In June 2006, competition authorities simultaneously raided airline offices in the United States and Europe, in order to investigate claims that many major airlines had colluded in the setting of their fuel and security surcharges. German carrier Lufthansa informed the authorities of the illegal agreements and were granted immunity from prosecution.
Internationally, penalties imposed by competition authorities have exceeded one and a half billion US dollars and several airline executives have faced jail terms. In addition, several airlines have faced class actions and have had to compensate customers measuring hundreds of millions of dollars.
In Australia, the ACCC has pursued 15 local, European and Asian based airlines for price fixing in the Australian air cargo market. The Federal Court has imposed $58 million in penalties to date including a $20 million penalty against Qantas, $5 million against British Airways and $5.5 million against each of Japan Airlines and Korean Airlines. Each penalty was reduced depending on the level of co-operation provided to the ACCC with Qantas receiving the largest discount of 50%. Qantas has also paid several overseas penalties and a senior executive was jailed for 6 months in the United States of America. Legal proceedings against other airlines are continuing.
Between 2004 and 2007, three construction companies (TF Woollam & Son, JM Kelly and Carmichael Builders) engaged in cover pricing when bidding on four government projects. The companies also misled their clients by signing statements that they had not colluded with their competitors during the bidding process.
Cover pricing is a practice which has developed within the building industry, both in Australia and abroad. It was alleged by the ACCC to have been used in situations where a construction company may not have the time, resources or inclination to prepare an accurate tender, but still wants to be seen as tendering for that project.
In this instance, cover pricing involved discussions between two potential suppliers (builders) in a tender process. Company A does not want to win the contract for reasons identified above and so asks company B (who intends to make a genuine tender) to provide them with a ‘cover price’. Both companies understand that this ‘cover price’ will be higher than company B’s tender price. Once the cover price has been received from company B, company A (should it choose to tender) then submits its tender to the client at a price which is at or above the cover price.
This gives the client the impression that both companies are tendering competitively, but the exchange of the cover price actually ensures that company A's tender price is higher than that of company B and therefore makes it unlikely that company A will be the successful tenderer.
In 2011 the Federal Court described this cover pricing as ‘illegal price controlling conduct’ and the making of the false statements as ‘a betrayal of trust’. The three companies were penalised a total of $1.3 million and two key individuals received penalties totalling $80 000.
Between 2000 and 2004, several international companies that supplied paper products formed a cartel known as the AAA club. The secret meetings of this ‘club’ were held in south-east Asian countries, particularly those that had no anti-trust (cartel) laws at the time. The participants made price fixing agreements for the supply of copy and other papers into various markets including Australia.
In 2010 and 2011, several of those companies were penalised more than $8 million by the Federal Court of Australia. The Court also made injunctions restraining the companies from repeating their conduct, and ordered them to pay $550 000 towards the ACCC’s legal costs. Despite the agreements being made outside of the country, Australian laws were breached because the illegal deal was put into effect in the Australian market and harmed local consumers.
Between them, Visy and Amcor controlled around 90 per cent of the corrugated fibre packaging market (the humble cardboard carton), which was worth some $1.8 billion to $2 billion per year.
From 2000 to 2004, the two companies conspired to raise the prices of their products while maintaining their respective market shares.
Both companies nominated executives to consult on and coordinate price rises and collude when negotiating quotes for customers. These executives met regularly and secretly in public places such as hotels and parks, and also communicated using public phones and special prepaid mobiles. When larger customers wished to renegotiate contracts, the two companies swapped information to ensure that the competitor’s quote was higher than the existing price structure (this practice is known as cover pricing).
The scheme was discovered only when Amcor management reported to the ACCC and Amcor was granted immunity from prosecution. Visy eventually admitted its role in the cartel. It was fined $36 million by the Federal Court, and fines to individuals totalled $2 million. Thousands of firms (and ultimately millions of consumers) were significantly overcharged by the cartel. The Federal Court ordered Visy and Amcor to pay $95 million in damages to a customer class action involving more than 4500 businesses.
This is what one of our Federal Court judges, Mr Justice Heerey said in November 2007, when he issued his judgment on this well-known Visy cartel case:
The law, and the way it is enforced, should convey to those disposed to engage in cartel behaviour that the consequences of discovery are likely to outweigh the benefits, and by a large margin.
Every day every man, woman and child in Australia would use or consume something that at some stage has been transported in a cardboard box. The cartel in this case therefore had the potential for the widest possible effect.
The whole point of price fixing and market sharing is to obtain the benefit of prices greater than those which would be obtained in a competitive market.
The cartel here went on for almost five years. Had it not been accidentally exposed, it would probably still be flourishing. It was run from the highest level in Visy, a very substantial company. It was carefully and deliberately concealed. It was operated by men who were fully aware of its seriously unlawful nature.
Three Australian suppliers of animal vitamins held meetings and telephone conversations during which they agreed on the prices they would charge for certain vitamins. They were the Australian subsidiaries of large foreign companies that had also entered into price fixing and market allocation agreements overseas. The Federal Court imposed penalties of $26 million against the Australian suppliers.
Several companies, including Tubemakers of Australia Ltd, supplied plastic pipes for water and sewerage systems and various fittings and valves for ductile iron cement lined pipes. These products were used, among other things to connect to new housing developments. Officers of the companies met in a Coolangatta restaurant and agreed to raise prices, limit discounts, rig tenders and to avoid competing for each other’s customers. They subsequently met at cafes and restaurants and contacted each other by phone. One of the participants maintained computer software designed to detect any sales that deviated from the agreement so the deal could be enforced.
In 1999 and 2000 the Federal Court imposed penalties of $2.85 million and ordered that $1.23 million be reimbursed to affected customers – mostly local councils. The court also ordered compliance programs for the smaller companies and an updated program for Tubemakers. Of note was the fact that a senior sales manager for Tubemakers acted without the knowledge or approval of the company’s other senior managers and directors.
The Managing Director of a major car rental company rang his regional manager in Alice Springs and directed him to contact local competitors and propose that they all cease to discount car rentals during the off-peak tourist season. Covert meetings were held at a restaurant, the golf course and at other social functions and the local competitors all agreed to the scheme. It has been estimated that consumers paid an average of $300 extra per rental while the agreement was in place. In 1998 the companies and some of the individuals involved were penalised a total of $1.54 million.
