Independents innocent - ACCC loses price fixing case in the Federal Court

In an important decision for independent fuel retailers, a Federal Court judge dismissed the ACCC’s petrol price fixing case against eight fuel retailing companies and 10 individuals operating in the Geelong market. Not only is the judgement a great relief for the retailers involved, it has important lessons for independent fuel retailers now and in the future.

The judgement

In the Federal Court of Australia, on 29 May 2007, the Honourable Justice Peter Gray ordered the case brought by the Australian Competition and Consumer Commission (ACCC) against eight retail fuel companies and 10 individuals be dismissed.

The ACCC alleged that the respondents colluded to fix retail prices of petrol in the Geelong retail petrol market through a series of arrangements or understandings. Further, the ACCC alleged that, on a number of occasions in 1999 and 2000, the parties to all or some of those arrangements or understandings gave effect to them by actually fixing the retail price of ULP. This conduct was alleged to have contravened s 45(2)(a) and (b) of the Trade Practices Act 1974 (TPA). The ACCC sought the imposition of civil (not criminal) pecuniary penalties, that is, fines.

The reasons for judgment included factual issues arising from the evidence and some legal issues, principally those concerned with the elements necessary for the existence of an arrangement or understanding for the purposes of the TPA. The reasons for the judgement are explained in detail in 967 paragraphs. You can download a copy at www.austlii.edu.au/au/cases/cth/federal_ct/2007/794.html.

The judge found that, although the Geelong retailers did talk to each other on the phone and sometimes they talked about fuel prices, this did not amount to collusion or price fixing. Justice Grey went as far as to say that “… the overall effect of the evidence in this case is that it is more probable than not that none of the arrangements or understandings alleged by the ACCC in fact existed”.

He went on to say that, although there can be no doubt that a good deal of information about price increases was passed between competitors in the Geelong petrol market most of it by means of telephone conversations, this was more likely to have been the mere passage of such information in the hope that a general price rise could be achieved. On occasions, it amounted to urging a decision to increase a price, particularly in the case of what was designated as follow-up or complaint calls, but the fact that these were made is itself inconsistent with the existence of the alleged arrangements or understandings.

In other words, even if one of the retailers had been urging another to increase prices, they did not do so, and the initiator would call to complain that the other had not raised their prices. In reference to one of the alleged price fixing occasions, it was “… more probable that a previous Melbourne price increase precipitated a move in Geelong”, and in reference to another occasion, “… it seems more probable than not that the phone call from Mr Anderson to Leahy … was not about price, but that APCO simply led the market up, confident that others would follow because Melbourne prices had already risen”.

These findings were based on the judge’s detailed examination of the evidence including the ACCC’s circumstantial evidence presented as Annexure B, a document compiled from records of telephone communications between participants in the Geelong retail petrol market, and records of changes to the retail price of ULP by various participants in that market.

“At first sight, the data in Annexure B might appear to provide some support for the ACCC’s theory of the case,” Justice Peter Gray said.

“A more detailed examination, such as the one I have undertaken in these reasons for judgment, shows that the data is at best equivocal, and in many instances more apt to refute than to support the ACCC’s contentions.”

In particular, the ACCC had not taken into account the impact of the Melbourne price cycle. The judge concluded that the evidence in this case disclosed “…a clear and rational connection between prices in the Melbourne petrol market and those in the Geelong petrol market. It would not be possible to find otherwise than that the price cycles in Geelong generally followed those in Melbourne.”

The case was dismissed for all respondents even though some respondents had admitted the substance of the allegations against them and some of the natural person respondents, associated with the corporate respondents, gave evidence on behalf of the ACCC at the trial.

“The admissions on which the ACCC relied do not improve its situation,” said Justice Gray.

In particular, the judge was concerned about the extent to which witness statements from respondents who made leniency agreements with the ACCC were ‘negotiated’. In reference to one of these, Justice Gray said that the terms negotiated between the witness and his counsel on the one hand and the ACCC on the other appears to have been his “… only in the sense that he signed it. It does not appear to have been his own words in any real sense”.

The trial was held over 31 days in 2005, and the judgement took a further one-and-a-half years to complete. In reserving costs, Justice Gray said, “The ACCC must certainly be made to pay the costs of all respondents who defended the proceeding.”

The aftermath

Not unexpectedly, the ACCC was disappointed with the decision. However, the ACCC decided not to appeal the judgement even though it remains convinced that petrol retailers in Geelong had colluded to fix prices in contravention of the TPA.

Equally it is no surprise that the respondents are very happy with the decision. Only a few remain in the fuel retailing business, and Australian Convenience Store News talked to two of them — Robert Riordan, Director, United Retail Pty Ltd, and Peter Anderson, Director, APCO Service Stations Pty Ltd. Both contend that there was no collusion.

“We talked to each other, but, there were no understandings, no agreements, and no compulsion or collusion,” recalled Mr Riordan.

“We talked about oil company price support because in those days there was no transparency and we would talk about what was happening in the Melbourne market. We would also drive around the area three or four times a day to see what prices were in the market. Now we just use the internet.”

Mr Anderson agreed. “I had legitimate commercial reasons to talk to others in the business in Geelong,” he said.

“I could have been buying fuel or advising on building a service station. I never called to talk about price but sometimes it came up in the discussion. However, I never agreed to fix a price.”

The TPA is complex law and difficult to interpret. Based on the judgement in the Geelong case, it comes down to whether ‘arrangements’ or ‘understandings’ to fix prices exist between competitors and whether the competitors have a ‘commitment’ or ‘moral obligation’ to actually fix prices as agreed. This does not appear to be the interpretation of the ACCC or the trial judge in a similar case based on similar evidence against fuel retailers in Ballarat.

In December 2004, he concluded that the respondents (some of which were also respondents in the Geelong case) had engaged in price-fixing conduct and in March 2005 imposed fines ranging from $25,000 to $5 million. APCO Service Stations Pty Ltd and its director, Peter Anderson, appealed that judgement and the full bench of the Federal Court set aside his and his company’s fines. The appeal judges had ruled that while Mr Anderson may have received calls from other companies, it did not mean he engaged in price fixing.

Going forward there needs to be some clarification of what constitutes price fixing and retailers need to be adequately informed.

“I think the ACCC should be explaining to small businesses their obligations under the TPA and warning them if they are operating close to the line,” said Mr Riordan.

“John Martin was appointed to consult with small business and explain our obligations but this never happened in fuel retailing. In the Geelong case, some people thought they had broken the law when they had not.”

(Note, there is information about trade practices compliance programs and a small business compliance guide at www.accc.gov.au, however the focus is more on product safety and handling complaints.)

The other issue for some respondents was the financial cost of fighting a case. One of the respondents was reported to have told the court that he did not believe he had been fixing prices when he received phone calls but felt that he did not have enough money to fight the case.

Also of concern was the conduct of the Section 155 hearings by the ACCC. Under s 155 of the TPA the ACCC has the power to require a person to provide information, documents and/or give evidence under oath or by way of affirmation, and limited powers to enter premises and inspect and/or copy documents. Robert Riordan was questioned at the Geelong Police Station and the Geelong trial judge considered this inappropriate. Peter Anderson claims that, in his s155 hearings of about six hours over three days, he was presented with false documents and pressured to respond to them.

“I would advise other retailers served with a notice to attend a Section 155 hearing to have their lawyer attend,” said Mr Anderson.

“If information such as records of price movements and phone calls are put to you, do not comment until you and your lawyer have checked the original documents.

“But, if you are sure you have done nothing wrong, fight the case. You will win in the end.”

The entire process has been a long roller coaster ride for Peter Anderson and his family (as well as the other retailers involved in both cases).

“We went straight from the appeal court for the Ballarat case to the court hearing the Geelong case,” recalled Mr Anderson.

“That case was heard over 31 days from August to November 2005 and then we waited 16 months for the decision.”

Not that Mr Anderson is complaining. He is very happy with the decision and the award of costs, even though he and his business will still be out-of-pocket.

“Together the two cases have cost about $3 million and we will not get all of that back,” said Mr Anderson.

“More importantly, there will be no compensation for the stress, the disruption to our business or the damage to our reputation.

“We are now getting back to business — the business of delivering fair fuel prices throughout country Victoria.”

As we go to press, ACCC Chairman Graeme Samuel announced an inquiry into petrol prices under the prices surveillance provisions of the TPA. These provisions provide the ACCC with information-gathering powers and the ability to take evidence on oath from witnesses. Information about the inquiry will be available on the ACCC website (www.accc.gov.au). The inquiry is due to report to the Treasurer by 15 October 2007.

It was also reported that Mr Samuel would be requesting changes to the TPA so that collusion to fix prices would be a criminal offence with the imposition of jail sentences for offenders. The introduction of jail sentences for price collusion was a recommendation of the review of competition law by Sir Daryl Dawson in 2003, and laws on criminal sanctions for cartels are expected to be introduced to Parliament by Treasurer Peter Costello once legislation had been passed governing the misuse of market power.