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Federal Court of Australia |
Last Updated: 16 September 2005
FEDERAL COURT OF AUSTRALIA
Australian Competition & Consumer Commission v Westminster
Retail Pty Ltd [2005] FCA 1299
TRADE PRACTICES – resale price maintenance – pecuniary
penalties – factors to be taken into account under s 76 of the Trade
Practices Act 1974 (Cth)
Trade Practices Act 1974
(Cth)
Thomson Australian Holdings Pty Ltd v Trade Practices
Commission [1981] HCA 48; (1981) 148 CLR 150 applied
NW Frozen Foods Pty Ltd v
Australian Competition & Consumer Commission (1996) 71 FCR 285
cited
BMW Australia Ltd v Australian Competition & Consumer Commission
(2004) 207 ALR 452 applied
ICI Australia Operations Pty Ltd v Trade
Practices Commission (1992) 38 FCR 248 applied
Trade Practices
Commission v CSR Ltd (1991) 41 ATPR 076 cited
Australian Competition
& Consumer Commission v NW Frozen Foods (1996) ATPR 41 cited
Trade
Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 296
cited
Australian Securities & Investment Commission v Adler [2002] NSWSC 483 cited
Universal Music Australia Pty Ltd v Australian Competition
& Consumer Commission [2003] FCAFC 193; (2003) 131 FCR 529 applied
Australian
Competition & Consumer Commission v Colgate-Palmolive Pty Ltd (2002)
ATPR 41 cited
Australian Competition & Consumer Commission v SIP
Australia Pty Ltd (1999) ATPR 41 cited
Australian Competition &
Consumer Commission v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265
cited
Australian Competition & Consumer Commission v Dermalogica Pty
Ltd [2005] FCA 152 cited
Australian Competition & Consumer
Commission v Chaste Corporation Ltd [2004] FCA 398 cited
Australian
Competition & Consumer Commission v RM Hall Pty Ltd (SAD 182 of 2004)
cited
Australian Competition & Consumer Commission v Leahy Petroleum
(No 2) [2005] FCA 254 cited
AUSTRALIAN COMPETITION & CONSUMER
COMMISSION v WESTMINSTER RETAIL PTY LTD (ACN 007 434 648) and KENNETH JOHN WADE
and HEATHER
LORRAINE WADE
SAD 183 of
2004
MANSFIELD J
16 SEPTEMBER
2005
ADELAIDE
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AUSTRALIAN COMPETITION AND CONSUMER
COMMISSION
APPLICANT |
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AND:
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WESTMINSTER RETAIL PTY LTD (ACN 007 434 648)
FIRST RESPONDENT KENNETH JOHN WADE SECOND RESPONDENT HEATHER LORRAINE WADE THIRD RESPONDENT |
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DATE OF ORDER:
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WHERE MADE:
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THE COURT DECLARES THAT:
1. The First Respondent (Westminster) engaged in an act of resale price maintenance referred to in s 96(3)(c) of the Trade Practices Act 1974 (the Act) in contravention of s 48 of the Act by reason of:
1.1 entering into a franchise agreement with J & P Moiseiff Investments Pty Ltd (Moiseiff Investments) in November 1998; and
1.2 entering into a franchise agreement with Baron Trial Pty Ltd (Baron Trial – collectively referred to with Moiseiff Investments as ‘the franchisees’), in December 2000; being
1.3 agreements one of the terms of which was that each of the franchisees would not advertise and/or sell goods supplied by Westminster at a price less than the price specified or that would be specified by Westminster.
2. Westminster engaged in an act of resale price maintenance referred to in s 96(3)(f) of the Act in contravention of s 48 of the Act by reason of:
2.1 entering into the franchise agreement with Moiseiff Investments; and
2.2 from 19 February 2001 to about October 2003, providing Moiseiff Investments with issue two, three and four of Westminster’s Stock Supply Procedure, together with invoices for stock supplied to Moiseiff Investments that specified wholesale and recommended retail prices;
such that Westminster:
2.3 used, in relation to goods supplied or that may have been supplied by Westminster to Moiseiff Investments, a statement of a price that was likely to be understood by Moiseiff Investments as the price below which the goods were not to be advertised and/or sold.
3. Westminster engaged in an act of resale price maintenance referred to in s 96(3)(f) of the Act in contravention of s 48 of the Act by reason of:
3.1 entering into the franchise agreement with Baron Trial; and
3.2 from 23 September 2002 to about April 2004, providing Baron Trial with issue four of Westminster’s Stock Supply Procedure, together with invoices for stock supplied to Baron Trial that specified wholesale and recommended retail prices;
such that Westminster:
3.3 used, in relation to goods supplied or that may have been supplied by Westminster to Baron Trial, a statement of a price that was likely to be understood by Baron Trial as the price below which the goods were not to be advertised and/or sold.
4. Westminster engaged in an act of resale price maintenance referred to in s 96(3)(b) of the Act in contravention of s 48 of the Act by reason of:
4.1 sending correspondence to Baron Trial on or about 7 and 10 June 2002 that:
4.1.1 alleged Baron Trial had underpaid the royalty amount due to Westminster under the franchise agreement for the year ended March 2002, and that this underpayment of royalties was a consequence of price discounting by Baron Trial in contravention of the franchise agreement (the royalty dispute); and
4.1.2 stating that Baron Trial must adhere to Westminster’s standard selling price for goods supplied or that would be supplied to Baron Trial by Westminster;
such that Westminster:
4.2 attempted to induce Baron Trial not to advertise and/or sell goods supplied to Baron Trial by Westminster at a price less than the price specified by Westminster, namely the retail price specified in the invoices provided by Westminster to Baron Trial on each occasion that it supplied goods.
5. Westminster engaged in an act of resale price maintenance referred to in s 96(3)(c) of the Act in contravention of s 48 of the Act by reason of:
5.1 on or about 26 June 2002, entering into a settlement agreement with Baron Trial in relation to the royalty dispute; being
5.2 an agreement one of the terms of which was that Baron Trial would not advertise and/or sell goods supplied by Westminster at a price less than the price specified or that would be specified by Westminster.
6. Westminster engaged in an act of resale price maintenance referred to in s 96(3)(f) of the Act in contravention of s 48 of the Act by reason of:
6.1 on or about 23 December 2003, sending a memorandum to Baron Trial; and
6.2 using in the memorandum, in relation to goods supplied or that may have been supplied by Westminster to Baron Trial, a statement of a price that was likely to be understood by Baron Trial as the price below which the goods were not to be advertised and/or sold, by permitting certain discounting below the retail price specified in the invoice provided by Westminster and providing a formula in the memorandum by which the price of particular lines of stock were to be calculated.
7. The Second Respondent (Mr Wade) as a director of Westminster:
7.1 aided, abetted, counselled or procured Westminster to contravene the Act as referred to in pars 1, 2, 3, 4, 5 and 6 above; and
7.2 was directly or indirectly knowingly concerned in or party to, the contraventions of the Act by Westminster as referred to in pars 1, 2, 3, 4, 5 and 6 above;
by reason that Mr Wade:
7.3 knew of the content of the franchise agreements between Westminster and the franchisees;
7.4 was jointly responsible with the Third Respondent (Mrs Wade) for the content of the franchise agreements between Westminster and the franchisees;
7.5 with Mrs Wade, executed the franchise agreements between Westminster and the franchisees;
7.6 was jointly responsible with Mrs Wade for the distribution of stock to the franchisees and the distribution of invoices that accompanied this stock;
7.7 drafted, and enforced the provisions of issues two, three and four of Westminster’s Stock Supply Procedure;
7.8 drafted and signed on behalf of Westminster to enter the settlement agreement with Baron Trial; and
7.9 decided, on behalf of Westminster to enter the settlement agreement with Baron Trial; and
7.10 executed, with Mrs Wade, for and on behalf of Westminster the settlement agreement with Baron Trial on or about 26 June 2002.
8. Mrs Wade, as a director of Westminster:
8.1 aided, abetted, counselled or procured Westminster to contravene the Act as referred to in pars 1, 2, 3, 4, 5 and 6 above; and
8.2 was directly or indirectly knowingly concerned in or party to, the contraventions of the Act by Westminster as referred to in pars 1, 2, 3, 4, 5 and 6 above;
by reason that Mrs Wade:
8.3 knew of the content of the franchise agreements between Westminster and the franchisees;
8.4 was jointly responsible with Mr Wade for the content of the franchise agreements between Westminster and the franchisees;
8.5 with Mr Wade, executed the franchise agreements between Westminster and the franchisees;
8.6 was jointly responsible with Mr Wade for the distribution of stock to the franchisees and the distribution of invoices that accompanied this stock;
8.7 was aware of the content of issues two, three and four of Westminster’s Stock Supply Procedure;
8.8 participated in enforcing the provisions of Westminster’s Stock Supply Procedures against the franchisees;
8.9 was aware of all the facts and circumstances of Mr Wade’s conduct in relation to Westminster’s allegation in the letters of 7 and 10 June 2002, that Baron Trial had underpaid royalty amounts on the basis of unauthorised price discounting in breach of the franchise agreement;
8.10 decided, on behalf of Westminster to enter the settlement agreement with Baron Trial;
8.11 executed, with Mr Wade, for and on behalf of Westminster, the settlement agreement with Baron Trial on or about 26 June 2002; and
8.12 drafted, signed and distributed on behalf of Westminster the memorandum dated 23 December 2003 that was sent to Baron Trial.
THE COURT ORDERS THAT:
9. Westminster (whether by its directors, employees, agents or otherwise howsoever), be restrained for a period of three years from the date of this order, in relation to the supply or potential supply of lace products, Victorian style night dresses, ladies’ accessories, giftware, jewellery, toiletries, brass beds, baby wear, decorations and bridal accessories (‘franchised goods’) under a franchise agreement, from:
9.1 making it known to a person that Westminster will not supply franchised goods to that person unless the person agrees not to advertise and/or sell those goods at a price less than a price specified by Westminster;
9.2 inducing or attempting to induce a person not to advertise and/or sell franchised goods supplied to that person by Westminster at a price less than a price specified by Westminster;
9.3 entering into, or offering to enter into, a franchise agreement for the supply of franchised goods to a person, being an agreement that contains, or would contain, a term to the effect that the person will not advertise and/or sell the goods at a price less than a price specified, or that would be specified, by Westminster; or
9.4 using, in relation to franchised goods supplied or that may be supplied by Westminster to a person, a statement of a price which is likely to be understood by that person as the price below which the goods are not to be advertised and/or sold.
10. Mr and Mrs Wade each be restrained for a period of three years, from the date of this order, being directly or indirectly knowingly concerned in, or aiding, abetting, counselling or procuring, any of the following conduct by a corporation:
10.1 making it known to a person that the corporation will not supply franchised goods to that person unless the person agrees not to advertise and/or sell those goods at a price less than a price specified by the corporation;
10.2 inducing or attempting to induce a person not to advertise and/or sell franchised goods supplied to that person by the corporation at a price less than a price specified by the corporation;
10.3 entering into, or offering to enter into, a franchise agreement for the supply of franchised goods to a person, being an agreement that contains, or would contain, a term to the effect that the person will not advertise and/or sell the goods at a price less than a price specified, or that would be specified, by the corporation; or
10.4 using, in relation to franchised goods supplied or that may be supplied by the corporation to a person, a statement of a price which is likely to be understood by that person as the price below which the goods are not to be advertised and/or sold.
11. Westminster pay to the Commonwealth a pecuniary penalty of $100,000 payable by 25 monthly instalments of $4000 each commencing on 21 October 2005 and on or before the 21st day of each month thereafter.
12. Mr Wade pay to the Commonwealth a pecuniary penalty of $18,000 payable by 25 monthly instalments of $720 each commencing on 21 October 2005 and on or before the 21st day of each month thereafter.
13. Mrs Wade pay to the Commonwealth a pecuniary penalty of $18,000 payable by 25 monthly instalments of $720 each commencing on 21 October 2005 and on or before the 21st day of each month thereafter.
14. In the event of default by Westminster, Mr Wade or Mrs Wade in the making of a periodical payment so ordered in Orders 11, 12 or 13 hereof, which default has continued for 14 days, then the whole of the outstanding pecuniary penalty payable by that defaulting party shall thereupon become due and payable.
15. Westminster:
15.1 within three months of the date of this order, establish a trade practices corporate compliance program for employees and other persons involved in Westminster’s business designed to ensure their awareness of their responsibilities and obligations in relation to s 48 of the Act; and 15.2 use its best endeavours to ensure that the compliance program is consistent with Australian Standard AS-3086.
16. Mr and Mrs Wade each:
16.1 within three months of the date of this order attend, at his and her own expense, a trade practices compliance seminar; and 16.2 use his and her best endeavours to cause the trade practices compliance seminar; 16.2.1 to be conducted by a person with expertise in trade practices law; and 16.2.2 to consist of presentations relating to s 48 of the Act.
17. Westminster, Mr Wade and Mrs Wade be jointly and severally liable for the applicant’s reasonable party/party costs of this action.
Note: Settlement
and entry of orders is dealt with in Order 36 of the Federal Court
Rules.
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AND:
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REASONS FOR JUDGMENT
1 The principal issue the Court is required to address is the pecuniary penalties which should be imposed upon the respondents for admitted contraventions of the Trade Practices Act 1974 (Cth) (the Act). The respondents admit that the first respondent contravened s 48 of the Act by engaging in acts of resale price maintenance in six respects. They are the contraventions found at [11], [13], [14], [17], [18] and [20] below.
2 The respondents also admit that the second and third respondents aided or were complicit in those contraventions so as to be vulnerable to pecuniary penalties by reason of their contraventions under s 76 of the Act.
3 Each of the respondents has consented to the Court declaring that they have respectively committed or been involved in those contraventions. Each consents to the Court granting an injunction in agreed terms restraining similar conduct on their part for a period of three years. Each further consents to the Court ordering that the first respondent establish a trade practices compliance program, and that the second and third respondents undertake a trade practices compliance program in agreed terms. Each submits to an order that they jointly be liable for the costs of the applicant.
THE FACTS
4 To large measure, the relevant facts are agreed.
5 The first respondent since 1990 has carried on the business of operating a chain of specialty stores retailing lace products, Victorian style nightdresses, ladies accessories, giftware, jewellery, toiletries, brass beds, baby wear, decorations and bridal accessories and general home wares. It has traded under the name ‘Westminster’ or ‘Westminster Lace’. It has operated as a franchisor of Westminster and Westminster Lace stores in South Australia, Victoria and New South Wales, and at any one time has had a maximum of six franchised stores across Australia. During the period of the contraventions of the Act, it operated four franchised stores in certain states of Australia, but currently has only one franchised store. The first respondent has also itself operated stores across New South Wales, Victoria, the Australian Capital Territory, South Australia and the Northern Territory. Currently it operates eight such stores.
6 The first respondent’s business is relatively small. During the period of the contraventions, and up to the present time, the first respondent has had 12 full time employees (including the second and third respondents), and from time to time up to 33 part-time or casual employees. The part-time/casual employees are the equivalent of a further seven full time employees.
7 The first respondent imposes on its franchised operators, under a document called a Stock Supply Procedure (which is replaced from time to time), the obligation to purchase a yearly average of between 50 and 60 per cent of the stock of the franchised store from the first respondent.
8 The second respondent is the managing director of the first respondent, and the third respondent a director of the first respondent. Each works full time in the business of the first respondent.
9 The conduct giving rise to the contraventions of the Act concerned two of the franchisees of the first respondent. The first concerned a franchise agreement with J & P Moiseiff Investments Pty Ltd (Moiseiff) for the operation of a franchise store in the central business district of Adelaide. The agreement was entered into on about 9 November 1998, and was for a period of five years. The second was a franchise agreement with Baron Trial Pty Ltd (Baron Trial) for the operation of a franchise store in the Sydney suburb of Parramatta. It was entered into in about January 2000 through a document entitled Heads of Agreement, and subsequently through a formal franchise agreement from 15 December 2000. It also was for a term of five years. Under each of the franchise agreements, the first respondent agreed to supply stock to Moiseiff and to Baron Trial respectively.
10 Each of those franchise agreements included terms that Moiseiff and Baron Trial respectively should:
(a) observe the first respondent’s procedures, instructions and regulations and comply with its Operating Procedures (as amended from time to time) and as issued by the first respondent; (b) purchase its chosen stock lines only from and/or through the first respondent or suppliers approved by the first respondent from time to time; and (c) unless otherwise approved in writing by the first respondent, at all times to adhere to the ‘standard selling prices’ as defined by the first respondent for any product supplied by the first respondent or procured directly by Moiseiff and/or Baron Trial.
11 Consequently, it is accepted by the respondents that, by entering into each of those franchise agreements, the first respondent in respect of its dealings with each of Moiseiff and Baron Trial entered into agreements for the supply of goods to each of them, one of the terms of which was that Moiseiff and Baron Trial would not advertise and/or sell goods supplied by the first respondent under the franchise agreement at a price less than the price specified or that would be specified by the first respondent, that price being the recommended retail price of stock specified on invoices issued by the first respondent to Moiseiff and to Baron Trial. It was the practice of the first respondent to include on invoices issued to Moiseiff and to Baron Trial in respect of its products supplied to Moiseiff and Baron Trial an ‘RRP’, that is a recommended retail price, to which the clauses of the franchise agreements referring to the ‘standard selling price’ are accepted as applying.
12 The first respondent between 19 February 2001 and 22 September 2002 issued Stock Supply Procedure documents to Moiseiff. Each of those documents provided:
‘The franchisee is required to adhere to the recommended retail price (RRP) set by the franchisor.’
On about 23 September 2002 the first respondent issued a further Stock Supply Procedure document to Moiseiff and to Baron Trial. It relevantly provided:
‘(i) to maintain uniformity throughout the group the franchisee should adhere to the recommended retail price (RRP) set by the franchisor. However, the RRP may be changed under the following circumstances ...
...
(iii) 10% discount can be offered to any VIP customer registered on the Franchisee Loyalty program. However the 10% cannot be applied to any shop item that is an advertised special or is on sale;
(iv) franchisees are permitted to allow a 5% discount to any eligible person with a seniors card;
(v) for "Company" supplied items, a discount cannot be pre-advertised unless first approved in writing by the franchisor. However discounts can be offered in the normal course of business to individual sales, on the following basis:
staff must first attempt to sell the item at full retail price, without offering a discount;
a discount can be offered only after this initial price is canvassed and the customer requires a discount, or quotes another retailer selling at a cheaper price. Or if you think the customer is genuinely interested in purchasing and you will lose the sale if a discount is not offered.
(vi) the franchisee is permitted to have two Clearing Sales in their shop each year ...’
13 It is accepted by the respondents that the first respondent, by reason of its franchise agreement with Moiseiff, and the issue of those successive Stock Supply Procedure documents and invoices containing a wholesale price and a recommended retail price, used in relation to goods supplied or that may have been supplied by the first respondent to Moiseiff a statement of a price that was likely to be understood by Moiseiff as the price below which the goods were not to be advertised and/or sold. That conduct covered the period between 19 February 2001 and October 2003 when the Moiseiff franchise lapsed.
14 It is also accepted by the respondents that the first respondent, by reason of its franchise agreement with Baron Trial and by having provided to Baron Trial the last of those Stock Supply Procedures documents on about 23 September 2002 together with invoices which contained a wholesale price and a recommended retail price, used in relation to goods supplied or that may have been supplied by the first respondent to Baron Trial a statement of a price that was likely to be understood by Baron Trial as the price below which the goods were not to be advertised and/or sold. That conduct covered the period between 23 September 2002 and about April 2004.
15 On 7 June 2002, the first respondent, apparently under the name of the second respondent, sent a letter to Baron Trial alleging that Baron Trial had underpaid the royalty amount due to the first respondent under its franchise agreement for the year ended 31 March 2002. It was asserted that the underpayment of royalties was a consequence of price discounting by Baron Trial in contravention of its franchise agreement. Subsequently, apparently following a response from Baron Trial, the first respondent on 10 June 2002 again wrote to Baron Trial. That letter included the following:
‘Clause 3(ae) of the Franchise Agreement states that you must adhere to (that is ... sell at) the Franchisor’s standard selling price unless otherwise approved in writing ...
...
We do not agree that maintaining standards of price throughout the Westminster Franchise offends the Trade Practices Act...’ (original emphasis)
16 The dispute between the first respondent and Baron Trial concerning the quantification of the royalty payment to which the first respondent was entitled under the franchise agreement was resolved by a deed of settlement dated 26 June 2002. The deed of settlement included that a new procedure related to ‘Standard Selling Price and Discounts’ would be added to the standard procedures manual, similar to an attachment to the deed of settlement. The attachment specified:
‘In an effort to maintain standardisation throughout all Westminster stores, the following new procedure will apply to product discounting:
(a) Any level of discounting can be applied to Armani sales;
(b) Loyalty programs to VIP customers can continue (but must not exceed a discount of 10%. And the 10% discount cannot be added onto items already on special/sale).
(c) For "Company" supplied items, a discount cannot be pre-advertised unless first approved in writing by the Warehouse. However discounts can be offered in the normal course of business to individual sales, on the following basis:
* staff must first attempt to sell the item at full retail price, without offering a discount.
* a discount can be offered only after this initial price is canvassed and the customer requires a discount, or quotes another retailer selling at a cheaper price. Or if you think the customer is genuinely interested in purchasing and you will lose the sale if a discount is not offered.’ (Original emphasis)
17 It is accepted that by the exchange of that correspondence, resulting in the deed of settlement, the first respondent attempted to induce Baron Trial not to advertise and/or sell goods supplied to Baron Trial by the first respondent at a price less than the price specified by the first respondent, namely the retail price specified in the invoice provided by the first respondent to Baron Trial on each occasion that it supplied goods.
18 It is also accepted that by reason of entering into the deed of settlement, the first respondent entered into an agreement for the supply of goods to Baron Trial, one of the terms of which was that Baron Trial would not advertise and/or sell such goods at a price less than the price specified by the first respondent.
19 Subsequently, on 23 December 2003, the first respondent sent a memorandum to Baron Trial which included the following statements:
‘You are permitted to reduce all Christmas product by up to 50% during your post-Christmas sale period.
Further we are giving 20% discount off the wholesale price of all Country Artist pieces .... In turn you can offer 40% discount off your retail price. This special is until the end of January.’
20 It is accepted that the first respondent, by sending that memorandum to Baron Trial, used in relation to goods supplied or that may have been supplied by the first respondent to Baron Trial a statement of a price that was likely to be understood by Baron Trial as the price below which the goods were not to be advertised and/or sold, by permitting certain discounting below the retail price specified in the invoice provided by the first respondent and providing a formula in the memorandum by which the price of the particular lines of stock were to be calculated.
21 Both the second and third respondent were aware of, and approved, the contents of the franchise agreements with Moiseiff and Baron Trial and each executed those agreements on behalf of the first respondent. They shared responsibility for the distribution of stock and the invoicing of stock to franchisees. The second respondent prepared the three Stock Supply Procedure documents referred to above, and was primarily responsible for enforcing their provisions. The third respondent was aware of the content of those Stock Supply Procedure documents, and (it is agreed) ‘participated in enforcing their provisions against Moiseiff and Baron Trial’. The nature of her participation is not specifically described. Consistent with their respective roles, the second respondent prepared the documents of 7 and 10 June 2002 sent by the first respondent to Baron Trial referred to above, but it is also agreed that the third respondent was aware of what he was doing and of what was being asserted in those communications. Following the dispute between the first respondent and Baron Trial in relation to the underpayment of royalties, both the second respondent and the third respondent shared the decision that the first respondent should enter into the settlement deed of 26 June 2002 and each executed it. The extent of the involvement of the third respondent is confirmed by her having prepared on behalf of the first respondent, and having distributed, the memorandum of 23 December 2003 referred to above.
22 The Court has sufficient foundation by the agreed facts to be satisfied that it has jurisdiction to make the orders sought and to be satisfied as to the existence of an appropriate foundation for the making of the orders sought: Thomson Australian Holdings Pty Ltd v Trade Practices Commission [1981] HCA 48; (1981) 148 CLR 150 specially at 164 per Gibbs CJ, Stephen, Mason and Wilson JJ. I have had regard to the important public policy involved in the Court encouraging the settlement of cases under the Act, as discussed by Birchett and Kiefel JJ in NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285 at 291 (NW Frozen Foods). The proposed declarations sufficiently indicate how and why the conduct complained of amounted to a contravention of the Act: see BMW Australia Ltd v Australian Competition & Consumer Commission (2004) 207 ALR 452 at 465, [35]. The proposed declarations and orders bear a proper relationship to the admitted contraventions of the Act, that includes the proposed trade practices compliance program orders, bearing in mind the focus of those orders, and that they are sufficiently precise to enable continuing supervision by the Court and to indicate clearly the scope of the obligations being imposed. I also consider the proposed injunctions are within power and are not otherwise inappropriate, bearing in mind the desirability of deterring a repetition of the contravening conduct: see ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 268 per French J.
23 Upon agreed facts, I am satisfied that it is appropriate to make orders and declarations along the lines of the proposed agreed orders and declarations.
24 There remains the issue as to the amount of the pecuniary penalties which should be imposed for the admitted contraventions of the Act. The applicant contends that pecuniary penalties should be imposed upon the respondents payable to the Commonwealth in the following range:
• $200,000 - $260,000 in the case of the first respondent, • $30,000 - $50,000 in the case of the second respondent, and • $30,000 to $50,000 in the case of the third respondent.
The respondents contend that the appropriate pecuniary penalties should be respectively $50,000, $15,000 and $15,000.
25 The parties are also largely agreed as to the factors relevant to the exercise of the power under s 76 to impose pecuniary penalties. Indeed, there is little dispute as to the factors to which the Court should generally have regard in determining pecuniary penalties in this matter. To an extent they are set out in s 76 itself. In Trade Practices Commission v CSR Ltd (1991) 41 ATPR 076 at 52, 152 – 52, 153 French J listed a number of factors which may be relevant, depending upon the particular circumstances. It is not necessary to repeat them. There have been some additional matters discussed, for example by Heerey J in Australian Competition & Consumer Commission v NW Frozen Foods (1996) ATPR 41-515 at 42, 444 - 42, 445. The Court should also have regard to what is commonly called ‘the totality principle’ in criminal law, and the ‘parity principle’ also commonly referred to in the criminal law.
26 Clearly, the principal objects of a penalty under s 76 are both specific deterrence upon the contraveners to inhibit further contravening conduct under the Act on their part, and the general deterrence which a significant penalty is likely to effect: see Trade Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 296 per Toohey J at 298. In NW Frozen Foods at 294 – 295 Birchett and Kiefel JJ said:
‘The Court should leave no room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay ...’
27 The respondents did not join issue with those propositions. They contend, and I accept, that mitigating factors in the determination of the amount of pecuniary penalty include whether the conduct complained of involved dishonesty, the character of the respondents, whether further contraventions were unlikely, and whether or not the first respondent had profited by the breaches, and if so the extent of its profit: compare Australian Securities & Investment Commission v Adler [2002] NSWSC 483 at [126]. They also contended that the Court should have regard to the fact that the respondents acted on the advice of legal professionals. I shall discuss that matter separately. The respondents sought a significant concession from the amount which might otherwise have been ordered by way of pecuniary penalties because they co-operated with the applicant in its investigations, and in the conduct of these proceedings.
28 Ultimately, the respective submissions disclosed three main disputed questions of fact:
(1) whether or not the respondents, and in particular the second respondent, attempted to prevent Baron Trial from giving information and documents to the applicant; (2) whether or not the second and third respondents did not co-operate with and failed to provide information and documents to, the applicant in the course of its investigation; and (3) whether or not the conduct of the first respondent was based upon professional legal advice.
29 It is convenient to address and make findings of those topics now.
30 The respondents have co-operated with the applicant to a significant degree in relation to these proceedings. The application and statement of claim were filed on 17 August 2004 and an appearance filed on 15 September 2004. At that time directions were given to secure the filing and the service of defences. The defences, when filed, admitted many of the allegations in the statement of claim. Subsequently, the respondents admitted further allegations through the statement of agreed facts and consented to the orders sought as set out above. That has led to a considerable shortening of what would otherwise have been a trial of some time. It had also resulted in a considerable saving of costs, both on the part of the respondents and for the applicant. Their co-operation has also meant that public resources have not been taken up to the extent they otherwise would have been. In those circumstances, the Court must consider a reduction in the penalty to be imposed: NW Frozen Foods per Birchett and Kiefel JJ at 293. The extent to which, if at all, credit is given for co-operation and the acknowledgment of liability depends upon the particular circumstances of the case.
31 The applicant contended that no co-operation discount at all should apply in the present case because the respondents did not co-operate with the applicant’s investigations prior to the proceeding and made unsatisfactory responses to notices given under s 155 of the Act. The defence of a proceeding should not result in any additional penalty (other than by the effect of an order for costs), beyond what would otherwise be the case, but the conduct of the respondents overall is relevant to whether there should be allowed any discount for co-operation. I do not accept the implicit submission on behalf of the applicant that any lack of co-operation in the investigation of suspected contraventions of the Act, or in the conduct of proceedings under the Act, should lead to increased penalties. Consequently, I do not accept the express submission that a lack of co-operation by the respondents is an aggravating factor which can cancel the acknowledgment of liability by all respondents, so that no credit for co-operation should be given.
32 In fact, in the course of submissions, counsel for the applicant eschewed any suggestion that the applicant was seeking to raise non-cooperation to the status of an aggravating factor. I think that was appropriate. If there is a failure to comply with a notice under s 155 of the Act, that failure is itself punishable as an offence by reason of ss 155(5) and 155(6A) of the Act. It would be against principle to impose a penalty which is greater than would otherwise be the case because of an asserted contravention of the obligations under s 155 when determining the appropriate pecuniary penalty for the present contraventions.
33 What is relevant to the discount, if any, on the penalties to be imposed is the extent to which the respondents have co-operated with the applicant in its investigation of the suspected offences and their conduct. Conduct before the institution of proceedings is, in my view, relevant to that assessment. It is regarded as a mitigating factor when, even at the investigation stage, there is frank and full disclosure of relevant material. The corollary should also be the case.
34 The applicant identified certain ‘aggravating factors’ related to the conduct of the respondents on the issue of their overall co-operation. For the reasons given, I shall treat the alleged ‘aggravating factors’ as matters relevant to the assessment of the extent to which the respondents did co-operate with the applicant, but I shall not do so by weighing the allegedly aggravating factors in the scale so as to possibly increase the proper penalties and then by weighing the degree of co-operation to see whether the scale tilts in favour of a discount. The alleged aggravating factors are simply matters which are part of the picture as to the extent of the respondents’ co-operation and so as to the amount, if any, of the discount for their co-operation from what would otherwise be the proper penalties.
35 The conduct of the respondents which the applicant contended was relevant to that overall assessment included alleged attempts to prevent Baron Trial from providing information and documents relevant to the applicant’s investigations, including communicating an intention on the part of the respondents not to provide to the applicant information and documents in relation to Baron Trial as required by the applicant, and alleged attempts to hide information and documents relating to Baron Trial from the applicant so that they only provided that information and those documents when ‘caught out’ by learning that the applicant had such information and documents from Baron Trial directly. It is not in issue that the first respondent did not produce to the applicant information and documents relating to its royalty dispute with Baron Trial unprompted, and only did so after the examinations of the second and third respondents on 19 March 2004 under s 155 of the Act.
36 I do not think the evidence leads to the picture of the respondents’ lack of co-operation for which the applicant contended. It is clear that the respondents did not, in response to the s 155 notices, produce the documents which the first respondent held concerning the royalty dispute with Baron Trial. The notice dated 17 February 2004 directed to the first respondent required the provision of information relevantly as to whether any representative of the first respondent had communicated with any franchisee regarding:
‘the price at which the Franchisee should or must sell products, either purchased from Westminster or purchased from another supplier’.
It then sought detail of those communications. The notice further sought information as to whether the first respondent stipulated a selling price to its franchisees, and again details as to how that was done. It sought details as to whether the first respondent had communicated with any franchisee about the franchisee selling below the first respondent’s stipulated selling price, and if so again it sought details. Finally, it sought any document recording or relating to correspondence between the first respondent and the franchisee concerning the price at which the franchisee had sold products, whether the franchisee should sell products at prices stipulated by the first respondent, or expressing a consequence of the franchisee selling products below prices stipulated by the first respondent. The response of the first respondent referred to it having communicated with Moiseiff about the maximum price at which franchisees were permitted to sell products, and asserted that it did not stipulate a minimum selling price but a recommended retail price. It enclosed a typical stock invoice. It suggested that the standard selling price, that is the recommended retail price, was a stipulated maximum selling price. It referred to a discussion with a representative of Moiseff. It disclosed the franchise agreements and the Stock Supply Procedure documents. The franchise agreements disclosed included those of Moiseiff and Baron Trial. The communication sent with those specific responses, signed by the second respondent, denied that the first respondent ever required a franchisee not to sell goods at less than a specified price, and that all franchisees were free to discount at any level they wished. It is clear that denial was not accurate. The agreed statement of facts demonstrates why that response was inaccurate. However, the enclosed documents including the franchise agreements and the Stock Supply Procedure documents were sufficient to demonstrate the inaccuracy of the denial. The respondents must have been particularly ingenuous if they thought the applicant would accept the denial without careful analysis of the documents. An alternative explanation for the denial is that the respondents did not fully appreciate the import of their documents. For reasons set out below, I think the truth is somewhere between these extremes.
37 Other than the franchise agreement, the documents referred to in the agreed statement of facts that passed between the first respondent and Baron Trial relating to the royalty dispute were not produced to the applicant. Those documents were obtained by the applicant from Baron Trial and subsequently upon the second respondent being confronted with those documents in the course of his examination conducted on 19 March 2004, were produced by the first respondent to the applicant.
38 Evidence was given by Wanda English, the sole director of Baron Trial, as to her dealings with the second respondent, in particular in two conversations. The first occurred on 6 January 2004, at which the second and third respondents were present with Ms English. The second occurred in a telephone conversation on 8 March 2004 between the second respondent and Ms English. I accept the third respondent’s evidence that she was listening to her husband speaking to Ms English on that occasion. I had the benefit of seeing those witnesses and the way they gave evidence. I have no reason to think that any of them were other than attempting to be honest to the Court. Inevitably, there were some differences between their respective versions of what was said in the two conversations.
39 What is common ground is that in early January 2004 Baron Trial through Ms English had a discussion with the second and third respondents to explore the sale of her franchise either to the first respondent or to a third party. The lease of premises occupied by Baron Trial was to come to an end in the foreseeable future. It was not likely to be renewed. She wished to capitalise the value of her franchise by selling it before the end of the lease. There was considerable discussion on 6 January 2004 on that topic. It is also common ground that, towards the end of that conversation, the second respondent spoke to Ms English about the investigation then being conducted by the applicant. The second respondent’s version of that conversation was, in essence, that he wished to inform Ms English of the investigation in case she were contacted by the applicant in relation to it. He thought that was an appropriate thing to do. Ms English attributed considerably more to the conversation than did the second and third respondents.
40 I do not find, as Ms English believes, that the second respondent said anything to her to encourage her not to co-operate with the applicant, and in particular to encourage her to conceal information from the applicant. I do not find a reason to reject the evidence of the second and third respondents on that topic that the second respondent did not do so. Whilst I am sure that Ms English believes her version of that conversation, the capacity for it to be perceived in different ways by different persons on such a sensitive topic is apparent.
41 The second conversation of 8 March 2004 was also primarily to discuss the possible acquisition of the Baron Trial franchise by the first respondent. The first respondent had decided not to do so. The second respondent telephoned Ms English to tell her that. She was unhappy receiving that news, and (as she said) was thereafter somewhat curt in her communication. However, it is telling that Ms English made notes of the conversation soon after the conversation occurred. They are quite fulsome. The first respondent asked her if she had given documents regarding pricing disputes to the applicant. She denied it, although she had in fact provided to the first respondent the Baron Trial documents referred to in the agreed statement of facts. She explained that she could not remember as she suffers from sleep apnoea. Her handwritten note then records that the second respondent told her to keep up the line about memory loss. His evidence, with which she agreed in cross-examination, was that he had said in a jocular or facetious way about her sleep apnoea causing memory loss: ‘Gee, that’s a great line Wanda, I’d stick with that one’. Counsel for the respondents by the manner of his question put specifically to Ms English the way in which the second respondent described himself as having said those words, that is in a jocular or witty tone. Ms English had no hesitation in agreeing that the observation was made in that way. Conveyed in that way, it does not carry with it the encouragement to feign memory loss or to conceal information from the applicant which was otherwise the tenor of Ms English’s evidence.
42 The evidence of the second respondent was that the documents about the royalty dispute with Baron Trial were not disclosed to the applicant because he had not identified them at first as relevant as they were misfiled. I accept that explanation. It does not, however, demonstrate as assiduous an attempt to comply with the s 155 notices as was ideal. My impression from his evidence is that he was a little superficial in his response to the applicant’s notices, although not driven by the desire to conceal adverse information. If that had been the respondents’ attitude, I think the communications generally would have taken a different course. Consistent with that view, as I have indicated above, I do not find that there was any deliberate action on the part of the respondents to encourage Baron Trial not to co-operate with the applicant or not to provide information to the applicant.
43 The other disputed question of fact can be dealt with shortly. The evidence does not establish that the respondents obtained legal advice about any possible application of the Act to the franchise agreements, or to the Stock Supply Procedures documents, or to the dealings with Baron Trial in relation to the royalty dispute. The evidence goes no higher than that the respondents adopted (and possibly adapted) certain forms of documents which they understood had been the subject of legal advice to some other person. There is no direct evidence that the respondent sought legal advice about the contents of any of those documents, or about the pricing processes, or about the royalty dispute. Consequently, the foundation for this claimed mitigating factor is not made out. In any event, the Full Court (Wilcox, French and Gyles JJ) in Universal Music Australia Pty Ltd v Australian Competition & Consumer Commission (2003) 131 FCR 529; [2003] FCAFC 193 at 598-599, [309]- [310] indicate that acting on legal advice is not of itself a mitigating factor in the assessment of penalties under the Act.
44 The primary object of imposing penalties for contraventions of the Act is deterrence, both of the contraveners and by the publication of the penalty the deterrence of others who might be similarly inclined to contravene the Act. To that end, the maximum penalties prescribed in s 76(1A) and (1B) are very substantial. Contraventions of s 48 of the Act are serious (see e.g. per Weinberg J in Australian Competition & Consumer Commission v Colgate-Palmolive Pty Ltd (2002) ATPR 41-880 at 43,005, [29]). However, having regard to the nature of the contraventions, the size of the first respondent’s business, and the nature of the businesses of Moiseiff and Baron Trial the appropriate level of penalties is towards the lower end of the scale. Nevertheless, the conduct of the first respondent persisted over a significant period of time, especially in relation to Moiseiff. It involved not simply the franchise agreements but the Stock Supply Procedure documents and the invoicing system to maintain the vertical price fixing structure. When the royalty dispute erupted with Baron Trial, there was a renewed attempt at the time of the resolution of that dispute to impose on Baron Trial the adherence to the recommended retail prices.
45 I have indicated above that, whilst the first respondent apparently took the form of the Stock Supply Procedure documents from some other similar documents, I think the respondents generally were aware that they were seeking to impose resale price control upon Moiseff and upon Baron Trial. The opportunities to understand the terms of their Stock Supply Procedure, and their dealings in relation to the Baron Trial royalty dispute indicate that, although I accept that the first respondent and the second respondent were not specifically aware that their conduct amounted to a contravention of the TP Act. Ignorance of the law is of course no excuse, especially in respect of the Act which has been in force for so many years: see e.g. per Goldberg J in Australian Competition & Consumer Commission v SIP Australia Pty Ltd (1999) ATPR 41-702 at 43,005, [29]; and in Australian Competition & Consumer Commission v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265 at [51]. But the penalties imposed would be greater if I were of the view that the respondents engaged in the contravening conduct consciously aware that it contravened s 48 of the Act. I have rejected the submission on behalf of the respondents, at the other extreme, that they had obtained legal advice that led them to the positive belief that their conduct was not in contravention of the Act (even if such a finding could constitute a mitigating factor on penalty). It is the inadequate awareness of the provisions of the Act which warrants the orders requiring the first respondent to establish a trade practices compliance program and the second respondent and the third respondents to attend a trade practices compliance seminar.
46 It is difficult to identify the extent of the loss or damage caused by the contravening conduct. Royalty payments received from all franchisees for the years ending 30 June 2001, 30 June 2002 and 30 June 2003 were $43,543, $59,354 and $64,319 respectively. The royalty payments represent only a very small percentage of total revenue in each year. It is agreed that the first respondent had four franchisees during the period of the contraventions. The conduct contravening the Act concerns two of them, but the relative contributions of the franchisees to the royalty payments is not apparent. The sale of products by franchisees at prices lower than the recommended retail prices, if that had occurred, would have reduced the royalties received. However, I do not think it is possible to identify with any precision the amount by which the first respondent profited by imposing resale price maintenance upon Moiseff and Baron Trial. Nor is it possible to determine with any degree of confidence the amount for which franchisees might have sold products to consumers over the period of the contraventions but for the contravening conduct so as to quantify any detriment to consumers. There is some evidence of some ‘discounting’ by franchisees notwithstanding the franchise agreements and the Stock Supply Procedure documents. There is also some evidence of a franchisee pricing at above the recommended retail price. In my view, the impact upon consumers is not of great order but it is not possible to dismiss it as insignificant. Beyond that the evidence does not take me.
47 The description or categorisation of the first respondent’s business in the size spectrum is not very helpful in the present matter. It is clearly a significant business with revenue of over $2.5 million in the year ended 30 June 2003 but with a net operating profit of under $90,000 before tax and a little over $62,500 after tax. The wages element of the operating expenses does not show the wages paid to the second respondent or the third respondent, but their taxation returns indicate that they each receive only a modest salary from the first respondent There is no information sufficient to form any view as to the precise market in which the first respondent conducts its business, or its position in that market. I intend to determine the appropriate penalties on the basis that it does not have significant market power (as invited by the applicant).
48 I also take into account that the first respondent is a family run business. The second respondent and the third respondents are really its alter ego. They are introducing their two daughters into its operations, so they too may pursue a career through the business. The respondents have no prior record of contraventions of the Act, although as I have noted on the other hand they do not have that awareness of the provisions of the Act which might be expected. I accept that the second respondent and the third respondent are very upset about their conduct. It has been a salutary experience for them. There is little prospect of them transgressing provisions of the Act again. They have now only one franchisee (although that is a commercial decision, rather than one prompted by remorse for the contraventions of the Act). I have also considered that, although there are several acknowledged contraventions of the Act, the conduct constituting those contraventions was similar conduct over a period of time and in relation to two separate franchisees of the first respondent.
49 It is also necessary to have regard to penalties awarded in similar cases involving similar contraventions. I have been referred in particular to the decisions in Australian Competition & Consumer Commission v Dermalogica Pty Ltd [2005] FCA 152 and Australian Competition & Consumer Commission v Chaste Corporation Ltd [2004] FCA 398. I was also referred to the orders made in Australian Competition & Consumer Commission v RM Hall Pty Ltd (SAD 182 of 2004), but I have placed little weight on those orders; they were made on the basis of joint submissions and agreed penalties and there is not sufficient material before me on this matter in relation to the facts then considered by the Court to glean much help from that decision. Indeed, as was remarked by Burchett and Kiefel JJ in NW Frozen Foods at 295, no two cases are likely to be so similar that it is easy readily to transpose from the orders in one case what orders are appropriate in another. Each case will present its own individual circumstances.
50 Having regard to the matters I have referred to, and the submissions, I have reached the view that an appropriate penalty to be imposed upon the first respondent is $100,000. That penalty will represent a very significant deterrent to the respondents. It is almost two years of the net profit after tax of the first respondent (and approximates the total of net profit after tax for the financial years ended 30 June 2001 and 30 June 2002). The evidence indicates there was a comparable net profit for the year ended 30 June 2003, and a loss for the year ended 30 June 2004. In the light of the relationship between the second respondent and the third respondent to the first respondent – in substance as its alter ego – I consider their pecuniary penalties should each be $18,000. I do not think the material before me warrants any discrimination between their respective positions.
51 I have not had regard to the capacity of the respondents to pay those penalties in determining their amounts, save in the general way of endeavouring to impose penalties having regard to the size and nature of the first respondent’s business. See the remarks of Merkel J in Australian Competition & Consumer Commission v Leahy Petroleum (No 2) [2005] FCA 254 at [9].
52 In the course of submissions, counsel addressed the prospect of the respondents being unable to pay the penalties imposed in a lump sum. The substantial personal equity of the second respondent and the third respondent in their family home is secured to support the borrowings of the first respondent for its business. Hence, payment by instalments of the penalties to be imposed was raised. The applicant is not opposed to such an order.
53 The respondents’ accountant has explained their current financial circumstances. Cash flow is a significant problem, having regard to the rearrangement of the first respondent’s business in response to financial pressures in the last 12 months. I therefore propose to accede to the respondents’ request that the financial penalties be payable in instalments. I will order that the first respondent pay the penalty of $100,000 by 25 monthly instalments of $4000 commencing on 21 October 2005 and on or before the 21st day of each month thereafter. I have fixed that period in the light of the financial penalties imposed upon the second respondent and the third respondent, and the fact that they too will be forced to pay those amounts periodically. I order that each of the second respondent and the third respondent pay their respective penalty of $18,000 by 25 monthly instalments of $720 each commencing on 21 October 2005 and on or before the 21st day of each month thereafter. In the event of default in the making of a periodical payment which has continued for 14 days, the whole of the outstanding amount is to become due and payable.
Associate:
Dated: 14 September 2005
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Counsel for the Applicant:
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D Star
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Solicitor for the Applicant:
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Australian Government Solicitor
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Counsel for the Respondent:
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D Crocker
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Solicitor for the Respondent:
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White Berman
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Date of Hearing:
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11 April 2005
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Date of Judgment:
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16 September 2005
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/2005/1299.html