Mr Pratt's fall from grace

Richard Pratt, billionaire, philanthropist and head of the Visy packing industry, died on April 28, 2009. The day before he died, the Federal Court ruled that a large part of the evidence against Mr Pratt in relation to evidence he had given about a price-fixing cartel was inadmissible. At the same time, the DPP abandoned criminal proceedings against him. In what some saw as an attempt to save face, the DPP did not cite the exclusion of key evidence as a reason for abandoning the case, instead citing Mr Pratt's ill-health as the sole reason. Nonetheless, Mr Pratt was reportedly relieved to be told that charges were withdrawn before he died. It has been a fascinating and terrible legal battle, a battle literally "to the death".

Civil proceedings

The criminal charges followed on from a civil ruling by Heery J against Visy and its senior executives (including Mr Pratt) for breaches of s 45 of the Trade Practices Act arising as a result of covert price-fixing and market sharing engaged in by Visy and Amcor between January 2000 and October 2004. Heerey J was scathing about the actions of the Visy senior executives, stating at [315]:

The cartel here went on for almost five years. Had it not been accidentally exposed, it would probably still be flourishing. It was run from the highest level in Visy, a very substantial company. It was carefully and deliberately concealed. It was operated by men who were fully aware of its seriously unlawful nature.

The court imposed record civil penalties of $36 million upon Visy. Penalties were also imposed on former chief executive Harry Debney ($1.5 million) and former general manager Rod Carroll ($500,000). Mr Pratt was not penalised in his individual capacity because by punishing Visy, the Court was effectively punishing Mr Pratt. A class action and individual actions for damages were also brought by customers against Visy.

What is the rationale behind punishing companies which collude? Adam Smith, the father of modern economics, was not a fan of cartels, saying in The Wealth of Nations:

People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.

Although the ACCC did not allege Visy caused specific losses by reason of the cartel, after the 2007 decision, Mr Samuels said:

It was a premeditated fraud on Australian consumers. Anyone in the past who has bought a block of chocolate or a piece of fruit packed in a box made by Visy or Amcor has probably been ripped off.

The argument is essentially that, by lessening competition, collusive cartel members raise the price of goods for consumers for their own benefit. Therefore government regulates company collusion. I had always understood cartels to be an effective theft from the consumer. I have speculated before about the possibility of one of my favourite beasts, a profit-stripping remedy, being used to strip Visy and Amcor of ill-gotten profits gained through price-fixing, and then asking the court to administer the funds in a cy pres scheme for the benefit of the public (e.g., to help people who are struggling to afford food and basic necessities).

Thus, I was really interested to read Sinclair Davidson's post over at Catallaxy on the issue. Apparently it does not follow that all economic rationalists or libertarians applaud government measures to prevent collusion. In the comments, Sinclair links to a piece which argues that government actions against cartels are ineffective and anti-competitive. According to this article by Michael DeBow:

Those new critics who argue that price fixing should be legal have lodged two kinds of objections to the law: economic objections to the neoclassical economic theory typically employed to justify the law, and philosophical objections to the operation of the law. Several of the new critics are identified with the "Austrian school" of economics, which counts Ludwig von Mises and Nobel laureate Friedrich A. von Hayek as its most important twentieth century practitioners. The philosophical objections raised by Armentano and Smith are, in essence, of libertarian origin.

So there are arguments (of which I was not previously aware) to the effect that cartels do not actually result in price rises anyway. In that regard, I will be really interested to see how the various parties to the class action against Visy and Amcor calculate their losses, and whether any gain-based remedies are alleged.

Criminal proceedings

The 2007 decision of Heery J was based upon an Agreed Statement of Facts in which Visy admitted that it had engaged in the alleged conduct. However, the ACCC had previously obtained oral evidence from Mr Pratt in 2005 pursuant to a notice to appear under s 155(1)(c) of the Trade Practices Act.

Last year, the ACCC commenced the criminal proceedings against Mr Pratt, alleging four contraventions of s 155(5) of the Trade Practices Act, which prohibits giving false and misleading information under a section 155 notice. If he had been convicted of all four counts, Mr Pratt could have faced a maximum prison sentence of four years.

The ACCC alleged that Mr Pratt gave false evidence during his examination before the ACCC when he said that he did not recall having conversations with Russell Jones, Amcor’s Managing Director at the time, about the existence of an agreement between Visy and Amcor. The ACCC argued that by consenting to the Agreed Statement of Facts, Mr Pratt had admitted to having been part of the meeting, when he had previously denied this.

Mr Pratt's lawyers argued that the Agreed Statement of Facts did not constitute an admission on Mr Pratt's part, and should not be used for criminal proceedings. Here, it is worth noting that Heery J stated at paragraph [1] of his 2007 judgment:

The parties have tendered an agreed statement of facts. This means that the parties agree that, for the purposes of this proceeding, the facts in this statement are not to be disputed: see Evidence Act 1995 (Cth) s 191. The parties say that this agreement is not to be taken as an admission to those facts outside the context of this proceeding. [emphasis added]

Mr Pratt's legal team also received advice from former High Court Justice Ian Callinan QC indicating that reliance on the statements was impermissible:

In a legal opinion prepared for Mr Pratt's defence, Mr Callinan said:

In my opinion, this oppressive, improperly and ill-conceived prosecution should be discontinued.

The prosecution is, for the reasons I have stated, tainted with improprieties. It should not proceed, and the DPP should terminate it. It is my firm view that reliance upon the agreed statement of facts by any Commonwealth agency in making a decision to prosecute is not proper in the circumstances.

Further, Mr Pratt's lawyers also argued that the criminal proceedings constituted an "abuse of process", with the ulterior motive being a personal crusade by Graeme Samuel, the head of the ACCC, to criminalise cartels (a measure for which Mr Samuel had again called after the 2007 Visy case).

They also said that the ACCC had essentially set a "honeytrap" by getting Mr Pratt to admit he had met with Mr Jones, promising that this evidence would not be used against him, when in fact this was untrue. They then attempted to use that evidence against him in criminal proceedings. If they had intended to bring criminal proceedings, they should have done so at the outset, instead of waiting, and using the civil proceedings as an impermissible method of gathering evidence for the criminal proceeding.

The criminal charges by the ACCC has led to criticism. Mr Pratt believed that Mr Samuel had a personal vendetta against him, and others noted that they had fallen out long before the ACCC proceedings, when the two men were involved with opera. Others believed that the ACCC’s pursuit of Mr Pratt was entirely reasonable.

Problems with the ACCC's case

There are a number of difficulties with the decision to pursue Mr Pratt for criminal conduct. First, Mr Pratt and Visy were not the only wrongdoers in the civil case. Only Visy and its executives were pursued by the ACCC because, as Heerey J explained at [8] of his judgment:

... in late 2004 Amcor approached the Commission and admitted liability. The Commission applied its Leniency Policy for Cartel Conduct, published in 2003, under which the first party to disclose a cartel of which the Commission is unaware will receive an immunity, provided it is not the "clear leader", gives full and frank disclosure, and continues to cooperate with the Commission. In unrelated litigation Amcor had sued former executives and obtained a Court order for a search of their premises. Incriminating material, including tape recordings of conversations, was discovered and on its solicitors’ advice Amcor approached the Commission.

Second, it seems that neither Visy, Mr Pratt, Mr McHugh QC (the arbitrator) or Heerey J was told that the ACCC was intending to use the Agreed Statement of Facts in criminal proceedings. Heerey J's judgment explicitly states that the parties agreed that the Agreed Statement of Facts would not be used in any proceeding other than the civil penalty proceeding. Therefore, the ACCC's decision to use it in subsequent criminal proceedings looks duplicitous, particularly in the context of allegations by Mr Pratt's legal team that while the 2007 proceeding was being settled, the ACCC was already plotting laying criminal charges.

Mr Pratt's lawyers said that he maintained his innocence and signed the statement of agreed facts only in order to expedite a settlement deal.

Mr McHugh (another former High Court Judge) said that during the mediation, Mr Pratt again denied meeting Mr Jones, but Mr Pratt was told by Mr McHugh that he would have difficulty proving his word against Mr Jones' word, as a court would want to know why Mr Jones would make something like that up. Mr McHugh also told the prosecution that the main concern of Mr Pratt was as to how to protect his reputation. Ryan J excerpts a section of Mr McHugh’s statement at [30] of his judgment which states:

Neither the ACCC executives nor any of their legal advisers said to me at that time (or any time) that they had in mind an intention, or considered it a possibility that the ACCC might prosecute Mr Pratt under s 155 of the Trade Practices Act or refer that issue to the Commonwealth DPP for advice.

…

The ACCC did not in my presence inform Mr Pratt or his legal advisers, or say to me, that it had in mind an intention, or considered it a possibility, that it might prosecute Mr Pratt under s 155 of the Trade Practices Act or refer that issue to the Commonwealth DPP for advice. Had the ACCC informed me of such risks or possibilities, I would have regarded that as a relevant matter to put to Mr Pratt in considering whether to compromise the civil Penalty Proceeding.

Mr McHugh infers that the advice he would have given to Mr Pratt with regard to the wisdom of settling the proceeding would have been quite different if he had known about the possibility of prosecution.

Third, doubts were cast on the state of Mr Pratt's health at the time when he signed the Agreement Statement of Facts in 2007Mr McHugh’s statement said that “During my time in the Pratt room, Mr Pratt was not engaged with the process. He did not act as I had expected that he would, given his status as a leading businessman, and he appeared distracted.” It was inferred that his health problems contributed to his lack of engagement.

Ultimately, Ryan J decided the case simply on the matter of whether or not the Agreed Statement of Facts was admissible. His conclusion, at [83], was that:

The definition of “agreed fact” in s 191 of the Evidence Act, because of its terms, is not limited to a fact which is true or which the parties believe to be true. It includes a matter capable of being the subject of a finding by a court or tribunal which the parties agree, for the purposes of the proceeding, is not to be disputed. It follows that the inclusion of a statement in an agreed statement pursuant to s 191 is not a representation of fact for all purposes. It is no more than a representation by each party to the proceeding that he, she or it will not dispute the asserted fact in that proceeding. In other words, the only representation in the sense used in the definition of “admission” in the Evidence Act is as to the intention or state of mind of the parties to the Agreed Statement.

No one comes out of this saga looking good. Mr Pratt admitted that he contravened anti-cartel laws in the original proceeding, and his reputation was severely tarnished as a result.

However, the ACCC's subsequent pursuit of Mr Pratt has been a public relations disaster, with friends claiming Mr Samuel hounded Mr Pratt into an early grave. And Mr Pratt's friends include some very powerful people on both sides of politics. It is noteworthy that Prime Minister Kevin Rudd was among those who chose to visit Mr Pratt at his bedside last week. As this article by Katharine Murphy in The Age states:

Head of Government visits to a man who is being prosecuted by the Government via one of its regulators - what a bizarre position for Mr Samuel to find himself in. It's hard to think of a precedent.

It certainly suggests that public opinion is on the side of the late Mr Pratt. Was the Prime Minister tacitly disapproving Mr Samuel's actions by his visit?

Meanwhile, at Larvatus Prodeo, Kim draws parallels between the treatment of Mr Pratt and Marcus Einfeld QC, another respected figure who recently fell from grace. Personally I think there are important distinctions between the two cases. Mr Pratt was never convicted of a crime, although he did concede that he and his company were liable for a civil penalty (an entirely different thing). By contrast, Mr Einfeld pleaded guilty to a crime, and unlike Mr Pratt, he had actually sat in judgment on a person who committed perjury and spoken of the heinous nature of that crime. Nonetheless, I think both cases are tragic. Both are men who have done good things in their lives, but have tarnished their reputations at the end of their lives by their deeds. The difficulty in both cases is weighing up how far a contravention of law should be able to overshadow a person’s many good deeds.

Although Mr Pratt has died, and the criminal charges have been withdrawn, this saga is certainly not closed. The class action against Amcor and Visy continues. No doubt the actions of Mr Pratt, Mr Samuel and the ACCC will continue to be scrutinised.

Watch this space ...