FEDERAL COURT OF AUSTRALIA

TRADE PRACTICES – contraventions of Part IV Trade Practices Act 1974 (Cth) – penalty – resale price maintenance – level of penalty where small company – whether injunction stating prohibition only appropriate

Trade Practices Act 1974 (Cth) ss 76, 80

Trade Practices Commission v TNT Australia Pty Limited & Ors (1995) 17 ATPR 40,161 Appl

Trade Practices Commission v CSR Limited (1991) 13 ATPR 52-135 Appl

NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 Appl

ICI Australia Operations Pty Limited v Trade Practices Commission (1992) 38 FCR 248 Cons

Australian Competition and Consumer Commission v Mayo International Pty Ltd, Alan Jon Le Court, Brian McIntosh Thom and Alexandra Margaret Shaw

QG 179 of 1995

Kiefel J

Brisbane

21 August 1998

THE COURT ORDERS THAT:

1.         The first respondent, Mayo International Pty Ltd pay the following pecuniary penalties:

(a)        $10,000 for each of the contraventions of the Trade Practices Act 1974 (Cth) numbered 1, 2 and 20 in the reasons for judgment;

(b)        $1,500 for each of the remaining eleven contraventions numbered 4, 5, 7, 8, 10, 11, 13, 14, 15, 16 and 17.

2.         The second respondent pay the following pecuniary penalties:

(a)        $3,000 for each of the contraventions numbered 1, 2 and 20;

(b)        $1,000 for each of the contraventions numbered 4, 5, 7, 8 10, 11, 13, 14, 15, 16 and 17;

3.         The fourth respondent pay the following pecuniary penalties:

(a)        $1,000 for each of the contraventions numbered 7 and 8;

THE COURT FURTHER ORDERS THAT:

4.         The first and second respondents pay the Commission’s costs of the proceedings, including any reserved costs.

Note:             Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT (3)

Penalty

Fourteen contraventions of Part IV Trade Practices Act 1974 (Cth) have been established against the company Mayo International Pty Ltd (“Mayo International”)  over about a three year period.  I shall deal with the contraventions concerning the personal respondents, Mr Le Court and Ms Shaw, later in these reasons.  Matters relevant to an assessment of an appropriate penalty under s 76, including those referred to in the section itself, have been referred to in Trade Practices Commission v TNT Australia Pty Limited (1995) 17 ATPR 40,161;  40,165 and were listed by French J in Trade Practices Commission v CSR Limited (1991) 13 ATPR 52-135 and in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR  285, 292.  I do not propose to set them out.

The contraventions had their genesis in an agreement reached between Mayo International, through Mr Le Court, and Price Attack Franchising Pty Ltd, through Mr Jackson, in May 1992 by which Price Attack franchisees were to retain retail prices on Mayo International products at its listed price, in consideration for the continuation of a discount on the wholesale price to those franchisees.  It arose principally because of the view held by management at Mayo International that its products’ image would be damaged by discounting.  I accept that that view was genuinely held.  Mr Jackson encouraged Mr Le Court to believe that prices would be maintained.  Although that does not exculpate Mr Le Court or Mayo International it is of some relevance, as counsel for the respondents submitted, since this was a case where two corporations of relatively the same size agreed upon a course of action.  It was not a case where substantial market power was misused, or a smaller group suborned, although it must be added that conduct by Mayo International’s representatives in their dealings with Price Attack franchisees on a few occasions bordered upon intimidatory. 

Of the contraventions found against Mayo International, the bargain struck in May 1992, which was confirmed in November 1992, and the withdrawal of the discount in July 1995 stand out.  In the meantime however Mayo International sought to promote retail price maintenance through its sales representatives.  The pursuit of this objective became, effectively, company policy.  It seems to me therefore that this conduct, viewed as a whole, is itself serious.

There is no evidence that the conduct in question had any noticeable impact upon the market with respect to hairdressing products or upon the price of such products.  I would not think it likely that it did.  It is not suggested that Mayo International was a large distributor in the scheme of things and, as I have said earlier, its intention was in maintaining an image rather than seeking to obtain profits.  Nevertheless, the contraventions are serious and the tone of the correspondence is such that it may be inferred that Mr Le Court understood that what was being undertaken was wrongful.  Moreover, as the cases show, deterrence is a strong factor in an assessment of penalty:  NW Frozen Foods v ACCC  292-295. 

None of the respondents has accepted responsibility for the contraventions.  There is no recognition by them of the wrongfulness of the conduct in question and no suggestion that Mayo International has done anything to reverse the culture it created amongst its staff, although it would of course be foolish in the extreme for it to offend again.  A further submission now made for Mayo International suggests that it may now seek the assistance of the Commission with respect to a program of compliance.

With these observations I turn to the question of penalty in relation to Mayo International itself.

In the financial year to 30 June 1995 Mayo Internationals’ sales were in the order of $2.95M, which however was some $600,000 less than had been achieved the year before.  In the financial year just ended, it is said to have suffered an operating loss of about $76,000 when in the preceding year it had made a profit of about $93,000, after payment of all salaries and fees to each of the three persons having an interest in Mayo International Mr and Mrs Le Court and Mr Thom.  As counsel for the Commission points out, substantial legal costs have been incurred recently, no doubt in connexion with the defence of these proceedings and when that is taken into account a small profit would have been realised.  It is regrettable that Mayo International has not only incurred these legal fees, it is now to face a penalty, which cannot be reduced by reference to any cooperation by it to date.

The general picture of Mayo International is of one which is not large, but which has succeeded in a difficult market for over ten years and which has earned significant revenue.  It has been able to meet all of its commitments, including the payment of salaries and fees to those having an interest in it, with profit.  It does not however appear to have the capacity to absorb a very substantial penalty without endangering Mayo International itself.  A penalty should not be greater than is necessary to achieve the object of adherence to the standards set by the legislation:  NW Frozen Foods v ACCC , 293.  What will serve as a deterrent to a small company may not have the same impact upon a large one:  TPC v TNT Australia Pty Ltd  40,168.

In these circumstances I consider the following penalties with respect to Mayo International are appropriate:

(a)        $10,000 for each of the contraventions 1, 2 and 20;

(b)        $1,500 for each of the remaining eleven contraventions numbered 4, 5, 7, 8, 10, 11, 13, 14, 15, 16 and 17.

With respect to Mr Le Court, he was the person who engineered the price fixing agreement and regime.  It was submitted on his behalf that, unlike a large corporation, where one person in management can be appropriately singled out for treatment in connexion with a penalty, to do so here, in the context of a small company in which only three persons appear to have any interest, would be to duplicate penalty.  Nevertheless it seems to me that it is necessary to point out to officers of corporations that they are exposed to personal liability with respect to conduct such as this: 

(c)        For each of the contraventions numbered 1, 2 and 20 the penalty will be $3,000;

(d)        For Mr Le Court’s involvement in the contraventions numbered 4, 5, 7, 8 10, 11, 13, 14, 15, 16 and 17, $1,000 each.

With respect to the former sales representative Ms Shaw, it was said on her behalf that she was merely acting under instruction and that she is no longer an employee.  I am not told what her personal circumstances are: 

(e)        With respect to Ms Shaw’s part in the contraventions numbered 7 and 8 the penalty will be $1,000 each.

The Commission also seeks injunctions against each of the first, second and fourth respondents restraining them from engaging in the practice of resale price maintenance or being a party to such conduct.  Whilst I am mindful of the policy of s 80 Trade Practices Act (see ICI Australia Operations Pty Limited v Trade Practices Commission (1992) 38 FCR 248, 254-259), I am not persuaded that an injunction which does no more than restate the prohibitions of the Trade Practices Act with respect to price maintenance is of any real utility.

There will be a further order that the first and second respondents pay the Commission’s costs of the proceedings, including any reserved costs.  I will hear any application for time to pay.

Associate:

Dated:              21 August 1998