Giving the ACCC added strength in obtaining penalties

Be careful in challenging the Australian Competition and Consumer Commission on penalty counts

When a corporation actually breaches the Trade Practices Act (the TPA), especially the price fixing provisions or similar provisions where it is unnecessary for the ACCC to show that competition has been damaged, it is probably wise to consider the possibility of doing a deal with the ACCC, pleading guilty, and working out what penalty should be paid. Of course each case depends on its own facts. The ACCC does not always get agreement on these matters from defendants and in these cases the courts are asked to assess whether the ACCC's evaluation of what penalties are appropriate should be allowed to stand. Usually the ACCC wins. A recent example of when a disagreement occurs on penalty as well as providing some useful comments on the nature of penalties under the TPA is the Full Federal Court decision in J McPhee and Son (Aust) Pty Ltd v ACCC ((2000) ATPR 41-758). That case was not one in which the ACCC had failed to agree and the trial judge after a hearing on penalties made an order which the company appealed. Heerey J fined the company a total of $3,750.000; certain directors and employees were fined a total of $255,000. The directors appealed.

To understand the nature of the appeal it is useful to review the facts which are described in the CCH Report of the case. The conduct in question revolved around two of McPhee's clients, Just Jeans and ACI Florapak (the clients). McPhee was an express freight forwarder. The trial judge found that it had attempted to reach an anti-competitive arrangement with DFE (a principal competitor) in relation to Just Jeans' business, and had reached such an agreement in relation to ACI Florapak's business. He found that McPhee and DFE had attempted to agree or agreed that DFE would not submit to the clients any quotes cheaper than McPhee's (a process known as giving a "cover quote"). DFE co-operated with the ACCC during the trial because the ACCC had undertaken not to prosecute DFE if it did so. The appellants appealed against the trial judge's findings that they had engaged in anti-competitive conduct. All the defendants (respondents) except one employee appealed the amounts of the pecuniary penalties. McPhee argued that the trial judge misunderstood McPhee's case and consequently failed to consider or have regard to it. (McPhee's case was that it had merely wanted DFE to make "any" quote not a cheaper quote). The appellants also argued that the trial judge had:

* decided the case on a basis not pleaded;

* been biased; and

* made errors of law.

The appellants argued that the penalties:

* were manifestly excessive;

* failed to have regard to the "miniscule economic impact" that the offending conduct had or was capable of having;

* were disproportionate to other comparable penalties;

* treated McPhee as if it were its parent (TNT Limited, which had previously breached the TPA); and

* included a component of punishment which was not a relevant factor.

The Full Federal Court held that the judge had been right on nearly all aspects of the case. The trial judge had expressed some reservations about the assessment of the moral aspect of the company's behaviour in fixing penalties. The Court held that while the TPA was not designed to regulate moral conduct it was intended to proscribe particular aspects of commercial conduct. Price collusion was a very serious matter and was one that the courts generally took very seriously. The Court believed that Heerey J had not taken punishment as a relevant consideration when assessing penalties. Nevertheless, the Full Court held that the trial judge was wrong to assume that McPhee's attitude towards compliance was the same as that of TNT.

They were operationally distinct companies and it was wrong to assume that they were guided by that particular issue. This led the judge to impose slightly higher penalties than was necessary in relation to the Just Jeans conduct. Accordingly the penalty for McPhee was reduced to $2,000,000.

While that was clearly an interesting concession to the defendant, and perhaps a criticism of the ACCC's aggressive attitude towards the area of penalties, one should not take too much heart from that decision. Perhaps it is a reflection on the Federal Court wanting to exercise some greater involvement in the assessment of penalties which had been left very largely to the ACCC to resolve with the courts tending to adopt a rubber stamping attitude towards these penalty awards. Generally speaking courts will not upset the penalty regime that has been fixed by the ACCC. Heerey J, the trial judge, had shown a predilection to reach his own view as to how penalties should be set in the Northwest Frozen Foods case (Northwest Frozen Foods Pty Ltd v ACCC where his initial findings had been modified by the Full Federal Court (1997) ATPR 41-546). Heerey J wanted to act more independently and perhaps simply relied on the criteria put forward by the ACCC. Although the court was a little critical of Heerey J, basically it did not depart from his major findings. They held that he had properly assessed the evidence of witnesses; he had not taken into account unreasonable factors in evaluating the relevant conduct; and generally on the issues of facts had not erred. While he had perhaps been a little harsh in assessing penalties, this was not so critical as to reduce the penalties in a very significant fashion (although many would say that the penalty being reduced from $3,750,000 to $2,000,000 in the case of the company - and some penalties were reduced for individuals - involved a considerable backdown).

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The purpose of this database is to provide a full-text record of all articles that have appeared in the CDJ since February 1997. It is aimed to assist in the research and reference process. The database has a full-text index and will enable articles to be easily retrieved.It should be noted that information contained in this database is in pre-publication format only - IT IS NOT THE FINAL PRINTED VERSION OF THE CDJ - therefore there might be slight discrepancies between the contents of this database and the printed CDJ.