Two Queensland subsidiaries of Pacific Dunlop Ltd (PDL) and an executive of one of them were today ordered to pay $2 million in penalties and costs for their role in a price fixing and market sharing arrangement in the industrial flexible polyurethane foam market in Queensland between the mid to late 1980s and early 1996.
PDL admitted that its subsidiaries entered into the arrangement with their major competitor in Queensland.
Today, the Federal Court in Melbourne accepted a joint submission regarding injunctions and penalty for breaches of section 45 of the Trade Practices Act 1974 (the Act), which prohibits price fixing and certain market sharing arrangements, by Foamlite (Australia) Pty Ltd trading as Dunlop Flexible Foams (Foamlite) its Queensland Manager, Peter Dell, and Queensland Sales Manager, Phillip Lait, and Vita Pacific Limited (Vita) and its former Queensland State Manager, Gerard Walsh.
PDL stated that the arrangement arose out of a friendship that developed between Dell and a State Manager of the companies main competitor.
Justice Finkelstein considered the detailed material put forward by the parties and accepted that the orders as suggested by the parties were appropriate.
The penalties total $1.9 million, apportioned as follows:
- Foamlite (Australia) Pty Ltd $1.2 million
- Vita Pacific Limited $600,000, and
- Mr Peter Dell (former Queensland State Manager of Foamlite) $100,000.
The Court also issued injunctions restraining each of Foamlite, Vita, Dell, Lait and Walsh for a period of three years from repeating the offending conduct.
In addition the companies have agreed to pay $100,000 towards the Commissions legal costs.
In handing down his judgment Justice Finkelstein noted that the arrangement was loosely policed not necessarily all that effective but endured for many years.
ACCC Chairman, Professor Allan Fels, said today, "This was a blatant case which went as high as the Queensland State Manager.
"Price fixing and market sharing have been deemed by Parliament as being inherently anti-competitive under the Trade Practices Act.
"Cases such as the concrete case involving price fixing and market sharing in South East Queensland by Boral, Pioneer and CSR, where penalties totalling over $20 million were ordered in late 1995, demonstrate the seriousness with which this type of conduct is to be viewed. Whilst the facts of this case are quite different from the concrete case, there has again been a clear breach of the Act.
"It is disappointing to see this further case of price fixing and market sharing emerge in Queensland.
"Businesses of all sizes need to be aware of the consequences of engaging in such anti-competitive behaviour.
"In a case such as this, the Commission would normally suggest to the Court a substantially higher penalty than that being recommended. However, PDLs strong level of cooperation and its existing comprehensive compliance program have contributed greatly to a reduction in recommended penalties.
"The fact that the Commission has had full and unstinting cooperation from PDL from the time it became aware of our inquiries has contributed substantially to a reduction in penalties which might otherwise have been the case. PDL also has volunteered to update its trade practices compliance program to include material relating to this case, and the dangers of socialising with competitors." The Commission welcomes that initiative by PDL as indicating a genuine desire to make their compliance program more effective.
PDL is in the process of removing Dell, Foamlite's Queensland State Manager involved in the offending conduct, from that position and transferring him to other duties.
These proceedings conclude the Commissions investigation into the conduct of the PDL parties only. The investigation by the Commission into the alleged conduct of PDLs competitor continues.
Further information about this media release: Professor Allan Fels, Chairman (03) 9290 1812 MR No. 166/97 12 December 1997.
Background
The Australian Competition and Consumer Commission has welcomed the penalties handed down by the Federal Court today against two Pacific Dunlop Limited (PDL) subsidiaries, Foamlite (Australia) Pty Ltd (Foamlite) and Vita Pacific Limited (Vita) and a company executive of Foamlite. The action is the culmination of a two year investigation into alleged price fixing and market sharing in the flexible polyurethane foam market in Queensland between the mid to late 1980s and early 1996.
Once the investigation was brought to the attention of PDL, it immediately informed the Commission that it wanted to co-operate fully with the Commission. To that end, PDL established an internal task force to oversee the companys cooperation with the Commission. As a result of their investigation, Peter Dell (Dell), Foamlite Queensland Manager, Phillip Lait (Lait), Foamlite Queensland Sales Manager, and Gerard Walsh (Walsh), Vita Queensland State Manager admitted to the alleged conduct. PDL has assisted the Commission in the provision of Affidavits by individuals involved and other information relevant to the Commissions investigation, and in bringing this matter before the Court in the form of agreed pleadings, remedies and submissions.
Justice Finkelstein of the Federal Court in Melbourne accepted a joint submission regarding injunction and penalty for breaches of sections 45(2)(a)(i) and (ii) and 45(2)(b)(i) and (ii) of the Trade Practices Act 1974 (the Act), which prohibit price fixing and certain market sharing arrangements. The Court considered the detailed material put forward by the parties and accepted that the orders as suggested by the parties were appropriate. The penalties total $1.9 million, apportioned as follows:
- Foamlite (Australia) Pty Ltd $1.2 million
- Vita Pacific Limited $600,000
- Mr Peter Charles Robert Dell (former Queensland State Manager of Foamlite) $100,000.
In a case such as this, the Commission would normally suggest to the Court a penalty substantially higher than that submitted. However, PDLs strong level of cooperation and its existing comprehensive compliance program have contributed greatly to a reduction in recommended penalties to a total of $1.9 million."
PDL has in place a long-standing compliance program to which it devotes considerable resources to educate staff and provide internal reporting and inquiry mechanisms. Indeed, PDL staff involved in this matter attended a seminar regarding the illegality of price fixing and market sharing conduct, but unfortunately despite the companys efforts they chose to disregard this advice and continued to give effect to their arrangement.
Even though PDLs compliance program is extensive, PDL has volunteered to update its program to include material regarding this matter and the dangers associated with socialising with competitors. The update will include the professional production of a training video in which the conduct of the PDL individuals in this matter will be re-enacted, together with addressing the issue of how the Commissions investigation, PDLs internal investigation and ultimately the Court proceedings have affected their personal lives. PDLs effort to address this matter is welcomed by the Commission as demonstrating PDLs commitment to achieving effective compliance with the Act.
The conduct
In or about the mid 1980s, Dell acting in his role as Queensland State Manager and Regional Manager of Foamlite, Walsh acting in his role as the Vita Queensland State Manager, and a State Manager of their major competitor came to an arrangement or understanding relating to the manner in which they would deal with persons who sought quotations for the supply of industrial flexible polyurethane foam who were not existing customers and who were known or ascertained to be customers of one of the other two companies. This arrangement or understanding was not reached at any particular meeting nor formalised in any way, but rather evolved over time. It was given effect to until early 1996 at which time the Commissions investigation became known to the industry.
Dell states the arrangement or understanding grew from a friendship between Dell and a State Manager for PDLs major competitor. They became known to each other when they both were involved in an industry working party. A friendship resulted, and the two started to lunch together.
The consequence of the arrangement or understanding was that the companies could compete on non-price matters such as service, quality, delivery, style, capacity and product range. Insofar as price was concerned, and where it came to the attention of one of the companies that they were approaching or had been approached by a prospective customer who was known to be a customer of one of their competitors, then it was understood that the companies would not seek to undercut the competitor's prices.
By this arrangement or understanding it was intended that:
each company should not approach a prospective customer in an endeavour to secure new business in circumstances where they knew that the customer was an established customer of one or other of the other companies; and if one company inadvertently approached a competitor's customer or a customer approached one of the companies that was not its current supplier, the relevant company would, in circumstances where it knew or ascertained that the prospective customer was a customer of one of the other companies, endeavour to quote prices that were above the competitors prices. In some instances this meant that a company had to requote in circumstances where it had already provided a quote in circumstances where it had been unaware that the prospective customer was an existing customer of one of the other two competitors.
Whilst Dell states that his luncheons with the State Manager for the major competitor were social in their intent and content, and therefore were not intended to form part of the understanding, the lunches served the purpose of maintaining personal relationships between them and established and maintained relationships between other employees. They introduced their respective Queensland Sales Managers (Lait for Foamlite) to each other at one of these luncheons. Walsh also attended occasional luncheons in the 1980s. Dell, Lait and Walsh have been able to specifically recall some twenty-five luncheons over the period from 1983 to 1996, not including industry working party meetings. Of these luncheons, it is recalled that on seven occasions discussion touched on customer sharing and pricing. In short, it was these luncheons which facilitated the arrangement.
The court orders
In summary, Justice Finkelstein of the Federal Court in Melbourne accepted a joint submission for the alleged breaches of the Act, and today made the following final orders in these proceedings:
Orders penalising Foamlite $1.2 million, Vita $600 000 and Peter Dell, Foamlite Queensland Manager, $100 000; Injunctions restraining each of Foamlite, Vita, Dell, Lait and Walsh for a period of three years from repeating the offending conduct; and
Costs as agreed between the parties; PDL to pay $100 000 towards the Commissions costs.
The above proceeding finalises the Commissions investigation into the conduct of the PDL companies only. The investigation by the Commission into the alleged conduct of PDLs major competitor is continuing.