Penalties and costs totalling $5,000,000 were awarded today against Pioneer International Limited and a subsidiary company following action brought by the Australian Competition and Consumer Commission.
The ACCC had alleged in the Federal Court in Sydney that an acquisition by Pioneer International Limited and a subsidiary, Pioneer Building Products (Qld) Pty Ltd, of the assets of a vigorous competitor in the south Queensland concrete masonry market had the effect of substantially lessening competition in that market.
Justice Lockhart of the Federal Court found that Pioneers acquisition of the assets of A Class Blocks Pty Limited and Q Blox Concrete Masonry Pty Ltd in August 1994 breached section 50 of the Trade Practices Act 1974. Following the judgment, the ACCC acknowledged the fact that the companies had admitted their guilt and provided information to the Commission. In admitting guilt, a lengthy and expensive court case was avoided. The ACCC alleged that between 1991 and 1995, Pioneer produced and supplied about 50 per cent of all concrete masonry in south Queensland, a total market worth between $15M to $20M a year. During this time, A Class supplied about 10 per cent of this market each year, and was responsible for vigorous price competition, leading to significantly decreased concrete masonry prices for customers.
The ACCC alleged that from 1992 onwards, Pioneer considered acquiring the A Class business in order to remove A Class as a competitor and increase masonry prices. During this time, Pioneer received legal advice that if it acquired the A Class business, there was a significant risk that Pioneer would contravene section 50 of the Trade Practices Act 1974. Subsequently, in June 1994, Pioneer and A Class considered a different proposal that A Class close its business and sell its masonry production assets to Pioneer for $6.5M. After Pioneer obtained further legal advice, A Class closed its business and the acquisition proceeded. The Court held that Pioneers acquisition of the A Class assets contravened section 50 of the Act in that it had the effect of substantially lessening competition in the south Queensland concrete masonry market. Following the acquisition, prices for concrete masonry rose significantly. The Court awarded pecuniary penalties today as follows:
Pioneer International Limited $3.9 M Pioneer Building Products (Qld) Pty Ltd $0.9 M
Pioneer was also ordered to pay the ACCCs costs of $200,000.00. Pioneer also gave undertakings to the Court that for the next five years it would not acquire the shares, assets or interest of a competitor (worth over $5M) in an Australian concrete masonry market without first giving the ACCC 30 days notice.
Justice Lockhart said that in assessing Pioneer's penalty for a breach of section 50, the Court did not need to adopt a different approach to previous penalty cases under other sections of the Act. ACCC Chairman, Professor Allan Fels, said the decision was the first time that a company had been penalised for a merger contravening section 50 of the Act. Professor Fels noted the importance of Justice Lockhart's comments that section 50 penalty cases are treated in the same way as other breaches of the Act. "It will serve as a warning that the ACCC considers all mergers carefully, no matter when they come to light.
"While the ACCC could not prevent this acquisition, other companies will now think twice about the effect of their conduct. "In Pioneers case, it failed to follow its own legal advice, and this, together with the fact that Pioneer and A Class chose not to approach the ACCC to authorise the merger, led to today's result. "It is difficult to assess exactly how much more the public and private sector are paying for concrete masonry as a result of this acquisition." Pioneer did not enter a defence to the action. Counsel for the ACCC and Counsel for Pioneer made joint submissions to the Court on penalties.
ACCC AND PIONEER SETTLE 1992 PROCEEDINGS
Another action involving the ACCC was finalised today, when the ACCC discontinued its proceedings against another Pioneer subsidiary, Pioneer Concrete (Qld) Pty Ltd, and three current and former employees of that company. Pioneer was ordered to pay the ACCCs costs of the action. The proceedings related to allegations of anti competitive conduct in the Warwick area of Queensland in 1990 and 1991.
A related action brought by Brian Roche and Gail Roche against Pioneer Concrete (Qld) Pty Ltd was also discontinued, on terms to the satisfaction of all parties.
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