We’re Yet To Appreciate The Damage Cartels Cause

TIME has been kind to Richard Pratt. He and his Visy group will formally own up to running a price and market-share fixing cartel with Amcor in Melbournes smart new Federal Court on Tuesday, but it could have been much more painful.

Individual and corporate penalties will approach $40 million. Thats a record for an Australian cartel case. But it is also well below the fines the same breaches can attract overseas, and will here now, after a change to the law at the start of the year that post-dates the Visy-Amcor cartel by several years.

The critical change is a shift from a maximum corporate penalty of $10 million to the maximum of three measures — $10 million, three times the amount the cartel harvested, or 10 per cent of group turnover. Companies caught in cartels will not calculate their illicit gains, because it opens them to precise commercial damages actions. The revenue measure becomes the default, and in Europe, where it is used, fines are of an entirely different order: €992 million, or $A1,566 million, was paid this year by Otis Elevator and companies owned by Germanys Thyssen Krupp, Finlands Kone and Switzerlands Schindler group, over a multi-country elevator supply cartel in which prices presumably went up and down at will.

In 2001, Switzerlands Hoffman-La Roche and seven other pill-makers coughed up €790 million over a vitamins cartel, and last year, five glass makers including ICI of the UK paid €344.5 million, and 11 electricity generation companies paid €750 million. Visy groups worldwide revenue in 2006-2007 was about $3 billion, including $2 billion in Australia and $800 million in Visy Board, the company targeted by the ACCC: on the new revenue-based measure, any of those enterprises would have paid substantially more.

Criminal penalties of up to five years jail for individual participants are also not on the cards this time. The amendment that will introduce them post-dates the Visy-Amcor matter, and is still awaiting passage through Parliament. Treasurer Peter Costello says it will be accelerated, but Prime Minister John Howard is more circumspect about a change neither big nor small companies want, saying the terms of the amendment are still being framed.

Howard praised Pratt yesterday as a "generous philanthropic person," but the long-term impact of the case on the reputation of Pratt and Visy, and on a corporate culture that cares less about cartels than it should, depends on what is in the statement of facts that accompanies the settlement, and what Federal Court Judge Peter Heerey says about it.

In common with the corporate regulator, ASIC, the ACCC is making growing use out of court undertakings to remedy potential law breaches, and using the courts less.

It began 55 cases in 2001-2002, and 27 in 2002-2003, the year Graeme Samuel took over. In 2003-2004 19 legal cases were launched, followed by 29 in 2004-2005, and 13 in 2005-2006. Enforceable undertakings negotiated outside court on the other hand rose from 26 in 2001-2002 to 30 in 2002-2003, and to 33 in 2003-2004, 55 in 2004-2005, and 54 in 2005-2006.

The trend is a product of expedience: settlements save the courts and the participants time and money, and are an antidote to cases such the Seven Networks huge and ultimately unsuccessful $200 million court action against Nine, News Corp and a host of others, a fee-fest that presiding Judge Ronald Sackville said bordered on the scandalous.

But there is an argument that cartels and other antitrust breaches are so corrosive to the publics trust that cases about them should only run through the courts. In one American antitrust case, Mitsubishi Motors v Soler Chrysler in 1985, a majority of the US Supreme Court court ruled that the parties could go into arbitration, but the minority summarised the counter case, saying antitrust laws were "the Magna Carta of free enterprise (and) as important to the preservation of economic freedom and our free enterprise system as the Bill of Rights is to … personal freedoms." Antitrust breaches affect many people and inflict massive economic damage, the judges continued, adding: "We do not believe that Congress intended such claims to be resolved elsewhere than in the courts."

An allied concern is that settlement offers might induce those targeted for action to cop a plea and waive the chance to have their case heard, and the Pratt settlement raises both issues.

It means that the mass of evidence collected for the case will not see the light of day. Around 80 witnesses will not appear, and instead of deciding the case, Justice Heerey will decide whether or not to accept the ACCCs recommendation on penalties. His judgement and the statement of facts it is based on will decide whether that blunts the public impact of the case. At more than 100 pages, the statement promises at least to be a fairly extensive summary, but it will still be an agreed statement, and those who think the case should have run in court will consider it the lesser for it.

However, while the case against Visy was strong, the one against Richard Pratt was less so, built as it was on a single, private conversation between him and Amcors former chief executive, Russell Jones.

Settlement negotiations hung on whether Pratt would agree to admit a breach, as the ACCC demanded. He eventually did. We will never know how much of the omnibus case would have run to its conclusion in court if he had not, and what the outcome would have been.

mmaiden@theage.com.au

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