By Richard Baker
IT WAS at a clandestine meeting at Richmond's All Nations Hotel where Australia's third-richest man, Richard Pratt, was asked to give his seal of approval to a deal that could cost him hundreds of millions of dollars, as well as his reputation.
Pratt, the chairman of Visy Group and owner of a $4.7 billion manufacturing empire, arrived at the Lennox Street pub around May 21, 2001, to meet Russell Jones, then chief executive of rival cardboard giant Amcor, according to documents lodged in the Federal Court yesterday by the Australian Competition and Consumer Commission.
Jones wanted Pratt's confirmation that he personally supported a mutually beneficial peace deal brokered almost 12 months earlier by senior executives from Visy and Amcor, the ACCC alleges after a year-long investigation into an alleged price-fixing cartel in Australia's $2 billion cardboard packaging industry.
In making that deal and in organising further arrangements, the senior executives from Visy and Amcor adopted techniques usually found in Cold War spy novels.
Secret meetings are said to have taken place between Amcor and Visy executives in motels and parks in Blackburn, Box Hill and Templestowe. Pre-paid Optus mobile phones were issued and called from public phone booths.
The victims of the alleged collusion read like a who's who of Australia's food and beverage industry: Nestle, Foster's, Coca-Cola Amatil, Lion Nathan and Goodman Fielder, to name a few.
At the All Nations, a downmarket pocket of Richmond but renowned for its good grub, cold beer and well-worn wooden interior, Jones allegedly told Pratt of the arrangements where the rivals would look out for each other's interests. Visy was to be compensated for Amcor taking the Lion Nathan contract from Visy. In return, Amcor would let Visy win its contracts to supply cardboard to Inghams Enterprises and the Smith's Snackfood Company. Amcor would deliberately over-estimate quotes for these.
But, according to the ACCC documents, Pratt had to vow that Visy would not go after two of Amcor's main supply contracts with Nestle Australia and Goodman Fielder, both of which were up for renewal.
"Pratt said words to the effect that Visy would honour the arrangement referred to by Jones … and that Visy would not try to enter into contracts with Nestle and GFL (Goodman Fielder)," the ACCC alleges.
The All Nations was the venue of two meetings between Pratt and Jones in 2003 and in February last year. At those meetings, the ACCC alleges both men agreed that the "overarching understanding" between the companies was working well and should continue.
According to the ACCC, Visy chief executive Harry Debney played a key role in brokering the cartel deal. Debney is alleged to have visited the Glen Iris home of Amcor Australasia's managing director, Peter Brown, between January and March in 2000 and said "it was not in Visy's interests to continue the price war with Amcor in respect to cardboard boxes". The ACCC alleges Debney said Visy wanted to increase cardboard box prices to more realistic levels and "to forge a peace deal between Visy and Amcor whereby the intense competition between them ceased and each company could sell cardboard boxes at sustainable prices".
At a subsequent meeting between the pair in 2000, Debney is alleged to have produced a handwritten note outlining a basic set of principles and a floor price for cardboard products that would not go below $1250 a tonne for Amcor and $1150 for Visy. That note has since been destroyed. Debney is alleged to have told Brown the principles "had the approval of Pratt".
According to the ACCC documents, Debney soon after nominated Visy board general manager Rod Carroll as the Visy contact person. In turn, Brown appointed Amcor's then general manager of sales, Edward Laidlaw, as the company's go-to man. Between July 2000 and November 2004, Carroll and Laidlaw are alleged to have met between 30 and 40 times at numerous secret locations around Melbourne. The ACCC claims the then Rockman's Regency in Exhibition Street in the city, the Tudor Motel in Box Hill, the Elizabethan Lodge in Blackburn North, Westerfolds Park in Templestowe, Templestowe Reserve, Cherry Hill Tavern in East Doncaster and Myrtle Park in North Balwyn were places where Carroll and Laidlaw met.
In addition, the pair are accused of discussing issues arising from the deal by making calls from public phone booths to mobile phones. In late 2000, Carroll allegedly provided Laidlaw with an Optus pre-paid phone.
Brown and Debney also continued to have semi-regular meetings to discuss problems arising from the cartel arrangement. But unlike Carroll and Laidlaw, they chose to meet at the more salubrious surrounds of the Crown Crystal Club at Crown Towers in Southbank rather than suburban motels and parks, according to the ACCC.
Using testimony from former Amcor executives and former senior Visy executive Carroll, as well as recorded conversations and documents from a number of Amcor and Visy clients, the ACCC has provided vivid details about the extent of the alleged collusion and price-fixing activities. According to the ACCC, Debney and Brown agreed to increase prices by 7 per cent from May 2000. A year later, Carroll and Laidlaw are alleged to have colluded to increase prices to non-contract clients by between 8.25 per cent and 8.5 per cent.
The relationship between the rivals was not always smooth. Between December 2000 and February 2001, Visy allegedly told Amcor it was upset brewing giant Lion Nathan had been taken off them by Amcor. Visy wanted compensation. Soon after, when Amcor came to re-negotiate its contract with Inghams, they put up their price by 14 per cent. In May 2001, Visy submitted a cheaper proposal and, later that year, was awarded the Inghams contract.
Another example put forward by the ACCC has Visy over-estimating quotes to Nestle and Goodman Fielder to allow Amcor to retain its contracts. In another case, the pair are alleged to have both agreed to increase the price of cardboard they both supplied to the Mildura Fruit Company by 12 per cent.
The price rises and deliberate overquoting continued in 2002 and 2003. Last year, Visy decided not to bid or over-estimate its charges for Cadbury Schweppes contract. The two companies are also alleged to have last year swapped information about their bids to supply winemaker Hardy's.
But the end of the beautiful friendship came in November last year when Amcor gained court orders to seize documents from five former employees. Amcor believed the five would sabotage its position in the industry by using confidential information in a new consultancy firm they planned to set up. This action was the catalyst for the action that has followed. In analysing the seized material, Amcor's external lawyers found evidence of conversations indicating the company had been involved in anti-competitive behaviour. On December 7 last year, Jones quit as Amcor CEO and so did Peter Sutton, head of its Australian operations. As the ACCC investigation continued into this year, Visy stood down Carroll in March after communications between Visy and Amcor were discovered. But Pratt appeared confident in August that the ACCC was having difficulty with its investigation.
"There is reason to believe that a lot of the allegations that were made against our people won't stand up," the billionaire told a Sydney forum.
At the same time as he made those comments, a study by BIS Shrapnel revealed Amcor's market share of the cardboard box industry had fallen from a high of 47 per cent to 39.7 per cent. In contrast, Visy's share had risen to 53 per cent.