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 Nonetheless, Mr Pratt was reportedly relieved to be told that charges were withdrawn before he died.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.