FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v H.J. Heinz Company Australia Limited (No 2) [2018] FCA 1286

ORDERS

THE COURT ORDERS THAT:

1.    Heinz pay to the Commonwealth of Australia within 30 days the sum of $2.25 million by way of pecuniary penalty under s 224(1) of the Australian Consumer Law (the ACL) in respect of its contraventions of s 29(1)(g) of the ACL.

2.    Pursuant to s 246(2)(b) of the ACL, Heinz, at its own expense:

(a)    establish, within three months of the date of this order, a Consumer Protection Law Compliance Program which meets the requirements set out in Annexure A to this Order; and

(b)    maintain and administer the Consumer Protection Law Compliance Program for a period of three years from the date on which it is established.

3.    The claim of the ACCC for the making of corrective publication orders is refused.

4.    Heinz pay the ACCC’s costs of and incidental to the proceedings (including reserved costs) on a party and party basis.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

WHITE J:

1    On 19 March 2018, I published my findings that the Respondent (Heinz) had engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law (ACL) (which is Sch 2 to the Competition and Consumer Act 2010 (Cth) (the CC Act)), and had made false or misleading representations to consumers in contravention of s 29(1)(g) of the ACL: Australian Competition and Consumer Commission v H.J. Heinz Company Australia Limited [2018] FCA 360 (the Liability Judgment).

2    The conduct comprised representations on the packets in which Heinz sold three products. The three products were “Heinz Little Kids fruit & veg SHREDZ berries apple & veg” (the Berries Product), “Heinz Little Kids fruit & veg SHREDZ peach apple & veg” (the Peach Product) and “Heinz Little Kids fruit & chia SHREDZ strawberry & apple with chia seeds” (the Fruit and Chia Product) (collectively, the Products).

3    I found that the representations were not express but had been conveyed by the words and imagery on the packets. They were representations that the Products were a nutritious food and were beneficial to the health of children aged 1-3 years (given the shorthand at trial of “toddlers”). In the Liability Judgment, I referred to these representations as the “Healthy Food Representations”. One such representation was made in relation to each of the three Products.

4    On 10 April 2018, I made declarations giving effect to the findings in the Liability Judgment. The declarations were as follows:

1.    The Respondent, H.J. Heinz Company Australia Limited (Heinz), in trade or commerce, in connection with the manufacture and supply of the following products:

(a)    Heinz Little Kids fruit & veg SHREDZ berries apple & veg (from August 2013 to 18 May 2016);

(b)    Heinz Little Kids fruit & veg SHREDZ peach apple & veg (from August 2013 to 18 May 2016;

(c)    Heinz Little Kids fruit & chia SHREDZ strawberry and apple with chia seeds (from January 2016 to 18 May 2016);

(together, the Shredz Products),

represented that each product was beneficial to the health of children aged 1 to 3 years when by reason of their high sugar content and sticky texture, the Shredz Products were not beneficial to the health of children aged 1 to 3 years and Heinz thereby:

(d)    engaged in conduct which was misleading or deceptive or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law (being Schedule 2 of the Competition and Consumer Act 2010 (Cth)) (ACL); and

(e)    made a false or misleading representation to consumers in contravention of s 29(1)(g) of the ACL.

2.    Heinz ought to have known that the representations referred to in paragraph 1 of this Order had been made and ought to have known that representations to that effect were false or misleading.

5    In the Liability Judgment, I rejected the ACCC’s allegations that Heinz had made two other misleading or deceptive representations in respect of each Product. I also rejected the ACCC’s claim that Heinz had known that the representations had been made and that they were misleading. However, I found that Heinz ought to have known that it had made the representations and that it ought to have known that representations to that effect were false or misleading. This is reflected in the second declaration set out above.

6    This judgment concerns the claims of the ACCC in the proceedings which were ordered to be heard and determined separately, namely, its claim for the imposition of pecuniary penalties pursuant to s 224 of the ACL in respect of the contraventions of s 29(1)(g), its claim for the making of a corrective publication order pursuant to s 246 of the ACL, its claim pursuant to s 246(2) of the ACL for an order that Heinz establish and implement a compliance program, as well as the ACCC’s claim for costs. The ACCC’s claim for penalties is made only with respect to the contraventions of s 29(1)(g) because a contravention of s 18 of the ACL does not attract a pecuniary penalty.

7    These reasons should be read in conjunction with the Liability Judgment and I will endeavour to avoid unnecessary repetition.

The pecuniary penalties

8    By s 224 of the ACL, a court may order that a person who has contravened a provision such as s 29(1)(g) of the ACL pay a pecuniary penalty “in respect of each act or omission” as the court determines to be appropriate. The acts or omissions attracting the imposition of penalties pursuant to s 224(1) are the acts or omissions constituting (relevantly) the making of false or misleading representations that the Products had the claimed benefits. Section 224(2) provides that, in determining the appropriate pecuniary penalty, the Court must have regard to “all relevant matters” including:

(a)    the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and

(b)    the circumstances in which the act or omission took place; and

(c)    whether the person has previously been found by a court in proceedings under Ch 4 or Pt 5-2 of the ACL to have engaged in any similar conduct.

9    The maximum pecuniary penalty for each act or omission constituting a contravention which is applicable in the present case is $1.1 million.

10    By s 224(4) of the ACL, when conduct constitutes a contravention of two or more provisions attracting the imposition of a pecuniary penalty, a person is not liable to more than one pecuniary penalty in respect of the same conduct. It was not suggested that s 224(4) had any application in the present case.

11    The ACCC sought the imposition of a single penalty on Heinz of $10 million. Heinz contended that a single penalty of the order of $400,000 would be appropriate.

The nature and extent of the contraventions

12    The conduct constituting the contraventions is described in the Liability Judgment and in the declarations set out earlier. It comprised the making of a representation on the packet of each Product that the Product was beneficial to the health of children when, by reason of the high sugar content and sticky texture of the Products, that was not the case. The evidence showed that the Products were marketed to the parents and carers of toddlers. Heinz’s conduct had the potential to mislead those persons about the health benefits of the Products.

The number of contraventions

13    In respect of the Berries Product and the Peach Product, Heinz made the false or misleading representations in the packaging it used from August 2013 to 18 May 2016. In respect of the Fruit and Chia Product, Heinz made the false or misleading representations in the period from 12 January 2016 to 18 May 2016. Heinz had then ceased sales of the Products.

14    As already noted, a penalty may be imposed in respect of each act or omission constituting a contravention. The ACCC submitted that, at the least, a contravention occurred at the time of each purchase of a Shredz Product. Heinz did not dispute that contention.

15    Heinz provided evidence (which the ACCC did not contest) as to the sales of each Product (as well as of the revenue and gross profit derived thereby):

The table indicates that Heinz sold 708,012 packets of the Berries Product, 459,054 packets of the Peach Product and 40,494 of the Fruit and Chia Product. This means that the total number of Healthy Food Representations made was at least 1,207,560.

16    The ACCC noted that the number of contraventions may have been even greater, as a representation was made each time a consumer viewed a packet of a Shredz Product. It referred in this respect to Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181 at [145] in which the Full Court had accepted the submission that the misleading character of the representations considered in that case had operated as a contravention on each occasion on which a consumer had seen the packaging. The number of persons who saw the packaging in the present case may be substantial as Heinz sold the Products to the major food retailers and it is reasonable to infer that the Products were sold in the majority of supermarkets throughout Australia.

17    However, it is not possible to make any findings as to the number who viewed the packets. In those circumstances, I propose to proceed on the basis that the ACCC has established that Heinz contravened s 29(1)(g) on at least 708,012 occasions by making the Berries Healthy Food Representation, on at least 459,054 occasions by making the Peach Healthy Food Representation, and on at least 40,494 occasions by making the Fruit and Chia Healthy Food Representation and that it is likely that the contraventions occurred on an indeterminate number of further occasions.

The effect of the conduct

18    The ACCC accepted that the evidence did not indicate that any individual consumer had in fact suffered loss or harm as a result of Heinz’s contraventions. It submitted, however, that the contraventions had had two consequences of which the Court should take account. The first was the effect on consumer choice, by Heinz encouraging parents and carers, when making purchasing decisions, to select the Products on the basis that they would be beneficial for their child’s health, when that was not so. The cases recognise that the distortion of consumer choice is a non-monetary effect of which the Court should take account (Reckitt Benckiser at [114]) and I accept this submission.

19    The second consequence was the potential for toddlers to suffer harm, whether by the development of obesity or dental caries, as a result of their consumption of excessive amounts of sugar, to which consumption of the Products may contribute. Heinz submitted that the findings in the Liability Judgment did not support the ACCC’s submissions that its conduct had had the potential to impact on the health and well-being of children. It noted the distinction drawn in the Liability Judgment between a finding that a product is not beneficial to a child’s health, on the one hand, and a finding that the product is detrimental to a child’s health, on the other.

20    In my opinion, this submission of Heinz involves an unduly narrow reading of the reasons in the Liability Judgment. I refer in this respect to the conclusions in [236] and [244] of the Liability Judgment. I based the conclusions in those paragraphs on the evidence summarised earlier in the Liability Judgment about the potential for adverse health effects associated with the consumption of free sugars.

Heinz’s state of mind

21    Heinz’s state of mind in relation to the contraventions is very relevant to the assessment of the culpability of its conduct. The Full Court in Reckitt Benckiser stated the position:

[131]    If a contravention does not involve any state of mind then it is for the party asserting any particular state of mind (be it a deliberate flouting of the law, recklessness, wilful blindness, “courting the risk”, negligence, or innocence or any other characterisation of state of mind) to prove its assertion. If, in the event, neither party discharges its onus to establish any particular state of mind in relation to the contraventions, the Court determines penalty on no more than the fact of the proscribed nature of the conduct … However, if any degree of awareness of the actual or potential unlawfulness of the conduct is proved then, all other things being equal, the contravention is necessarily more serious. Such awareness may be able to be inferred from the very nature of the conduct or representations constituting the conduct. …

22    The ACCC’s Statement of Claim contained allegations that Heinz knew or ought to have known that, by reason of the statements and images depicted on the packaging of each Product, it had made (relevantly) the Healthy Food Representations. The Statement of Claim alleged further that Heinz had known or ought to have known that each representation was false or misleading. At the request of the parties, the Court ordered that those allegations be determined as part of the liability hearing. In the Liability Judgment, I found that the ACCC had not established either limb of its claims of actual knowledge, at [291]. I was, however, satisfied that Heinz ought to have known that it was making each of the Healthy Food Representations and that each was false – see [292] and [312] of the Liability Judgment.

23    At the penalty hearing, Heinz submitted that the conduct of Heinz involved wilful blindness or recklessness. This submission came as something of a surprise for two reasons. First, because the ACCC had sought that the state of Heinz’s knowledge be part of the case to be determined in the liability trial and it had not raised any allegation of recklessness or wilful blindness as part of that case. Secondly, the submission concerning recklessness or wilful blindness was made for the first time in the oral submissions at the penalty hearing, not having been foreshadowed at all in the ACCC’s written submissions on relief filed and served pursuant to the Court’s order of 10 April 2018. That being so, I accept the submission of counsel for Heinz that the ACCC submission on this topic involves some unfairness to it.

24    Counsel for the ACCC did not elaborate the notion of recklessness for which the ACCC contended. One well understood meaning of the word describes the state of mind in which persons appreciate the possibility or probability that their conduct will cause some harmful consequence, but decide to proceed with an indifference to, or disregard of, those consequences or of the risk that they may be realised. For reasons which I will elaborate below, that is not a reasonable characterisation of Heinz’s state of mind with respect to its supply of the Shredz Products.

25    There is a notion of objective recklessness. It describes the state of mind in which persons engage in conduct causing harm without appreciating that their conduct involves an obvious risk of that harm being caused. Objective recklessness has been described as the practical equivalent of a high level of negligence: Couch v The Attorney-General [2010] NZSC 27; [2010] 3 NZLR 149 at [100]. The ACCC’s submissions did not refer to this form of recklessness and, in any event, for the reasons to be elaborated below, I do not consider that it is a proper characterisation of Heinz’s state of mind.

26    Counsel for the ACCC did not elaborate the sense in which he used the term “wilful blindness”. Commonly, it is understood as referring to the state of mind in which persons shut their eyes to the obvious. Again, for the reasons to be given below, I do not consider that that is an appropriate characterisation of Heinz’s state of mind.

27    In the liability trial, Heinz led evidence from five of its employees who had been involved in the development of the Products and in the development of their packaging. For present purposes, it is sufficient to refer to the evidence of three, Ms Tatt, Ms Rigas and Ms Russell. At [54] of the Liability Judgment, I indicated my satisfaction that Ms Tatt and Ms Rigas, and for the most part, Ms Russell, were honest and reliable witnesses who had gone about their tasks within Heinz in a conscientious manner.

28    Both Ms Tatt and Ms Rigas were members of the Heinz Scientific and Regulatory Affairs (SARA) team. Ms Rigas filled in for Ms Tatt while she was on maternity leave from June 2014 to June 2015 and so was involved in the development of the packaging for the Fruit and Chia Product. She was not involved in the development of the packaging for the Berries and Peach Products. Both Ms Tatt and Ms Rigas have tertiary degrees in Food Science and Nutrition.

29    Ms Tatt said that the SARA team was responsible “for reviewing all Heinz products across Australia and New Zealand for compliance with the Australian New Zealand Food Standards Code (Food Standards Code), which includes various food standards, including the Nutrition, Health and Related Claims, Standard 1.2.7 (the Standard) and to assess and approve technical information”. Ms Tatt also identified her responsibilities in 2012 and 2013 as including:

(a)    providing regulatory guidance regarding food law compliance for Heinz products to other teams, including the Legal, Marketing and Product Development teams, in response to queries about a proposed product and the requirements of the Food Standards Code;

(b)    assessing the ingredient list and packaging of Heinz products for compliance with the Food Standards Code, including the various standards, with the most relevant standards for infant products being the Standard and the Infant Standard;

(c)    assessing and advising on proposed marketing material, product launches, campaigns, social media and websites; and

(d)    attending weekly SARA team meetings.

30    Both Ms Tatt and Ms Rigas described the system within Heinz for the development of new products and the packaging for them. The system involves a number of stages: ideation, product development, on packet information (OPI) review (which is essentially concerned with the identification of the ingredient list and other technical information), and review of the packaging and artwork developed by the Heinz Marketing team. As members of the SARA team, Ms Tatt and Ms Rigas assessed the artwork and packaging for accuracy against the OPI list of ingredients. For this purpose, they used an internal Heinz form known as the Packaging Artwork Approval Form (PAAF). Copies of the PAAF with respect to each of the three Products were in evidence. They indicate that the proposed packaging was reviewed and approved by a number of persons within Heinz, including members of the marketing team, the product development team, the SARA team, the legal team and the packaging team. Each person was required to indicate his or her approval of the packaging proposed for each Product. The evidence indicates that this course was followed in relation to each of the Products. In [313] of the Liability Judgment, I expressed my satisfaction that each of the Heinz witnesses had endeavoured to carry out their roles in the development of the Products and of their packaging in a conscientious and diligent way and that those with responsibility for the development of the packaging had endeavoured to avoid the making of any statements, express or implied which may be misleading or deceptive.

31    With one exception, Heinz did not lead any evidence from a member of its marketing or legal teams. The exception is Ms Fox, its General Counsel, but it does not appear that Ms Fox had any involvement in the development of the packaging for the Products. The ACCC did not submit that any adverse inference should be drawn against Heinz by reason of the absence of evidence from a member of either its marketing or legal teams.

32    On my assessment, the evidence of Ms Tatt, Ms Rigas and Ms Russell is inconsistent with Heinz having engaged in a form of advertent or subjective recklessness or with wilful blindness. Nor does it support a conclusion that Heinz acted with the high degree of carelessness associated with the notion of objective recklessness.

33    I consider that the penalties should be assessed on the basis of the findings concerning Heinz’s knowledge set out in the Liability Judgment. That is that Heinz ought to have been aware that it was making the Healthy Food Representation in relation to each Product. Just as ordinary reasonable consumers would have understood Heinz to be making that representation, so should Heinz itself. I am also satisfied that Heinz ought to have known that the Healthy Food Representation was false or misleading. Had Heinz adverted to the fact that it was making the Healthy Food Representation, it would have appreciated that the representation was not true insofar as it represented that consumption of the Products was beneficial to the health of toddlers.

34    It follows that I do not accept the ACCC’s submission that Heinz had deliberately engaged in conduct contravening s 29(1)(g) of the ACL.

Characterisation of the conduct

35    The ACCC submitted that the contravening conduct of Heinz should be characterised as extensive and serious.

36    There are undoubtedly serious aspects to Heinz’s conduct and it was extensive. In the case of the Berries and Peach Products, the conduct continued for some two years and nine months. In the case of the Fruit and Chia Product, the conduct continued for some five months.

37    In all, Heinz made the Healthy Food Representations on at least 1.2 million occasions. The subject matter of the representations concerned the benefits to the health of children, in particular in the promotion of obesity and dental caries which are endemic problems amongst Australian children.

38    However, I consider that the ACCC’s further submission that Heinz’s conduct was “egregious” involves a degree of overreach. The elements of flagrancy, deliberate exploitation of the vulnerable, ruthlessness or indifference which are seen in some matters which come before the Court, and which do warrant the epithet “egregious”, are not present in this case. Heinz’s contraventions of s 29(1)(g) are to be viewed seriously but not with the additional characterisation for which the ACCC contended.

The size of Heinz

39    A number of the ACCC’s submissions emphasised the size of the Heinz, its membership of the global Kraft Heinz Food Company, and its capacity to pay a substantial penalty.

40    The size of a contravenor is a relevant matter to the imposition of penalties, although it is not a reason, by itself, for the imposition of a higher penalty than would otherwise be appropriate. In Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330, Allsop CJ referred to the judgments of Tracey J in Australian Competition and Consumer Commission v Turi Foods Pty Ltd (No 5) [2013] FCA 1109 at [62], of Goldberg J in Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265, (2005) 215 ALR 301 at [309], and of Middleton J in Australian Competition and Consumer Commission v Telstra Corporation Ltd [2010] FCA 790, (2010) 188 FCR 238 at [273]-[274], and continued:

[92]    These authorities make it clear that Coles’ financial resources do not alone justify a higher penalty than might otherwise be imposed. However, they are clearly relevant to considering the size of the penalty required to achieve the end of specific deterrence and can be weighed against the need to impose a sum which will be recognised by the public as significant and proportionate to the seriousness of the contravention for the purposes of achieving general deterrence. Further, the resources of Coles are relevant to understanding whether it can pay (and not be crushed by) an appropriate penalty, especially when one takes account of revenue earned by products sold using the impugned phrases.

41    This is the principle which I will apply in the present case.

42    The facts upon which the ACCC relied in its submission concerning the size of Heinz and its capacity to pay a substantial penalty were not controversial. Heinz provided evidence of its financial position as at 31 December 2016, which can be summarised as follows:

43    Heinz is a subsidiary of the United States Kraft Heinz Company, which describes itself as “A Global Food Powerhouse”. The Kraft Heinz Company achieved global net sales in 2016 of US$26.5 billion operating in more than 40 countries. There is no difficulty in concluding that Heinz is a major company with substantial resources. That being so, the submission made on behalf of Heinz that the penalty of $10 million sought by the ACCC would be oppressive to it cannot be accepted.

44    Heinz does not have any record of prior contraventions. This is to its credit, especially given the large number of products it markets.

Deterrence

45    The principal concern of the Court in fixing of an appropriate pecuniary penalty is the element of deterrence, both general and specific: Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at [55] (“the purpose of a civil penalty … is primarily if not wholly protective in promoting the public interest in compliance”). The ACCC submitted that this means that the penalty must be set high enough to outweigh any potential gain to the contravenor by engaging in the conduct and sufficiently high that a business will not be prepared to treat the risk of such a penalty as a business cost. A penalty which is not sufficiently substantial may undermine the public interest in consumers being able to make decisions free from conduct that is liable to mislead and thus distort decision-making processes: Reckitt Benckiser at [164].

46    The ACCC submitted that specific deterrence is a particularly important consideration in the present case. It submitted, first, that the conduct of Heinz involved a high degree of contemplation and choice. It referred in this respect to the evidence indicating that Heinz had updated its packaging in 2013 with the intention of promoting the Products as both nutritious and healthy. This evidence was the subject of my findings in the Liability Judgment at [95]-[98].

47    The ACCC also referred to Heinz’s non-compliance with its own Toddler Snacking Guidelines and New Product Guidelines and the criteria contained in its document entitled “Heinz Little Kids Promise – Technical Criteria”. These were the subject of my findings at [295]-[311]. Having referred to those documents, I concluded that each of Heinz’s employed nutritionists ought to have known that a representation that a product which was approximately two-third sugar was beneficial to the health of children aged 1-3 years was misleading and that each ought to have known that consumption of a product with that level of sugar may have the effects which underpin the guidelines issued by the World Health Organisation.

48    The ACCC also submitted that the need for specific deterrence was indicated by the fact that Heinz had continued its conduct even after it (the ACCC) had commenced its investigation. Heinz became aware of that investigation on 28 August 2015 by reason of the ACCC having served it with a notice pursuant to s 155 of the CC Act requiring the production of documents. The ACCC emphasised that, not only had Heinz continued sales of the Berries and Peach Products, it had also commenced sales of the Fruit and Chia Product in January 2016 using packaging with a similar content. This conduct evidenced, the ACCC submitted, a disregard by Heinz of “the fact that, at least insofar as the ACCC was concerned, its conduct was potentially in contravention of the law”. The ACCC submitted that, in this circumstance, the Court may readily infer that “in continuing to offer for sale in an unaltered form the Shredz Berries and Shredz Peach Products and [in] introducing the Shredz Fruit & Chia Product in a materially similar form”, Heinz had not been deterred by the risk of litigation.

49    In addition, the ACCC referred to a report prepared by the Organisation for Economic Co-operation and Development (OECD) in 2018 entitled “Pecuniary Penalties for Competition Law Infringements in Australia” containing, at 68, the following statement:

[I]f one observes continued lack of compliance by corporations falling within these two scenarios – in which the companies are not only aware of competition law, but also that they may be subject to special attention on the part of the authorities –, it is at least likely that those corporations regard the possible imposition of sanctions as a cost of doing business.

50    I would not regard the fact that a corporation has continued contravening conduct after coming under investigation by a regulator as necessarily indicating that it regarded the possible imposition of sanctions as a cost of doing business. There may no doubt be cases in which a corporation which becomes subject to regulatory investigation should recognise quickly the contravening nature of its conduct so that its continuation of the conduct may indicate recklessness or indifference to the requirements of the law. However, there may also be cases in which a corporation intending in a conscientious manner to be law abiding may reasonably take the view that a regulator’s concerns are unfounded or misplaced. Its continuation of the conduct in that circumstance would not support the inference which the ACCC submits.

51    Three matters militate against the conclusion based on the OECD report for which the ACCC contends in the present case. First, the representations which the ACCC identified to Heinz in its s 155 Notices of 28 August 2015 and 4 April 2016 were not those which the ACCC pursued in the proceedings. It seems that the first notice Heinz had of the ACCC allegation concerning the Healthy Food Representation was when it was served with the proceedings (commenced on 16 June 2016).

52    Secondly, the ACCC did not succeed with its allegation concerning two other representations Heinz was said to have made on the packaging of the Products. Neither of those representations had been alleged in the s 155 Notices. They serve to illustrate, however, that it may not be unreasonable for a corporation to take a different view about allegations by the ACCC than does the ACCC itself.

53    Thirdly, Heinz voluntarily ceased sales of the Products with effect from 18 May 2016. That was one month before the ACCC commenced the present proceedings and two weeks after Heinz had provided its response to the second s 155 notice issued by the ACCC. Ms Fox, Heinz’s General Counsel, deposed that Heinz had withdrawn the Products from sale because of its appreciation that the ACCC had continuing concerns. The ACCC did not contest that evidence.

54    Having regard to all these matters, I do not accept the ACCC’s submission that Heinz had regarded the possible imposition of sanctions with respect to its marketing of the Shredz Products as a cost of doing business. Nor do I accept the ACCC’s submission that the evidence shows that Heinz has a corporate culture marked by a lack of concern for compliance. Instead, the evidence suggests that the contraventions occurred by reason of Heinz’s failure to appreciate that the Healthy Foods Representations were conveyed by its packaging and that that representations were, in respect of each Product, false or misleading.

55    I accept, however, that specific deterrence is pertinent because the imposition of an appropriate penalty should encourage Heinz to consider the effect of its packaging, considered in its entirety and the representations it conveys. I also accept the ACCC submission concerning the disregard by Heinz of its own Guidelines.

56    General deterrence must of course be a consideration in the fixation of penalty.

Corporate culture and the involvement of senior management

57    The ACCC submitted that Heinz’s constructive knowledge of the contraventions demonstrated a corporate culture marked by a lack of concern for compliance with the requirements of the ACL. It submitted first that the evidence justified a finding that Heinz’s contraventions arose from a lack of oversight, knowledge and involvement from senior management. Secondly, it submitted that the evidence indicated that Heinz has a lack of commitment to serious compliance training.

58    Neither of these submissions should be accepted.

59    With respect to compliance training, I accept the evidence of Ms Fox that Heinz undertakes regular training of its staff with respect to competition and consumer law issues and that, for this purpose, it retains the services of practitioners with specialist expertise. The training is mandatory for all Heinz staff members (apart from those in accounts payable or accounts receivable roles). Heinz has provided training as follows:

60    The next session of training is to occur before the end of August 2018.

61    The ACCC did not dispute that this training occurred. It submitted, however, that when account is taken of the prospect of new employees joining Heinz and the prospect of existing employees missing a training session by reason of unavoidable absences, this level of training demonstrated a lack of commitment to serious compliance training by Heinz. I do accept that characterisation. It is evident that Heinz does have a commitment to compliance training, evidenced by the frequency with which it provides the training and its retention of persons with specialist expertise to provide it.

62    There is of course a sense in which it could be said that a greater level of scrutiny and an objective assessment by senior management may have avoided the contraventions. However, it would not be appropriate to conclude in this case that the contraventions are made more serious because of the involvement of Heinz’s senior management. Nor would it be appropriate to conclude that the contraventions occurred by reason of the indifference of senior management.

The course of conduct principle

63    The ACCC submitted that the Court may apply the discretionary “course of conduct principle” in its assessment of penalty. It submitted that the “course of conduct” analysis permits the Court to consider the imposition of a single overall penalty for contravening conduct arising out of a single course of conduct, but does not operate to limit the maximum penalty.

64    The authorities indicate that the concept of a course of conduct is used in two distinct ways in a context like the present: in identifying the conduct constituting the contraventions for which a penalty may be imposed; and in the assessment of appropriate penalties for the found contraventions.

65    As to the first, contraventions may be constituted by a series of acts which do not by themselves constitute contraventions but which, as part of a course of conduct, do so. Goldberg J stated the position in Australian Competition and Consumer Commission v Dermalogica Pty Ltd [2005] FCA 152; (2005) 215 ALR 482 when, in relation to the identification of contraventions of s 96(3) of the Trade Practices Act 1974 (Cth) concerning resale price maintenance, he said:

[55]    By s 76(1A), the pecuniary penalty payable under s 76(1) by a body corporate for offences including offences against s 48 is not to exceed $10,000,000 for each act or omission. The phrase in s 76(1) (and in subs (1A)) ‘each act or omission’ should not be taken as requiring a separate pecuniary penalty to be awarded, for example, for each conversation, each letter and each offending phrase in the website information. The relevant ‘act’ is engaging in the course of conduct that constitutes the practice of resale price maintenance.

(Emphasis added)

The Full Court referred to this passage with approval in Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73 at [217].

66    This usage of the concept of a course of conduct is not applicable presently because, as noted earlier, it was common ground that Heinz committed a contravention, at the least, on the occasion of each sale of the Products.

67    Use of the course of conduct principle in the assessment of appropriate penalties for found contraventions has been considered in a number of the authorities, most recently by the Full Court (Allsop CJ, Middleton and Robertson JJ) in Yazaki at [226]-[236]. The principle has also been discussed by the Full Court (Jagot, Yates and Bromwich JJ) in Reckitt Benckiser at [139]-[145], by the Full Court (Dowsett, Greenwood and Wigney JJ) in Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; (2017) 254 FCR 68 at [111]-[115] and [122]-[149] (Agreed Penalties Case), and by the Full Court (Middleton, Beach and Moshinsky JJ) in Australian Competition and Consumer Commission v Cement Australia Pty Ltd [2017] FCAFC 159 at [421]-[424] and in a number of first instance decisions. On my understanding, some of the principles emerging from the authorities concerning the course of conduct principle can be summarised as follows:

(a)    the principle recognises that, when there is an inter-relationship between the legal and factual elements of two or more contraventions, care must be taken to ensure that the contravenor is not punished twice for what is essentially the same culpable conduct: Yazaki at [234];

(b)    the principle is a tool of analysis to assist the Court in arriving at an appropriate penalty: it is not a rule of law: Yazaki at [226];

(c)    in applying the principle, the statutory context in which the contraventions occurred must be considered: Yazaki at [233]; Cement Australia at [431]-[432];

(d)    the principle does not justify treating multiple contraventions as but one contravention in determining the applicable maximum penalty for which the relevant legislation provides: Yazaki at [227]-[230]; Agreed Penalties Case at [148];

(e)    the principle cannot unduly fetter the proper application of s 224 and cannot operate, of itself, as a de facto limit on the penalty to be imposed for contraventions of the ACL: Yazaki at [231]; Reckitt Benckiser at [141];

(f)    even if the contraventions are properly characterised as arising from a single course of conduct, a judge is not obliged to apply the principle if the resulting penalty fails to reflect the seriousness of the contraventions: Yazaki at [235]; and

(g)    even when contravening conduct occurs as part of a course or courses of conduct, the Court must ensure that the penalties imposed are appropriate having regard to the actual substantive wrongdoing: Cement Australia at [425]-[428].

68    In the criminal context at least, the course of conduct principle does not operate to permit a sentencing judge to impose a single sentence in respect of multiple offences on the basis that the offences form part of a course of conduct. Absent a statutory provision that provides otherwise, a sentencing judge is to impose a separate sentence, albeit with the option of concurrency, for each offence: Agreed Penalties Case at [114]. However, there are some authorities concerning the imposition of civil penalties which indicate that, despite the established position in the criminal law, the course of conduct principle does justify the imposition of a single penalty for multiple contraventions when it is otherwise appropriate to do so. For example, in Yazaki, the Full Court said:

[234]    The “course of conduct” or “one transaction” principle means that consideration should be given to whether the contraventions arise out of the same course of conduct or the one transaction, to determine whether it is appropriate that a “concurrent” or single penalty should be imposed for the contraventions.

69    This is the approach which both parties in the present case submitted the Court should adopt. Neither, however, developed a submission as to the way in which this approach is authorised by s 224 of the ACL and, so far as I am aware, none of the authorities have articulated a rationale.

70    As noted earlier, s 224(1) permits the Court to order a contravenor to pay “such pecuniary penalty, in respect of each act or omission” as the Court determines to be appropriate. It may be possible to hold that a single penalty is imposed “in respect of” each of the multiple contraventions. However, the exercise of the power in s 224(1) is subject to s 224(3), which provides that the pecuniary penalty payable under subs (1) is not to exceed the amount worked out in accordance with the table which it contains. Prima facie, subs (3) seems inconsistent with the Court being permitted to impose a penalty of a single sum “in respect of” multiple contraventions, at least when the single penalty would exceed the applicable maximum for each contravention.

71    However, s 224(1) and (3) may not preclude the Court from reflecting the imposition of separate penalties in respect of multiple contraventions in a single sum. In that circumstance, the single sum would be no more than the aggregate of the separate individual penalties.

72    Both parties indicated that they would be satisfied with the Court adopting that approach in this case and without it identifying a penalty for each individual contravention. Given that that was common ground, I will proceed in that way.

73    There is a question as to the number of courses of conduct in which Heinz engaged. The ACCC submitted that it was three: one in relation to the Berries Product, one in relation to the Peach Product, and one in relation to the Fruit and Chia Product. Heinz submitted that it should be regarded as having engaged in two courses of conduct, one in relation to the Berries and Peach Products and another in relation to the Fruit and Chia Product.

74    In my opinion, it is not necessary to express a final view about this question. Even if Heinz’s conduct is regarded as constituting three separate causes of action, it would be appropriate to take account of the substantial overlap in the acts constituting each course of conduct. If that was done, I consider that the resultant evaluation would be very similar to that reached if one regards all of the contraventions as occurring in two courses of conduct.

The amount of the penalties

75    I consider that the aggregate of the penalties to be imposed on Heinz should be much more than the figure of $400,000 for which it contended. That is necessary, in particular, because of the serious and extensive nature of the contraventions, their effects and the need for deterrence, both specific and general. It would not be appropriate to fix the aggregate of penalties at an amount which does no more than negate the profit Heinz derived from the sale of the Products. That would not reflect the purposes for which the penalties are imposed.

76    On the other hand, I do not accept that penalties totalling $10 million, for which the ACCC contends, would be appropriate. That is especially so given my rejection of a number of the submissions made by the ACCC in support of the imposition of a penalty of that size.

77    The aggregate of the penalties which I impose is $2.25 million. Given the attitude of the parties to which I referred earlier, it is not necessary for me to identify the individual penalties used to derive that aggregate figure. For the same reason, I will express that aggregate figure as a single penalty.

78    I do not consider that this sum should be reduced on account of the totality principle.

Corrective publication orders

79    The ACCC submitted that the Court should order Heinz to publish corrective notices, in the exercise of the power contained in s 246(2)(d) of the ACL. It contended that the corrective notices should be published on Heinz’s own website, in each of the major metropolitan newspapers in every State and Territory in Australia and in Mother & Baby magazine. The last of these publications is said to be a parenting magazine with a national circulation. Heinz had promoted some of the Products in that magazine.

80    The ACCC submitted that a publication order was appropriate given the length of time during which Heinz had engaged in the contravening conduct and the potential for a not insignificant number of consumers to have been misled.

81    Heinz submitted that the making of publication orders was not appropriate. It emphasised that it had ceased sales of the Product in May 2016, more than two years ago. That being so, it submitted that it could not be said that the packaging has left a lingering impression in consumers which should be corrected by the making of publication orders.

82    Heinz drew attention to authorities in which the Court has refused to order corrective advertising after a considerable lapse of time since the contravening conduct: Australian Competition and Consumer Commission v Telstra Corporation Ltd [2007] FCA 2058 at [5]; Australian Competition and Consumer Commission v Harris Scarfe Australia Pty Ltd [2009] FCA 54 at [115]-[120]; Luxottica Retail Australia Pty Ltd v Specsavers Pty Ltd (No 2) [2010] FCA 644 at [8]-[11]; Australian Competition and Consumer Commission v Panasonic Australia Pty Ltd [2010] FCA 856 at [62]-[64]; and Australian Competition and Consumer Commission v SMS Global Pty Ltd [2011] FCA 855 at [129].

83    The principles upon which the Court acts when deciding whether to make a publication order were not in issue. It has been said that the power should be used in a protective fashion so as to inform the relevant market of the outcome of the litigation so that those in the market have, at least, a broad understanding of how the contravenor has to change its conduct: Australian Competition and Consumer Commission v Aveling Homes Pty Ltd [2017] FCA 1470 at [58]; and Australian Competition and Consumer Commission v Real Estate Institute of Western Australian Inc [1999] FCA 18, (1999) 95 FCR 114 at [49]. The purpose of corrective notices is the protection of the public interest (by dispelling incorrect or false impressions created by contravening conduct, by alerting consumers to the fact of the contravening conduct, and by aiding the enforcement of the primary orders) and the prevention of repetition of contravening conduct: Aveling at [58]; SMS Global at [128].

84    Having regard to those purposes, I accept the submission of Heinz that a corrective publication order is not appropriate in this case. I take into account the long period which has elapsed since Heinz ceased marketing the Products. It also seems that this litigation and the Court’s judgment has been the subject of publicity, and it is reasonable to suppose that that publicity has achieved some of the purposes of corrective orders.

Compliance program

85    The ACCC sought an order under s 246(2) of the ACL that Heinz establish and implement a training program to assist in the avoidance of future contraventions of the ACL. Heinz did not oppose the making of such an order. It accepted that the terms of the compliance program sought by the ACCC were appropriate.

86    In those circumstances, I will make the orders sought by the ACCC.

Costs

87    The ACCC sought an order that Heinz pay its party and party costs, including the costs reserved during the interlocutory processes.

88    Heinz resisted that order and submitted instead that the ACCC should recover only 60% of its costs.

89    Heinz submitted that this apportionment was appropriate given the issues in the proceedings on which the ACCC had failed, namely:

(a)    the allegations concerning the Nutritional Value Representations and Healthy Habits Representations; and

(b)    the allegations concerning its actual knowledge.

90    There was no issue between the parties as to the principles upon which the Court acts when considering whether to order that a successful party may recover only a portion of its costs, and it is not necessary to refer to them in detail. It is sufficient instead to refer to the authorities mentioned by the parties, including Bowen Investments Pty Ltd v Tabcorp Holdings Ltd (No 2) [2008] FCAFC 107 at [5] and Anheuser-Busch Inc v Budějovický Budvar, Národní Podnik [2002] FCA 624. See also Hockey v Fairfax Media Publications Pty Ltd (No 2) [2015] FCA 750 at [84]-[91].

91    I conclude that the order sought by the ACCC is the appropriate order with respect to costs. Two considerations in particular indicate that that is so.

92    First, although the ACCC’s claims with respect to two forms of representations did not succeed, they were in substance in the nature of different characterisations of the same conduct. That is to say, they did not involve significantly different separate and distinct factual enquiries. In particular, I am not satisfied that the course of the trial, and of the work undertaken by the parties in relation to it, would have been materially different had the ACCC not made those allegations.

93    The ACCC allegation concerning Heinz’s actual knowledge did fail. However, the ACCC succeeded with its allegations of constructive knowledge. I consider that there would be some artificiality in seeking to distinguish the costs incurred with respect to the allegation of actual knowledge from those concerning the allegations of constructive knowledge. Again, I am not satisfied that the course of the trial or of the work associated with it would have been materially different had the ACCC not made the allegations of actual knowledge.

94    In reaching my decision about costs, I have also taken account of the fact that the ACCC acts in the public interest in bringing proceedings of the present kind.

95    There will be an order that Heinz pay the costs of the ACCC of, and incidental to, the proceedings, including reserved costs, on a party and party basis.

Summary

96    For the reasons given above, I impose penalties on Heinz totalling $2.25 million which, as a matter of convenience, can be described as a single penalty.

97    I decline to make the corrective advertising orders sought by the ACCC.

98    There will be orders for Heinz to establish and implement a compliance training program.

99    Heinz is to pay the costs incurred by the ACCC of, and incidental to, the proceedings (including reserved costs) on a party and party basis.

Associate:

Dated:    24 August 2018