The ACCC loses appeal on penalty Law Reporter

The ACCC has suffered a second significant loss in a penalty case.

After a series of major successes in cases in which the courts have gone along with Australian Competition and Consumer Commission's arguments that significant penalties should be applied for breaches of the Trade Practices Act, it has now suffered a second significant loss in a penalty case. We commented last year on the fact that the ACCC did not succeed in its penalty claim in the Rural Press case in which a breach of section 46 of the Trade Practices Act had been proven (Law Reporter, November, 2001). Now, in ACCC v Ithaca Iceworks Pty Ltd ((2002) ATPR para 41-851) the ACCC has unsuccessfully appealed against penalties that were imposed by Dowsett J in the Federal Court on two companies in respect of price fixing in the ice supply market. The case is important not only because the ACCC has lost its appeal but because of comments made by the courts about penalties generally. The facts of the case are taken from the CCH Trade Practices Reports headnote.

The ACCC in a successful claim against Ithaca Iceworks Pty Ltd (Ithaca) and a Mr Mee in relation to price fixing allegations saw Dowsett J impose a penalty of $100,000 on Ithaca and $7,500 on Mee. The ACCC felt that these penalties were too low. It noted that it had instituted proceedings against a number of companies which were either suppliers of ice or persons who represented those suppliers. The ACCC alleged this involved significant price fixing of ice and related products in South East Queensland and Tweed Heads. The ACCC was able to bring the claim as a result of a person working in the industry alerting the ACCC to the fact that the agreements were in place. Penalties against some of the other companies were "agreed" to by the ACCC and the companies and fixed by the court in appropriate proceedings. The ACCC could not reach agreement with Ithaca and Mr Mee and sought significantly higher penalties. In the judge's view the ACCC was asking for too much and refused its claim. On appeal the ACCC put forward a number of arguments. The primary judge had erred by not taking proper note of other penalties imposed in this industry; the court had also not taken proper account of the size of the company and the role of Mr Mee. At the time the agreements for price fixing had been reached Ithaca had an annual turnover of $1,355,000. By the time the agreements were implemented that had jumped to $3,510,000. Other companies involved had much smaller turnovers.

The Full Federal Court dismissed the ACCC's appeal and in doing made a number of interesting propositions. 1) In fixing penalties it was appropriate to take into account those imposed on other companies. However, as it would be a rare case when the contraventions were identical, factors such as differing circumstances, differing market power of the companies and the size and responsibility of the companies involved all played a part in determining what penalty should be imposed. 2) It was not helpful for the court to be asked to consider the increased turnover of Ithaca since this was, to some extent, not a consequence of any anti-competitive conduct but rather because of acquisitions that it made and the market penetration it had established. 3) It was difficult for the court to assess how much "reward" one gave to a company or parties that co-operated with the ACCC in bringing about a successful prosecution. In each of these matters the court had a discretion. It was appropriate for the court to take into account these matters but, in the Full Court's view, none of these "arguments" or issues were enough by themselves to warrant a departure from the judge's findings. In setting the relevant penalty the court must look at a number of other issues. In each appeal the court must ask itself was the penalty so manifestly inadequate as to warrant being set aside?

It was clear that the behaviour of Ithaca and Mee was in breach of the Act and this was an important factor. It was also important in the public interest to deter future behaviour of this kind. It would be unjust not to take into account the level of penalties imposed on other companies which had participated in the alleged anti-competitive agreements. When the court looked at the actions of Ithaca and Mr Mee, it, however, could not find such a great differentiation between them and other defendants to warrant them receiving a higher penalty. There is little doubt that because the penalty cases were heard at different times that it was not so easy for adequate comparisons to be made. Perhaps the result will lead the ACCC to deal differently with cases of this kind and seek to have all the mattes heard together. What is very clear, however, is that the Full Court agreed that co-operation is an important factor in evaluating what penalty should be imposed. At the moment the ACCC is formulating a leniency policy which may well have a significant impact on penalty cases. This will depend not only on what the ACCC believes, but how judges will evaluate these guidelines. However, it is becoming clearer with each case that the ACCC will not have everything going its own way. Perhaps an increasing number of judges - will want to impose their own thinking and decision-making on the level of penalties to be imposed in cases where the law has been breached.

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