FEDERAL COURT OF AUSTRALIA Australian Competition & Consumer Commission v Ferndale Recyclers Pty Limited [2004] FCA 1597 TRADE PRACTICES – exclusionary provisions – scrap metal industry – auctions – agreement among merchants – nominated bidder – controlled or restricted bidding at auction – subsequent allocation of a payment for goods – loss or damage unquantified – defending respondents – market – application of totality principle – where company is alter ego of individual – penalty – factors to be considered in determining penalties for contravention of Trade Practices Act – application of the "French factors" and the "Heerey factors" – permissible range – proposed penalties – mitigation of penalties. COSTS – agreement between applicant and respondents and determination of proposed costs – allowance for time not applicable to these respondents. Trade Practices Act 1974 (Cth) ss 4D, 4F, 45, 45A, 76, 80 Miller's Annotated Trade Practices Act 2004 ed Australian Competition & Consumer Commission v D M Faulkner Pty Limited [2004] FCA 1666 applied Australian Competition & Consumer Commission v ABB Transmissions & Distribution Ltd (No 2 – Distribution Transformers) (2002) 190 ALR 169 applied Australian Competition & Consumer Commission v ASIC [2000] NSWSC 316 cited Australian Competition & Consumer Commission v SIP Australia Pty Ltd (1999) ATPR 41-702 cited Australian Competition & Consumer Commission v McMahon Services Pty Ltd (No 1) [2004] FCA 1171 cited Australian Competition & Consumer Commission v NW Frozen Foods (1996) 71 FCR 285 approved Australian Competition & Consumer Commission v Visy Paper Pty Ltd No 2 [2004] FCA 1471 followed Boral Besser Masonry Limited v Australian Competition & Consumer Commission (2003) 195 ALR 609 followed Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43 cited Queensland Wire Industries Pty Ltd v Broken Hill Proprietary Company Ltd (1989) 167 CLR 177 followed Rural Press Ltd v Australian Competition & Consumer Commission (2002) 193 ALR 399 cited Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1972) 42 FLR 331 discussed Trade Practices Commission v CSR Limited (1991) ATPR 41-076 approved Trade Practices Commission v TNT Australia (1995) ATPR 41-375 followed AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v FERNDALE RECYCLERS PTY LIMITED (ACN 056 303 130), RONALD CHRISTOPHER BAGNALL, HENDRICUS FRANKE, ALLAN HIGGINS & ORS N1672 OF 2001 BENNETT J 9 DECEMBER 2004 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY N1672 OF 2001 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT AND: FERNDALE RECYCLERS PTY LIMITED (ACN 056 303 130) SIXTH RESPONDENT RONALD CHRISTOPHER BAGNALL SEVENTH RESPONDENT HENDRICUS FRANKE FIFTEENTH RESPONDENT ALLEN ANTHONY HIGGINS SIXTEENTH RESPONDENT JUDGE: BENNETT J DATE OF ORDER: 9 DECEMBER 2004 WHERE MADE: SYDNEY THE COURT ORDERS THAT: (SIXTH AND SEVENTH RESPONDENTS) THE COURT DECLARES THAT: 1. The Sixth Respondent, by the acts of its Director, the Seventh Respondent, on 11 February 1999, at an auction in Chiswick by BHP Limited for the sale of goods including scrap metal: a) made an arrangement or arrived at an understanding with certain other scrap metal dealers ("the ring") which contained a provision that the parties to the ring would engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction ii) not bidding against the nominated bidder/s iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock b) gave effect to the arrangement or understanding by: i) acting as a nominated bidder for the ring ii) bidding for lots at the auction on behalf of the ring iii) not bidding for lots against the ring iv) organising and participating in the subsequent knock at a nearby hotel c) by the acts referred to in (a)(i) and (ii) and (b)(i)-(iii), represented in trade and commerce to those conducting and attending the auction that the bids made on behalf of the nominated bidder were genuine and were made in the absence of any agreement or understanding with other persons at the auction as to price control, which representation was not true. 2. The Sixth Respondent, by the acts of its Director, the Seventh Respondent, on 24 November 1999, at an auction in Newcastle by BHP Limited for the sale of goods including scrap metal: a) made an arrangement or arrived at an understanding with certain other scrap metal dealers ("the ring") which contained a provision that the parties to the ring would engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction ii) not bidding against the nominated bidder/s iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock b) gave effect to the arrangement or understanding by: i) acting as a nominated bidder for the ring ii) bidding for lots at the auction on behalf of the ring iii) not bidding for lots against the ring iv) organising and participating in the subsequent knock at the Phoenix Sports Club c) by the acts referred to in (a)(i) and (ii) and (b)(i)-(iii), represented in trade and commerce to those conducting and attending the auction that the bids made on behalf of the nominated bidder were genuine and were made in the absence of any agreement or understanding with other persons at the auction as to price control, which representation was not true. 3. The Seventh Respondent made the arrangement or arrived at the understanding referred to in paragraph 1(a) and engaged in the conduct referred to in paragraph 1(b) on behalf of the Sixth Respondent. 4. The Seventh Respondent made the arrangement or arrived at the understanding referred to in paragraph 2(a) and engaged in the conduct referred to in paragraph 2(b) on behalf of the Sixth Respondent. 5. By making the arrangement or arriving at the understanding referred to in paragraph 1(a) the Sixth Respondent: a) made an arrangement or arrived at an understanding containing an exclusionary provision in contravention of section 45(2)(a)(i), when read with section 4D, of the Trade Practices Act 1974 ("the Act") b) made an arrangement or arrived at an understanding containing a provision that had the purpose, or had or was likely to have the effect, of substantially lessening competition, by reason that the provision had the purpose, or had or was likely to have the effect, of fixing, controlling or maintaining the prices of goods to be acquired by the parties to the arrangement, in contravention of section 45(2)(a)(ii), when read with section 45A(1), of the Act. 6. By engaging in the conduct referred to in paragraph 1(b) the Sixth Respondent a) gave effect to an arrangement or understanding containing an exclusionary provision in contravention of section 45(2)(b)(i), when read with section 4D, of the Act b) gave effect to an arrangement or understanding containing a provision that had the purpose, or had or was likely to have the effect, of substantially lessening competition, by reason that the provision had the purpose, or had or was likely to have the effect, of fixing, controlling or maintaining the prices of goods to be acquired by the parties to the arrangement, in contravention of section 45(2)(b)(ii), when read with section 45A(1), of the Act. 7. In the circumstances described in paragraph 1(c) the Sixth Respondent, in trade or commerce, engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s52(1) of the Act. 8. By making the arrangement or understanding referred to in paragraph 1(a) and engaging in the conduct referred to in paragraph 1(b) the Seventh Respondent: a) aided, abetted or procured the Sixth Respondent to contravene ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act; and/or b) has been directly or indirectly knowingly concerned in or a party to the contravention by the Sixth Respondent of ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act. 9. By making the arrangement or understanding referred to in paragraph 2(a) the Sixth Respondent: a) made an arrangement or arrived at an understanding containing an exclusionary provision in contravention of section 45(2)(a)(i), when read with section 4D, of the Trade Practices Act 1974 ("the Act") b) made an arrangement or arrived at an understanding containing a provision that had the purpose, or had or was likely to have the effect, of substantially lessening competition, by reason that the provision had the purpose, or had or was likely to have the effect, of fixing, controlling or maintaining the prices of goods to be acquired by the parties to the arrangement, in contravention of section 45(2)(a)(ii), when read with section 45A(1), of the Act. 10. By engaging in the conduct referred to in paragraph 2(b) the Sixth Respondent a) gave effect to an arrangement or understanding containing an exclusionary provision in contravention of section 45(2)(b)(i), when read with section 4D, of the Act b) gave effect to an arrangement or understanding containing a provision that had the purpose, or had or was likely to have the effect, of substantially lessening competition, by reason that the provision had the purpose, or had or was likely to have the effect, of fixing, controlling or maintaining the prices of goods to be acquired by the parties to the arrangement, in contravention of section 45(2)(b)(ii), when read with section 45A(1), of the Act. 11. In the circumstances described in paragraph 2(c) the Sixth Respondent, in trade or commerce, engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s52(1) of the Act. 12. By making the arrangement or understanding referred to in paragraph 2(a) and engaging in the conduct referred to in paragraph 2(b) the Seventh Respondent : a) aided, abetted or procured the Sixth Respondent to contravene ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act; and/or b) has been directly or indirectly knowingly concerned in or a party to the contravention by the Sixth Respondent of ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act. THE COURT ORDERS THAT: 13. The Sixth Respondent, by its servants or agents or otherwise howsoever, is restrained from a) making an arrangement or arriving at an understanding with other scrap metal dealers ("the ring") which contain a provision that the parties to the ring will engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction; and ii) not bidding against the nominated bidder/s; and iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock. 14. The Seventh Respondent is restrained from a) making an arrangement or arriving at an understanding with other scrap metal dealers ("the ring") which contain a provision that the parties to the ring will engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction; and ii) not bidding against the nominated bidder/s; and iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock. 15. The Sixth Respondent pay to the Commonwealth a pecuniary penalty in the sum of $70,000 in respect of the conduct referred to in paragraphs 1 - 2 above. 16. The Seventh Respondent pay to the Commonwealth a pecuniary penalty in the sum of $15,000 in respect of the conduct referred to in paragraphs 1 - 4 above. 17. The Sixth and Seventh Respondents jointly and severally pay: a) $10,000 towards the costs of the Applicant up to and including 8 March 2004; and b) one third of the costs of the Applicant after 8 March 2004, other than the costs of and incidental to interlocutory applications concerning the Sixteenth Respondent. Allowance is to be made for 8, 15 and 23 March 2004. (FIFTEENTH RESPONDENT) THE COURT DECLARES THAT: 18. The Fifteenth Respondent, together with each of the Sixth, Tenth and Thirteenth Respondents and others, on 11 February 1999, at an auction in Chiswick by BHP Limited for the sale of goods including scrap metal: a) made an arrangement or arrived at an understanding with certain other scrap metal dealers ("the ring") which contained a provision that the parties to the ring would engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction ii) not bidding against the nominated bidder/s iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock b) gave effect to the arrangement or understanding by: i) not bidding for lots against the ring ii) participating in the subsequent knock at a nearby hotel. 19. The Fifteenth Respondent, together with each of the Third and Thirteenth Respondents and others, on 28 October 1999, at an auction in Port Kembla by BHP Limited for the sale of goods including scrap metal: a) made an arrangement or arrived at an understanding with certain other scrap metal dealers ("the ring") which contained a provision that the parties to the ring would engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction ii) not bidding against the nominated bidder/s iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock b) gave effect to the arrangement or understanding by: i) not bidding for lots against the ring ii) participating in the subsequent knock at Port Kembla Leagues Club. 20. The Fifteenth Respondent, together with each of the First, Third and Sixth Respondents and others, on 24 November 1999, at an auction in Newcastle by BHP Limited for the sale of goods including scrap metal: a) made an arrangement or arrived at an understanding with certain other scrap metal dealers ("the ring") which contained a provision that the parties to the ring would engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction ii) not bidding against the nominated bidder/s iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock b) gave effect to the arrangement or understanding by: i) not bidding for lots against the ring ii) participating in the subsequent knock at the Phoenix Sports Club. 21. By making the arrangement or understanding referred to in paragraph 1(a) and engaging in the conduct referred to in paragraph 1(b) the Fifteenth Respondent: a) aided, abetted or procured each of the Sixth, Tenth and Thirteenth Respondents to contravene ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act; and/or b) has been directly or indirectly knowingly concerned in or a party to the contravention by the Sixth, Tenth and Thirteenth Respondents of ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act. 22. By making the arrangement or understanding referred to in paragraph 2(a) and engaging in the conduct referred to in paragraph 2(b) the Fifteenth Respondent : a) aided, abetted or procured each of the Third and Thirteenth Respondents to contravene ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act; and/or b) has been directly or indirectly knowingly concerned in or a party to the contravention by the Third and Thirteenth Respondents of ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act. 23. By making the arrangement or understanding referred to in paragraph 3(a) and engaging in the conduct referred to in paragraph 3(b) the Fifteenth Respondent : a) aided, abetted or procured each of the First, Third and Sixth Respondents to contravene ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act; and/or b) has been directly or indirectly knowingly concerned in or a party to the contravention by the First, Third and Sixth Respondents of ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act. THE COURT ORDERS THAT: 24. The Fifteenth Respondent is restrained from a) making an arrangement or arriving at an understanding with other scrap metal dealers ("the ring") which contain a provision that the parties to the ring will engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction; and ii) not bidding against the nominated bidder/s; and iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock. 25. The Fifteenth Respondent pay to the Commonwealth a pecuniary penalty in the sum of $100,000 in respect of the conduct referred to in paragraphs 1 - 3 above. 26. The Fifteenth Respondent pay: a) $10,000 towards the costs of the Applicant up to and including 8 March 2004; and b) one third of the costs of the Applicant after 8 March 2004, other than the costs of and incidental to interlocutory applications concerning the Sixteenth Respondent. Allowance is to be made for 8, 15 and 23 March 2004. (SIXTEENTH RESPONDENT) THE COURT DECLARES THAT: 27. The Sixteenth, together with each of the First, Third, Tenth and Thirteenth Respondents and others, on 12 October 1999, at an auction in Bathurst by the Commonwealth of Australia (Department of Defence) for the sale of goods including scrap metal: a) made an arrangement or arrived at an understanding with certain other scrap metal dealers ("the ring") which contained a provision that the parties to the ring would engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction ii) not bidding against the nominated bidder/s iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock b) gave effect to the arrangement or understanding by: i) not bidding for lots against the ring ii) participating in the subsequent knock at a nearby hotel. 28. The Sixteenth Respondent, together with each of the Third and Thirteenth Respondents and others, on 28 October 1999, at an auction in Port Kembla by BHP Limited for the sale of goods including scrap metal: a) made an arrangement or arrived at an understanding with certain other scrap metal dealers ("the ring") which contained a provision that the parties to the ring would engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction ii) not bidding against the nominated bidder/s iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock b) gave effect to the arrangement or understanding by: i) not bidding for lots against the ring ii) participating in the subsequent knock at Port Kembla Leagues Club. 29. The Sixteenth Respondent, together with each of the First, Third and Sixth Respondents and others, on 24 November 1999, at an auction in Newcastle by BHP Limited for the sale of goods including scrap metal: a) made an arrangement or arrived at an understanding with certain other scrap metal dealers ("the ring") which contained a provision that the parties to the ring would engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction ii) not bidding against the nominated bidder/s iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock b) gave effect to the arrangement or understanding by: i) not bidding for lots against the ring ii) participating in the subsequent knock at the Phoenix Sports Club. 30. By making the arrangement or understanding referred to in paragraph 1(a) and engaging in the conduct referred to in paragraph 1(b) the Sixteenth Respondent: a) aided, abetted or procured each of the First, Third, Tenth and Thirteenth Respondents to contravene ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act; and/or b) has been directly or indirectly knowingly concerned in or a party to the contravention by the First, Third, Tenth and Thirteenth Respondents of ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act. 31. By making the arrangement or understanding referred to in paragraph 2(a) and engaging in the conduct referred to in paragraph 2(b) the Sixteenth Respondent : a) aided, abetted or procured each of the Third and Thirteenth Respondents to contravene ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act; and/or b) has been directly or indirectly knowingly concerned in or a party to the contravention by the Third and Thirteenth Respondents of ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act. 32. By making the arrangement or understanding referred to in paragraph 3(a) and engaging in the conduct referred to in paragraph 3(b) the Sixteenth Respondent : a) aided, abetted or procured each of the First, Third and Sixth Respondents to contravene ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act; and/or b) has been directly or indirectly knowingly concerned in or a party to the contravention by the First, Third and Sixth Respondents of ss45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), 45(2)(b)(ii) and 52 of the Act. THE COURT ORDERS THAT: 33. The Sixteenth Respondent is restrained from a) making an arrangement or arriving at an understanding with other scrap metal dealers ("the ring") which contain a provision that the parties to the ring will engage in controlled or restricted bidding at the auction by: i) nominating one or more of the parties to the ring to bid at the auction; and ii) not bidding against the nominated bidder/s; and iii) after the auction, bidding amongst themselves for the goods purchased by the nominated bidder/s ("the knock"), on the basis the unsuccessful bidders at the knock would be paid for their participation in the ring and knock. 34. The Sixteenth Respondent pay to the Commonwealth a pecuniary penalty in the sum of $30,000 in respect of the conduct referred to in paragraphs 1 - 3 above. 35. The Sixteenth Respondent pay $32,500 towards the costs of the Applicant up to and including 8 March 2004. 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 N1672 OF 2001 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT AND: FERNDALE RECYCLERS PTY LIMITED (ACN 056 303 130) SIXTH RESPONDENT RONALD CHRISTOPHER BAGNALL SEVENTH RESPONDENT HENDRICUS FRANKE FIFTEENTH RESPONDENT ALLEN ANTHONY HIGGINS SIXTEENTH RESPONDENT JUDGE: BENNETT J DATE: 9 DECEMBER 2004 PLACE: SYDNEY REASONS FOR JUDGMENT 1 The history and the factual background of these proceedings is set out in my reasons for judgment given in Australian Competition & Consumer Commission v D M Faulkner Pty Limited [2004] FCA 1666 ('ACCC v Faulkner'). The proceedings were brought by the Australian Competition and Consumer Commission ('the ACCC') against seventeen respondents for price fixing and collusive and anticompetitive conduct in the small trader end of the scrap metal market in New South Wales at a number of auctions for the sale of goods, including scrap metal. 2 This is a determination of penalties and costs against Ferndale Recyclers Pty Limited, the sixth respondent ('Ferndale'), Ronald Christopher Bagnall, the seventh respondent ('Mr Bagnall') and Hendricus Franke, the fifteenth respondent ('Mr Harry Franke'), collectively referred to as 'the defending respondents' and Allen Anthony Higgins, the sixteenth respondent ('Mr Higgins'). BACKground and HISTORY The Submitting Respondents 3 The allegations were of contraventions of ss 45(2)(a)(i), 45(2)(a)(ii), 45(2)(b)(i), and 45(2)(b)(ii) of the Trade Practices Act 1974 (Cth) ('the Act'), which were admitted by the first to fifth, tenth to fourteenth and seventeenth respondents ('the submitting respondents'). Suggested penalties were jointly submitted by the ACCC and the submitting respondents. These were considered in ACCC v Faulkner. The penalties imposed (see Annexure A) ranged from $2,500 to $120,00 for the incorporated respondents and from $2,500 to $15,000 for the individual respondents. These penalties reflected, in part, the number of scrap metal auctions attended and the degree of involvement in 'the ring' and 'the knock' that took place at the auctions. There were four such auctions, the auction at Chiswick on 10-11 February 1999 ('the Chiswick auction'), the auction at Bathurst on 12 October 1999 ('the Bathurst auction'), the auction at Port Kembla on 28 October 1999 ('the Port Kembla auction') and the auction at Newcastle on 24 November 1999 ('the first Newcastle auction'). A fifth auction, at Newcastle on 25 November 1999, is not now relevant as the ACCC did not establish that a ring and a knock took place at that auction. The Defending Respondents Background 4 In ACCC v Faulkner the submissions of the ACCC on liability and the defences presented by Mr Bagnall and Mr Harry Franke were discussed at [231] to [306]. Mr Higgins did not appear at any directions or at the hearing. Substituted service of Mr Higgins, submissions by the ACCC and findings on liability were discussed at [320] to [338]. 5 The ACCC alleged contraventions of ss 45(2)(a)(i) and (ii) and ss 45(2)(b)(i) and (ii) of the Act by Ferndale and that Mr Bagnall, Mr Harry Franke and Mr Higgins had aided, abetted, procured or been directly or indirectly knowingly concerned in or party to the contraventions by Ferndale and the submitting corporate respondents. A description of the nature of the scrap metal market, the types of items bought and sold and the source of the items can be found in ACCC v Faulkner at [4] to [7]. The relative sizes of the traders in the scrap metal market is also referred to at [3]. Findings as to Liability 6 For the reasons set out in ACCC v Faulkner at [312] and 313], I found that: 'The evidence against Mr Bagnall and Mr Harry Franke establishes that they participated as described in rings and knocks that operated at the Chiswick, Bathurst, Port Kembla and first Newcastle auctions. Mr Bagnall admitted to the operation of the rings as "joint ventures"; Mr Harry Franke to the operations of knocks as "distribution" of lots from the auction. The evidence of the witnesses called, the evidence of cheques and invoices, as well as the admissions by these respondents indicate clear contraventions of s 45(2)(a), s 45(2)(b) and s 45A of the Act as alleged. The evidence for contraventions at the second Newcastle auction is insufficient. Therefore Mr Bagnall was involved in contraventions at two auctions, the Chiswick auction and the first Newcastle auction; and Mr Harry Franke at three auctions, the Chiswick auction, the Port Kembla auction and the first Newcastle auction. At each auction, other than the second Newcastle auction, there was an arrangement to control the acquisition of goods to affect the price of the goods purchased from the vendor at the auction. In respect of these auctions, Ferndale and the corporate respondents that engaged in each ring and knock made or arrived at an arrangement or understanding which: (i) contained a provision contrary to s 45(2)(a)(i) of the Act; and (ii) had the purpose or would have or be likely to have the effect of substantially lessening competition in the scrap metal market by reason that the provision had or was likely to have the effect of controlling the price for the goods to be acquired by the corporate respondents in contravention of s 45(2)(a)(ii) of the Act, in which regard the ACCC relies upon s 45A(1) of the Act. Mr Bagnall and Mr Harry Franke aided, abetted and procured the contraventions of s 45(2)(a)(i) and s 45(2)(a)(ii) and were persons who were directly or indirectly, knowingly concerned in, or parties to, the contraventions.' penalties and costs 7 Section 76(1) of the Act requires the Court to have 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 principles to be applied in determining the level of penalties ordered to be paid pursuant to s 76 of the Act are well established and are referred to in ACCC v Faulkner. They have been described in detail by French and Heerey JJ in Trade Practices Commission v CSR Limited (1991) ATPR 41-076 at 51,152-51,153) ('the French factors') and in Australian Competition & Consumer Commission v NW Frozen Foods (1996) 71 FCR 285 ('NW Frozen Foods') ('the Heerey factors') respectively. 8 I will now consider the French factors and the Heerey factors in relation to the defending respondents (see also ACCC v Faulkner at [53]). The French factors include: '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.' The Heerey factors include: '(x) Similar Conduct in Past (xi) Financial Position (xii) Deterrent Effect' FERNDALE AND MR BAGNALL (a) Nature and extent of the contravening conduct 9 It was accepted that there was no significant prior planning involved in the formation of each ring and knock. The arrangements or understandings, the formation of the ring, were made shortly before the auction began or during the auction. 10 The ring consisted of only a small percentage of the scrap metal dealers attending the auction. At the first Newcastle auction there were 86 registered bidders and 17 in the ring, or about 20% of those registered. At the Chiswick auction only 16 of the 102 purchasers participated, or about 16 % of those attending. 11 Counsel for the ACCC submitted that Mr Bagnall 'played a central, indeed, ringleading role' in the auctions at Chiswick and Newcastle, by organising and bidding for the rings. Furthermore, it was submitted by the ACCC that Mr Bagnall played a 'central role' and that his: '…domineering approach in dealing with his fellow scrap dealers gave him a level of power in relation to the formation and operation of the ring which might otherwise have been expected by reason of Ferndale's position in the market.' (emphasis added) 12 A review of the evidence about the auctions reveals that, at times, more than one member of the ring bid for the goods. There was no regular elected bidder. The bidder appeared to be that member of this group of scrap metal dealers who agreed to bid on the day. Mr Cook's evidence at the hearing describes the somewhat casual recruitment process and nomination of bidders that occurred: 'Whilst I was walking with Tony Franke, Paul Clingan approached us and we had a conversation in words to the following effect: Paul Clingan said: Are you interested in the lot? I'm interested in some of the items. Do you want to be part of the ring? Shall I bid? I said: Yeah I wouldn't mind being part of the ring and its okay if you bid. Tony Franke said: Yeah, no problem.' 13 According to the affidavit of Mr Kilpatrick, 'the person who did the bidding on behalf of the ring was the person who had done the most homework about the items available at the scrap metal auction'. His description of the arrangements at the Chiswick auction gives no indication of a domineering manner on the part of Mr Bagnall. Mr Kilpatrick's description of the knock also portrays a bidding system by mutual agreement. Mr Nietner denied knowing whether Mr Bagnall began bidding for the ring or organised the knock. (see ACCC v Faulkner at [153]). 14 Much was made by counsel for the ACCC about the role Mr Bagnall played at the knock after the first Newcastle auction, in particular the fact that Mr Bagnall used his cheque book to make payments to the other participants. Mr Bagnall's evidence is, however, that Metalcorp Recyclers Pty Ltd ('Metalcorp') asked him to make the payments on its behalf and to use his cheque book and that he was later repaid by Metalcorp. It appeared to be a relatively common practice for one member of the ring to use his cheque book to pay the "drop-out" amounts at the knock, whether he had bought the bill for himself or not. For example, at the first Newcastle auction Mr Faulkner used a D M Faulkner cheque book to pay the "drop-out" amounts for Mr Best of Metalcorp. Mr Best later repaid Mr Faulkner with a Metalcorp cheque (ACCC v Faulkner at [283]). 15 At the Chiswick auction, Mr Bagnall bought goods for the ring worth $42,861.50. His cheque book was use to pay $18,540 to the unsuccessful bidders at the knock. At the first Newcastle auction he bought goods for the ring worth $37,944.50. Mr Bagnall was an organiser of the knock, although an unsuccessful bidder himself (see ACCC v Faulkner at [281] – [283]). At the knock he received $1,200 as a "drop-out" amount. The highest such amount paid at the knock was $5,200 to Mr Harry Franke. Moreover, Mr Bagnall's evidence was that he went to the auctions as a genuine purchaser of the scrap metal. (b) The amount of loss or damage caused 16 I dealt with this in ACCC v Faulkner at [78] – [82]: 'The vendors of the goods sold at the various auctions are the Department (Bathurst and Chiswick), BHP (Port Kembla and first Newcastle). The ACCC has not presented any evidence of directly quantifiable loss or damage having been caused by the conduct of the ring members. So far as the Department was concerned, the items auctioned at Bathurst "had no economical benefit". It is of some relevance, in considering the effect of the loss to the vendor, to take into account the size of the loss and the identity of the vendors: Trade Practices Commission v Allied Mills Pty Ltd (1981) APPR 40-241 at 43,181-43,182 although the evidence is that the rings have been operating in the scrap metal market over an extended period of time. Some indication of loss to the vendor is the sum of the payments made to the knock participants, being the additional amount which the successful bidder at the knock may otherwise have paid at the auction to obtain those goods. Sometimes, the vendor received more than the value of the goods. The amounts paid out at the knock in respect to the relevant auctions were: Bathurst auction, $15,050; Newcastle auctions, $25,000; Chiswick auction, $18,540 and Port Kembla auction, $20,120. There was no evidence of any damage or loss having been caused to consumers or, for that matter, to competitors by the contravening conduct. Some guide to the loss or damage is the size of the payments to knock participants, although this is not a precise indication. In the case of D M Faulkner, it could be said that the value of the discount that D M Faulkner obtained by participating in the ring at the auction was approximately $7,525, or alternatively this is the additional amount that it would have had to bid to obtain the same lots at the auction. Similarly, the additional amount paid by the successful bidder at the Chiswick auction was $18,540, at the Port Kembla auction $20,120 and the first Newcastle auction $25,000.' 17 I also noted at [83] and [84]: 'In addition, as Mr Faulkner, Mr Forrester, Mr Tony Franke and Mr Robinson were aware, the ring may overpay on some items to discourage bidders outside the ring from competing with it. The effect of such conduct may well be to reduce the level of competition for goods being offered and the net effect is likely to result in less money being bid for the totality of goods on offer to the detriment of the vendor. It is impossible to attempt to quantify the extent of any such loss. There are many cases where the Court has proceeded to assess the level of appropriate penalties without recourse to quantified loss or damage (see the cases referred to at [41] in ACCC v Roche Vitamins Australia Pty Limited (2001) ATPR 41-809 ('Roche Vitamins') per Lindgren J).' 18 An examination of the total purchases at each auction reveals that at the Chiswick auction the ring purchased goods to the value of $42,861.50 of the total payment for goods of $292,403 (approximately 14.66%) and at the first Newcastle auction the ring purchased $37,944.50 of the total payment of goods of $383,215 (approximately 9.9%). This indicates that at the Chiswick auction 85.34% of the goods were bought by some of the other 90 or so registered bidders and that at the first Newcastle auction 90.1% of the goods were bought by some of the 85 registered bidders. While these sums do not represent nominal or insubstantial amounts, nevertheless the market power of the ring for which Mr Bagnall was bidding appears to be limited in any relative analysis of the market. (c) Market share and market power 19 I found in ACCC v Faulkner at [85]: 'D M Faulkner had a very small market share in the scrap market generally. Riverside Metal's market share was less than 0.5% Australia wide. They cannot be said to have possessed substantial market power in the scrap metal market in Australia. However, they had more market power (although still not substantial) in the market of scrap metal auctions in New South Wales. They were, at the relevant auctions, relatively large organisations when compared with a number of the other respondents, such as Ferndale, Ajax and T & D Metals but small by comparison with Metalcorp and Simsmetal. The formation of the ring enabled the smaller scrap metal merchants to take part in the auctions to a greater extent than they would have been able to otherwise.' 20 The question arises whether Mr Bagnall, through Ferndale, was exercising market power. Mr Bagnall was recognised by Mr Kilpatrick as the bidder for the ring at the Chiswick auction (see ACCC v Faulkner at [264]). He was recognised as the bidder at the first Newcastle auction by Mr Best (see ACCC v Faulkner at [280]) who also stated that Mr Bagnall extended the invitation to him to be part of the ring (see ACCC v Faulkner at [278]). Mr Best recalled that Mr Bagnall said words to the effect: 'We're going to put a ring together'. This does not indicate to me that Mr Bagnall was necessarily the instigator of the ring at that particular auction nor that he was the instigator of this system for the purchase of scrap metal at the auctions. There was evidence from Mr Kilpatrick that the system of acquiring scrap metal at these auctions in New South Wales by the ring and the knock had existed for many years (see ACCC v Faulkner at [253]). Mr Cook also explained that rings had been operating among groups of scrap metal dealers at the auctions since the 1980's (see ACCC v Faulkner at [252]). 21 The existence of any market power is not related to Mr Bagnall's role as an individual. Rather, it is related to the operation of the ring once formed at the auctions. To establish the presence or absence of substantial market power exercised by Ferndale or Mr Bagnall, a number of interrelated issues would need to be examined. 22 In particular, detailed evidence of the actual conduct of Ferndale over the whole of the relevant period would need to have been led to establish the extent to which the corporation was actually constrained by the conduct of competitors or potential competitors: see Boral Besser Masonry Limited v Australian Competition and Consumer Commission (2003) 195 ALR 609 ('Boral'). 23 The evidence of Mr Bagnall's "domineering approach" can be found in the affidavit of Mr Best, where that witness said that Mr Bagnall had said to him that if he did not agree to be part of the ring (see ACCC v Faulkner at [278]) 'we're going to run the hell out of you all day'. This meant that Mr Bagnall would bid against him and raise the price so that, if Mr Best continued to bid, he would be paying too much for the scrap metal (see ACCC v Faulkner at [279]). Mr Bagnall now denies that he said this. There was also reference to hearsay evidence of Mr Clingan or Mr Harry Franke saying, in relation to Mr Bagnall (without objection), 'he'll run you all day and cost you a fortune' (see ACCC v Faulkner at [280]). 24 Mr Best, in his affidavit, referred to 'commercial retaliation' if he did not join the ring and his concern that this would affect the 'long term dealings of Metalcorp'. He explained that ring members may not deal with Metalcorp and they would bid up prices at auctions attended by Metalcorp. He was referring to 14 or more scrap metal dealers whom he considered 'represented approximately 80% of the major scrap metal dealers in New South Wales'. Mr Bagnall was one of these. However, as Mr Best observed, Ferndale was a company with considerable financial constraints compared to a number of dealers on Mr Best's list. 25 Evidence relating to the second Newcastle auction provides some insight into the role of Mr Bagnall (see ACCC v Faulkner at [291). Mr Best identified Mr Bagnall at the auction. He observed Mr Bagnall bidding that day and purchasing goods to the value of $18,562.50. He also observed Mr Clingan, Mr Faulkner, Mr Carlyon and Mr Baldini successfully bidding at that auction. Mr Best declined to join a ring and he recalled that other scrap metal dealers also declined to join. He did not report seeing a knock at the Phoenix Club after the auction. The evidence of the cheques paid by Ferndale to Metalcorp and the evidence of Mr Nietner that he received "drop-out" money after the auction were insufficient to establish that a ring and knock occurred in respect of the second Newcastle auction. The evidence does, however, indicate that in the absence of mutual agreement among the scrap metal dealers, rings and knocks were not formed. The evidence does not establish that Mr Bagnall was the "ringleader" or the leader of the process forming the ring or the knock, rather than the nominated bidder on behalf of the rings. The evidence relating to the Chiswick auction, the Bathurst auction, the Port Kembla auction and the first Newcastle auction (see ACCC v Faulkner [20] – [42]) indicated that all respondents facilitated the formation and operation of the auction rings and knocks by their participation. 26 The ACCC have submitted that 'generally Ferndale and Mr Bagnall had a small market share' but had market power that was exercised because of Mr Bagnall's 'domineering approach' in dealing with scrap metal dealers and in operating the rings. 27 Market power, which has been defined in relation to the application of s 46 of the Act, was determined by Dawson J in Queensland Wire Industries Pty Ltd v Broken Hill Pty Co Ltd ('Queensland Wire') (1989) 167 CLR 177 at 200 to mean: '…a reference to the power to raise price by restricting output in a sustainable manner…It may be manifested by practices directed at excluding competition such as exclusive dealing...The ability to engage persistently in these practices may be as indicative of market power as the ability to influence prices.' Mason CJ and Wilson J in Queensland Wire summarised the major factors to be taken into account in identifying market power. These include: a consideration of the market share of the corporation, although not solely determinative; the presence of vertical integration; the barriers to entry; the extent of constraint exercised by competitors and 'the ability of the firm to raise prices above the supply cost without rivals taking away customers…' (see Queensland Wire at 188). 28 According to Miller's Annotated Trade Practices Act 2004 ed at page 320: 'Market power is, in essence, the power to behave in a market in a manner not constrained by competitors in that market for a sustained period.' 29 There is no evidence that Mr Bagnall used this market power in a way that would enable him to behave independently of competition. (see Eastern Express Pty Ltd v General Newspapers Pty Ltd (1992) 35 FCR 43). Any market power that was exerted was exercised by participation in the ring. 30 In essence, a wide variety of factors and the particular circumstances of each case should be considered, including the corporation's financial resources and access to capital in order to determine whether a party had a substantial degree of power in the market and whether it took advantage of that power: Boral at 609 – 610. 31 The evidence in relation to the definition of the relevant market was not subject to examination: 'The existence of the market for the acquisition of scrap metal by scrap metal merchants is not in dispute. Nor is the existence of a market within New South Wales for the acquisition of scrap metal from BHP at each of the BHP auctions.' (see ACCC v Faulkner at [308]) Further at [315] '…in relation to s 45A, it is only necessary to determine that goods were being put forward for sale and bid for and this would be the market 'whatever its boundaries'. It does not matter whether the market is at each auction or whether it includes auctions for scrap metal generally in New South Wales.' 32 The Full Federal Court in Rural Press Ltd v ACCC (2002) 193 ALR 399 held that the term "substantial" is a subject of "inconclusive debate". In Tillmanns Butcheries Pty Ltd v Australasian Meat Industry Employees' Union (1972) 42 FLR 331 at 338 Bowen CJ held that the term is 'quantitatively imprecise' and Deane J at 348 held it to be a term 'susceptible to ambiguity' and 'can be used in a relative sense or can indicate an absolute significance, quantity or size' such that it 'would be necessary to know something of the nature and scope of the relevant business before one could say that particular actual or potential loss or damage was substantial'. 33 I find that the evidence is insufficient to establish that Ferndale or Mr Bagnall had a substantial degree of power in the relevant market. (d) The deliberateness of the contravention and the period over which it extended 34 The conduct of Ferndale and Mr Bagnall was deliberate in that it was not inadvertent. It was not in dispute that Mr Bagnall was unaware that he was doing anything wrong. Mr Bagnall said: 'I never knew I was doing anything wrong…even forming a group or a ring to buy parcels that I couldn't handle myself…' (ACCC v Faulkner at [302]). (e) Similar conduct in the past 35 The contravening conduct extended over nine months but involved only two auctions, the Chiswick auction on 11 February 1999 and the first Newcastle auction on 24 November 1999. There is no evidence of similar conduct in the past or that the conduct continued. Mr Bagnall stated to the Court that he 'won't be attending any more auctions'. (f) Participation of senior management 36 It was recognised that Mr Bagnall's contravening conduct as a director of Ferndale was essentially the conduct of someone in a 'notionally senior position' in a company which is essentially a partnership between Mr Bagnall and Lawrence Harpley. Ferndale is a relatively small company lacking the structure of a public corporation where it could be expected that a compliance program would be in place. (g) The deterrent effect of the proposed penalty 37 The ACCC has submitted that the appropriate penalties for Ferndale are $50,000 for each auction (a total of $100,000) and, for Mr Bagnall, $30,000 for each auction (a total of $60,000). 38 Ferndale's financial statements show the following: Sales Trading profit Wages Net Profit Net assets 1999 $382,045 $67,768 $40,000 ($6,239) ($2,509) 2000 $220,152 $71,523 $36,000 $5,100 $2,591 2001 $401,087 $92,977 $50,000 $1,534 $3,960 2002 $178,153 $41,451 $40,000 ($26,844) ($22,885) 2003 $157,250 $33,874 $40,000 ($40,969) ($63,855) 39 Ferndale, by 2002 and 2003, is showing significant debt levels. The tax return for Mr Bagnall for 1999 shows an income of $20,000 and the tax return for 2000 shows an income of $16,000. This represents approximately a half share of the wages shown in Ferndale's financial statement. A minimal increase in income is shown in the years 2001 ($25,000), in 2002 ($20,000) and in 2003 ($20,000). 40 Ferndale's financial statements indicate an extremely limited capacity to pay any penalties imposed. Mr Bagnall submitted at the hearing that the company assets consisted of 'an old truck, and a train, a 55 model Bedford train and probably a thousand dollars worth…in the company' and that 'the company will have to go into insolvency'. This will also affect Mr Harpley, with whom Mr Bagnall has been in partnership 'nearly all our lives'. 41 Mr Bagnall's evidence was that his personal assets consist of 'a 1985 Ford' valued between $500 and $700, his wife's car which is registered in his name 'worth probably $5,000 and I probably still owe $6,000'. He pays rent in Sydney and has a property in Caloundra where his son lives rent free. This property consists of land which cost him $10,000 and a house which cost $47,000. Mr Bagnall supports his wife who has had breast cancer and his 14 year old daughter, with additional expenses relating to medical bills for his wife for which she was not insured and education expenses for his daughter. 42 The total penalties proposed would represent very significant sums in terms of the financial position shown in Ferndale's financial statements and in terms of Mr Bagnall's income and assets. In my view a more modest penalty would represent sufficient deterrence for a company such as Ferndale, which has virtually no assets and significant liabilities. As Burchett and Kiefel JJ held in NW Frozen Foods at 293, the penalty should not be so great as to be oppressive. 43 Mr Bagnall's capacity to pay any penalty must be measured by reference to the capacity of the underlying business. The size and capacity to meet any penalty imposed was found to be a relevant consideration in Australian Competition and Consumer Commission v SIP Australia Pty Ltd (1999) ATPR 41-702; and in Australian Competition and Consumer Commission v McMahon Services Pty Ltd (No1) [2004] FCA 1171. 44 In Australian Competition and Consumer Commissions v ASIC [2000] NSWSC 316 Austin J considered the question of futility in the imposition of penalties in the context on the reinstatement of a company's registration for the purposes of proceedings alleging contravention of Part IV of the Act. Reference was made to the relevance of the financial position of the respondent in determining the amount of penalty imposed (NW Frozen Foods). In NW Frozen Foods at 298 the Full Court of this Court considered the balance that needs to be struck between recommendations of the 'specialist body set up to protect the public interest in the maintenance of economically healthy competition…'and the'"subjective" matters, calling perhaps for a degree of mercy', which falls 'more within those broad concepts of justice to which the Court must always have regard'. 45 In a recent judgment of this Court, Sackville J (Australian Competition and Consumer Commission v Visy Paper Pty Ltd No 2 [2004] FCA 1471) concluded at [51] that 'the penalty must be sufficient to act as a deterrent to Visy and as a general deterrent to those corporations or individual contemplating engaging in anti-competitive conduct in contravention of the Act'. A penalty of $500,000 was imposed on the corporation. Justice Sackville considered all the appropriate factors and held that, independently of personal financial circumstances, he would have imposed a penalty of $20,000 on one of the individual respondents. After making allowances for his 'apparently straitened circumstances', a penalty of $10,000 was imposed on that director by Sackville J. (h) Disposition to-co-operate 46 Mr Bagnall did not co-operate with the ACCC in the disposition of the proceedings by agreeing to facts and admissions to avoid the expense of a lengthy trial. I referred the parties to a mediation, which was unsuccessful. Mr Bagnall submitted that he was concerned about the legal costs and penalties proposed by the ACCC, although the details of his negotiations were subject to confidentiality. Mr Bagnall was unrepresented at the hearing. 47 Mr Bagnall sought to rely on the penalty imposed on D M Faulkner compared to the penalty proposed by the ACCC for Ferndale. However, the penalty imposed on D M Faulkner took into account the fact that Mr Faulkner cooperated with the ACCC and jointly submitted agreed facts and proposed penalties. (i) Totality principle 48 Where a penalty is being imposed for a number of offences, the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct involved, so that the penalties are aggregate, just and appropriate. (see Burchett J in Trade Practices Commission v TNT Australia (1995) ATPR 41-375 at [40]-[69]). It was submitted by the ACCC that a total penalty for Ferndale and Mr Bagnall of $160,000 is appropriate as between the various respondents considering the number of auctions attended, the role played in the rings and knocks, the personal and financial circumstances and the choice by Ferndale and Mr Bagnall to contest the proceedings. It is said that this disentitles Ferndale and Mr Bagnall to any discount which may have been applied 'in the event of cooperation'. 49 In addition, costs are sought from Ferndale and Mr Bagnall of $10,000 up to 8 March 2004 and, after that date, one third of the costs of the proceedings. (j) The different circumstances of the respondents and the appropriate level of parity between them 50 While it was conceded by the ACCC that Ferndale did not have the level of turnover nor the market share of some of the other corporate respondents such as D M Faulkner (with sales of $1,382,770 in 2000) and Riverside Metal (with sales of $11,700,000 in 2000), it was submitted by the ACCC that the level of sales for Ferndale of $382,045 in 1999 and $220,152 in 2000 is, nevertheless, significant. However, the trading profit of $67,768 (1999) and $71,523 (2000) and the net profit figures showing a loss of $6,239 for 1999 and a profit of $5,100 for 2000 are far from impressive. These figures can be compared with the net profit for Mr Harry Franke of $267,706 in 1999 and $717,829 in 2000. Mr harry franke 51 The ACCC have sought penalties of $100,000, representing approximately $33,333.33 for each of the three auctions and submitted that this penalty would be a sufficient deterrent. (a) Nature and extent of the contravening conduct. 52 It was submitted by counsel for the ACCC that Mr Harry Franke's involvement in the in three auctions at the Chiswick auction, the Port Kembla auction and the first Newcastle auction was 'less significant' than the role Mr Bagnall played at the Chiswick and first Newcastle auctions because Mr Harry Franke was not the bidder, did not purchase the bill or 'actively recruit scrap dealers into the ring'. 53 Mr Harry Franke did benefit from his participation in the ring and knocks at the three auctions. He received $1,500 as a "drop-out" payment at the knock following the Chiswick auction, $3,720 from the Port Kembla knock (the second highest amount paid) and $5,200 from the Newcastle knock. This was a total benefit of $10,420 from the three auctions. 54 He was not the bidder for the ring and there was no evidence that he actively recruited other scrap metal dealers into the ring or that he purchased the bill following the knock. Mr Harry Franke received substantial benefits from his participation. His evidence was that he was not there to bid for the goods but to raise money by the "drop-out" payments at the known to participants in the ring. 55 At the original hearing Mr Harry Franke explained the reasons he was bidding at the knock following the first Newcastle auction: 'MR I FAULKNER SC: And I put to you that you were bidding in a genuine endeavour to obtain the bill at this knock? MR FRANKE: That is not correct. …Well, in this bill here there's probably half the people that don't want it and the main reason one goes to a knock is to know who is there and to work out who actually buys it and who wants it and the person that wants it at this knock in the end result is Metalcorp …but if Metalcorp didn't want the bill I wouldn't have got nowhere near that money because I cannot be competitive on this job the way it's situated. It's purely because I know there is somebody there that wants it no matter what.' … MR I FAULKNER SC: You're not suggesting to her Honour are you that when you were bidding you were bidding because you know that Metalcorp wanted that bill? MR FRANKE: That's true' In submissions in relation to penalties Mr Harry Franke repeated and confirmed this explanation of the reasons for bidding at the knock: 'MR FRANKE: …I didn't buy the bill either. I just happened to get a bigger slice off the milk money and as I stated before, the reason why I get bigger milk money because yes, if it happen to it, I could afford the bill if it landed on me but they don't want it and I surely don't want it…' 56 It can be inferred from this evidence that Mr Harry Franke bid at the knock to obtain the "drop-out" payment, not because he was interested in purchasing the bill and he knew that he could bid one of the higher "drop-out" figures but because he had made an assessment that Metalcorp wanted to buy the bill. His was a calculated action to take advantage of the system of rings and knocks in circumstances where he was not intending to be a genuine purchaser of the scrap metal. (b) The amount of loss or damage caused 57 See ACCC v Faulkner at [78] – [82] and [18] above (c) Market share and market power 58 Mr Harry Franke trades as Coast Metal Recyclers which, it was submitted in evidence, conducts the largest scrap metal recycling business in Wollongong. The business had a larger turnover than D M Faulkner and T&D Metals but a smaller turnover than Riverside Metal. Mr Harry Franke had a large market share in comparison to Mr Bagnall. The financial reports submitted show sales in 1998 of $2,861,024; in 1999 of $395,829 and in 2000 of $2,348,704. 59 See generally ACCC v Faulkner at [85] and [27] – [30] herein. I find the evidence insufficient to establish that Mr Harry Franke had a substantial degree of power in the relevant market. (d) The deliberateness of the contravention and the period over which it extended 60 Mr Harry Franke attended the Chiswick auction, Port Kembla auction and the first Newcastle auction over the period from 11 February 1999 to 24 November 1999. (e) Similar conduct in the past 61 There was no evidence as to his participation in rings and knocks in the future. It is not established that Mr Harry Franke was aware of the provisions of the Act. There was no evidence that Mr Harry Franke actively participated in contraventions of the Act before October 1999 nor afterwards. (f) Participation of senior management 62 Mr Harry Franke operated as one of the two principals of the business trading as Coast Metal Recyclers. At the time of the contraventions this was not incorporated and, therefore, participation of senior management is not relevant. (g) The deterrent effect of the proposed penalty 63 Coast Metal Recyclers had higher trading figures than D M Faulkner (see ACCC v Faulkner [103]) and 'conducted the largest scrap metal recycling business in Wollongong'. The financial report 1 July 1997 to 31 June 2001 of Coast Metal Recyclers shows a significantly higher level of sales, trading profit, net profit and assets compared to Ferndale. Sales Trading profit Net Profit New assets 1998 $2,861,024 $1,192,568 $956,334 $1,510,826 1999 $395,829 $250,059 $267,706 $147,458 2000 $2,348,704 $925,765 $717,829 $2,469,057 Mr Harry Franke's share of Coast Metal Recyclers and his income for 1998,1999 and 2000 is as follows: Share of Coast Metal Assets Total Income Taxable income 1998 $786,106 1999 $73,729 $263,000 $185,351 2000 $1,265,549 $358,915 $286,285 64 These figures are relevant to the question of a sufficient deterrent to prevent future contraventions by Mr Harry Franke and the business Coast Metal Recyclers, now incorporated, which he conducts. (h) Disposition to co-operate. 65 Mr Harry Franke did not co-operate with the authorities. His reasons for defending the action were given as follows: 'The reasons why I defended this is, and which I think I state before that the document I had to sign I couldn't sign because I'd be not telling the truth. That's the – probably my principles are just too high…' Despite attempts by the ACCC to resolve the issues by mediation before and during the hearing, Mr Harry Franke was reluctant to make any concessions. He was unrepresented at the hearing and gave evidence in the form of assertions and general narrative. (i) Totality principle 66 Mr Harry Franke operated as a sole trader, previously in partnership with his brother, Aiden. The business was incorporated in July 2003 and is now Coast Metal Recyclers Pty Limited, 'run as a family trust and the day to day management of the business is carried out by my son Michael and my daughter Michelle Walker'. At the time of the contraventions however, Mr Harry Franke was not operating as the director or manager of an incorporated company and therefore the totality principle does not apply. The penalty to be imposed on Mr Franke will be as an individual with a maximum pecuniary penalty of $500,000 (s 76(1B) of the Act). 67 In ACCC v ABB Transmissions & Distribution Ltd (No 2 – Distribution Transformers) (2002) 190 ALR 169 Finkelstein J determined that the Court should consider the 'gravity of an antitrust contravention'; the danger in allowing 'too great an emphasis' on 'the "respectability" of the offender and insufficient attention being given to the character of the offence'; the general deterrence of the penalty and 'the need to avoid the erosion of public confidence in the administration of justice that would occur if it is perceived that…there is one law for the rich and another for the poor' (see at [176] – [177]). (j) The different circumstances of the respondents and the appropriate level of parity between them 68 Mr Harry Franke attended three auctions and received considerable benefit from his participation. He did not bid at the auctions, recruit for the ring, purchase the bill or pay out cheques. It was submitted by the applicant that such a respondent is less blameworthy than those who played a more active role and that this factor together with the personal and financial circumstances, the number of auctions attended and the election to contest the proceedings should be important considerations in the imposition of penalties. mr higgins 69 I found in ACCC v Faulkner at [337] – [338] that Mr Higgins was involved in contraventions of the Act at the Bathurst, Port Kembla and first Newcastle auctions and that he participated in the rings and knocks. He aided, abetted or procured the contraventions of s 45(2)(a) (i) and s 45(2)(a)(ii) and was directly or indirectly, knowingly concerned in the contravention so Ferndale and the submitting respondents at those auctions at [338]. 70 Mr Higgins made his first appearance at a directions hearing on 9 November 2004. He had not made any appearances previously, either at directions or at the hearing itself. Prior to and throughout the proceedings extraordinary difficulties were faced in attempts to inform Mr Higgins of the progress of the case and in serving the documents required to be served by the Court. This was despite confirmation that there had been no change of address on his part, that Mr Higgins is the registered owner of the house at 75 Potts Street, Ryde and the registered owner of the Mazda sedan parked outside (see ACCC v Faulkner at [321] – [324]). 71 At the directions hearing on 9 November 2004 Mr Higgins sought to explain, from the bar table, the problems encountered with the service of documents. He was invited to make a formal application to the Court in writing, after seeking legal advice, submitting any evidence on which he intended to rely. This application was to be filed by 4 pm on Thursday 18 November 2004. 72 On 22 November 2004, Mr Farmer appeared as counsel for Mr Higgins. By consent, counsel for the ACCC filed an agreement as to penalties and costs between the ACCC and Mr Higgins. Mr Higgins has agreed to pay $32,500 to the ACCC towards its costs of the proceedings. 73 The joint submission in the agreement as to penalties, orders and costs is that Mr Higgins should pay $7,500 for each participation by him in the three auctions – at Bathurst, Port Kembla and the first Newcastle auction – a total penalty of $22,500. (a) Nature and extent of the contravening conduct. 74 I refer to [9]-[10] above. Mr Higgins' involvement is described in ACCC v Faulkner at [329]-[334]. 75 Mr Higgins was not a bidder at the auctions, nor was there evidence that he actively recruited scrap metal dealers for the rings and knocks, although he facilitated them by his participation. He was an unsuccessful bidder. However, he received $700 from the Bathurst knock, $2,900 from Port Kembla and $550 from the first Newcastle auction, a total of $4,150. This represents the third highest total benefit relative to the defending respondents. Only Paul Clingan (and Riverside Metal) with $6,720 and Mr Harry Franke with $10,420 received higher payments. Mr Bagnall received only $1,200 from his participation in the knocks. 76 Mr Higgins was not the bidder at the auctions nor was there evidence that he recruited other scrap metal dealers for the ring. His participation, however, made the rings and knocks possible and he received a considerable benefit from this participation, relative to the other respondents. (b) The amount of loss or damage 77 See ACCC v Faulkner at [78] – [82]. (c) Market share and market power 78 There was no evidence of any financial data to indicate the size of the business operated by Mr Higgins and it is difficult to make any assumptions about his market share or market power in these circumstances. It can only be inferred that his business was considerably less significant that either Mr Harry Franke's or Riverside Metal's scrap metal business (see ACCC v Faulkner at [85]). (d) The deliberateness of the contravention and the period over which it extended 79 Mr Higgins actively participated in three auctions, at Bathurst, Port Kembla and at the first Newcastle auction, extending over a short period of time from 12 October to 24 November 1999. The ACCC did not contend that Mr Higgins knowingly contravened the Act, although his conduct by participation was deliberate and covert to the extent neither the vendor, the auctioneer nor the other bidders knew of the existence of the ring. It is not known whether Mr Higgins was aware of the provisions of the Act. (e) Similar conduct in the past 80 There was no evidence that Mr Higgins actively participated in contraventions of the Act before October 1999 or afterwards, nor whether he would participate in rings and knocks in the future. (f) Participation of senior management 81 Mr Higgins a was a sole trader and therefore corporate compliance with the Act is not relevant. (g) The deterrent effect of the proposed penalty 82 No evidence of Mr Higgins' income was submitted. Searches revealed that Mr Higgins is the registered owner of the property at 75 Potts Street, Ryde and the registered owner of a Mazda sedan (see ACCC v Faulkner at [322] -[324]). In the absence of further evidence, it can be inferred that Mr Higgins is the owner of greater assets than Mr Bagnall and has the capacity to pay the penalties imposed and costs as agreed. (h) Disposition to co-operate. 83 As the ACCC has submitted: 'Mr Higgins approach to the litigation has been the antithesis of cooperation. Not only did he not agree facts and make admissions, he did not actively contest the proceedings, but rather ignored them.' 84 Mr Higgins did not make any submissions nor any appearance until the final directions in this matter. It was extremely difficult for the applicants to contact him, although all efforts were made. Finally, the representatives of the ACCC were told he was in the country at 'Cocar' [Cobar]. Mr Higgins was represented by counsel at a final directions hearing after the reasons in ACCC v Faulkner were handed down but, again, no explanation of his behaviour was submitted. In my view, Mr Higgins' conduct and obstruction of the ACCC's investigation is a relevant factor to the determination of penalty. 85 There is no evidence that Mr Higgins will not repeat his actions. Mr Higgins did not present any explanation to the Court for his actions nor any regret for his involvement in the contravening behaviour. (i) Totality principle 86 This is not applicable as it appears that Mr Higgins was a sole trader. (j) The different circumstances of the respondents and the appropriate level of parity between them. 87 Mr Higgins attended three auctions and received considerable benefit from his participation, although he did not bid, recruit for the ring, purchase the bill or pay out cheques. The different circumstances of Mr Bagnall and Mr Harry Franke can be seen at [50] and [68] of this judgment. CONCLUSION Penalties Ferndale and Mr Bagnall 88 The ACCC have sought penalties from Ferndale of $50,000 for each of the two auctions (a total of $100,000) and from Mr Bagnall of $30,000 for each auction (a total of $60,000). Having regard to all the factors considered above including the personal and financial circumstances of Ferndale and Mr Bagnall, the Court considers the appropriate penalties for Ferndale to be $35,000 for each auction (a total of $70,000) and for Mr Bagnall, $7,500 for each auction (a total of $15,000). Accordingly, the total penalty for Mr Bagnall and Ferndale, in respect of the two auctions, is $85,000. 89 As Lee J held in Trade Practices Commission v Prestige Motors Pty Ltd [1994] ATPR 42,693 the principal purpose of s 76 of the Act in imposing penalties is to promote competition and 'deter a trader from contravening the Act and from taking the risk of being ordered to pay such a penalty' (at 42,699). 90 The Court considers that the level of penalties will be a sufficient deterrent for both Ferndale and Mr Bagnall. Mr Harry Franke 91 The ACCC have sought penalties of $100,000, representing approximately $33,333.33 for each of the three auctions. Mr Franke has played a significant role in the contraventions of the Act by his participation in and in reaping the benefits from the rings and knocks. While Mr Franke has faced medical problems recently, it appears from the evidence that his financial and personal circumstances will enable him to pay these penalties. The Court therefore imposes the total penalty of $100,000. Mr Higgins 92 Following the agreement between the ACCC and this respondent, it has been jointly submitted that an appropriate penalty for Mr Higgins would be $7,500 for each auction, a total of $22,500. He attended three auctions and participated in the rings and knocks obtaining considerable benefits. Mr Higgins appears to have adequate assets to pay the appropriate penalties involved. There have been no assurances submitted that this respondent would not reoffend and the agreement signed was at such a late stage of the proceedings and without explanation, so as to render it irrelevant to mitigation. In my view, the proposed penalty is not adequate to reflect Mr Higgins' attitude to these proceedings and is not appropriate for deterrence. An appropriate penalty of $10,000 for each auction should be imposed, a total of $30,000. 93 I do not accept that the proposed penalty adequately takes account of Mr Higgins' actions in refusing to take part in the substantive proceedings, without explanation. COSTS 94 The Court recognises the important role of the ACCC as the 'specialist body set up to protect the public interest in the maintenance of economically healthy competition' (NW Frozen Foods at 298) and appreciates the substantial expenditure of that body in pursuing infringement. According to the affidavit of Olga Liavas of 2 November 2004, the legal costs and disbursements amount to approximately $463,517.61 up to 8 March 2004. 95 The ACCC's submission that Ferndale and Mr Bagnall pay $10,000 costs, to cover the preparation time up to 8 March 2004, is reasonable. Mr Harry Franke has agreed to pay $10,000 for the preparation costs. 96 The further submission is that they pay one third of the costs of the hearing. I note that neither Mr Bagnall or Mr Harry Franke were required to be present during the afternoon of the 8 March 2004, the day the hearing commenced. Monday 15 March was concerned with submissions on penalties in relation to the submitting respondents and did not concern them. Further, on Tuesday 23 March I dealt with the substituted service of documents on Mr Higgins. It is not appropriate for Ferndale, Mr Bagnall or Mr Harry Franke to bear any of the costs of those days. I will make the costs order as proposed by the ACCC with due allowance for the time spent with the submitting respondents and Mr Higgins. 97 In the agreement submitted to the Court on 22 November 2004 Mr Higgins has agreed to pay to the ACCC $32,500 towards its costs of the proceedings. While this sum will not adequately compensate the ACCC for the preparations, pursuit of Mr Higgins nor the time in Court, nevertheless it is acceptable as an agreed amount. I certify that the preceding ninety seven (97) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bennett. Associate: Dated: 9 December 2004 Counsel for the Applicant: I Faulkner SC with V F Kerr Solicitor for the Applicant: Australian Government Solicitor Sixth and Seventh Respondents Seventh Respondent appeared in person for the Sixth and Seventh Respondents Fifteenth Respondent appeared in person Counsel for the Sixteenth Respondent: G Farmer Sixteenth Respondent Summit Law Dates of Hearing: 8 – 12, 15 – 19, 22, 23 March; 22 October 9 and 22 November 2004 Date of Judgment: 9 December 2004 ANNEXURE A RESPONDENT PENALTY PENALTY Individual COSTS AUCTIONS Company D M Faulkner Pty Limited $80,000 $10,000 jointly with the second respondent Bathurst (ACN 077 373 712) First Newcastle First Respondent David Munro Faulkner $10,000 $10,000 jointly with the first respondent Bathurst Second Respondent First Newcastle Riverside Metal Industries Pty Limited (ACN 002 537 537) $120,000 $10,000 jointly with the third respondent Bathurst Third Respondent First Newcastle Port Kembla Paul Leonard Clingan $15,000 $10,000 jointly with the fourth respondent Bathurst Fourth Respondent First Newcastle Port Kembla Michael Walter Nietner $10,000 $2,500 Bathurst Fifth Respondent First Newcastle Ajax Sheet Metal Pty Limited $2,500 $2,500 jointly with the eleventh respondent Chiswick (ACN 000 466 713) Bathurst Tenth Respondent Sidney Neville Forrester $5,000 $2,500 jointly with the tenth respondent Chiswick Eleventh Respondent Bathurst T & D Metals & Demolitions Pty Limited $10,000 $10,000 jointly with the fourteenth respondent Chiswick (ACN 066 973 993) Bathurst Thirteenth Respondent Port Kembla Anthony Franke $15,000 $10,000 jointly with the thirteenth respondent Chiswick Fourteenth Respondent Bathurst Port Kembla William Robinson $2,500 $5,000 First Newcastle Seventeenth Respondent