions, Visy: · attempted to contravene s 45(2)(a)(i) of the [TP Act] and · attempted to induce NPP to contravene s 45(2)(a)(i). Section 45(2)(a)(i) of the TP Act prohibits a corporation, inter alia, from making a contract if the proposed contract contains an "exclusionary provision". The ACCC's case is that the draft contracts each contained a term which was an "exclusionary provision", as that expression is defined in s 4D of the TP Act. According to the ACCC, the relevant terms were exclusionary provisions because they had the purpose of preventing NPP, which was competitive with Visy in the market for the acquisition of recyclable waste paper, from acquiring recyclable waste paper from a particular class of persons, namely persons who are actual or potential suppliers of waste paper to Visy. The ACCC also alleges that Mr Guthridge and Mr Richards, both of whom were involved in negotiations with NPP, attempted to induce NPP to contravene s 45(2)(a)(i) of the TP Act. The ACCC claims that Mr Guthridge and Mr Richards are each liable to a pecuniary penalty by reason of s 76(1)(d) of the TP Act.' 6 The six draft agreements proffered to NPP comprised four draft Exclusive Collection Agreements ('ECAs') and two draft 'Supply Agreements'. The non-competition clause in the draft ECAs was as follows: '3.2 Non-Competition Clause During the Term the Licensed Collector: (a) must not carry on, provide services to or be engaged, concerned, interested in or associated with any business or activity which is competitive with Visy's business of collection of waste products; (b) must not, without limiting Clause 3.2(a), collect or make any attempt or offer to collect any Waste Products from persons who are customers of Visy or with whom Visy has entered into discussions or negotiations to become a customer; (c) …; (d) must not deliver or sell any waste products to any person other than Visy, without the prior written consent of Visy.' (Emphasis added.) The second draft Supply Agreement included the following clauses: '7. Non-acceptance Visy will not accept product from [NPP] which Visy deems is [sic] a customer of Visy. 8. Non-Competition While [NPP] is selling waste to Visy, [NPP] must not collect, approach or make any attempt to offer to collect waste from persons who are customers of Visy or with whom Visy has entered into discussions or negotiations to become a customer.' (Emphasis added.) The first draft Supply Agreement contained similar provisions. 7 The relevant statutory provisions are outlined in the judgment in ACCC v Visy (No 1), at 733-736 [12]-[21]. It is not necessary for present purposes to repeat that account here. 8 In ACCC v Visy (No 1), I found that s 45(6) of the TP Act applied in the circumstances of the case. I expressed my conclusion this way (at 757 [129]): 'Had any of the draft agreements reached the stage of a contract, arrangement or understanding, the effect of s 45(6) was to remove the making of that contract, arrangement or understanding from the prohibition in s 45(2)(a)(i) of the TP Act. Thus none of the respondents can be found to have attempted either to contravene s 45(2)(a)(i) or to [have induced] NPP to contravene s 45(2)(a)(i).' 9 It should be noted that the ACCC conceded at the trial (and it was not an issue thereafter) that Visy's conduct could not be shown to have had a purpose, or the effect, of substantially lessening competition in a relevant market. As the joint judgment in the High Court observed (at 418 [18]), this concession reflected the presence of one other large participant in the market, namely Amcor Ltd. 10 Although I reached the conclusion that the ACCC's claims had to fail, I made further findings in case the matter went further. The findings were to the effect that on six separate occasions: * Visy attempted to make a contract with NPP (and also attempted to induce NPP to make that contract); and * each of Mr Guthridge and Mr Richards attempted to induce NPP to make a contract with Visy, in circumstances where the proposed contract contained an exclusionary provision within the meaning of s 45(2)(a)(i) of the TP Act. The findings were made on the assumption that I had erred in my construction of s 45(6) of the TP Act. 11 As I have noted, the ACCC's appeal to the Full Court succeeded on the construction question and the further appeal to the High Court was dismissed. I mention, only because it is directly relevant to the respondents' submissions on penalty, that the joint judgment in the High Court adopted a construction of s 45(6) of the TP Act that had not been advanced by the ACCC before me or before the Full Federal Court (at 421 [30]). Kirby J, who agreed with the majority that the appeal to the High Court should be dismissed, commented (at 431 [69]) that: 'The language of the provisions of the [TP Act] applicable to this case is obscure. Indeed, it represents a significant challenge for interpretation. It is in need of redrafting by reference to concepts and purposes. It requires the negotiation of too many cross-references, qualifications and statutory interrelationships. This imposes an unreasonable burden on the corporations and their officers subject to the [TP Act], the ACCC enforcing the Act and courts with the responsibility of assigning meaning to, and applying, its provisions.' 12 At the hearing on penalty, Mr Young QC, who appeared with Mr O'Bryan for the respondents, read affidavits, inter alia, from Mr Guthridge, Mr Richards and Mr Geminder, a director of Visy. It appears that the ACCC advised the respondents' legal representatives that Mr Guthridge and Mr Richards were required for cross-examination. However, for reasons that are not entirely clear, they were not present at the hearing. Mr McClintock SC, who appeared with Mr Kerr for the ACCC, did not submit that their absence rendered their evidence inadmissible. Mr Geminder was cross-examined, largely in relation to Visy's compliance programs. ADDITIONAL FINDINGS 13 The submissions of both the ACCC and the respondents proceeded on the basis of the findings of fact recorded in ACCC v Visy (No 1). However, since some evidence was given at the hearing on penalty, I should record several additional findings that may bear on the appropriate penalties to be imposed. 14 First, as I found in ACCC v Visy (No 1), at 764 [162], the draft ECAs were developed with the assistance of Visy's in-house lawyer, Mr Kaye, and Visy's external legal advisers. Mr Kaye, who did not give evidence either at the trial or at the hearing on penalty, saw the non-competition clause in the draft ECAs but raised no objection to it. Mr Guthridge communicated with Mr Kaye concerning the draft agreements submitted to NPP, but Mr Kaye gave no indication that there might be a trade practices issue with respect to the non-competition clause. Mr Richards, who reported to Mr Guthridge, also had discussions with Mr Kaye, but again the latter did not suggest to Mr Richards that there was any legal problem with the non‑competition clause. 15 Secondly, at the time the contraventions occurred, Visy provided staff with some training on trade practices issues. Mr Geminder gave evidence of training programs, but it must be said that his description was somewhat vague. However, it appears that Visy did issue a Trade Practices Compliance Manual which dealt, among other things, with the dangers of making agreements with competitors. The relevant section of the Manual pointed out that '[a]ll arrangements with competitors may substantially lessen competition. You should never make an arrangement with a competitor without advice from Visy Industries' Legal Counsel'. The Manual advised staff to 'avoid all contact with competitors or their employees other than contact approved by senior management or Visy Industries' Legal Counsel. All necessary contact with competitors should be conducted in formal settings. If potential infringing behaviour is discussed you must formally state that Visy Industries will not participate and make a record of the meeting'. Other memoranda distributed to staff at about this time addressed trade practices issues in a general way. 16 Thirdly, in each of the 1995/96 and 1996/97 financial years, Visy had an operating profit before tax exceeding $120,000,000. Visy's net assets at that time exceeded $115,000,000. In the last financial year for which information is available (2002/03), Visy earned an operating profit before tax of approximately $174,000,000 and had net assets of about $69,000,000. 17 Fourthly, after his retirement from Visy in 1998, Mr Guthridge conducted his own business as a consultant in the paper and tissue industry. However, by reason of business reverses in the 2002/03 financial year, his income was drastically reduced. According to Mr Guthridge, his income is presently in the order of $15,000 per annum and his net assets have been reduced to some $12,000. 18 Fifthly, Mr Richards left Visy in February 2003. Since then, he has worked through his own company as a consultant in the waste and recycling industries. The evidence as to his financial position is incomplete, but his taxable income in 2002/03 was some $244,000, the bulk of which was apparently in the form of severance payments from Visy. Mr Richards and his wife jointly own assets worth slightly in excess of $800,000. the penalty provision 19 Section 76(1) of the TP Act provides as follows: 'If the Court is satisfied that a person: (a) has contravened any of the following provisions: (i) a provision of Part IV; (ii) … (b) has attempted to contravene such a provision; (c) … (d) has induced, or attempted to induce, a person, whether by threats or promises or otherwise, to contravene such a provision …; … 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 or Part XIB to have engaged in any similar conduct.' The maximum penalty which may be imposed on a body corporate for each act or omission to which s 76(1) applies is $10,000,000: s 76(1A)(b). In case of an individual, the maximum penalty is $500,000: s 76(1B). Submissions on Penalty 20 The ACCC submitted that one penalty should be imposed on each of the respondents in respect of the six attempts, rather than separate penalties for each attempt. The ACCC further submitted that an appropriate total penalty for each respondent was as follows: · Visy - $1,500,000; · Mr Guthridge - $100,000; · Mr Richards - $75,000. 21 Mr McClintock submitted on behalf of the ACCC that Parliament had demonstrated that it regarded conduct involving exclusionary provisions as particularly reprehensible. It had done so by treating such conduct as a 'per se'contravention, in the sense that the conduct contravenes s 45(2) of the TP Act, whether or not it involves a substantial lessening of competition. The fact that the attempts to induce NPP to contravene the TP Act had been unsuccessful did not mean that the conduct should be viewed less seriously than if NPP had succumbed to the blandishments. In any event, Visy was one of two main recyclers of waste paper in the Sydney metropolitan area and, as such, had a significant level of power in dealing with other participants in the market. Further the absence of loss or damage flowing from Visy's conduct was not a significant mitigating factor in an attempt case. Had the attempt succeeded, NPP, which was both a customer and competitor of Visy, would have been prevented by the non-competition clauses from competing with Visy to attract supplies of waste products from Visy's customers. Visy's attempts to impose the non‑competition clauses on NPP were done for the very purpose of responding to intense competitive activity by NPP. 22 Mr McClintock accepted Mr Guthridge and Mr Richards had not engaged in covert conduct and he did not dispute that they failed to appreciate that their conduct was in contravention of the TP Act. Nonetheless, he submitted that ignorance of the law was simply no excuse for their actions, particularly since the inclusion of a provision headed 'Non‑Competition Clause' in a written draft agreement should have rung 'warning bells' for all concerned at Visy. Certainly, so he argued, Visy should not benefit from its own lack of a culture of compliance and from the apparent failure of its lawyers to alert Mr Guthridge and Mr Richards to the risk that they were contravening the TP Act. Even if advice had been given that the proposed conduct did not contravene s 45(2) of the TP Act, that should not be regarded as a mitigating factor on penalty. 23 Mr McClintock pointed to other considerations suggesting that substantial penalties should be imposed upon each of the respondents. On the evidence, Visy was a very substantial company, generating large operating profits and having substantial net assets. Mr Guthridge and Mr Richards were at the highest levels of management of Visy, short of being members of the Board. While Visy had a compliance program, it was clearly inadequate. Moreover substantial penalties were required in order to provide a specific deterrent to any repetition of the conduct by the respondents themselves and as a general deterrent to others who might be tempted to contravene provisions of the TP Act. 24 The respondents submitted that the application of the TP Act to their conduct was both 'unusual and unanticipated'. Mr Young pointed in particular to the difficulties of construing s 45(6) of the TP Act, which was at the heart of the legal arguments at all stages of the case. Those difficulties had been recognised in my judgment (ACCC v Visy (No 1), at 749 [93]), and by Kirby J in the High Court (Visy v ACCC, at 431 [69]). The respondents, so Mr Young argued, did not intend to contravene the TP Act;their conduct was open and transparent; and the application of the TP Act to the respondents' conduct was very unclear, at least until the High Court's decision. Indeed, having regard to the heavy costs burden incurred by Visy in defending the proceedings (amounting to about $1,000,000), it was appropriate for the Court not to impose a pecuniary penalty on any of the respondents. 25 The respondents submitted that the seriousness of their conduct could not be judged merely by characterising it as a per se contravention of the TP Act. A more appropriate criterion was to consider whether the conduct was likely to lessen competition. The ACCC had conceded at trial that Visy's conduct could not be shown to have had the effect of substantially lessening competition in a relevant market. Moreover, Visy's conduct was limited in its extent, having arisen out of a dispute with NPP concerning the 1995 contract between the two companies. The draft agreements were proposed by Visy in order to settle a pre-existing contractual dispute with NPP and to establish a mutually satisfactory collector-principal relationship for the purpose of sourcing waste paper. Visy's object was to engage NPP to obtain waste paper from sources that had not been accessed by Visy. 26 Mr Young accepted that, in principle, the Court can have regard to the loss or damage that would have occurred had the attempt succeeded. However, he submitted that in this case there was no evidence of potential loss. On the contrary, so he argued, the inference from the evidence was that in the absence of an agreement with Visy, NPP would not have continued to conduct business as an acquirer of waste paper in the Sydney metropolitan area. 27 Mr Young also contended that the size of Visy did not justify a heavy penalty, as its size had little relevance to the contravening conduct. On the other hand, the financial position of Mr Guthridge and Mr Richards, particularly the former, militated against the imposition of significant pecuniary penalties on them. Reasoning criteria 28 Section 76(1) of the TP Act identifies expressly four matters that must be taken into account by the Court in determining the pecuniary penalty that is appropriate in respect of the contravention. These are: · the nature and extent of the act or omission constituting the contravening conduct; · the nature and extent of any loss or damage suffered as a result of the contravening conduct; · the circumstances in which the act or omission took place; and · whether the contravenor has previously been found by the Court to have engaged in similar conduct. 29 It was common ground that the six additional factors been listed by French J in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076, at 52,152-52,153, should be taken into account: (i) the size of the contravening company; (ii) the degree of its power, evidenced by its market share and the ease of entry into the market; (iii) the deliberateness of the contravention and the period over which it extended; (iv) whether the contravention arose out of the conduct of senior management or at a lower level; (v) whether the company had a corporate culture conducive to compliance with the TP Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and (vi) whether the contravenor has shown a disposition to co-operate with the authorities responsible for the enforcement of the TP Act in relation to the contravention. (This list was endorsed by Burchett and Kiefel JJ (with whom Carr J generally agreed) in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, at 292, although their Honours regarded the list as an elaboration of the statutory requirement to consider 'the circumstances in which the act or omission took place'.) 30 In NW Frozen Foods, at 294-295, Burchett and Kiefel JJ expressed the view that the deterrent effect of a penalty, both specific and general, is an important factor to be taken into account in determining the appropriate penalty in a particular case. They also said, however, that the penalty should not so great as to be oppressive (at 293). 31 There has been a debate as to whether the punishment of a contravenor is a relevant factor to take into account in determining the appropriate penalty to be imposed. The authorities suggest that there is little or no difference between taking into account the deliberate nature of the conduct in question and the object of punishing the contravenor: Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2002] ATPR 41-851, at [50], per curiam; Minister for the Environment and Heritage v Greentree (No 3) [2004] FCA 1317, at [52]-[57], per Sackville J. 32 In determining the appropriate penalty, it may also be relevant to take into account the totality principle to ensure that the total penalty does not exceed what is proper for the entire contravening conduct involved: Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR 41-375, at 40,169, per Burchett J; Greentree (No 3), at [179]. the significance of legal uncertainty 33 The present case is apparently one in which Visy's legal advisers, although they saw and indeed presumably drafted or settled the non-competition clauses, did not appreciate that an attempt to secure NPP's agreement to a non-competition clause would or might involve a contravention of s 45(2)(a) of the TP Act. Be that as it may, there is no evidence that Visy received or acted on affirmative advice that its conduct, or that Mr Guthridge or Mr Richards, would not contravene the TP Act. The evidence merely suggests that Mr Guthridge and Mr Richards were not informed by the lawyers that the draft agreements might contravene the TP Act. The case is therefore not one in which Visy acted in the belief, supported by specific legal advice, that its conduct was not in breach of the TP Act. 34 In Universal Music Australia Pty Ltd v Australian Competition and Consumer Commission (2003) 131 FCR 529, the Full Court was concerned with contravening conduct which was said to be (at 598 [308]) 'plainly and deliberately anti-competitive in its intent'. The primary Judge imposed a relatively light pecuniary penalty, in part because the company had obtained advice from its solicitors that its conduct would not contravene the TP Act and because the legal question was 'a most difficult one on which minds could differ and … which had not been previously agitated in a court': Australian Competition and Consumer Commissioner v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618, at 623 [20]. 35 The Full Court held on appeal that the primary Judge had erred in giving significant weight to these factors. The Court said at (at 598-599 [308]-[310]) that the conduct: 'at least, ran a serious risk of being in breach of the [TP Act]. If this was appreciated, then the fact that the risk came home against expectations does not entitle the perpetrator to a discount. If the existence of the risk was not appreciated, then the company concerned misunderstood the law applicable to an important area of commerce and would not be entitled to any discount. The fact that legal advice was obtained by one of the parties is also of little consequence. It illustrates that risk was appreciated. However, legal advice is obtained for the benefit of the company and only for the benefit of the company. It is not a discounting factor. If legal advice is wrong, that is a matter between the company and the legal adviser. In our opinion, to give a substantial discount for these factors sends the wrong signal to the commercial community. It will encourage risk‑taking and pushing the boundaries of anti-competitive conduct. If, nonetheless, a proceeding is instituted, it will encourage the most vigorous possible defence, in an endeavour to demonstrate the supposed complexity and uncertainty of the law. Many cases of contravening conduct can be described as complex and uncertain as to result … If a company "takes the odds", it must expect serious consequences if it miscalculates.' (Emphasis added.) 36 In the present case, the respondents' conduct involved an attempt to persuade NPP to enter into agreements containing clauses which were headed respectively, 'Non-Competition Clause' and 'Non-Competition'. The object of the provisions was to prevent NPP collecting waste paper from persons who were or might become customers of Visy. As Mr McClintock submitted, the clauses, by their very headings, should have at least indicated that their inclusion in agreements might involve a contravention of the TP Act. Even if Visy had obtained legal advice that the non-competition clauses did not contravene the TP Act, Universal Music establishes that the erroneous advice would not constitute a basis for Visy receiving a substantial discount on penalty, even in a case where the legal issues are complex. 37 The argument for a discount on penalty in the present case would seem to be even weaker, since Visy's lawyers, so far as the evidence goes, apparently did not appreciate the risk that proffering the draft agreements to NPP would contravene the TP Act. The reasoning in Universal Music makes it clear that if Visy did not appreciate the legal risk, that fact does not entitle it to any discount on penalties that would otherwise be imposed. I therefore do not accept Mr Young's submission that the respondents should receive a lesser penalty because they fell victim to an unexpected application of the TP Act to the circumstances of their industry. Accordingly, I approach the question of penalties on the basis that the legal uncertainty surrounding the operation of s 45(6) of the TP Act does not constitute a basis for allowing Visy a substantial discount on penalty. 38 I note that Mr Geminder, in his evidence at the hearing on penalty, said that he did not consider NPP a competitor of Visy. Mr Guthridge also said in evidence at the trial that he saw NPP as an agent rather than a competitor. In ACCC v Visy (No 1), I rejected a contention that Visy and NPP were not in competition in the relevant market, namely the market in the Sydney metropolitan area for the acquisition of waste paper and for the supply of waste removal services. On the contrary, I found (at 758 [138]) that the evidence overwhelmingly suggested that NPP was competitive with Visy in that market between February and April 1997, although it had suspended its attempts to obtain waste products from Visy's customers from March 1996 to February 1997 in the expectation that an agreement could be reached with Visy. I also found (at 762 [153]) that Mr Guthridge and Mr Richards were well aware, at the time the supply agreements were presented to NPP, that NPP was attempting to secure waste paper from Visy's customers. In these circumstances, it is perhaps not surprising that Mr Young did not submit that any penalty should be reduced by reason of any failure on the part of Mr Geminder or Mr Guthridge to appreciate that Visy and NPP were competitors in the relevant market. other considerations 39 Visy's conduct involved attempts to induce NPP, during the period from October 1996 to April 1997, to enter an agreement containing a non-competition clause. Visy attempted to do so on six separate occasions during that period. NPP requested removal of the non-competition clause at an early stage of the negotiations, but Mr Richards insisted on its retention. 40 NPP was both a supplier to and competitor of Visy. The effect of the non-competition clause, if implemented, was to prevent NPP from competing with Visy to obtain supplies of waste paper products from, or to provide waste paper removal services to, Visy's customers or potential customers (that is, those with whom Visy had entered into discussions or negotiations to become customers). The non-competition clause plainly would have had an anti-competitive effect on the market for the acquisition of waste paper and for the supply of waste paper removal services in the Sydney Metropolitan area. Participants designated by Visy as its 'customers' would have been denied the opportunity to negotiate for better terms or services from NPP than Visy was prepared or able to provide. Indeed, in a sense, the non-competition clause, even though never part of a concluded agreement, did have an adverse effect on competition in the market. For a time, NPP voluntarily suspended its attempts to obtain waste products from Visy's customers, in the expectation that a satisfactory agreement with Visy could be finalised and that such an agreement would include a non-competition clause. 41 Once the question of legal uncertainty is put to one side (as I think it must), this is a case of deliberate contravening conduct on Visy's part. I accept that Mr Guthridge and Mr Richards did not engage in covert conduct or dishonesty. Nonetheless, as I found in ACCC v Visy (No 1) at 759 [143]: 'It is clear that Mr Guthridge and Mr Richards intended that a non‑competition clause whether in the form of cl 3.2(b) of the ECAs or of the equivalent clauses in the supply agreements, should be included in a contract with NPP. They also understood and intended that each non-competition clause, if incorporated in a contract, would prevent NPP from acquiring goods from or supplying services to Visy's customers. Both Mr Guthridge and Mr Richards wanted to stop NPP from acquiring waste paper from or supplying waste paper collection services to Visy's customers.' 42 I do not think that Visy's conduct is accurately described as 'an isolated transaction', as Mr Young submitted. Visy persisted in the conduct over an extended period. Negotiations between the parties were terminated after Visy (through Mr Richards) complained that NPP had 'continually, both itself and through its agents, approached Visy's customers and sought (and at times succeeded) to solicit their business'. (ACCC v Visy (No 1) at 744 [70].) It was then that Visy presented a final 'take it or leave it' offer that incorporated the same non‑competition clause that it had previously proposed. 43 It is true, as Mr Young pointed out, that the attempts by Visy to impose the non‑competition clause on NPP took place in the context of a dispute between Visy and NPP relating to their 1995 agreement. It is also true that Mr Guthridge and Mr Richards believed that there were substantial grounds for Visy contending that the 1995 agreement did not permit NPP to collect waste paper from Visy's customers. Both were concerned that NPP was seeking to take advantage of that agreement by acquiring waste paper from Visy's 'customers' and onselling to Visy at the higher prices negotiated in 1995. Mr Guthridge thought that NPP was seeking to exploit ambiguities in the 1995 agreement, contrary to its intention. They saw the draft agreements as protecting Visy's 'investment' in NPP. 44 While these factors explain the commercial context in which Visy's conduct took place, they do not alter the fact that the purpose and effect of the non‑competition clause, if implemented, would have been to terminate NPP's competitive activities in the relevant market. It remains true that Visy sought to persuade NPP to accept the non-competition clause in order to bring the latter's competitive activities to a halt. 45 I do not think it correct to say that a contravention of s 45(2)(a)(i) of the TP Act is necessarily 'particularly reprehensible' simply because the provision creates a per se contravention (as the ACCC submitted). On the other hand, I do not think that the seriousness of the respondents' conduct is to be judged solely by reference to the extent to which the conduct is likely to lessen competition. The Court must take into account that Parliament has provided a maximum penalty, for a corporation, of $10,000,000, thus demonstrating the seriousness with which it views the making of a contract or arrangement containing an 'exclusionary provision'. The effect or potential effect of the contravening conduct is, however, a material factor to consider in assessing the appropriate penalty. 46 In most cases of an attempt to contravene the TP Act, there will be no demonstrable loss or damage in consequence of the contravenor's conduct since the attempt will have been unsuccessful. In the present case, however, it is not quite accurate to say that there was no loss or damage by reason of Visy's conduct, since, as I have noted, NPP ceased its competitive activities for some time in the expectation that negotiations would ultimately be successful. In any event, as Goldberg J observed in Australian Competition and Consumer Commission v George Weston Foods Ltd [2000] ATPR 41-763 at [59], it is more relevant to consider what might have been the result had the attempt been successful. 47 As the ACCC accepted, there is no precise or quantitative evidence of the number of Visy customers who were potential targets for NPP's competitive activity. The evidence did show, however, that NPP targeted at least seven of Visy's customers in order to gain their business, in some cases successfully. The total volume of waste paper collected in the Sydney metropolitan area at the relevant time was in the order of 600,000 to 650,000 tonnes annually. Of this quantity, Visy collected about 200,000 tonnes per annum and NPP, before it withdrew from the market, some collected 6,000 to 7,000 tonnes per annum. Since Visy paid on average about $80 per tonne, the total market was worth in the order of $50,000,000. 48 There was therefore considerable potential for NPP to make inroads into Visy's customer base. An non-competition clause, if carried into effect, would have prevented that potential being realised. NPP also lost the opportunity to negotiate a contract with Visy that did not contain the non-competition clause. I would characterise the loss or damage potentially inflicted by the attempt to induce NPP to accept a non-competition clause as not insignificant, although it is not possible to conclude that Visy's conduct would necessarily have lead to a reduction in prices paid to suppliers for their waste paper products. 49 There are a number of additional factors that need to be taken into account in determining the appropriate penalties to be imposed: · First, Visy is a substantial company. Its size is relevant because the object of deterrence is unlikely to be achieved by the imposition of a small penalty on such a corporation: Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170, at 181 [48], per Merkel J (with whom Black CJ and Sackville J agreed). · Secondly, Visy occupied an important position in the market in which its conduct occurred, as it was one of the two main recyclers of waste paper. It is true that I made no finding that Visy used its market power to achieve an anti-competitive result. Nonetheless, I can and do infer that Visy's power in the market made it more difficult for NPP to resist Visy's insistence on the inclusion of a non-competition clause in the draft agreement. · Thirdly, the contravention involved Mr Guthridge and Mr Richards, both of whom held senior positions in the company, although neither now works for Visy. · Fourthly, while Visy had a compliance regime in place when the contraventions took place , it appears not to have been particularly intensive or effective. Mr Geminder said that Mr Guthridge and Mr Richards had attended training sessions, but there was no detailed evidence as to what transpired at those sessions. Nor was there an explanation as to why the compliance regime was apparently insufficient to alert two senior officers of Visy to the potential difficulty with a non-competition clause of the kind included in the draft agreements. In the circumstances, I do not think that Visy should receive a substantial discount by reason of having a compliance program in place. · Fifthly, the respondents contested the proceedings, as is their entitlement. They are not to be penalised for doing so. Equally, however, they are not entitled to the discount that would be available, for example, if they had made early admissions concerning their contraventions of the TP Act. · Sixthly, the respondents are entitled to have taken into account the fact that none of them has previously been found by the Court to have engaged in similar conduct. visy 50 The parties referred me to a number of cases in which the Court has been asked to impose penalties in attempt cases. Care must be taken not to place too much weight on the penalties imposed in other cases, since each case must depend on its own factual circumstances. For example, I regard Visy's conduct as significantly less serious than the 'systematic, deliberate and covert' anti-competitive conduct in J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission [2000] ATPR 41-758, that resulted in a penalty of $2,000,000. Similarly, I think that Visy's contract is less serious than the attempt to induce retailers to enter a price fixing arrangement in ACCC v George Weston, where a material factor was that George Weston had incurred a penalty under the TP Act shortly before the contravening conduct occurred. The penalty in ACCC v George Weston was $900,000. On the other hand, in my view, Visy's conduct warrants the imposition of a substantial pecuniary penalty and cannot be appropriately dealt with simply by making declarations, granting injunctions and requiring Visy to pay costs: cf Australian Competition and Consumer Commission v The Tasmanian Salmonid Growers Association Ltd [2003] ATPR 41-954. 51 The penalty must be sufficient to act as a deterrent to Visy and as a general deterrent to those corporations or individuals contemplating engaging in anti-competitive conduct in contravention of the TP Act. The penalty must also take account of all the factors I have identified, including of course those that are favourable to Visy. I think an appropriate penalty to impose on Visy is $500,000. MR GUTHRIDGE AND MR RICHARDS 52 Mr Guthridge and Mr Richards were senior officers of Visy. While ignorance of the law is no excuse, I think that two factors, in particular, count in their favour. First, their conduct was not covert or dishonest. Secondly, they were let down by Visy's internal processes, in that neither was told by Visy's lawyers that the non-competition clause was likely to give rise to a serious issue under the TP Act. 53 Independently of their personal financial circumstances, I would have imposed a penalty of $20,000 on Mr Guthridge and $15,000 on Mr Richards. Although the evidence of Mr Guthridge's financial position was somewhat vague, I think that the penalty imposed on him should make allowance for his apparently straitened circumstances. In his case, a penalty of $10,000 is appropriate. 54 Mr Richards' financial circumstances are such that a pecuniary penalty of $15,000 would not impose hardship on him. I do not think that the parity principle requires a reduction in the penalty otherwise appropriate for him merely because Mr Guthridge's special circumstances warrant a reduction in the penalty imposed on him. Accordingly, Mr Richards should pay a pecuniary penalty of $15,000. COMPLIANCE PROGRAM 55 Visy did not object to an order being made that it implement a trade practices compliance program. Visy accepted that such a program had a sufficient nexus with the contravention (Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd (1997) 78 FCR 197, at 203-204, per Merkel J) and was appropriate in the circumstances. However, it disputed the ACCC's claim that the orders should make provision for the retention of an independent person or firm of solicitors to make annual reports to the ACCC on Visy's 'compliance with all elements and the effectiveness of the program'. 56 There are doubts as to whether an order imposing an external audit requirement as an element of a compliance program is authorised by the TP Act: see BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452, at [41]-[51], per curiam. Be that as it may, I do not think that the circumstances of the present case warrant an external audit requirement in the form sought by the ACCC. This is Visy's first contravention of Part IV of the TP Act and there is no reason to think that an order to implement a compliance program will not be obeyed. The orders will make provision for the maintenance of written records which can be inspected by the ACCC. Moreover, as Visy pointed out, the proposed orders do not indemnify any objective standards by which the 'effectiveness' of the proposed program is to be determined. 57 Accordingly, I propose to order Visy to implement a trade practices compliance program, but I do not propose to include an external audit requirement. conclusion 58 Declarations and injunctions should be made in the form agreed between the parties. Visy should be ordered to implement a trade practices compliance program, but the program should not include an external audit requirement. 59 Visy should pay a pecuniary penalty of $500,000. Mr Guthridge should pay a penalty of $10,000 and Mr Richards should pay a penalty of $15,000. 60 Visy must pay the ACCC's costs of the proceedings. I certify that the preceding sixty (60) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Sackville. Associate: Dated: 18 November 2004 Counsel for the Applicant: NJ Young QC with MH O'Bryan Solicitor for the Applicant: Australian Government Solicitor Counsel for the Respondents: BR McClintock SC with VF Kerr Solicitor for the Respondents: Minter Ellison Date of Hearing: 6 October 2004 Date of Judgment: 18 November 2004