Legal Memoranda - Case Study Example

Legal Memoranda Legal Memoranda Titus Rock Manickam Order No. 239519 07 September 2008 Table of Contents Introduction...3 Can any agreed statement of facts between DIARCOR3 and the ACCC be used as evidence The relevant factors that the Court will take into account..4 The potential liability of DIARCOR for criminal sanctions..5 The extent to which DIARCOR may be in breach...7 Sources...9 Legal Memoranda Introduction Three top calendar printers in Australia, viz. DAIRCOR Pty Ltd, DISY Pty Ltd and CALENDEX Pty Ltd, are facing the music over price fixing charges leveled by an anonymous whistle blower and also some commercial entities of which the Pharmacists Association of Australia is one. The charges are serious and one of the main accused, DAIRCOR Pty Ltd, is in damage control mode. The Australian Competition and Consumer Commission (ACCC) have begun investigations against the companies for breach of ss 45 and 45A of the Trade Practices Act 1974. The episode has also attracted class action for damages under ss 82 of the Trade Practices Act by a number of customers, led by the Pharmacists Association of Australia. DAIRCOR Pty Ltd has decided it is wiser to cooperate with the ACCC hoping to minimize penalties in the process. Can any agreed statement of facts between DIARCOR and the ACCC be used as evidence against DIARCOR in any subsequent civil damages proceedings that its former clients may be seeking to bring against it Any agreed statement of facts between DIARCOR and the ACCC is bound to cover issues that the former clients of DIARCOR may be seeking to bring against the latter. It is difficult to predict with certainty whether the statement of fact could be used as evidence by aggrieved clients. It depends on the nature and extent of punitive measures ACCC metes out to DIARCOR. It also depends on the contents of the statement of facts and the court's verdict. As statutory authority, ACCC is in the right position to consider damages under ss 45, 45A and 82 of the Trade Practices Act and submit a proposal to the court that must assuage the grievances of the clients besides settling with a deterrent fine for DIARCOR. (Focus on Competition Law July 2001) The statement of facts is not a single format. It comes in various forms. Ideally, statement of facts must leave no scope for dispute. However, this is not possible all the time. In some cases, there may be certain points of dispute or contention where the two parties have agreed to disagree for the time being, or which a statutory authority like ACCC has allowed to be left pending due to insufficient time or data with an undertaking to wrap up the pending issues within a certain time limit. (Preparation for Hearing) There is also the issue that DIARCOR cannot be tried two or more times for the same offence. The relevant factors that the Court will take into account when assessing the quantum of the pecuniary penalty The main charge against DIARCOR, DISY and CALENDEX is that they have been involved in the nefarious activity of price fixing for quite some time. The managing director of DIARCOR has informed that they have been involved in the price fixing cartel for about five years. The price fixing arrangements were done verbally in secret rendezvous so that they do not leave any paper trial. The court will rely on circumstantial evidence in the absence of material proof. The court will also go into the enormity of the contraventions under ss 45, 45A and 82 of the Trade Practices Act 1974. Under these subsections, the court will examine the extent of gains made by unfair means by the price fixing cartel under ss 45, evidence of the price fixing charges regardless of any loss to competition under ss 45A, and losses and/or damages suffered by competition due to the cartel and the quantum of penalties to be imposed on the cartel as fines under ss 45 and 45A (Local Government and the Trade Practices Act), and recoveries for loss suffered on behalf of the competition under ss 82 (Trade Practices Act 1974 - Sect 82). The court will also seek a list of firms and individuals who, as competitors, suffered loss and/or damage and the quantum of loss and/or damage suffered by each. Other factors the court could consider are the deliberate nature, extent, influence of the price fixing cartel in the market, complicity of the senior managers in the cartel, level of cooperation shown by each party to the cartel with ACCC and their undertaking that their trade practices comply with Australian business standards. The court may also direct ACCC to suggest ways to plug loopholes to minimize the prospects for price fixing cartels to operate with impunity. (Focus on Competition Law July 2001) The potential liability of DIARCOR for criminal sanctions for its conduct As damage control strategy, DIARCOR has opted to cooperate with ACCC in the latter's investigations into the price fixing charges. Thus, there is a chance that ACCC may display some lenience in fixing their proposal on the penalty to be submitted to the court. The potential liability under ss 82 of the TPA alone could extend up to $3 million. Nonetheless, investigations by ACCC are on. It is not possible to estimate the approximate figures of the potential liability until the gist of the investigation is made available. Much depends on the intent. If ACCC's investigations conclude that dishonesty is the intent, it could spell deep trouble for DIARCOR (Caron Beaton-Wells & Brent Fisse ). At a rough estimate, the figure could even go up to $10 million each, if one were to go by the size of the cartel and the five years' turnover of their businesses when the companies indulged in price fixing. The Pharmacists Association of Australia is a huge conglomerate and it can turn back on its exploiters and wreck misery upon finding how it has been made fool of all these years. Also, DIARCOR's cooperation may not be enough to significantly mitigate its woes should ACCC's investigations reveal rampant and excessive resort to price fixing spree by these three giant corporations. The competition suffered for five years at the hands of these three oligopolists and they won't mind going for some blood along with the pound of flesh. There are hard days ahead for DIARCOR and its surreptitious allies. However, all is not lost for DIARCOR. It is difficult to conclusively prove price fixing charges, and unless DAIRCOR Pty Ltd, DISY Pty Ltd and CALENDEX Pty Ltd, have been following a clear pattern of tomfoolery which exposes the degree of their complicity beyond doubt, they can hope for some relief commensurate with the level of magnanimity they allowed the competition in their heydays. Also, the testing times will reveal DIARCOR's reserves and acumen in terms of technology, adaptability and resilience. Fortune favors the brave! The extent to which DIARCOR may be in breach of any State legislation or common law ACCC investigations will reveal the extent of breach of any State legislation or common law by DIARCOR. It is difficult to accept that the firm survived only on business gained from doctored prices. Of course, such business must be quite significant having come from large entities like the Pharmacists Association of Australia. At any rate, prima facie there does not appear to be any charges other than price fixing DIARCOR may have to contend with. A scrutiny of the balance sheets and auditors' reports can shed light on any other wrongdoing of serious nature. (Peter Landry) As it is, the charge of price fixing has its grey areas which make it difficult to conclusively prove the allegation with evidence (David K Round and Leanne M Hanna). After all, business is a battlefield where there are alliances and revolts. No corporation having succeeded in establishing monopoly or oligopoly will make smooth passageway for new entrants. Even in the current information era, mergers and acquisitions, at times with unscrupulous hostility, are happening although no one will readily admit that it is the done thing. Barring unforeseen circumstances, it would be difficult to pinpoint breaches of any State legislation or common law for the one simple reason that DIARCOR readily cooperated with ACCC. They would not have done so had they had anything to hide. In a tight, competitive environment business houses resort to practices that are not always above board. DAIRCOR Pty Ltd, DISY Pty Ltd and CALENDEX Pty Ltd find themselves caught on the wrong foot. Notwithstanding the outcome of investigation by ACCC, competition will continue as before. The difference in the changed atmosphere after the cleansing effect of the investigation will be apparent. DAIRCOR Pty Ltd, DISY Pty Ltd and CALENDEX Pty Ltd are bound to lose business from those clients who were adversely affected due to the devious consequence of the price fixing cartel. They will have hard days ahead even if they come out of the mess with manageable punishment. Sources: Andrew Floro and Howard Shih, Mallesons Stephen Jaques, Uncle Sam comes knocking: extradition for cartel conduct, Australian & New Zealand Trade Practices law bulletin, Volume 23, Number 1, April 2007, http://www.lexisnexis.com.au/aus/products/samples/documents/TPL_23_1.pdf Caron Beaton-Wells & Brent Fisse, The Exposure Draft Bill, Draft ACCC-CDPP MOU and Discussion Paper introducing criminal penalties for serious cartel conduct in Australia, 7 March 2008, http://www.treasury.gov.au/documents/1350/PDF/Dr_Caron_Beaton-Wells_and_Mr_Brent_Fisse.pdf Consumer Protection and Trade Practices, Federal Magistrates Court of Australia, http://www.fmc.gov.au/services/html/trade.htm David K Round and Leanne M Hanna, Curbing Corporate Collusion in Australia: The Role of Section 45A of the Trade Practices Act, Melbourne University Law Review, http://www.austlii.edu.au/au/journals/MULR/2005/7.html Focus on Competition Law July 2001, Allens Arthur Robinson, http://www.aar.com.au/pubs/comp/focljul01.htm Local Government and the Trade Practices Act, June 1996, http://www.apeccp.org.tw/doc/Australia/Decision/logov.html Peter Landry, An Essay on The Common Law, A Blupete Essay, http://www.blupete.com/Literature/Essays/BluePete/LawCom.htm Preparation for Hearing: Statement of facts not in dispute, HM Revenue & Customs, http://www.hmrc.gov.uk/manuals/ahmanual/AH0655.htm Trade Practices Act 1974 - Sect 45, Commonwealth Consolidated Acts, http://www.austlii.edu.au/au/legis/cth/consol_act/tpa1974149/s45.html Trade Practices Act 1974 - Sect 82, Commonwealth Consolidated Acts, http://www.austlii.edu.au/au/legis/cth/consol_act/tpa1974149/s82.html What's the issue in Australia Can deals be too 'clubby' Focus: Private Equity - November 2006, Allens Arthur Robinson, http://www.aar.com.au/pubs/pe/fopenov06.htm#top Read More