The Federal Court has fined a crane company $1 million for signing an anti-competitive cartel agreement with a rival firm in their Newcastle and Queensland markets.
The Australian Competition and Consumer Commission took NQCranes to court last year alleging that in 2016 it had entered into a written agreement with rival company MHE-Demag not to target each other's customers.
NQC did not contest the allegations, and the company and the ACCC jointly proposed to the court a penalty of $1 million.
The two companies supply fixed overhead cranes, parts and servicing to warehouses and manufacturers, but the ACCC alleged the two signed a "distributor agreement" on August 26, 2016, to "operate in the service markets in a co-ordinated approach so that their current customers are not targeted by the other".
"For potential future customers the two organizations will ensure that their energies are focused on the other service competitors and not each other," the companies' agreement reads.
The agreement covered Newcastle and "Queensland south of Gladstone".
Justice Wendy Abraham ruled NQC senior managers were not aware the deal could contravene the Competition and Consumer Act but "understood the practical meaning and effect" of the "cartel" agreement.
"It was submitted that there was no evidence that NQC obtained legal advice in relation to the terms of the Distributorship Agreement prior to entry into it, however it was accepted that NQC could have sought advice in relation to the legality of it," Justice Abraham ruled.
"It was accepted that at the time of negotiation and entry into the agreement NQC had no competition law knowledge, training or compliance programs.
"The backgrounds of the senior managers was that they started as crane technicians who worked their way up in the company.
"That does not excuse the lack of knowledge, but rather it highlights the responsibility on those in such positions to be aware of their legal obligations."
NQC designs, makes and services cranes for the mining, steel, defence and other industries. It is based in Mackay and operates in Queensland and NSW.
The ACCC's statement of claim in the case included evidence of the two companies discussing their relationship to several Hunter manufacturing customers.
NQC management allegedly met in Mackay on August 17, 2016, and told its area managers the company was "not to target Demag's customers in Brisbane and Newcastle when seeking to acquire new customers" and "Demag would not target NQC's current customers in Brisbane and Newcastle".
The ACCC has not said why it did not take legal action against Demag, but the commission provides immunity from cartel prosecution to parties who enter into a "cooperation agreement".
Justice Abraham said the financial penalty was "sufficient sting to ensure that the penalty amount is not such as to be regarded by the parties or others as an acceptable cost of doing business".
The ACCC alleged executives from both firms attended meetings together in late 2016 and early 2017 to discuss how their agreement was working.
The meetings included complaints from NQC that Demag was targeting NQC clients in Newcastle.
In January 2017, an NQC manager wrote to Demag passing on complaints about Demag undercutting NQC on a service job at SETCO, a Tomago company making products for underground mining vehicles.
"Would you be able to provide an explanation why our customer (end user) is being offered a discount greater than offered to us (distributor) and the range of clients being offered this level of discount," the email reads.
"Obviously not being competitive in the market is a major concern for us and we will need to consider how this will impact on our strategy."
A Demag executive's email to NQC on May 15, 2017, regarding another Tomago customer, Mill Tech, read: "I have had reports from my Service Manager (that came from our customers) that NQC Newcastle personnel have been soliciting our service customers.
"Your people have been promising competitive spares pricing and how they can do and provide anything that Demag can.
"Can you please investigate and let me know if there's a specific reason this may be happening?
"Regardless, I would appreciate your intervention to curtail this activity."
The ACCC claim included other examples of managers from both companies discussing approaches to each other's clients "against the spirit of our relationship".
Minutes from an NQC meeting in August 2017 allegedly read: "Demag in Newcastle are gunning all our customers. We doing same to them.
"Our good clients have Demag knocking on door and knocking our work. Lost 2 clients to Demag on warpath but we playing nice. ...
"We don't bag Demag but they bag us. They are partners in crime but still opposition."
Justice Abraham said the companies' written agreement was "covert insofar as customers or potential customers of NQC and Demag" were not aware of it.
"It was accepted that it was Demag who first proposed the Co-Ordinated Approach Provision to be included in the Distributorship Agreement," she wrote.
NQC had revenues of $26 million in 2020 and $22 million in 2021, but its net profit fell from $1 million in 2020 to $95,000 in 2021.
ACCC commissioner Liza Carver said the companies' deal to "share the market was clearly anti-competitive" and the penalty a warning to executives to be aware of competition laws.
