Federal Court orders $14.5 Million penalties against cartel participants, and orders major penalties for managing directors

Nearly $15 million in penalties were ordered today against Schneider Electric (Australia), Wilson Transformer Company and AW Tyree Transformers for their involvement in price-fixing and market-sharing contraventions of the Trade Practices Act 1974 after Justice Finkelstein in the Federal Court, Melbourne declared their actions unlawful.

The arrangements covered the supply of power transformers and distribution transformers in Australia.

The court also imposed major pecuniary penalties against the managing directors of each of the corporations for their awareness of, and participation in, the covert and illegal conduct.

"The size of the penalties indicates the seriousness of the contraventions", Australian Competition and Consumer Commission Chairman, Professor Allan Fels, said today. "These breaches were long-running arrangements in markets worth hundreds of millions of dollars".

The orders were made as part of two important sets of proceedings brought the ACCC that alleged extensive cartel conduct between the principal firms in the Australian transformer industry.

Reasons for the decision are likely to be published by Justice Finkelstein on Monday following consideration of certain confidential material.

"His Honour's reasons are likely to be of great interest", Professor Fels said.

Distribution Transformer Proceedings

Schneider Electric (Australia), Wilson Transformer Company and AW Tyree Transformers each made admissions to the court that they engaged in extensive market sharing and price fixing cartel conduct in the market for distribution transformers during the 1990s which continued until 1999. This market in Australia is estimated to be worth approximately $100,000,000 per annum.

Note: Alstom has already paid pecuniary penalty of $1.5 million for its participation in this conduct.

Power Transformer Proceedings

Wilson Transformer Company also made admissions to the court that it engaged in extensive market sharing and price fixing cartel conduct in the market for power transformers during the 1980s and from late 1993 until the end of 1995. This market in Australia is estimated to be worth approximately $60,000,000 per annum.

The penalties ordered by the court in these proceedings today were as follows:

Party	Penalty
WTC:	$1.5 million
Robert Wilson (Managing Director of WTC)	$100,000
David Toogood, ABB	$35,000

Note Alstom has already paid pecuniary penalty of $5.5 million for its participation in this conduct.

On 5 April 2001 the Federal Court ordered Alstom Australia Limited to pay a pecuniary penalty of $5.5 million for its articipation in this conduct. The Managing Director of Alstom was ordered to pay penalty of $150,000.

In both sets of proceedings the court also made other orders including injunctions against the corporations and relevant senior management restraining them from engaging in similar conduct in the future.

The ACCC argued that the level of penalty ordered by the court should reflect a number of factors, including, the seriousness and covert nature of the unlawful conduct, the number of separate contraventions, the amount of commerce affected by the arrangements, the size of the companies and the level of management involved.

"Like in many covert price-fixing conspiracies, these companies and their senior executives from time to time abused the opportunity to meet with their competitors before or after industry association meetings", Professor Fels said. "Secret meetings to rig the outcomes of multi-million dollar contracts took place in hotel rooms, airport lounges and even private residences in various parts of Australia".

The customers affected by these illegal arrangements included many of the largest electricity transmission and distribution utilities across Australia.

"Although these conspiracies were directed at the tender processes for power and distribution transformers, it is the Australian consumer who has ultimately paid the price".

The penalties ordered by the court in the case of the companies managing directors are equivalent to the highest individual penalties imposed by the court in the history of trade practices proceedings in Australia.

The investigation commenced following an anonymous e-mail to the ACCC.

"Secret collusion is always difficult to get to the bottom of and requires painstaking and lengthy investigation", Professor Fels said.

In these proceedings each of Schneider Electric (Australia), Wilson Transformer Company and AW Tyree Transformers admitted their involvement in the unlawful conduct and cooperated with the ACCC.

In its submissions to the court the ACCC submitted that the pecuniary penalties imposed by the court would have been much higher if it was not for the substantial cooperation provided by these companies and their management to the ACCC during its investigation and throughout the court proceedings.

The ACCC has published a flexible policy of cooperation and leniency in enforcement and it will make submissions to the court in accordance with that policy in appropriate circumstances.

Background 

Distribution Transformer Proceedings

ABB Transmission and Distribution Limited, Wilson Transformer Company Pty Ltd, Schneider Electric (Australia) Pty Ltd, AW Tyree Transformers Pty Ltd and Alstom Australia Limited are the principal manufacturers and suppliers of distribution transformers in Australia.

Distribution transformers are used in the electricity distribution networks and where large amounts of electrical power is required. The primary consumers of distribution transformers are electricity utilities. The annual value of distribution transformers acquired by electricity utilities in Australia is approximately $100,000,000.

The ACCC has alleged in documents filed with the Court that senior executives of ABB Power Transmission Pty Ltd (in liq), Wilson Transformer Company Pty Ltd and AW Tyree Transformers Pty Ltd reached collusive agreements from in or about 1993 not to compete for tenders let by utilities for the supply of distribution transformers in Australia. Schneider Electric (Australia) Pty Ltd allegedly became a party to the price fixing and customer sharing arrangements from in or about 1995. Following a corporate restructure of the ABB group of companies, ABB Transmission and Distribution Limited also allegedly became a party to the price fixing and customer sharing arrangements from 1 January 1996.

The ACCC further alleges that these agreements were put into effect on many occasions until early 1999 though the exchange of detailed pricing information. The arrangements not to compete and subsequent price agreements were allegedly made during a series of covert meetings and telephone calls between senior executives of the companies throughout the period. It is alleged that the parties arranged that each of them would win specific tender items by agreeing which company would tender the lowest bid for those items.

Alstom Australia Limited agreed to enter into and give effect to customer sharing and price fixing arrangements in respect of two tenders for the supply of distribution transformers in 1994 and 1996 but it was not involved in the broader cartel arrangements.

The ACCC sought orders against ABB Transmission and Distribution Limited, ABB Power Transmission Pty Ltd (in liq), Wilson Transformer Company Pty Ltd, Schneider Electric (Australia) Pty Ltd, AW Tyree Transformers Pty Ltd and Alstom Australia Limited including declarations, injunctions, findings of fact and costs. The ACCC also sought pecuniary penalties against each of these companies and senior executives.

The proceedings against other parties are continuing.

The ACCC case was that WTC and AW Tyree reached collusive agreements with ABB from in or about 1993 not to compete for tenders let by utilities for the supply of distribution transformers in Australia. Schneider has admitted that it became a party to the price fixing and customer sharing arrangements from in or about 1995.

Schneider, WTC and AW Tyree admit that these agreements were put into effect on many occasions until early 1999 though the exchange of detailed pricing information. The arrangements not to compete and subsequent price agreements were made during a series of covert meetings and telephone calls between senior executives of the companies throughout the period. The parties arranged that each of them would win specific tender items by agreeing which company would tender the lowest bid for those items.

These meetings included covert meetings in hotel rooms and in the home of Robert Wilson in Melbourne.

Alstom Australia Limited agreed to enter into and give effect to customer sharing and price fixing arrangements in respect of two tenders for the supply of distribution transformers in 1994 and 1996 but it was not involved in the broader cartel arrangements.

The Distribution Transformer Arrangement involved all the major manufacturers and suppliers of distribution transformers in Australia. The combined market share of ABB, Schneider, WTC and Tyree was at all material times almost 100% of the market.

On 5 April 2001 the Federal Court ordered Alstom Australia to pay a pecuniary penalty of $1.5 million for its participation in this conduct.

The ACCC submitted to the Court that:

(a) The Distribution Transformer Arrangement was made and given effect to at the most senior management level of the parties. Robert Wilson is the Managing Director of WTC, Russell Stocker was formerly the Managing Director of Schneider and Ray Boyce is the Managing Director of AW Tyree;

(b) The Distribution Transformer Arrangement was in place over a period of six years from mid to early 1993 to mid 1999 and affected the manufacture and supply of distribution transformers in almost every state and territory of Australia;

(c) When acting in concert, the parties to the Distribution Transformer Arrangements controlled close to 100% of the supply of distribution transformers. The consumers of distribution transformers had little choice but to deal with the parties to the cartel;

(d) During the relevant period the parties gave effect to the Distribution Transformer Arrangement in respect a large number of multi-million dollar tenders. Each of these tenders represents a separate and significant contravention of the Act. One of these tenders had a total estimated value of $100 million;

(e) The value of sales in the distribution transformer market was approximately $100 million per annum during the six year period of the Distribution Transformer Arrangement; and

(f) The contravening conduct was covert and clandestine, engaged in with knowledge of its illegality.

Power Transformer Proceedings

ABB Power Transmission Pty Ltd (in liq), Alstom Australia Limited and Wilson Transformer Company Pty Ltd were the principal manufacturers and suppliers of power transformers in Australia and New Zealand. Power transformers are used in the transmission of power through the electricity transmission and distribution network and where large amounts of electrical power are required. The annual value of power transformers sold in Australia was approximately $60,000,000.

The ACCC has alleged in documents filed with the Court that ABB Power Transmission Pty Ltd (in liq), Alstom Australia Limited and Wilson Transformer Company Pty Ltd formalised a pre-existing collusive agreement in 1993 to share the demand for power transformers in Australia and New Zealand amongst themselves according to agreed percentages.

The ACCC further alleges that this agreement was put into effect until late 1995 through the allocation of a large number of significant tenders among these companies. The allocation of tenders allegedly occurred during a series of covert meetings and telephone calls between senior executives of the companies throughout the period. It is alleged that the parties ensured the company allocated a specific tender would win by agreeing that that company would tender the lowest bid.

The ACCC sought orders against each of the companies including declarations, injunctions, findings of fact and costs. The ACCC also sought pecuniary penalties against the companies and senior executives.

On 5 April 2001the Federal Court ordered Alstom Australia Limited to pay a pecuniary penalty of $5.5 million for its participation in this conduct. The Managing Director of Alstom was ordered to pay a penalty of $150,000.

The proceedings against other parties are continuing.

The ACCC case against WTC was that it along with ABBPT and Alstom entered into a collusive agreement in 1993 to share the demand for power transformers in Australia and New Zealand amongst themselves according to agreed percentages.

From 1993 until the end of 1995 the agreed percentages were approximately:

• ABBPT: 44%
• Alstom: 28%
• WTC: 28%.

A similar collusive arrangement had existed between the principal manufacturers of power transformers in Australia in the 1980s.

The ACCC case was that this agreement was put into effect until the end of 1995 through the allocation of a large number of significant tenders among these companies. The allocation of tenders occurred during a series of covert meetings and telephone calls between senior executives of the companies throughout the period. The parties ensured the company allocated a specific tender would win by agreeing that that company would tender the lowest bid.

The covert meetings during which tenders were allocated were between senior executives of each of the parties, generally immediately before or after regular meetings of the Power and Distribution Transformer Division of the industry association AEEMA.

The meetings included meetings at the following locations:

• the Hilton Hotel, Melbourne
• the Australian Chamber of Manufacturers, St Kilda Road, Melbourne
• Sanctuary Cove, Surfers Paradise
• the Qantas Club, Sydney
• the Hyatt Hotel, Melbourne
• the Marriott Hotel, Surfers Paradise.

The ACCC submitted to the court that significant aspects of the conduct include:

(a) the Power Transformer Market Sharing Arrangement was given effect to at the most senior management levels of WTC's power transformer business, including the Managing Director of WTC, Robert Wilson

(b) the purpose of the Power Transformer Arrangement was to maintain the market shares of each of the parties at or about agreed levels. The agreed market share for WTC was 28%. This was achieved by the parties to the Power Transformer Arrangement rigging the results of significant tenders for power transformers

(c) the Power Transformer Market Sharing Arrangement covered the manufacture and supply of power transformers in every state and territory of Australia and included the export of power transformers to New Zealand

(d) the parties to the Power Transformer Arrangement controlled more than 90% of the power transformer market (of which WTC's share was 20-30%). The consumers of power transformers had little choice but to deal with the parties to the cartel

(e) the value of sales in the power transformer market was approximately $60 million dollars per annum during the period of the Power Transformer Market Sharing Arrangement

(f) at least 27 tenders were fixed pursuant to the Power Transformer Arrangement in the period 1993 to 1995. The value of these tenders ranged from pproximately $285,000 to $4,326,000. Each of these tenders represents a separate and significant contravention of the Act

(g) the contravening conduct was covert and clandestine, engaged in with full knowledge of its illegality.

Cooperation in both matters

The ACCC fully accepts that Schneider, WTC and Tyree and their senior management are entitled to credit for co-operating with the Commission from the time they were approached in these proceedings, having admitted contravening the Act, assisting the Commission in its investigations and reviewing or implementing corporate compliance programs.

Both sets of proceedings are continuing against other parties including the ABB corporate respondents.