$5.17 Million penalties for fire protection industry price fixes

14 December 1999
Today in the Federal Court, Brisbane, Justice Drummond ordered companies and individuals involved in a price fixing and market sharing cartel in the Queensland fire protection industry to pay penalties totalling $5.17 million.

The Federal Court found that Tyco Australia Pty Ltd trading as Wormald Fire Systems, Grinnell Asia Pacific Pty Ltd trading as O'Donnell Griffin, Sensor Systems (Australia) Pty Ltd, F&H Pty Ltd (formerly Matthews Fire Alarm Pty Ltd), and Burmess Pty Ltd trading as BEI, had engaged in price fixing and market sharing conduct in breach of section 45 of the Trade Practices Act 1974.

Today's orders from the Federal Court disposed of proceedings against 15 of the 56 respondents. These respondents have provided a high degree of cooperation and have reached agreement with the ACCC as to appropriate levels of penalty and other orders to recommend to the Court. The ACCC acknowledged this cooperation in the submission to the Court.

The ACCC alleged that a long-standing anti-competitive arrangement existed in the markets for the installation of fire protection systems throughout Queensland, and fire alarm systems in and around Brisbane. The ACCC alleged that at regular meetings the fire protection companies agreed between themselves which of the projects out to tender at the time each would win, and agreed prices for the projects.

Today Justice Drummond imposed the following pecuniary penalties:

Respondent

Penalty

Group Penalty

Tyco Australia Pty Ltd formerly Wormald Australia Pty Ltd t/a Wormald Fire Systems

$1.4 Million

Tyco

$5 Million

Grinnell Asia Pacific Pty Limited t/a ODonnell Griffin (ODG)

$3.3 Million



Kevin Fisher, former Manager Queensland & Northern Territory, Tyco International Ltd.

$100,000



Matthew Sproule, former Manager, Wormald Fire Systems

$100,000



Richard McCormack, Manager, Fire Protection Division, ODG, Queensland and Northern Territory

$50,000



Kenneth Waller, Manager, Fire Alarms and Services, ODG, Brisbane

$50,000





F & H Pty Ltd formerly Matthews Fire Alarm Pty Ltd

$100,000

Matthews

$110,000

Bill Sheehan, former estimator, Matthews Fire Alarm

$10,000





Sensor Systems (Aust) Pty Ltd

$50,000

Sensor

$60,000

Ken Rose, Director, Sensor Systems

$10,000



In his judgment, Justice Drummond noted that it could readily be accepted that substantial loss had resulted to consumers affected.

The level of penalty imposed reflects a number of factors, including the size of the company, the level of management involved and the nature and seriousness of the unlawful conduct.

In addition to these penalties, the Federal Court also ordered injunctions against the respondents, prohibiting them from engaging in similar conduct for a period of three years.

The companies have agreed to implement or upgrade trade practices compliance programs to ensure employees are aware of their obligations under the Trade Practices Act 1974.

ACCC Chairman, Professor Allan Fels, welcomed the fines imposed by the Court.

"I am surprised and concerned that companies continue to collude in this fashion," he said. "The conduct of the participants in this instance is particularly serious considering the $20 million fines imposed on Brisbane concrete companies for the same type of behaviour a relatively short time ago. That case should have served as a warning to other companies not to do the same.

"A number of the buildings affected by the anti-competitive conduct in the fire protection industry are public facilities - hospitals and schools - as well as shopping centres and retirement homes. Ultimately it will be the public purse and consumers alike who must bear the inflated costs that are a consequence of price fixing and market sharing by these companies.

"Company directors, managers and employees should keep in mind that in addition to the significant fines imposed by the Federal Court in this case and others, there is a high personal cost to be borne by individuals who take part in this type of conduct.

Projects of the parties dealt with today which were subject to the arrangements include:

Adventist Retirement Home Victoria Point Bells Valley Square Carramar Home for Senior Citizens Frigmobile - Hemmant Queensland Rail Redbank Locomotive, Rail Track Equipment, and Wheel & Bogie Shops Redcliffe Hospital Redcliffe Rugby Leagues Club Swanbank 'A' Power Station TAFE Southbank - Roy Wallace Building Telephone Exchange Projects (including The Gap, Newmarket, Paddington, Bulimba, Coorparoo and Sunnybank) Tweed City Shopping Centre University of Queensland - Prentice Building, Emmanuel College, Parnell Building and Richards Building

BACKGROUND On 29 September 1999 the ACCC commenced legal proceedings against a total of 56 companies and individuals, alleging a long-standing anti-competitive cartel existed in the markets for the installation of fire sprinkler systems throughout Queensland, and fire alarm systems in and around Brisbane. This legal action commenced after an extensive and wide-ranging investigation by the ACCC.

The ACCC alleged that anti-competitive arrangements were made at regular meetings between competitors in the fire protection industry over many years. At the regular meetings, which were referred to by participants as the "Coffee Club", the fire protection companies agreed between themselves which of the installation projects out to tender at the time each would win, and agreed on prices to be tendered for the projects.

The anti-competitive conduct has been occurring since the mid-1980s but the proceedings only concern conduct in the fire sprinkler installation market between October 1993 and May 1997, and between June 1992 and December 1995 in the fire alarm installation market in Brisbane, the Sunshine Coast and Toowoomba. This is because of time limitations in the Trade Practices Act 1974 on pecuniary penalties.

Fire alarm systems or sprinkler systems are required by law to be installed in buildings such as residential apartments, high rise buildings, warehouses, supermarkets, factories, hospitals, schools, shopping centres, cinemas and nursing homes.

The ACCC alleged that representatives from the fire protection companies attended regular meetings at a number of hotels and sporting clubs around Brisbane, including: Pacific Golf Club, Carindale; Wests Leagues Club, Bardon; Gateway Club, Tingalpa; Acacia Ridge Hotel; Runcorn Tavern; Souths Acacia Ridge Leagues Club; Souths Leagues Club, West End; Perry Park Soccer Ground, Bowen Hills; and a coffee shop at Southbank.

At these meetings, the participants would reach agreement as to which of them would "win" particular contracts let to tender for the installation of fire alarm or sprinkler systems. The other representatives would agree not to submit a tender for that job, or submit a price they knew would be higher than that submitted by the company allocated the job. This latter practice was known as "cover pricing".

The attendees of the sprinkler meetings also agreed that in any negotiations with builders after tenders for a project had been submitted, they would not discount their tender prices beyond a certain range.

In the alarms meetings, it is alleged attendees agreed that all alarm projects would be tendered at a labour rate of $40 per hour with a margin on labour and materials of 40%. This was known as "the 40/40 agreement".

Prior to the commencement of the legal proceedings, these respondents entered into discussions with the ACCC as to the appropriate level of penalties and other orders to recommend to the Court. The recommended settlements were then submitted to the Federal Court for its consideration.

The proceedings involve almost all of the Brisbane-based companies that provided fire alarm installation services and fire sprinkler installation services between 1992 and 1997. The companies concerned range from large multinational corporations to small local operators.

The level of penalty imposed reflects a number of factors, including the size of the company, the level of management involved and the nature and seriousness of the unlawful conduct.

Following today's judgment the ACCC acknowledged the high level of cooperation by these companies with its investigation, which was given as soon as the respondents and senior management were made aware of the investigation. This cooperation saved both the Federal Court and the ACCC expending resources in lengthy litigation. The levels of penalty recommended to, and imposed by the Court reflected this cooperation.

The proceedings continue against the remaining respondents, many of which are also seeking to cooperate with the ACCC.
Release number: 
MR 245/99
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