Penalties and costs totalling $1 million in predatory pricing case

Pecuniary penalties totalling $900,000 were ordered by the Federal Court, Brisbane, on Thursday against a former operator of barges to Fraser Island, for predatory pricing and other conduct in breach of the Trade Practices Act 1974.

The Australian Competition and Consumer Commission had instituted proceedings in September 2002 against Eurong Beach Resort Ltd, Mr Sidney Albert Melksham, Jaigear Pty Ltd, Oser Pty Ltd and Ms Angela Kay Burger.

Following joint submissions, and on the basis of facts agreed by the parties, the Federal Court declared, with the consent of the parties, that Eurong Beach Resort Ltd  had a substantial degree of power in the market for supply of vehicular barge services between Inskip Point, near Rainbow Beach, and Hook Point on Fraser Island, and took advantage of that power for the purpose of eliminating or substantially damaging a competitor, the operator of the Manta Ray barge, in contravention of section 46 of the Act.

The Federal Court declared this was achieved by implementing and maintaining a pricing policy of decreasing and continuing to decrease its prices in the market, such that the advertised price was kept at $10 less than its competitors, and by charging below the cost of fuel and wages at $20, then from time to time as little as $10 return, in circumstances where the company incurred losses, and would have been able to return to monopoly pricing had Manta Ray exited the market.

Jaigear and Oser also admitted entering into an arrangement with another barge operator, that that operator would not supply barge services to Fraser Island except outside the hours of operation of Jaigear and Oser’s barges, in return for an annual payment.  The court declared that arrangement, which was later adopted by EBR, contained an exclusionary provision and was likely to have had the effect of substantially lessening competition.

Jaigear, Oser, and later EBR, admitted entering into long-term contracts with customers, including most of the largest users of barge services.  The contracts, offered discounted prices to those customers on the condition the customers did not use a competitor barge service, and had the effect of substantially lessening competition.  The court declared the companies had engaged in exclusive dealing in breach of section 47 of the Act.

Mr Melksham and Ms Burger also admitted being knowingly concerned in and party to the contraventions by the corporate respondents.

Justice Kiefel ordered the following pecuniary penalties, which were jointly recommended by the parties, be imposed:

• $500,000 against Eurong Beach Resort Ltd (now ACN 084 540 858 Pty Ltd)
• $100,000 against Jaigear Pty Ltd
• $100,000 against Oser Pty Ltd
• $100,000 against Sidney Albert Melksham
• $100,000 against Angela Kay Burger.

Justice Kiefel also ordered the respondents to pay the ACCC's costs, agreed at $100,000.

As the respondents had sold their Fraser Island businesses and left the industry in November 2002, the ACCC did not pursue injunctions against them.

"The ACCC is pleased with this outcome", ACCC Chairman, Mr Graeme Samuel, said. "The court's declarations help to clarify when a corporation's conduct amounts to a misuse of market power.

"This is a complex area of the law.  The level of penalties imposed highlights the seriousness of contraventions of section 46 of the Act, while taking into account the substantial cooperation provided by the respondents in resolving the matter".

Background

In December 2000 a rival barge, the Manta Ray, began operating from Inskip Point near Rainbow Beach to Hook Point on the southern tip of Fraser Island.  Before the Manta Ray's arrival, the only regular barge service on the Inskip Point-Hook Point route was operated by companies controlled by Mr Melksham. Those companies had held a virtual monopoly since 1989, apart from a brief period in late 1991 and early 1992.

The only really practical means of getting around Fraser Island, the world's largest sand island, is by 4WD vehicle. The barges operating on the Inskip Point route are the most popular way to take vehicles to the island.

Prior to the Manta Ray's arrival, the cost of travelling to Fraser Island from Rainbow Beach on one of the Melksham companies' barges was $70 per standard vehicle for non-contract customers, with additional costs for passengers and trailers.  Contract customers paid a lower price.

Mr Melksham sold his Fraser Island businesses, including the barge businesses and Eurong Beach Resort, to Kingfisher Bay Resort in November 2002.