In brief

  • In our earlier alert1 (ACCC succeeds in price fixing case against ‘cover pricing’) we reported the ACCC’s ‘sweet victory’ against three companies and two individuals engaged in ‘cover pricing’ in bids for government construction contracts in Queensland.
  • The cover pricing involved one party wanting to be seen as tendering for work, without actually winning it. In these circumstances they seek a ‘cover price’ from a genuine bidder, who provides a price greater than their tender price, with the result that the party seeking the cover price can bid using the cover price in the knowledge their tender will not be successful. 
  • Justice Logan has now made orders on penalties, declarations and costs in Australian Competition and Consumer Commission v TF Woollam & Son Pty Ltd (No 2) [2011] FCA 1216. 
  • While substantial penalty orders were made, some parts of the decision were not so sweet for the ACCC. In an interesting aside the judge was critical of the ACCC’s media release of the court’s decision which could be read to ‘conflate uncritically with this case conduct which is demonstrably more serious than that which occurred in the present case’. The judge noted that ‘intemperate or inaccurate publicity, particularly by a government agency’ is a factor which could lead to a lower penalty.

Facts

The contractors in the case were involved in tendering for various Queensland and local government public works projects. In relation to each of the projects, one contractor sought from another a cover price. In doing so:

  • all parties understood what was meant by a ‘cover price’, and
  • the parties’ purpose was to put a ceiling on the price at which the party seeking to win would tender (because its price would be below the cover price) and to put a floor on the price at which the other party would tender (because its price would be above the cover price).

In tendering for the projects, each of the parties also had represented they would comply with certain documents outlining how the tender process would be run.

Penalties ordered

Justice Logan made the following penalty orders against the three corporate respondents:

  • Carmichael: $250,000—a penalty set by his Honour at a level intended ‘to make it plain generally that even to take a phone call and to respond to it by giving a cover price will cost a quarter of a million dollars, even in the circumstances such as I have related’,
  • Woollam: $450,000—reflecting the fact that Woollam engaged in more than one contravention, and
  • Kelly: $600,000—reflecting the fact that Kelly engaged in more contraventions.

Justice Logan ordered penalties of $50,000 and $30,000 against the two individual respondents. These penalties were aimed at avoiding ‘double penalisation’ against the individuals who were also shareholders of the respondent companies while recognising that the conduct would not occur without a ‘deliberate decision by an officer of a corporation having the requisite authority to embark upon it’.

Penalty factors

Drawing upon established principles on imposing penalties for contraventions of the Competition and Consumer Act, his Honour made the following observations as being relevant in his decision to order the penalties:

  • the conduct was serious in that it created a ‘false market’ that sent false signals as to both the range of prices for the works and the existence of a particular level of competition,
  • the ‘price controlling’ cover pricing conduct was different (in his Honour’s view) to other ‘price fixing’ conduct that has been the subject of earlier penalty cases:

The conduct which occurred here was ad hoc and opportunistic. It did not involve profiteering. It certainly presented a temptation for the same, but that was not a temptation to which the respondents and materially, in particular, either Mr Murphy or Mr Bogiatzis succumbed. It is desirably repeated that the respondents must be dealt with for the conduct which did occur, not for conduct which, in other cases, might occur. There is not, as in the more obvious type of cartel case, evidence here of a longstanding arrangement involving the fixing and maintaining of prices in a market. For all that, as with the more obvious types of cartel conduct, this conduct is covert. It is difficult, but as this case amply demonstrates, by no means impossible for this conduct to be detected. These features are also highly relevant in relation to general deterrence.

  • in the context of the competitive tender processes adopted by the State, there was a betrayal of trust inherent in the conduct where pre-qualified contractors had transgressed the expectations of the State,
  • there was no evidence that the relevant government agencies had suffered any loss or damage and this was a ‘moderating influence’ in relation to the assessment of penalty,
  • not surprisingly, the judge gave little weight to evidence led by the ACCC from an economic expert on the types of harm that could flow from cover pricing, stating:  ‘It is important, though, that these respondents be dealt with on the basis of the conduct which in fact occurred, not on the basis of conduct which might occur in other contexts’,
  • there was a strong inference that could be drawn from the evidence relating to the knowledge and application of the practice of cover pricing that it was wide spread–prevalence of the illegal conduct was a factor relevant to general deterrence,
  • it was relevant when setting penalty to take into account that the respondents may be subject to consequential adverse consequences apart from the court proceedings (for example, suspension of builder registration),
  • it is relevant (but not decisive) to take into account the financial position of the respondents as well as the size of the projects, in this regard his honour noted that the projects were not domestic but were also not major building projects,
  • while capacity to pay a penalty is relevant, if the size of the penalty happens to lead to liquidation of the company, ‘so be it’,
  • while there was some cooperation from the respondents it did not mitigate the penalty–they still fought the case through a lengthy trial,
  • the parties had already implemented compliance programs without a coercive order of the Court, this was a relevant factor in mitigation,
  • it was doubtful that the respondents will again offend, having been scared by the case itself, a factor that was relevant to specific deterrence, they have also suffered from their conduct by diminution of goodwill and jeopardised a major source of work, and
  • with reference to the ACCC’s media release issued after the Court’s decision (and before the penalty hearing) the judge expressed concern that the media release could be read so as to conflate with the current case what was (in his Honour’s view) demonstrably more serious cartel conduct and bid rigging. In this regard he noted that he had ‘expressly considered the Commission’s media release in the fixing of the penalties’.

Ancillary orders

In addition to penalties, the ACCC had also sought ancillary orders:  

  • Declarations: the judge granted the declaratory relief sought by the ACCC, holding that there was a very strong public interest in doing so.
  • Injunctions: the judge declined to give the injunctive relief sought by the ACCC holding that it was unlikely that the respondents will again embark on the conduct and that the granting of injunctive relief would not add anything by way of general or specific deterrence.
  • Compliance training: the judge declined to order that the respondents implement the compliance training sought by the ACCC.
  • Public advertisements: in circumstances where there had already been wide scale publicity of the case, including by the ACCC, the judge did not order the publication of advertisements as sought by the ACCC. 
  • Costs: the judge ordered that the ACCC’s costs be shared equally by the three corporate respondents and that each of the individual respondents be jointly and severally liable for the costs of the corporation in which contravening conduct he was involved.

Issues arising

The penalties ordered, while substantial, are at the lower end of the scale of potential penalties and substantially less than the penalties sought by the ACCC ($50m, $30m and $10m for the corporate respondents and $1.5m and $500,000 for the individuals, which the judge described as ‘manifestly excessive’). 

Despite this, in the context in which those orders are made, they are intended to deter individuals from engaging in the offending conduct. Add to this the commercial consequences that can be expected to arise in the dealings with the relevant government agencies, and we again see the prejudice that can flow from this conduct.

The ACCC’s public statements have here (as they have at times in the past) been the subject of judicial comment and criticism. While disseminating information is an important part of the ACCC’s functions, we are again reminded of the need for accuracy in that information. The Court is consistently unimpressed by statements (whether by the ACCC or other parties) that can lead to exaggerated characterisation of the matter.

Finally, as we noted in our earlier alert, this case was based on the old law, in the future it could well be assessed under the criminal provisions of the cartel law.