The major Australian suppliers and manufacturers of both power and distribution transformers were involved in price fixing, bid rigging and market allocation within domestic markets with a combined value of around $160 million per year. The customers affected by the cartel included some of the largest electricity transmission and distribution utilities across Australia, many of them publically owned, resulting in Australian consumers paying higher electricity bills. A whistleblower alerted the ACCC to the cartel conduct.
The cartel included the principal manufacturers and suppliers of transformers in Australia and covered virtually 100% of the industry, including the ABB companies, Schneider Electric (Aust), Wilson Transformers, Alstom Australia and AW Tyree. The collusion involved executives at the highest level, and featured secret meetings in hotel rooms, airport lounges and private residences in various locations across Australia. These meetings rigged the outcomes of multimillion dollar contracts, with at least 27 tenders being rigged between 1993 and 1999. Some aspects of the cartel ran from 1989 to 1999. A 2004 study by the Australian National University concluded that the cartel extracted an extra $70 million to $80 million from its customers between 1994 and 1999.
The Federal Court imposed penalties of more than $35 million on the participating companies and some of their executives. The Court was particularly scathing about the fact that the arrangement was coordinated by senior executives, including managing directors. Total penalties imposed on individual executives exceeded one million dollars, with the highest being $200 000.
Simsmetal Heavies Competitor
In 1995 a manager from Simsmetal, the largest scrap metal merchant in the southern hemisphere, attempted to coerce a South Australian competitor into a market sharing agreement. He proposed that the two companies would not compete for suppliers of foundry grade scrap steel. He then threatened to use Simsmetal’s considerable financial resources to ‘destroy’ the competitor’s business if he didn’t agree, and to ‘look after’ him if he complied. The smaller operator secretly recorded the demands at the second meeting.
The Federal Court took a dim view of the matter, particularly since it was less than a year after Simsmetal were penalised for similar conduct in Victoria. The Court made an order restraining the company from repeating the conduct, applied a penalty of $2 million and awarded $100 000 towards the ACCC’s costs.
This case involved TNT Australia, Ansett Industries and Mayne Nickless. In five significant meetings between 1987 and 1990, attended by representatives of each of the companies, a series of agreements were reached to allocate customers and share the market.
The conduct included agreements between the companies not to poach each other’s customers.
When customers moved from one provider to another, the companies balanced their accounts of customers lost and gained, and paid or received compensation. The companies also agreed to ‘burn’ switching customers by deliberately providing poor service in order to compel customers to return to a supplier with which they might have been dissatisfied. In one instance a customer’s perishable freight was intentionally delayed and eventually kept at the back of the freight facility and not sent, to drive them back to their previous freight supplier, who in turn charged higher prices when the customer returned to them.
Each of the companies acted on these agreements on many occasions. The practices were believed to have been in place for 20 years. In 1995, fines of $11 million were imposed.
Joyce Corporation, Foamlite Australia and Vita Pacific all manufactured and supplied flexible polyurethane foam for mainly industrial use in the Queensland market. Several employees of the companies became friends and attended regular luncheons together, where they eventually formed a series of agreements to maintain market shares and to refrain from competing for various customers. The lunch meetings and phone calls between these employees enabled the operation of the cartel. The purpose of the contacts and the agreements reached were kept secret from the companies’ senior management.
It was complaints of breaches of the cartel agreement that eventually brought the cartel to light. In 1998/99 the companies and some of the employees were fined a total of $2.9 million with an additional $150 000 levied for the ACCC’s costs. This case clearly demonstrates that companies are liable for the conduct of employees and senior managers need to ensure that all staff act lawfully.
