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Apco Service Stations Pty Ltd v ACCC: it's hard to get a fix

Key impact

The case confirms that a mere expectation that a person will act in a particular manner is insufficient to constitute an “understanding” in contravention of section 45 of the TPA. The case provides some scope for a corporation, which is aware of a price-fixing arrangement within the market, to increase its prices based on its own commercial interests. However, the ability to do so must be seen in light of the fact that, in this case, Apco's managing director never solicited price information, was non-committal about whether he would increase Apco's prices in response to telephone calls from competitors, and did in fact only increase prices on 29 of 69 relevant occasions, thereby acting inconsistently with the collusive group in the majority of instances. The ACCC has sought leave to appeal the decision to the High Court.

The Full Federal Court took a strict approach to defining the type of conduct which constitutes price fixing by overturning Merkel J's decision that one of a group of Ballarat petrol retailers and its managing director had engaged in price fixing conduct in contravention of the Trade Practices Act 1974 (TPA).1 The Full Federal Court's decision was delivered just over a week before the Australian Competition & Consumer Commission (ACCC) released its immunity policy for cartel conduct. The policy attempts to encourage cartel participants to become informants in return for immunity from trade practices liability.

The Full Federal Court's decision was delivered within months of the ACCC obtaining significant civil penalties against a number of Ballarat petrol retailers. In the proceedings before Merkel J, the ACCC alleged that a group of retail petrol companies (retailers) contravened section 45(2) of the TPA by regularly telephoning each other to instigate and maintain price increases in the Ballarat retail petrol market.

In December 2004, Merkel J found that Apco Stations Pty Ltd (Apco), its managing director and others had engaged in a price-fixing arrangement with retail petrol companies in the Ballarat region, in contravention of section 45(2) of the TPA.2 His Honour found that the managing director was knowingly concerned in and a party to Apco's contraventions under section 75B(c) of the TPA. Penalties of $3 million and $200,000 were imposed on Apco and its managing director respectively.

Decision of the primary judge

The evidence before Merkel J indicated that Apco's managing director never solicited price information and was non-committal about whether he would increase Apco's prices in response to calls from the Retailers. Merkel J acknowledged that none of the Retailers had an expectation that Apco's preparedness to receive telephone calls meant that it would substantially match the increased prices. Some witnesses went no further than stating that it was their “hope” that Apco would increase its prices. In the majority of instances Apco's managing director did not increase Apco's prices when the Retailers raised their prices.

Merkel J accepted that the evidence suggested that Apco's managing director made his own decisions to raise Apco's petrol price based on commercial interests. However, His Honour found that Apco's managing director aroused an expectation on the part of the Retailers that he would receive the calls and continue to act upon the calls by closely monitoring the prices of the Retailers before deciding whether to increase prices. Merkel J also found that the managing director expected that the Retailers would maintain price increases whilst he was deciding whether to raise Apco's prices.

Ultimately, Merkel J found that these matters constituted the requisite meeting of minds required to demonstrate that Apco had participated in the price-fixing understanding.

Apco and Apco's managing director were just two of the 16 corporate or individual respondents to the proceedings before Merkel J. Some of the respondents contested the allegations and proceeded to trial. Other respondents made admissions and proceeded to a penalty hearing. All of the respondents were initially found to have breached the TPA and were ordered to pay penalties totalling $23.305 million. The penalties ordered against the other respondents were as follows:

Decision of the Full Federal Court

Apco and its managing director appealed to the Full Federal Court (Heerey, Hely and Gyles JJ), which upheld the appeal in August 2005.

The decision of the Full Federal Court turned on what constitutes an "understanding" to "fix" prices. The Court found that although Apco received information about price increases from the Retailers, it set its prices on the basis of its own commercial interests (in full knowledge of the information supplied by its competitors) rather than as a consequence of a commitment to the Retailers. Hence, Apco's price increases were set independently of a collusive arrangement between the Retailers.

Similarly, the managing director's expectation that the Retailers would maintain increased prices whilst he was deciding whether to match the increase was merely a factual expectation and could not be elevated to the level of an "understanding" between Apco and the Retailers.

The fact that Merkel J had found that there was no expectation that Apco would match the price increases unavoidably led to the conclusion that Apco was not party to any understanding to fix prices. As the Court pointed out, "(u)nilaterally taking advantage of a commercial opportunity presented is not to arrive at or give effect to an understanding in breach of the Act".

Further, the Full Court held that Apco and Anderson were not a party to an understanding to fix prices (that is to make prices "fast, firm or stable") but rather that Apco reserved to itself the decision whether to follow the prices supplied to it by other retailers.

The Full Court held that the circumstantial evidence, such as the telephone traffic on the days on which prices were increased, was consistent with its finding that Apco and its managing director were not party to an understanding to fix prices. While there was evidence of increased telephone traffic on such days for the Retailers, there was a slight decrease in calls for Apco. On some days when prices were increased, there was no evidence of calls between Apco and its competitors.

On 8 September 2005, the ACCC sought leave to appeal the Full Federal Court's decision to the High Court. We will keep you informed of the progress of the ACCC's special leave application in future updates.

Postscript: penalties and insolvency

One of the respondents to the proceedings before Merkel J, Leahy Petroleum-Retail Pty Ltd (Leahy), became insolvent after a pecuniary penalty of $2.5 million as well as costs exceeding $60,000 were imposed. The directors of Leahy placed the corporation into administration within weeks of being ordered to pay the penalties.

The creditors subsequently resolved that Leahy execute a deed of company arrangement, which provided that all of the corporation's creditors (other than the Commonwealth) were paid in full from the corporation's assets with the surplus divided equally between the Commonwealth (in composition of its debt) and the sole shareholder, Leahy Family Holdings Pty Ltd. The deed had the effect of approximately halving the amount otherwise recoverable by the Commonwealth.

The Commonwealth sought to have the deed terminated on the grounds that it unfairly discriminated against it. The Federal Court agreed with the Commonwealth, holding that the deed did unfairly discriminate against the Commonwealth and that the chairman exercised his casting vote on the basis of a mistaken view of the law.3

The ACCC has supported the decision, stating that "a company is not able to avoid pecuniary penalties on the basis of insolvency where the penalty is the reason it is insolvent."

Footnotes

1 Apco Service Stations Pty Limited v Australian Competition and Consumer Commission [2005] FCAFC 161
2 Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (2004) 141 FCR 183
3 Commonwealth v Leahy Petroleum - Retail Pty Ltd (subject to a deed of company arrangement) [2005] FCA 1422

This publication is only a general outline. It is not legal advice. You should seek professional advice before taking any action based on its contents.