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Federal Court of Australia |
Last Updated: 11 January 2008
FEDERAL COURT OF AUSTRALIA
Australian Competition & Consumer Commission v Kokos International Pty Ltd (No 2) [2008] FCA 5
TRADE PRACTICES – price fixing
– companies providing education consultancy services to overseas students
– agreement
between companies not to offer or accept discounted tuition
fees – admission of contraventions – consent orders - agreed
statements of fact – no agreement as to pecuniary penalties –
appropriateness of declaratory relief naming parties against
whom proceedings
still pending – declaratory relief deferred – allegation on agreed
facts that natural person attempted
to contravene Competition Code (WA) –
contravention attempted not a contravention to which person would be a party
–
person acting on behalf of company – pecuniary penalties –
relevant factors.
Federal Court of Australia Act 1976
(Cth) s 23, s 21
Competition Policy Reform (Western Australia) Act
1996 s 4, s 55(2)
Trade Practices Act 1974 (Cth) s 45, s 45A, s
76, s 76(1A)
Australian Competition
& Consumer Commission v Kokos International Pty Ltd [2007] FCA 2035
cited
Australian Competition and Consumer Commission v NW Frozen Foods Pty
Ltd (1996) ATPR 41-515 cited
Australian Competition and Consumer
Commission v The Construction, Forestry, Mining and Energy Union (2007) ATPR
42-140 cited
Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511
Trade
Practices Commission v CSR Ltd (1991) ATPR 41-076
cited
AUSTRALIAN COMPETITION
& CONSUMER COMMISSION v KOKOS INTERNATIONAL PTY LTD (ACN 009 404 611), CHUL
WOO KIM, IAE EDU NET PERTH
PTY LTD (ACN 109 963 304), YOUNG GIL PAE, SANG-HONG
JUNG T/A NANURI EDUCATION CENTRE (BN 088 22 876), REBEKAH CABALT AND STUDY
OVERSEAS
NOW PTY LTD
WAD312 OF 2006
FRENCH
J
10 JANUARY 2008
PERTH
THE COURT ORDERS THAT:
1. The application for declaratory orders against the first to fourth respondents be stood over to the conclusion of these proceedings as against the remaining respondents or to such earlier date as may be set down upon the application of any party.2. The applicant has liberty to apply, within 14 days, for further orders in relation to the alleged attempt by the second respondent to contravene the Competition Code (WA).
3. A pecuniary penalty of $10,000 be imposed on the first respondent for each of the five contraventions of the Trade Practices Act 1974 (Cth) (the Act) referred to in the reasons for judgment published herewith and a penalty of $10,000 for the attempt, referred to in the reasons for judgment, to contravene the Act – a total penalty of $60,000.4. A pecuniary penalty of $2,500 be imposed on the second respondent for each instance of his involvement in the five contraventions of the Act by the first respondent – a total penalty of $12,500.
5. A pecuniary penalty of $8,500 be imposed on the third respondent for each of its four contraventions of the Act referred to in the reasons for judgment published herewith – a total penalty of $34,000.
6. A pecuniary penalty of $2,000 be imposed on the fourth respondent for each instance of his involvement in the four contraventions of the Act by the third respondent – a total penalty of $8,000.
7. The first to fourth respondents are to pay the applicant’s costs to be taxed if not agreed.
Note: Settlement and entry of orders is
dealt with in Order 36 of the Federal Court Rules.
|
BETWEEN:
|
AUSTRALIAN COMPETITION & CONSUMER
COMMISSION
Applicant |
|
AND:
|
KOKOS INTERNATIONAL PTY LTD (ACN 009 404 611)
First Respondent CHUL WOO KIM Second Respondent IAE EDU NET PERTH PTY LTD (ACN 109 963 304) Third Respondent YOUNG GIL PAE Fourth Respondent SANG-HONG JUNG T/A NANURI EDUCATION CENTRE (BN 088 22 876) Fifth Respondent REBEKAH CABALT Sixth Respondent STUDY OVERSEAS NOW PTY LTD Seventh Respondent |
|
JUDGE:
|
FRENCH J
|
|
DATE:
|
10 JANUARY 2008
|
|
PLACE:
|
PERTH
|
REASONS FOR JUDGMENT ON DECLARATORY RELIEF AND PECUNIARY PENALTIES AS AGAINST FIRST TO FOURTH RESPONDENTS
Introduction
1 Kokos International Pty Ltd (Kokos) and IAE EDU Net Perth Pty Ltd (IAE) are companies which were both involved, in 2004 and 2005, in the provision of educational consultancy services in Perth to students of Korean origin. Essentially they acted as go betweens advising prospective students about educational institutions in which they could enrol and arranging for their enrolment and the payment of their tuition fees at such institutions. For their services, the companies were paid commissions by the educational institutions in which the students were enrolled. In 2004 these companies and others were competing with each other in the Perth market for education consultancy services by offering discounted tuition fees. A company offering such a fee would still pay the full tuition fee to the relevant educational institution. It would, however, retain only a proportion of its commission so as to achieve, from the student’s point of view, a discounted tuition fee.
2 From about July 2004 Kokos and IAE and other participants in the market made and gave effect to agreements under which they would desist from offering or accepting discounted tuition fees from students. The Australian Competition and Consumer Commission (the ACCC) commenced these proceedings on 1 November 2006 against Kokos and IAE and their officers and other respondents alleging that making and giving effect to the agreements constituted contraventions of s 45 of the Trade Practices Act 1974 (Cth) (the Act) and the Competition Code of Western Australia (the Code). The ACCC, Kokos, IAE and their respective officers, Messrs Chul Woo Kim (Chad Kim) and Young Gil Pae, have reached agreement that a number of the contraventions asserted by the ACCC did occur. They have also reached agreement in relation to injunctive and declaratory relief. They differ as to the quantum of pecuniary penalties that should be applied. On 18 December 2007 I made the injunctive orders sought, subject to a time limitation of three years. The question of declaratory relief and the quantum of pecuniary penalties were reserved for decision until today.
3 Because the declaratory orders named certain other respondents against
whom these proceedings have not yet been resolved, I will
not make them at this
time but will allow the ACCC liberty to apply for such orders later in these
proceedings. I will impose pecuniary
penalties on the first to fourth
respondents in respect of all but one matter alleged against the second
respondent. A total of
$60,000 in the case of Kokos, $12,500 in the case of Mr
Chad Kim, $34,000 in the case of IAE and $8,000 in the case of Mr Pae. The
respondents will also be required to pay the ACCC’s costs of these
proceedings.
Procedural background
4 The ACCC commenced these proceedings on 1 November 2006 alleging contraventions by various parties of s 45 of the Act and the Code. The alleged contraventions involved price fixing in the provision of educational consultancy services to overseas students of Korean origin. The proceedings were commenced against Kokos, Chad Kim, IAE, Young Gil Pae, Sang-Hong Jung and Rebekah Cabalt. Study Overseas Now Pty Ltd (Study Overseas Now) was joined as a respondent to the proceedings subsequently. On 17 August 2007 the ACCC was given leave to serve on Mr Seow Bing Yeo, a director of that company, a notice of motion seeking his joinder, such service to be effected out of the jurisdiction in Japan through a diplomatic channel. For the reasons set out in Australian Competition & Consumer Commission v Kokos International Pty Ltd [2007] FCA 2035, that latter requirement was dispensed with and an order for substituted service made.
5 The corporate respondents and Sang-Hong Jung are each said to have been in the business of providing educational consultancy services to students of Korean origin. The services allegedly involved providing information to students about courses in secondary and tertiary education institutions in Western Australia and arranging for their enrolment at institutions of their choice. The corporate respondents and Ms Jung are said to have been remunerated by commissions paid by the institutions.
6 The corporate respondents and Ms Jung are said to have made oral and written agreements in 2004 and 2005 under which they agreed not to offer or accept discounted tuition fees. Any party to the agreements that offered or agreed to accept a discounted tuition fee would be referred to a ‘Council of Korean Agency’ comprising representatives of each of the parties to the agreement. Such parties would be banned from enrolling students in the relevant institutions for a period of three months. It was alleged that copies of the written agreement were sent to a number of educational institutions. The ACCC alleged that the conduct of the corporate respondents and Ms Jung was in contravention of s 45 of the Act and of the Code. The other natural person respondents were said to have been involved in the contraventions.
7 The first to fourth respondents have reached agreement with the ACCC as to the disposition of the proceedings save for the quantum of pecuniary penalties that should be imposed. Statements of agreed facts and joint submissions have been filed along with proposed consent orders.
8 On 18 December 2007 I made orders against the first to fourth respondents
in terms of the injunctive relief agreed save for the
imposition of a time limit
of three years on the operation of each injunction. The quantum of pecuniary
penalties to be imposed
and the question whether any, and if so what,
declaratory relief should be awarded was reserved until today.
The
agreed facts – the ACCC and the first and second respondents
9 A statement of agreed facts as between the ACCC, Kokos and Mr Chad Kim was filed on 27 November 2007. My findings of fact in relation to Kokos and Mr Chad Kim are based upon that statement.
10 Kokos is and was at all material times a trading corporation within the meaning of the Act and carrying on business in trade or commerce in Western Australia as a supplier of education consultancy services to students and prospective students of Korean origin intending to study at secondary and tertiary educational institutions (Schools). The services consisted of:
(a) Providing information about available courses of study in Perth including information regarding fees.(b) Providing advice as to which of the available courses might be suitable for a prospective student’s requirements.
(c) Providing informal translation of promotional materials and course information published in English by the Schools.
(d) Facilitating application to, and enrolment in, courses of study at Schools; and
(e) Facilitating payment of fees by students or prospective students to Schools.
Kokos had an annual turnover of $1.79 million for the
2004/2005 financial year and $2.3 million for the 2005/2006 financial year.
In
2004/2005 its net profit was $15,000 and in 2005/2006 it was $18,000. The
company has two offices in Australia. It has no office
overseas. It employs
four full-time staff.
11 Mr Chad Kim is a director, servant or agent of Kokos and is authorised by it to conduct business in its name and on its behalf. He was at all material times responsible for the day to day management of the company. He was paid a salary of $45,000 per annum during the relevant period and has net assets worth approximately $113,000.
12 At all material times Kokos and each of the following entities were
competitive with each other in the supply of education consulting
services:
(a) IAE;
(b) Nanuri Education Centre (Nanuri);
(c) Study Overseas
Now;
(d) Jobbok International Pty Ltd (Jobbok)
13 Schools published details of fees payable for each course of study
offered. Where a student enrolled in a course at a School
through Kokos the
student would pay the tuition fee to Kokos. Kokos would remit all or part of the
tuition fee to the School and
the School would pay a commission to Kokos for
enrolling the student in the course. The commission was calculated as a
percentage
of the tuition fee and was paid in one or other of the following
ways:
(a) The School paid a commission to Kokos upon receipt of the full
tuition fee; or
(b) The School permitted Kokos to deduct its commission from the tuition fee and remit the balance to the School.
The manner of payment and
the amount of the commission paid by a School varied according to terms and
conditions agreed between Kokos
and each School. Kokos did not directly charge
fees to students in respect of its education consulting services.
14 From time to time Kokos would offer discounted tuition fees for courses of study offered by Schools. In such cases it might accept from the student a tuition fee less than the full tuition fee published by the School. It would pay the School an amount equal to the full tuition fee and then receive from the School the commission for enrolling the student. The net amount gained by Kokos in such case was the commission less the discount offered on the full tuition fee. In other cases where the relevant School permitted Kokos to deduct commission from the tuition fee before the balance was remitted, Kokos would deduct the commission less the discount so that the School would still receive the full tuition fee less its commission. The practice of agreeing to accept discounted tuition fees was commonly engaged in by competitors in the Perth market for the supply of education consulting services. These competitors comprised Kokos, Nanuri, Jobbok and Study Overseas Now. Other actors in the market were the Schools themselves and an unknown number of smaller service providers.
15 In early to mid July 2004, IAE entered the Perth market. After its entry Kokos became aware that IAE was engaging in tactics intended to damage its competitors. One of Jobbok’s contracts was terminated after a School was informed that Jobbok had offered and accepted discounted tuition fees from students. Mr Jacob Kim of Jobbok subsequently informed Mr Chad Kim of Kokos that he did not intend offering or accepting discounted tuition fees in the future. The respondents generally experienced an overall reduction in business.
16 Sometime after IAE’s entry into the market, Mr Chad Kim on behalf of Kokos attended a number of meetings with education consultants including Young Gil Pae on behalf of IAE, Rebekah Cabalt on behalf of Nanuri and Jacob Kim on behalf of Jobbok. Mr Chad Kim was one of the principal organisers of these meetings. At those meetings an oral agreement (the Oral Agreement) was made by the parties to the effect that, in the supply of education consulting services to students or prospective students, they would refrain from engaging in the practice of offering or accepting or agreeing to accept a discounted tuition fee.
17 Following a further meeting or meetings Mr Chad Kim instructed an employee of Kokos to prepare a written agreement (the Written Agreement). The terms of the Written Agreement to which Kokos, IAE, Nanuri, Study Overseas Now and Jobbok were parties were to the effect that:
(a) the parties would refrain from engaging in the practice of offering or agreeing to accept a discounted tuition fee;(b) the parties would monitor each other’s conduct in relation to the practice of offering or agreeing to accept a discounted tuition fee;
(c) the parties would report any discounted tuition fee to the so called ‘Council of Korean Agency’ which would comprise a representative of each of the parties; and
(d) any party that engaged in the practice of offering or agreeing to accept a discounted tuition fee would be banned from enrolling students in the relevant School for a period of three months.
About a week after signing the Written Agreement Mr Chad Kim sent a copy to a number of Schools.
18 Between 22 July 2004 and 1 November 2004 Kokos gave effect to the agreements for limited periods of time totalling approximately four weeks. For those periods it ceased offering or agreeing to accept a discounted tuition fee from students. During this period Kokos charged students approximately $13,000 more than the amount it would have charged them had it not put the agreements into effect.
19 Kokos was aware that one Joseph Woo was at all material times preparing to carry on business in Perth as, among other things, a supplier of education consulting services. On or about 24 September 2004 Mr Chad Kim sent an email to Joseph Woo. In that email he:
(a) informed Joseph Woo that the education consultants had formed the so-called ‘Council of Perth Overseas Study Agencies’ (the Council);(b) informed Joseph Woo that members of the Council restrict providing discounts to students apart from special offers provided to education consultants by Schools; and
(c) urged Joseph Woo to join the Council and comply with the rules.
20 On or about 18 February 2005 Kokos sent Jobbok a table containing information in relation to the terms and conditions of the Oral and Written Agreements including incentives and benefits agreed between Kokos and a number of Schools.
21 Neither Kokos nor Mr Chad Kim have contravened the Act or the Code in the
past. Kokos did not have in place a corporate trade
practices compliance
program at the time the conduct took place. It is common ground that Kokos and
Mr Chad Kim have cooperated
with the ACCC both prior to and following the
commencement of proceedings.
Agreed facts as between the applicant and
the third and fourth respondents
22 IAE is and was at all material times a trading corporation within the meaning of the Act, carrying on business and engaging in trade or commerce in Western Australia as a supplier of education consultancy services to students and prospective students of Korean origin intending to study at secondary and tertiary educational institutions. The consultancy services offered by IAE were the same as those offered by Kokos.
23 IAE had an annual turnover of $942,319.65 for the 2004/2005 financial year and $1,795,622.22 for the 2005/2006 financial year. It had a net profit of $112.64 for the 2004/2005 financial year and $14,281.21 for the 2005/2006 financial year. The company is a franchisee of Eduhouse Inc and is one of a number of at least 27 franchised businesses located in Australia and overseas. It operates independently and employs three full-time staff. Mr Pae was at all material times a director, servant or agent of IAE and authorised by it to conduct business in its name and on its behalf. He was responsible for the day to day management of the company. He was paid a gross salary of $40,000 for the 2005/2006 financial year. He did not receive a salary for the 2004/2005 financial year.
24 IAE was competitive with Kokos and the other actors mentioned in the agreed facts relating to Kokos. Its business operation, like that of Kokos, involved the collection from students of tuition fees and the transmission to the relevant Schools of such tuition fees subject to prior deduction or later payment of a commission. Like Kokos, IAE from time to time offered or agreed to accept discounted tuition fees for courses of study offered by Schools and, in the same way as Kokos, recovered a commission less the discount which it offered.
25 IAE entered the Perth market for education consulting services in early or mid July 2004 and through Mr Pae participated in the meetings which led to the formation of the Oral Agreement and the Written Agreement. It was a party to each of those agreements. It put the agreements into effect between July 2004 and November 2004 by refraining from offering or agreeing to accept a discounted tuition fee. The agreed statement of facts qualifies that statement by the statement that between July 2004 and November 2004 IAE gave effect to the agreements for limited periods of time and for those periods ceased the practice of offering or agreeing to accept a discounted tuition fee. It was accepted that during that period IAE charged students more than it would have charged had it not put the agreements into effect. The total amount by which it so overcharged students during that period could not be stated precisely.
26 Neither IAE nor Mr Pae have been found to have engaged in a contravention
of the Act in the past. IAE did not have in place a
corporate trade practices
compliance program at the time the conduct took place. It was accepted that IAE
and Mr Pae have cooperated
with the ACCC both prior to and following the
commencement of these proceedings.
Statutory framework - The Trade
Practices Act 1974
27 Section 45 of the Act provides, inter alia:
(2) A corporation shall not:
(a) make a contract or arrangement, or arrive at an understanding, if:
(i) the proposed contract, arrangement or understanding contains an exclusionary provision; or(ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or
(b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision:
(i) is an exclusionary provision; or
(ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition.
28 Section 45A provides, inter alia:
(1) Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other.
29 Pecuniary penalties may be imposed pursuant to s 76 of the Act, which relevantly provided:
(1) If the Court is satisfied that a person:
(a) has contravened any of the following provisions:
(i) a provision of Part IV;
...
(e) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision;
...
the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct.
30 Section 76(1A) provides:
The pecuniary penalty payable under subsection (1) by a body corporate is not to exceed:
(a) for each act or omission to which this section applies that relates to section 45D, 45DB, 45E or 45EA - $750,000; and
(b) for each other act or omission to which this section applies - $10,000, 000.
(1B) The pecuniary penalty payable under subsection (1) by a person other than a body corporate is not to exceed $500,000 for each act or omission to which this section applies.
31 Section 76(1A) was substituted by Act No 131 of 2006 effective 1 January 2007 to allow the Court to impose a penalty greater than $10 million by reference to three times the value of the benefit obtained from the relevant contravention. Where the value of that benefit cannot be determined, then the maximum penalty will be the greater of $10 million or 10% of the annual turnover of the body corporate during the period of 12 months ending at the end of the month at which the relevant act or omission occurred. The substituted s 76(1A) and the substituted s 76(1B) do not apply to this case as they only came into effect on 1 January 2007.
32 Section 80 of the Act provides for the grant of injunctive relief. It is
unnecessary further to refer to that here as the relevant injunctive
relief has
already been granted.
Statutory Framework – The Competition
Policy Reform (Western Australia) Act 1996
33 The Competition Policy Reform (Western Australia) Act 1996 (the Competition Policy Reform Act) is described in its long title:
An Act to apply certain laws of the Commonwealth relating to competition policy as laws of Western Australia, and for other purposes.
The Schedule to the Competition Policy Reform Act is a part of what is referred to in the Act as the Competition Code text. Section 4 provides:
(1) The Competition Code text consists of –
(a) the Schedule version of Part IV;
(b) the remaining provisions of the Trade Practices Act (except sections 2A, 5, 6, and 172), so far as they would relate to the Schedule version if the Schedule version were substituted for Part IV of that Act; and(c) the regulations under the Trade Practices Act, so far as they relate to any provisions covered by paragraph (a) or (b).
(2) For the purpose of forming part of the Competition Code text, the provisions referred to in subsection (1)(b) and (c) are to be modified as necessary to fit in with the Schedule version of Part IV and, in particular, references in them to corporations are to include references to persons who are not corporations.
34 The Competition Code text is applied as a law of Western Australia by s 5(1) of the Competition Policy Reform Act. It applies to persons carrying on business within Western Australia, bodies corporate which are incorporated or registered under the laws of Western Australia, persons ordinarily resident in Western Australia and persons otherwise connected with the State (s 8(1)).
35 Part 5 of the Competition Policy Reform Act provides for national administration and enforcement of the Competition Codes and confers functions under the State law upon the ACCC, the Australian Competition Tribunal and the National Competition Council. Its object is to ensure that the Competition Codes of participating jurisdictions throughout Australia are administered on a uniform basis in the same way as if those Codes constituted a single law of the Commonwealth (s 18).
36 Offences against the Code are to be dealt with by Courts of summary jurisdiction (s 55(1)). The present proceedings, which assert a contravention of the Code, are not brought in respect of an offence against it. For matters other than proceedings for offences, s 55(2) provides:
Jurisdiction is conferred on the Supreme Court with respect to any other proceedings arising under the Competition Code of Western Australia.
37 Jurisdiction is not conferred on this Court by provisions of
the State law, nor could it be, having regard to the decision of
the High Court
in Re Wakim; Ex parte McNally [1999] HCA 27; (1999) 198 CLR 511. That is not to say
however, that claims for relief for contraventions of the Code cannot be brought
in proceedings
in which claims are sought for relief under the Commonwealth Act
arising out of the same factual substratum. They can be dealt with
in the
exercise of federal jurisdiction as part of the one ‘matter’ arising
under the Act even though they are brought
under the Code. In my opinion, in
this case, the Court has accrued jurisdiction to deal with the claim for relief
against Mr Chad
Kim for an attempt to contravene the Code. For reasons that
appear below, however, I am not satisfied that the agreed facts will
support a
finding of such an attempt by him.
The contraventions
38 The ACCC in its submissions identified the following contraventions by
Kokos:
1. A contravention of s 45(2)(a)(ii) of the Act by making the Oral
Agreement.
2. A contravention of s 45(2)(a)(ii) of the Act by making the
Written Agreement.
3. A contravention of s 45(2)(b)(ii) of the Act by causing a copy of the Written Agreement to be sent to Schools and thereby giving effect to the Oral Agreement and the Written Agreement.4. A contravention of s 45(2)(b)(ii) of the Act by refraining from engaging in the practice of offering or agreeing to accept a discounted tuition fee for a total period of approximately four weeks and thereby giving effect to the Oral Agreement and the Written Agreement.
5. A contravention of s 45(2)(b)(ii) of the Act by sending to Jobbok a table containing information in relation to the terms and conditions, including incentives and benefits agreed between Kokos and a number of Schools pursuant to the provisions of the Oral Agreement or the Written Agreement or both and for the purpose of assisting Jobbok to determine whether Kokos was adhering to the provisions of the Oral Agreement, or the Written Agreement, or both and thereby giving effect to the Oral Agreement and the Written Agreement.
Mr Chad Kim was said to have been directly or indirectly knowingly concerned in, or party to, each of these contraventions. These contentions were not in dispute.
39 In addition, the ACCC alleged that by their conduct in sending an email to Mr Joseph Woo and attempting thereby to make an arrangement or arrive at an understanding with Mr Woo containing a provision to the effect that Kokos and/or Mr Woo would refrain from engaging in the practice of offering or agreeing to accept a discounted tuition fee, Kokos contravened s 76(1)(b) and 80(1)(b) of the Act and that Mr Chad Kim contravened the same provisions of the Code.
40 Section 76(1)(b) of the Act provides for imposition of a penalty where a person has attempted to contravene a provision of Pt IV. It does not itself impose a prohibition capable of contravention. It may be accepted for present purposes, however, that it is not disputed that Kokos attempted to contravene a provision of the Act as alleged. This is made clear from the terms of the declaratory relief sought by the ACCC which is accepted by Kokos and Mr Chad Kim in their written submissions. The acceptance by Mr Chad Kim of that aspect of the declaratory relief is however questionable having regard to the agreed facts.
41 The Code text applies, as a law of Western Australia, s 45 of the Act and applies it to natural persons. Natural persons are prohibited from making a contract or arrangement or arriving at an understanding a provision of which would have the purpose or be likely to have the effect of substantially lessening competition. Nor can they give effect to such a provision. Section 76 of the Act which is applied as a law of the State of Western Australia, allows for the imposition of pecuniary penalties on persons who attempt to contravene s 45. In this case in [29] of its statement of claim, after pleading the sending by Mr Chad Kim of the email to Mr Woo which is referred to in the agreed statement of facts, the ACCC said:
By engaging in the conduct referred to in paragraph 28 above, Chad Kim, on behalf of Kokos, attempted to make an arrangement or arrive at an understanding with Joseph Woo containing a provision to the effect that Kokos and/or Joseph Woo would refrain from engaging in the practice of offering or agreeing to accept a Discounted Tuition Fee.
42 That pleading does not mark Mr Chad Kim as a person attempting to contravene a provision. For such an attempt to be made out it would be necessary to establish that if successful, he would have contravened the Code himself. It seems to me that a person cannot be said to attempt to contravene a provision of the Act or of the Code where the prospective contravention is that of another person. Such a case arises, under the Act, where a person endeavours to procure, on behalf of a corporation, the making of a contract, arrangement or understanding to which that person himself or herself is not a party. In this case the prospective contravention was the making of an arrangement or understanding by Kokos through Mr Chad Kim as its agents. This matter was not raised in the submissions of the parties nor raised with them by the Court. I will therefore give the parties liberty to file short supplementary submissions if they contend for a different conclusion.
43 The ACCC has identified, and Kokos has accepted, five contraventions of s 45 in each of which Mr Chad Kim accepted that he was directly or indirectly knowingly concerned in or a party for the purposes of s 76(1)(e). Kokos has also accepted for its part an attempt to contravene the Act arising out of the email to Mr Woo.
44 In their joint submissions to the Court the ACCC, IAE and Mr Pae
identified the following contraventions of the Act by IAE:
1. A
contravention of s 45(2)(a)(ii) by making the Oral Agreement.
2. A
contravention of s 45(2)(a)(ii) by making the Written Agreement.
3. A contravention of s 45(2)(b)(ii) by IAE refraining from engaging in the practice of offering or agreeing to accept a discounted tuition fee from approximately July 2004 to November 2004 and thereby giving effect to the Oral Agreement and the Written Agreement.4. A contravention of s 45(2)(b)(ii) by IAE’s conduct in sending to Jobbok a table containing information in relation to the terms and conditions, including incentives and benefits agreed between IAE and a number of Schools pursuant to the provisions of the Oral Agreement or the Written Agreement or both and for the purpose of assisting Jobbok to determine whether IAE was adhering to the provisions of the Oral Agreement or the Written Agreement, or both, and thereby giving effect to the Oral Agreement and the Written Agreement.
45 The ACCC and IAE have thereby jointly identified four
contraventions of s 45 of the Act. In each case Mr Pae accepts that he
was,
within the meaning of s 76(1)(e) and s 80(1)(e) of the Act, directly or
indirectly knowingly concerned in, or party to, each
of the contraventions.
Declaratory relief
46 The Court has a general power under s 23 of the Federal Court of Australia Act 1976 (Cth) (the FC Act) to make orders in matters in which it has jurisdiction:
The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.
In addition the Court has the express power conferred under s 21 of the FC Act to make declarations of right. That section provides:
(1) The Court may, in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed.
(2) A suit is not open to objection on the ground that a declaratory order only is sought.
47 The orders proposed include declarations that Kokos and IAE have contravened or attempted to contravene the Act in the various ways set out in the agreed facts. Declarations are also sought that Mr Chad Kim and Mr Pae were directly or indirectly knowingly concerned in, or party to, the contraventions by Kokos and IAE respectively. In addition, a declaration is sought that Mr Chad Kim by sending the email to Mr Joseph Woo on or about 24 September 2004 attempted, within the meaning of ss 76(1)(b) and 80(1)(b) of the Code, to make an arrangement or arrive at an understanding with Mr Woo that contained a provision or provisions which, by virtue of s 45A(1) of the Code, would have constituted a contravention of s 45(2)(a)(ii) of the Code. For the reasons I have already given, I am not satisfied that Mr Chad Kim did attempt to contravene the Code.
48 Save for the orders sought against Mr Chad Kim in relation to the alleged attempted contravention of the Code, the declaratory orders sought are within the power of the Court to make. There may be a question about their utility given that these reasons set out the findings of fact and the contraventions which underpin the injunctive relief which has been granted and the pecuniary penalties which are to be imposed. However, as Nicholson J pointed out in Australian Competition and Consumer Commission v The Construction, Forestry, Mining and Energy Union (2007) ATPR 42-140 at [6] such declarations:
1. Are an appropriate vehicle to record the Court’s disapproval of the contravening conduct: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1993) 41 FCR 89 at 100; Australian Competition and Consumer Commission v Chen [2003] FCA 897; (2003) 132 FCR 309 at [36].2. Serve to vindicate the ACCC’s claim that the respondents contravened the Act: Australian Competition and Consumer Commission v Goldy Motors (2000) 23 ATPR 41-801 at [34].
3. May be of assistance to the ACCC in the future in carrying out the duties conferred upon it by the Act: Goldy Motors 23 ATPR at [34].
4. Are of assistance in clarifying the law: Goldy Motors 23 ATPR at [34]; Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (in liq) [2005] FCA 1212 at [146].
5. May inform consumers of the dangers arising from a respondent’s contravening conduct: Chen 132 FCR at [48]; and
6. May deter corporations from contravening the Act: Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 at [22].
In that case in considering the appropriateness of
declaratory relief, Nicholson J observed that the declarations sought, by
consent,
were directed to the determination of legal controversies and not to
answering abstract or hypothetical questions. The matters in
issue had been
identified, particularised and admitted by the respondents. The ACCC as a
public body charged with enforcing the
Act had a real interest in seeking the
relief and the respondents were in the position of a proper contradictor in that
they had
a true interest in opposing the declarations sought. So much is true
in this case.
49 In the circumstances of this case however, there is a question affecting the appropriateness of making the declarations sought at this time. There are other parties to these proceedings who are named in the declarations and against whom these proceedings are still pending. Although the declaratory orders are sought only against the first to fourth respondents, they involve formal declarations of the involvement of other respondents. True it is that the declarations are in personam as between the ACCC and the first to fourth respondents severally. They would not give rise to any issue estoppel against other parties any more than would the findings of fact based upon admissions made by the first to fourth respondents. Those findings of fact have been made only as against the first to fourth respondents.
50 In my opinion it is undesirable that the Court should, at this time, make
formal declarations naming other respondents as parties
to the contravening
conduct. The question of declaratory relief will be stood over with liberty to
the ACCC to apply for orders
at an appropriate time in the terms sought. Apart
from the declaration sought against Mr Chad Kim in relation to the alleged
attempt
to contravene the Code, the declaratory orders proposed are otherwise
appropriate.
Pecuniary penalties – relevant
factors
51 The ACCC set out in its submissions a non-exhaustive list of the
principles and factors relevant to the determination of pecuniary
penalties.
They were:
(a) The nature and extent of the contravening conduct.
(b) The
amount of loss or damage caused.
(c) The circumstances in which the conduct
took place.
(d) The size of the contravening company.
(e) The degree of power it has, as evidenced by its market share and ease of entry into the market.(f) The deliberateness of the contravention and the period over which it extended.
(g) Whether the contravention arose out of the conduct of senior management or at a lower level.
(h) Whether the company has a corporate culture conducive to compliance with the Act as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.
(i) Whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention.
(j) Whether the respondents have engaged in similar conduct in the past.
(k) The financial position of the respondents.
(l) The deterrent effect of the proposed penalty.
The ACCC
referred to Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 and
Australian Competition and Consumer Commission v NW Frozen Foods Pty Ltd
(1996) ATPR 41-515. Although there has been repeated discussion in later
cases of the factors relevant to the quantum of pecuniary
penalties, I am
satisfied that the above list is sufficiently comprehensive. It is to be
applied by reference to the general principle
that the purpose of pecuniary
penalties is to deter the contravenor and others from future contraventions of
the Act.
Pecuniary penalties – Kokos and Mr Chad Kim
52 The ACCC proposed that Kokos pay a pecuniary penalty of $110,000, which includes a cooperation discount and that Mr Chad Kim pay a pecuniary penalty of $15,000 including a cooperation discount pursuant to s 76 of the Act and s 76 of the Code.
53 The nature and extent of the conduct of each of the first and second respondents has already been outlined. The ACCC acknowledged the difficulty of determining the exact amount of loss or damage caused to consumers by their conduct. It undermined the competitive process that had occurred in the period prior to the making of the agreements. It could properly be said, as the ACCC submitted, that both agreements caused Korean students to pay higher amounts to gain entry into the Schools to which they applied than they would have done were it not for the making and giving effect to the agreements. In the period 22 July 2004 to 1 November 2004 it appears that Kokos charged students at least approximately $13,000 more than the amount it would have charged if the agreements were not put into effect.
54 The conduct occurred in the context of the recent entry into the Perth market of a new supplier of education consulting services, namely IAE.
55 The ACCC submitted that Kokos’ turnover is substantial, being $2.3 million for the year ended 30 June 2006 and $1.79 million for the year ended 30 June 2005. It was common ground on the written submissions of the ACCC and those of Kokos and Mr Chad Kim that in 2005 Kokos had approximately 31% of the market share in Perth for the supply of education consulting services to Korean students. Its market share in 2004 was approximately 28%.
56 As to the deliberateness of the conduct, it was common ground that both Kokos and Mr Chad Kim were ignorant of the fact that their conduct was unlawful. The ACCC acknowledged that there was no evidence that they concealed or attempted to conceal their conduct. They engaged in the conduct deliberately in response to concerns about the commercial viability of their business due to the entry into the market of IAE. They did not intend to contravene the Act or the Code. It was common ground on the written submissions that it was clear from the face of the Written Agreement that Kokos and Mr Chad Kim were aware of the effect their conduct would have on competition in the market. The question of deliberateness of conduct is particularly relevant to deterrence where the contravening party is aware that the proposed conduct is in contravention of the Act and, alternatively, is aware that there is a risk, which the parties are prepared to take, that the conduct will contravene. Conduct in the knowledge of the certainty or risk that the law will be breached indicates that absent sufficient deterrence the contravening party may reoffend in the belief that its conduct will not be detected. A contravenor which is ignorant of the law may also present a risk of reoffending where the ignorance flows from a careless or reckless failure to inquire or to obtain proper advice. In the present case, in my opinion, the deliberateness of the conduct and associated ignorance of the law is not indicative of a significant risk of reoffending. It appears to have been an immediate protective response to a competitive threat albeit blatantly anti-competitive. The evidence of early cooperation with the ACCC and the agreement that has been made are indicative of the low level of risk of reoffending in this case.
57 The conduct in which Kokos engaged was, in effect, that of its senior manager, Mr Chad Kim. There could not be said to have been any culture of compliance in existence given Mr Chad Kim’s unawareness of the law and the attributed ignorance of Kokos. However, the company and Mr Chad Kim admitted the contraventions instead of putting the ACCC to long and expensive litigation. Moreover they cooperated with the ACCC before and following the commencement of the proceedings. Neither has contravened the Act or the Code in the past.
58 The financial position of each could only be described as modest having regard to the net profit of Kokos for the relevant years and Mr Chad Kim’s salary and asset position.
59 The ACCC submitted that Kokos is arguably in a position of considerable responsibility and power relative to students. On that basis there is a strong need to deter the kind of conduct found to have occurred in this case from continuing in the future. There is also a requirement of general deterrence to demonstrate to the public and the business community that such conduct by corporations and individuals is unacceptable and should not be tolerated.
60 In response, Kokos and Mr Chad Kim submit that the penalties sought by the ACCC are excessive. They submit that any penalty should be commensurate with the amount of loss or damage caused by the contravening conduct, in this case about $13,000 in terms of fees overcharged. Kokos submitted that a moderate penalty would be likely to have a significant deterrent effect against it engaging in similar conduct in the future and proposed the sum of $20,000. The Court was also asked to have regard to its significant legal costs as well as its obligation, by way of agreement, to pay the ACCC’s legal costs to be taxed if not agreed.
61 As for Mr Chad Kim he was said to be remorseful. Given his modest income of $45,000 a penalty of $5,000 was said to be a significant imposition and a weighty deterrent.
62 Each contravention in this case and each instance of involvement on the part of Mr Chad Kim attracts its own penalty. The Act does not in terms authorise the imposition of a single global penalty for related contraventions. There is, however, a ‘totality principle’ which is appropriate where each of the contraventions arise out of effectively the same course of conduct temporally limited. In imposing a penalty in respect of each contravention regard may be had to the total figure thus arrived at.
63 The conduct in this case amounted to a blatant price fixing in which Kokos was the prime mover. Nevertheless I regard the overall amount proposed by the ACCC in respect of Kokos as excessive having regard to the limited effect of the contraventions, the absence of any intention to break the law, the low risk of reoffending, Kokos’ cooperation with the ACCC and its modest financial position. In my opinion a penalty of $10,000 should be imposed in respect of each of the five contraventions alleged along with a figure of $10,000 in respect of the attempted contravention involving the email to Mr Woo. This results in a total penalty of $60,000 as against Kokos.
64 In respect of Mr Chad Kim, I would impose a penalty of $2,500 on each of
the five instances of his involvement in the contraventions
by Kokos. This will
result in a total penalty applied to him of $12,500. I will impose no penalty
in respect of the alleged attempted
contravention of the Code because I am not
satisfied, on the pleadings and on the agreed facts, that any such attempt has
been made
out.
Pecuniary penalties – IAE and Mr Pae
65 In respect of IAE and Mr Pae, the ACCC relied upon the same factors and factual background as it invoked in relation to Kokos and Mr Chad Kim. The ACCC had been unable to determine any amount by which IAE overcharged students during the period July 2004 to November 2004. The total period during which IAE refrained from offering discounts was said to be about four months.
66 The ACCC described IAE’s turnover as substantial, being $1,795,622.22 for the year ended 30 June 2006 and $942,319.65 for the year ended 30 June 2005. In 2005 it had approximately 27% of the market share in Perth for the supply of education consulting services to Korean students. In 2004 its market share had been 13%. It employed three full-time staff and was said to be regarded as one of the leading businesses of its kind in Perth.
67 As with Kokos and Mr Chad Kim, IAE and Mr Pae were ignorant of the fact that their conduct was unlawful. There was no evidence that they concealed or attempted to conceal that conduct. The ACCC submitted that they engaged in the admitted conduct deliberately in response to concerns about their commercial viability but not with any intention of contravening the Act. It was clear, however, from the face of the Written Agreement that they, like Kokos and Mr Chad Kim, were aware of the effect their conduct would have on competition in the market.
68 It was accepted that the contravention arose out of the conduct of the company’s most senior person, Mr Pae. There was no compliance program in place and no evidence of any culture of compliance. The ACCC acknowledged that the company and Mr Pae had cooperated with it both prior to and following the commencement of the proceedings. There was no suggestion that either had engaged in a contravention of the Act in the past.
69 The financial position of the company and Mr Pae appeared to be modest so far as reflected in the net profit of the company for the years ended 30 June 2005 and 30 June 2006, namely $112.64 and $14,281.21 respectively.
70 The ACCC submitted to the Court that IAE should pay a pecuniary penalty of $55,000 including a cooperation discount and that Mr Pae pay a pecuniary penalty of $10,000 including a cooperation discount.
71 There is a point of discrimination between IAE and Kokos in that Kokos appears to have been a prime mover in the formation of the Oral and Written Agreements.
72 The submissions made on behalf of IAE and Mr Pae were otherwise similar in general effect to those made on behalf of Kokos and Mr Chad Kim. It was pointed out that IAE is a small family company with no significant degree of power in any relevant market.
73 In my opinion in relation to each of the four contraventions alleged against it, IAE should be subject to a penalty of $8,500 making a total of $34,000. Mr Pae, in respect of his involvement in each of those contraventions, should be subject to a penalty of $2,000, making a total of $8,000.
Associate:
Dated: 10
January 2008
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Solicitor for the Applicant:
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Counsel for the First and Second Respondents:
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Solicitor for the First and Second Respondents:
Counsel for the Third and Fourth Respondents: Solicitor for the Third and Fourth Respondents: |
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Date of Hearing:
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Date of Judgment:
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