Visy and Amcor are exposed in a scathing Federal Court judgment about their involvement in a cartel concerning the supply of corrugated fibreboard packaging (CFP) products in Australia. Although Mr Graeme Samuel, Chairman of the Australian Competition and Consumer Commission (ACCC), is happy with the result, he won’t rest until he sees people behind bars.
So said Mr Graeme Samuel in response to the decision of the Federal Court in Australian Competition and Consumer Commission v Visy Industries Holdings Pty Limited (No 3) [2007] FCA 1617.
Cartel behaviour is back in the news in a big way with the ACCC’s immunity policy landing its biggest fish yet, Mr Richard Pratt and the Visy Group.
The whistleblower, the Amcor Group, although escaping retribution from the court in this proceeding because of the ACCC’s immunity policy, was clearly a willing participant in the cartel and has hardly covered itself in glory..
Both companies have made significant management changes following the disclosure of this cartel and will no doubt be making a significant effort to restore their market reputations.
The ACCC’s immunity policy confers full amnesty from prosecution and penalty on the first eligible cartel participant to report its involvement in a cartel and cooperate with the ACCC’s investigation and prosecution of other cartel participants. Amcor took advantage of this policy to report to the ACCC its involvement with Visy in a cartel concerning the supply of corrugated fibreboard packaging (CFP) products in Australia.
Visy and Amcor controlled more than 90 per cent of the CFP market. Over the years the companies entered into the following arrangements:
- The Over-arching Understanding that each company would maintain their market shares and not deal with each other’s customers;
- The Annual Price Increase Understandings which saw prices to non-contract customers increased by agreement in the years 2000 to 2003;
- The Customer Price Understandings which led to prices being agreed for particular customers by various means such as the submission of uncompetitive tenders;
- The Compensation Undertakings whereby if a customer ’switched sides’, the losing supplier would be compensated by receiving a customer from the winning supplier (without the customer’s knowledge).
The cartel lasted for five years.
Visy initially defended the proceeding issued by the ACCC. Its principal line of defence was that any communications between it and Amcor were ’commercial tactics’ aimed at ‘camouflaging’ what it was doing and a means of obtaining ‘market intelligence’ from Amcor.
Visy abandoned its defence and admitted via an agreed statement of facts it had committed 69 contraventions of the Trade Practices Act 1974 (TPA). Messrs Pratt, Debney and Carroll, all senor executives of Visy, were proceeded against as accessories to the contraventions, Mr Pratt on the basis that he was knowingly concerned in Visy giving effect to the Over-arching Understanding and Mr Debney and Mr Carroll on the basis that they were knowingly concerned in, or a party to, 14 contraventions of the TPA and 49 contraventions of the TPA respectively.
The ACCC proposed and the parties accepted the appropriate penalties should be $36 million for Visy, $1.5 million for Mr Debney and $500,000 for Mr Carroll.
Justice Heerey was scathing in his comments about the cartel and its participants.
His Honour observed that cartel behaviour of the kind before him was extremely destructive of the competition on which the prosperity of a free market economy depends. Had it not been accidentally exposed, it would probably still be flourishing. It was run from the highest level in Visy, was carefully and deliberately concealed and operated by men who were fully aware of its seriously unlawful nature.
His Honour was not overly impressed by Visy’s admission of liability which invariably is considered in the mix when penalty is determined. He described Visy’s initial defence as a John LeCarre defence with doubtful prospects of success.
His Honour considered the corporate culture of trade practices compliance at Visy was non-existent. Although Visy had a Trader Practices Compliance Manual, his Honour said it might as well have been written in Sanskrit for all the notice taken of it.
Justice Heerey was satisfied with the $36 million agreed penalty on the basis it was more than twice the highest previous penalty imposed by the Federal Court for the most serious cartel case to come before the Court in the 30-plus years in which price-fixing had been illegal.
Justice Heerey was also satisfied with the agreed penalties for Mr Debney and Mr Carroll. No penalty was imposed on Mr Pratt because he would suffer the penalty through his ownership of Visy.
The ACCC did not allege in this proceeding that the cartel conduct had any negative financial impact on or caused loss to any of the named consumers. Justice Heerey was satisfied customers would have suffered loss despite the ACCC not alleging that this occurred.
The 2003 Dawson Committee Report (Review of the Competition Provisions of the Trade Practices Act) recommended the introduction of criminal sanctions for serious cartel behaviour. Although the Government accepted that recommendation and promised to introduce a five year imprisonment term for serious cartel behaviour, no such legislation has yet been introduced. The Federal Opposition has committed itself to introducing such legislation.
Criminal sanctions apply in several economies including the USA, the UK, Canada, Japan, France and Germany.
Mr Samuel is adamant that criminalisation of cartel behaviour must be introduced into Australia if this type of market conduct is to be deterred. Without it, engaging in cartel behaviour is no more than a commercial decision to be weighed up carefully by an intending participant.
Under the ACCC’s previous leniency policy there was a requirement for victims to be compensated but under the current immunity policy there is no such requirement, the thinking being that encouraging whistleblowers should be the primary goal of such a policy.
Customers seeking redress for their losses as a result of having been caught up in cartel behaviour will fall back on class actions, which are steadily gaining prominence in Australia as a tool of redress.
Amcor and Visy are on the receiving end of such class actions wending their way through the courts. Many hundreds of millions of dollars are at stake and as can be expected are being defended.
Interestingly, Mr Samuel has recently said that class actions weaken the ACCC’s immunity policy because they reduce the benefits for a whistleblower in coming forward first (in the absence of a criminal penalty). This highlights the many policy tensions between enforcement of the law and compensation for victims that are not easily resolved.
Criminalisation of cartel behaviour will make things that much more 'interesting'.
For further information, please contact Stephen Newman on (03) 9608 2219 or s.newman@cornwalls.com.au
