FEDERAL COURT OF AUSTRALIA

 Australian Competition & Consumer Commission v Sundaze Australia Pty Ltd [1999] FCA 1642

TRADE PRACTICES – imposition by Court of pecuniary penalty for breach of s 48 Trade Practices Act 1974 (resale price maintenance) - where respondent admits breaches of relevant provisions of Trade Practices Act 1974 - where applicant and respondent are agreed as to a suggested penalty - considerations relevant to assessment by Court of suitable penalty for contraventions of s 48 Trade Practices Act 1974

Trade Practices Act 1974  s 48, s 76, s 93

Trade Practices Commission v Annand and Thompson Pty Ltd (1987) ATPR ¶40-772 referred to

Trade Practices Commission v CSR Ltd (1991) ATPR ¶41-076 referred to

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v SUNDAZE AUSTRALIA PTY LTD

QG 74 OF 1997

SPENDER J

17 NOVEMBER 1999

BRISBANE

THE COURT ORDERS THAT:

1.                  In respect of the contravention of s 48 Trade Practices Act 1974 constituted by the withholding by Sundaze Australia Pty Ltd of supply of Oakley sunglasses to Sunglass World Pty Ltd, a penalty of $120,000 is imposed.

2.                  In respect of the contravention of s 48 Trade Practices Act 1074 constituted by the attempts made by the respondent to induce the proprietor of the "Bright Eyes" franchise retail outlet at Noarlunga in the State of South Australia, not to sell Oakley sunglasses at a price less than the recommended retail price specified by Sundaze Australia Pty Ltd, a penalty of $65,000 is imposed.

3.                  In respect of the nine other contraventions of s 48 Trade Practices Act 1974, alleged in the amended statement of claim filed 9 July 1998, a penalty of $35,000 is imposed in respect of each contravention.

4.                  (a)        Of the pecuniary penalty of $120,000 imposed by Order 1 above, $100,000 of that amount be paid within seven days of today;

(b)        a further amount of $200,000 of the total amount of penalties imposed be paid on or before 1 July 2000;

(c)        the final amount of $200,000 of the total amount of penalties imposed be paid on or before 1 July 2001; and

(d)        if any instalment is not paid on or before the due date specified, then the balance not then paid of the total of $500,000 of the amounts of the pecuniary penalties shall be immediately due and payable.

5.                  Sundaze Australia Pty Ltd be, and is hereby, restrained for a period of three (3) years, whether by its directors, servants or agents or otherwise howsoever, from making it known to any person that Sundaze Australia Pty Ltd will not supply sunglasses manufactured by Oakley Inc, or bearing the trademark or description "Oakley", to that person unless that person agrees not to sell such goods at a price less than a price specified by Sundaze Australia Pty Ltd.

6.                  Sundaze Australia Pty Ltd be, and is hereby, restrained for a period of three (3) years, whether by its directors, servants or agents or otherwise howsoever, from inducing, or attempting to induce, any person not to sell, at a price less than a price specified by Sundaze Australia Pty Ltd, sunglasses manufactured by Oakley Inc, or bearing the trademark or description "Oakley", supplied to that person by Sundaze Australia Pty Ltd or by a third person who, directly or indirectly, has obtained such goods from Sundaze Australia Pty Ltd.

7.                  Sundaze Australia Pty Ltd be, and is hereby, restrained for a period of three (3) years, whether by its directors, servants or agents or otherwise howsoever, from withholding the supply of sunglasses manufactured by Oakley Inc or bearing the trademark or description "Oakley" to any person for the reason that that person:

(a)                has not agreed not to sell such goods at a price less than a price specified by Sundaze Australia Pty Ltd; or

(b)               has sold, or is likely to sell, goods supplied to that person by Sundaze Australia Pty Ltd, or goods supplied to that person by a third person who, directly or indirectly, has obtained such goods from Sundaze Australia Pty Ltd, at a price less than a price specified by Sundaze Australia Pty Ltd as the price below which the goods are not to be sold.

8.                  Sundaze Australia Pty Ltd pay the applicant's costs of and incidental to this application, fixed in the sum of $120,000, within seven days of today's date.

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

REASONS FOR JUDGMENT

1                     This application relates to contraventions of s 48 of the Trade Practices Act 1974 ("the Act") concerning resale price maintenance, the details of which contraventions are identified in an amended statement of claim filed by the Australian Competition and Consumer Commission ("the Commission") on 9 July 1998.

2                     The amended defence of the first respondent, Sundaze Australia Pty Ltd ("Sundaze"), filed on 11 November 1999, admits the whole of the allegations contained in the amended statement of claim.  In those circumstances, the Commission and Sundaze have reached agreement as to what, in their view, would be appropriate penalties pursuant to s 76 of the Act as to injunctions which the Court might issue pursuant to s 80 of the Act, and other orders which the Court might make.

3                     The application today therefore is for the imposition by the Court of appropriate pecuniary penalties and injunctions, and the making of other ancillary orders.  The contraventions admitted in the amended defence of 11 November 1999 arise out of:

1                         Inducements, or attempts to induce, certain retail sellers of sunglasses not to sell "Oakley" (Oakley) sunglasses at prices below those specified by Sundaze;

2                         Making it known to certain retail sellers that Sundaze would not supply Oakley sunglasses to them unless they agreed not to sell the sunglasses at a price less than that specified by Sundaze;

3                         Withholding the supply of such sunglasses to certain retail sellers for the reason that they were likely to sell the sunglasses at prices less than those specified by Sundaze.

4                     This conduct occurred in the course of Sundaze carrying on the business of distributing Oakley products as one of two Australian distributors appointed by the United States manufacturer of those products and then, from 1993, as the exclusive Australian distributor of those products.  The conduct contravening the Act took place from 1987 onwards. 

5                     The joint submission by the ACCC and Sundaze speak of the market and its participants in the following terms:

6                     The conduct occurred in relation to the wholesale supply of sunglasses ("the Wholesale market") and affected the market for the retail sale of such products ("the Retail Market").

7                     The Retail Market consists of retail sellers who are either the holders of franchises with identifiable trading names, participants with multiple stores trading with the same name, or individual independent retail shops.

8                     The conduct occurred from the commencement of Sundaze's appointment as one of the two Australian distributors of Oakley sunglasses.  It proceeded after Sundaze gathered evidence to enable it to provide feedback to the United States manufacturer that the other Australian distributor appointed at that time was permitting that company's account holders to discount Oakley sunglasses.  This led to Sundaze becoming the sole Australian distributor of Oakley sunglasses.  The conduct further continued after the Commission's approach to Sundaze in 1992 about allegations of resale price maintenance and withholding supply, for the reason that the person who made those allegations had not agreed not to sell the Oakley sunglasses at a price less than Sundaze's specified price, and after the Commission's drawing of Sundaze's attention to the resale price maintenance provisions of the Act.  After investigating the complaint the Commission notified Sundaze that it had decided not to pursue the matter further.  The conduct continued after the filing of the application herein.

Oakley Sunglasses

9                     The Wholesale Market and Retail Market included the following designer brands of sunglasses: Oakley; Rayban; Bolle; Carrera and Christian Dior.  Oakley brand sunglasses are manufactured and distributed by Oakley Inc, a corporation based in the United States of America, which has manufactured the sunglasses since 1980 and distributed them throughout the world since then.  The corporation trading as "Precision Eyewear", which estimates that it sells approximately 10 per cent of the volume of sunglasses sold in Queensland, estimates that it sells more Oakley sunglasses than any other brand, and that it sells approximately five pairs of Oakley sunglasses to every pair of Rayban or Bolle sunglasses which it sells.  Other retailers in Queensland also estimate that their sales of Oakley sunglasses constitute the largest number or the second largest number of sales of sunglasses stocked by these retailers.  Oakley brand sunglasses are, and were at all material times, an important product in the Retail Market.  Oakley sunglasses were, at all material times, extremely popular with consumers in the fifteen to twenty year old age group, occupying up to 60 per cent of the volume of sunglasses sold to consumers in that age bracket of the Retail Market.

The Retailers

10                  Sunglass World Pty Ltd, which traded as "Sunglass World" from April 1982 until November 1994, when it sold its business to "Sunglass Hut International" operated, at the time of the sale of its business in November 1994, eighty-one retail stores situated throughout Australia.  In 1987 when Sundaze's conduct in relation to it began, Sunglass World had twenty-seven retail shops in every State in Australia except Tasmania and South Australia. As at 24 March 1998, Australian Ophthalmic Supplies Pty Ltd operated thirty-six retail shops selling exclusive brand sunglasses in the States of Victoria, New South Wales, South Australia and Queensland under the trading name "Merringtons" or, prior to 1 July 1994, "Vision Specialists".  Bright Eyes Franchising Pty Ltd owned ten retail shops which sold exclusive brand sunglasses, and was the franchisor of approximately sixty retail shops located throughout Australia trading as "Bright Eyes", which also sold exclusive brand sunglasses in the Retail Market.  Precision Eyewear Pty Ltd ("Precision Eyewear"), which also sells exclusive brand sunglasses, does so from thirty retail outlets in the region of South East Queensland.

Discounting

11                  In competitive conditions, it is common in the Retail Market for participants in that market to conduct sales promotions in which brands of sunglasses are offered for sale to customers at a price discounted from that at which those items are normally sold.  This occurs: (1) at the direction of the head office of a chain of retail shops or the franchisor of retail shops which carry on business pursuant to a franchise arrangement; (2) by the individual retail shops within the chain or franchise group deciding, on their own initiative, to do so; and (3) by independent retail shops, deciding that such discount will be offered.  Some participants in the Retail Market, principally Sunglass World, adopt marketing strategies which generate high volumes of sales of sunglasses by offering low retail prices.  It is clear from the affidavits of the various retailers that individual retailers did discount the price of Oakley products, particularly in recent years.

12                  In 1987 the United States manufacturer of Oakley Sunglasses had appointed two Australian distributors of the sunglasses: Sundaze, who supplied the Oakley brand sunglasses predominantly to surf shops, and another distributor, who supplied Oakley sunglasses to motorcycle shops.  In or about 1987, the manufacturer of Oakley sunglasses embarked upon an image change by promoting the use of Oakley brand sunglasses in the sporting arena.  Sundaze established accounts with sunglass stores, optometrists, resort stores, some larger general retailers such as Myer, as well as selected specialist sports stores, in addition to the pre-existing accounts which it had established with surf shops.  Around this time, the Oakley brand sunglasses became extremely popular in the Retail Market.  In 1993 Sundaze obtained an exclusive licence from Oakley Inc to distribute Oakley sunglasses in Australia.

13                  At all material times, and since the incorporation of Sundaze, Mr Stephen John Perry has been its managing director.

14                  In relation to the issue of Sundaze's withholding of supply of Oakley sunglasses to retailers for the reason that they have sold, or are likely to sell, the Oakley sunglasses at prices less than Sundaze's recommended retail price, the evidence establishes, in relation to Sunglass World, that in November 1987 the owner of Sunglass World, the largest retailer of sunglasses in Australia, sought to obtain the supply of Oakley sunglasses for resale in Sunglass World stores.  This was done by the owner of Sunglass World telephoning a representative of Sundaze to negotiate the terms of such supply.  The owner of Sunglass World was told by a person alleged to be a Sundaze representative:

"There is nothing to talk about.  We will not supply anybody who cuts the price.  We will not allow anybody to cut the price and we do not cut the price.  There is no deal and no discount and we will not allow you to discount either…"

When the owner of Sunglass World told Mr Perry that Sunglass World was a discounter, Mr Perry replied:

"Based on what you have told me today, we don't need a company like yours in our business…there is no point in discussing it further…"

15                  Sunglass World again tried to obtain a supply of Oakley sunglasses directly from the United States based manufacturer, but was told that it must deal with Sundaze.  Other attempts made by Sunglass World to obtain supply of Oakley sunglasses were thwarted, and its only sales of Oakley sunglasses were achieved by buying the sunglasses from other retailers at full price and reselling them.  Sunglass World also attempted to import Oakley sunglasses from persons who had obtained a supply of them, but Oakley moved swiftly to restrain this method by obtaining an injunction by consent against Sunglass World doing so.  The basis for the injunction was infringement of Oakley's copyright in certain elements of the products.  Accordingly, other than through the methods described above, Sunglass World was denied supply of Oakley sunglasses, and did not sell them in the Retail Market.  Had it been able to do so, it estimates that it would have sold between 50,000 to 75,000 pairs of Oakley sunglasses per annum, exceeding the capacity of any other sunglass retailer in Australia.

16                  In relation to the issue of Sundaze making it known to retailers that Sundaze would not supply them with Oakley sunglasses unless they agreed not to sell the sunglasses at prices less than Sundaze's recommended retail price, the evidence establishes that, in October 1991, the general manager of a chain of retailers trading as "Vision Specialists", a chain which Sundaze had then recently commenced supplying with Oakley sunglasses, advised Sundaze's Victorian distribution agent that, despite the agent's previous assurance that there would be no discounting of Oakley sunglasses from retailers, Vision Specialists would need to discount the Oakley sunglasses at one of its stores to compete with a retailer who had included them in a sale.  In response, Sundaze's agent advised the general manager of Vision Specialists that:

"If you discount prices, we will not supply you…if you do match the discount we will have to stop supplying you and maybe even purchase the product back…"

17                  In 1993 the proprietor of a newly opened Bright Eyes franchise store in Noarlunga, in the State of South Australia, approached Sundaze about the supply of Oakley sunglasses to that store.  Sundaze has admitted that in the course of negotiations for that supply, Mr Perry and Ms Kempsey (the national sales manager of Sundaze) told the retailer that:

"Your account will be closed if there is any discounting."

18                  The Bright Eyes outlets in Noarlunga and Salisbury shopping centres in South Australia commenced stocking Oakley sunglasses in July 1994.  At various times after this date, these outlets have had occasion to place old stock Oakley sunglasses on sale, marked with special clearance prices.  The South Australian agents of Sundaze, upon detecting such advertisements, told the manager of the stores that:

"You can't discount.  Your account will be closed if you keep it up."

19                  In relation to the issue of Sundaze's inducements and attempts to induce retailers not to sell Oakley sunglasses at prices less than Sundaze's recommended retail price, the evidence establishes that in late August or early September 1991, the general manager of Vision Specialists telephoned the Victorian distribution agent for Sundaze in relation to commencement of supply by Sundaze to Vision Specialists of Oakley sunglasses, and in relation to the possibility of a volume discount.  The Sundaze agent, Mr Thomson, refused to give Vision Specialists a volume discount, saying that it would not be needed, because Vision Specialists would not need to provide its customers with discounts, as Sundaze would ensure that no other retailer would discount the Oakley sunglasses below Sundaze's recommended retail price.  Vision Specialists, which operated thirty-six retail outlets in the States of Victoria, New South Wales, South Australia and Queensland, strictly maintained the Sundaze recommended retail price at all times when stocking Oakley sunglasses.

20                  In March 1994, Precision Eyewear, which operated thirty optometry products retail outlets in the region of South East Queensland, promoted a sales campaign by displaying signs in the windows of each of its thirty retail outlets which said "Sale - 10% of [sic] Oakley".  Within twenty-four to forty-eight hours of those signs being displayed, the operations manager of Precision Eyewear received a telephone call from Mr Horton (the Sundaze agent for the distribution of Oakley products in Queensland and northern New South Wales) in which Mr Horton said:

"I have had a complaint from a surf shop in a shopping centre on the Gold Coast regarding a sign in your window offering discounts on Oakley.  What we are trying to do is make prices for Oakley uniform across the country and we would like you to remove the sign…anyone discounting Oakley may find it difficult to get supply in the future."

21                  In response to this telephone call from Mr Horton, the operations manager directed that all the signs offering discounts on Oakley sunglasses in Precision Eyewear stores be removed.  Precision Eyewear, which sells approximately ten per cent of the sunglasses sold in Queensland, and which sells more Oakley brand sunglasses than any other brand, has not advertised discounts on Oakley sunglasses again.

22                  In June 1994, during a sale of sunglasses being conducted by a shop trading as "Bright Eyes Noosa" at Noosa Heads in the State of Queensland, Mr Horton asked the proprietor of the store if he was discounting the Oakley sunglasses as well as other sunglasses, and when the proprietor responded that the store never discounted Oakley, Mr Horton said:

"Just as well because you could lose the account if you do."

23                  In late December 1994 or early January 1995, a shop trading as "OPSM" at Indooroopilly, in the State of Queensland, displayed a sign in its window which said "20% off all sunglasses".  Within forty-eight hours of displaying that sign, the manager of that store received a telephone call from Mr Horton in which Mr Horton said:

"I have had a competitor complain about your store offering discounts on Oakley…you know Oakley don't like its products being discounted?"

24                  The manager of the store explained to Mr Horton that the failure to exclude Oakley sunglasses from the sign was an oversight and asked whether, if he amended the sign to read "20% off all sunglasses, excluding Oakley", that would be acceptable to Sundaze.  Mr Horton said that it would.  Immediately after the telephone call from Mr Horton, the OPSM store at Indooroopilly removed the discount sign from its window, and inserted the words "excluding Oakley" below the reference to "20% off all sunglasses".  The store did not discount current styles of Oakley sunglasses after receiving the telephone call from Mr Horton.

25                  In 1994, Ms Kempsey and Mr Horton attended the premises of the franchisor of a franchise group of sunglass retailers trading as "Bright Eyes", and said to the general manager of that company, in response to his question as to what a retailer in the Bright Eyes chain was expected to do if the retailer found themselves overstocked with Oakley sunglasses, that a sale offering reasonable discounts to generate cashflow and reduce excess stock of sunglasses:

"would not be acceptable to Sundaze,"

and that other methods such as an exchange of stock were to be used. During that conversation Ms Kempsey and Mr Horton told the general manager of the Bright Eyes franchisor that:

"Current styles of Oakley sunglasses should not be discounted…"

26                  Sundaze admits its employees attempted to induce Bright Eyes not to discount as alleged, even though the General Manager of the Bright Eyes franchisor states he did not understand them to be so doing.

27                  In February or March of 1995 Ms Kempsey and Mr Horton attended at the premises of the franchisor of the Bright Eyes chain, and told the managing director of the franchisor that:

"Only people who totally support Oakley could expect to get any support from Oakley or Sundaze,"

and that Sundaze expected Bright Eyes franchisees to sell Oakley sunglasses "at the right price".  When the Bright Eyes franchisor's managing director questioned why some Bright Eyes franchisees were not supplied with Oakley sunglasses, Ms Kempsey and Mr Horton responded that Bright Eyes franchisees could not expect more unless Bright Eyes franchisees showed their full support to Oakley.

28                  Since July 1994, Mr Bishop and Mrs Bishop (the appointed representatives of Sundaze in South Australia) and their assistant, have told the manager of the Bright Eyes franchises in Noarlunga and Salisbury, in the State of South Australia, that:

"You're not supposed to discount."

29                  In October 1997, when Mr Bishop visited the Noarlunga Bright Eyes franchise and observed the inclusion of an old design of Oakley sunglasses in that store's special clearance sale, he told the manager of the store that:

"You're not allowed to do that."

30                  In terms of the Trade Practices Act, the above conduct can be summarised as follows:

(a)           From 1987 until November 1994, Sundaze withheld supply of Oakley sunglasses to Sunglass World Pty Ltd, for the reason that Sunglass World Pty Ltd was likely to sell Oakley sunglasses (supplied to it by Sundaze) at a price less than that specified by Sundaze as the price below which Oakley sunglasses were not to be sold, namely, Sundaze's recommended retail price;

(b)          On the dates set out below, Sundaze made it known to the persons set out below that Sundaze would not supply Oakley sunglasses to them unless they agreed not to sell Oakley sunglasses at a price less than the price specified by Sundaze, namely, Sundaze's recommended retail price;

(c)           On the dates set out below, Sundaze induced, or attempted to induce, the persons set out below not to sell Oakley sunglasses at a price less than that specified by Sundaze, namely, Sundaze's recommended retail price:

31                  It is accepted in the joint submission that the withholding of the supply referred to above, for the reason referred to above, involved contravention of s 48 of the Act, by reason of the operation of s 96(3)(d)(ii) of the Act.  The instances of Sundaze making it known to the persons referred to above that it would not supply Oakley sunglasses to those persons unless they agreed not to sell Oakley sunglasses at less than the recommended retail price specified by Sundaze, involved contraventions of s 48 of the Act by reason of the operation of s 96(3)(a) of the Act.  The inducements or attempts to induce referred to in my reasons above involve contraventions of section 48 of the Act, by reason of the operation of section 96(3)(b).

32                  The contraventions involved the senior management of Sundaze.  The contraventions occurred over a period of at least 10 years.  In particular, one contravention admitted by Sundaze occurred after the Commission filed the application in the present proceedings.  The first respondent accepts that its conduct involved serious breaches of the Act.

33                  In Trade Practices Commission v Annand and Thompson Pty Ltd (1987) ATPR ¶40-772, I referred to a number of factors as relevant to the assessment of penalty for contraventions of s 48 of the Trade Practices Act, namely:

(a)           Whether or not the conduct was deliberate;

(b)          Whether damage was caused by the conduct to the public or to the retailer;

(c)           The size of the corporation's activity in the relevant market;

(d)          The degree to which the conduct was initiated or condoned by senior management;

(e)           What steps were taken by the employer to educate its employees prior to the contraventions;

(f)            The existence or otherwise of a policy by the corporation against breaches of the provisions of the Act;

(g)           Whether the conduct was the result of a mistake on the part of an employee;

(h)           Whether there has been similar conduct in the past;

(i)             Whether, since the occurrence, controls over employees, particularly sales personnel, have been increased or improved to prevent a repetition of the conduct; and

(j)            Whether the corporation has made a full and frank disclosure and co-operated with the Commission.

34                  In Trade Practices Commission v CSR Ltd (1991) ATPR ¶41-076 at 52,152-52,153, French J referred to a number of factors to which reference had been made in cases to which he referred.  Those factors were:

"            1.         The nature and extent of the contravening conduct.

2.         The amount of loss or damage caused.

3.         The circumstances in which the conduct took place.

4.         The size of the contravening company.

5.         The degree of power it has, as evidenced by its market share and ease of entry into the market.

6.         The deliberateness of the contravention and period over which it extended.

7.         Whether the contravention arose out of the conduct of senior management or at a lower level.

8.         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.

9.         Whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention."

35                  It is clear that the object of the penalty under s 76 is deterrence.  It is also clear that it is for the Court to determine whether the contraventions have occurred, and what pecuniary penalties or other relief should be ordered.  It is not the case that the Court accepts a penalty that has been agreed between the Commission and a respondent.  Any agreement between the ACCC and a respondent as to the appropriate penalty, or appropriate range of penalties, is highly relevant to what the Court ought to impose by way of penalty, but in no way is the Court dictated to by any such agreement between the parties; nor is the penalty imposed by anybody other than the Court.

36                  The maximum penalty for each act or omission in contravention of Part IV of the Trade Practices Act is, in the case of a corporation, $10 million: (s 76(1A)(b)).  These penalties apply to acts or omissions after 31 January 1993.  For acts or omissions that occurred prior to that time, the maximum penalty for each contravention, in the case of a corporation, is $250,000.

37                  Having regard to the factors that have been earlier set out, it is correct to note, as the parties have in their joint submission, that in relation to the question of whether the conduct was deliberate or not and the period over which it extended, I observed in Trade Practices Commission v Annand and Thompson (supra) at ¶40-773:

"…[the Act's]…object is to create conditions benefiting the public from traders competing with one another.  In particular, the competition in the market is to be unfettered by price restraints imposed by suppliers on retailers of goods."

38                  Oakley sunglasses are sold in the Retail Market in the range between $79.95 to $239.95.  The sunglasses are promoted as "prestigious, exclusive…premium product[s] which [are] at the top end of the range of action related, sports-oriented sunglasses and which are worn by people who perceive themselves to be successful, highly active people…".  The manufacturer and Sundaze have a policy of promoting Oakley sunglasses in Australia predominantly by means of product endorsement from high profile, successful athletes.

39                  Mr Horton told shop proprietors that "Oakley doesn't like its products being discounted"; "what we are trying to do is make prices for Oakley uniform across the country…".  Mr Thomson, in relation to a prospective customer of Sundaze for the supply of Oakley sunglasses felt that he was "…able to assure [them] that we only sell to quality optical outlets and surf shops which will not discount the product…".

40                  Sundaze's managing director and its national marketing manager themselves perpetrated instances of the conduct which is the subject of the application.

41                  In August 1992 the Commission wrote to Sundaze in relation to two matters.  First, Sundaze's refusal to supply Sunglass World for the reason that Sunglass World was likely to sell Oakley sunglasses at a price less than its recommended retail price; (that is, the allegation in paras 44-48 of the amended statement of claim filed 9 July 1998).  Secondly, Sundaze's inducement of Visions Specialists not to sell the sunglasses at less than Sundaze's recommended retail prices, and Sundaze's making it known to Vision Specialists that it would not supply the sunglasses unless it agreed not to sell them at a price less than its recommended retail prices; (that is, the allegations referred to in paras 36-43 of the amended statement of claim).  With its letter the Commission enclosed a copy of the resale price maintenance provisions of the Trade Practices Act.  Sundaze, at that time, denied the conduct the subject of the Commission's investigation.  The denial was made by Mr Perry himself, and included a denial of the conduct perpetrated by him personally in relation to Sunglass World.  Notwithstanding that the Commission investigated the complaint and advised Sundaze that it had decided not to pursue it further, there can be no question that Sundaze was aware of the subject conduct at the time of the Commission's investigation in 1992.

42                  The present application by the Commission is concerned with, amongst others, nine contraventions of s 48 of the Act, which occurred after the correspondence between the Commission and Sundaze in August 1992.

43                  In March 1995 the Commission again wrote to Sundaze concerning allegations made against it in relation to contraventions of s 48 of the Act.  Sundaze again denied the allegations, although it said that it was aware of the resale price maintenance provisions of the Act and that it "appreciates that it cannot specify to retailers a price below which they cannot sell Oakley products…"  Notwithstanding this, the conduct the subject of the application continued even after the filing of the application.

44                  In relation to the nature and extent of the contravening conduct, the evidence indicates that instances of the contravening conduct occurred in the period from 1987 to 1997 in Brisbane, on the Sunshine Coast in the State of Queensland, in south east Queensland, and in the States of Victoria and South Australia.

45                  In relation to the damage caused by the conduct to the public and to retailers, and as to the quantum of such loss or damage, the evidence establishes that between 1986 and 1991, Sundaze had established accounts with approximately 750 stores whom it regarded as "authorised Oakley dealers".  In 1991 Sundaze said that the average retail price in Australia for a style of Oakley sunglasses called "Razor Blades", with "iridium lenses", was $169.95.  At the time that Sundaze moved the Court for an injunction to restrain Sunglass World from selling Oakley sunglasses which it had purchased from the Retail Market and from overseas sources, Sunglass World was selling the "Razor Blades" sunglasses in its retail shops for $114.95, $91.95, $136.00 and $91.96.  At all times during which Sunglass World traded prior to the sale of its business in 1994, it was denied supply of Oakley sunglasses by Sundaze and, consequently, at all (except insofar as it purchased from the Retail Market and from overseas sources).  Had it been able to obtain supply of Oakley sunglasses, it estimates that its eighty-one retail stores around Australia would have sold between 50,000 and 75,000 pairs of Oakley sunglasses per annum.  Its marketing strategy was to generate a high volume of sales by offering low retail prices.  Sunglass World was the largest retailer of sunglasses in Australia.  At the material times, Sunglass World sold approximately 30% of the sunglasses sold by retail in Queensland.  Consumers were deprived of the opportunity to purchase Oakley products at reduced prices through Sunglass World, and Sunglass World was denied the opportunity to profit from the sale of Oakley products.  Whilst Sunglass World was a significant retailer of sunglasses, the affidavits filed by Sundaze show that, during the relevant period in Queensland, there was discounting taking place.  This discounting involved some outlets of the Bright Eyes franchise.

46                  The conduct had the effect of preventing the retail sale of Oakley sunglasses, at prices less than the recommended retail price specified from time to time by Sundaze, by the thirty-six shops in Victoria, New South Wales, South Australia and Queensland which traded as "Vision Specialists" between 9 October 1991 and 31 August 1992.  The conduct also prevented, at material times, retail sales of Oakley sunglasses, at prices less than the recommended retail price specified from time to time by Sundaze, by any of the sixty retail stores trading around Australia as "Bright Eyes".  This group of retail shops sold approximately 10 per cent of the sunglasses sold in Queensland at the material times.

47                  The conduct also resulted in a chain of optometrists shops owned by OPSM, and trading in the State of Victoria as "Coles & Garrard", having a policy in 1991 and 1992 which precluded it from selling Oakley sunglasses at less than the recommended retail price specified by Sundaze.

48                  Even where the conduct failed to eradicate price competition in relation to Oakley sunglasses in the Retail Market, it resulted in the suppression of the advertising of it, which has the consequence of diminishing that competition in any event.  From March 1994, as a result of the conduct, Precision Eyewear, which trades in thirty retail shops in south east Queensland and sells approximately 10 per cent of all sunglasses sold in Queensland, directed all of its stores to remove signage offering discount prices on Oakley sunglasses.

49                  Oakley sunglasses were, at material times, extremely popular with consumers in the fifteen to twenty year-old age bracket, and accounted for up to 60 per cent of the premium sunglass market for that age group.

50                  Sundaze exists solely because of the distribution agreement which it has with Oakley Inc, which allows it to distribute Oakley sunglasses and accessories throughout Australia.

51                  Sundaze's restrictions on price competition by retailers were not limited to large concerns, but extended to certain small businesses, affecting their ability to compete in the Retail Market.  Oakley sunglasses were, at all material times, a significant product in the Retail Market and, as stated above, are very popular among teenagers and young adult consumers.  By reason of Sundaze's status as the sole Australian distributor of Oakley sunglasses, it was able to effectively dictate to the enterprises affected by the conduct, the price at which they would sell Oakley sunglasses in the Retail market.

52                  The fact of a supplier's exclusive position over the supply of particular goods that it was selling was taken into account in assessing penalty in Trade Practices Commission v Bamix Australia Pty Ltd (1985) ATPR ¶40-534.

53                  Notwithstanding the conduct admitted by Sundaze, it is clear from the Retailer affidavits that some outlets considered themselves free to, and in fact did, discount the price of Oakley products.  In some cases these discounts ranged from 10 per cent up to as much as 50 per cent.  The outlets which engaged in this practice included several outlets from the Bright Eyes franchise chain.  Thus, the overall effect of Sundaze's conduct on the market place is arguably mitigated by the preparedness of these retailers to discount the price of Oakley products.  As in Trade Practices Commission v Bamix Australia Pty Ltd, it is not possible to quantify the loss or damage suffered as a result of the conduct of Sundaze.

54                  One matter which has troubled me concerning the suggested pecuniary penalties, is the size of Sundaze's activity in the relevant market and its size as a company.  Sundaze is not a large company.  As at 31 January 1999 its net assets were worth $6.5 million, and as at 30 June 1998 its net assets were worth $5.7 million.  As at 30 June 1998, Sundaze had cash reserves of $2.5 million and an overdraft balance of $1 million.  Sundaze's sales revenues as at 31 January 1999 were $19.3 million and its gross profit was $5 million.  As at 30 June 1998, Sundaze sales revenues were $20.1 million and its gross profit was $4.7 million.  The only activity of Sundaze over the period 1994 through to 1998 was the distribution of Oakley sunglasses.

55                  This aspect of the matter makes it plain that a total of pecuniary penalties of $500,000 is a very significant penalty and, but for the agreement between the parties, I would have to say that the total of the pecuniary penalties which the parties have agreed as appropriate would be at the higher end of the total of penalties I would have imposed, uninformed of the view of the parties.

56                  Oakley Inc terminated its agreement with Sundaze (which conferred exclusive distribution rights) in September 1998.  Sundaze faces an uncertain future, to the extent that it does not have a binding agreement with Oakley Inc.  Sundaze envisages that it will face pressure on gross margins from Oakley Inc.

57                  It is clear that pecuniary penalties totalling $500,000 would have a major impact on Sundaze's profitability, and it cannot be doubted that penalties totalling that amount will operate as a very significant deterrent to Sundaze in engaging in a repetition of the conduct admitted in these proceedings.

58                  It is also the case that the contravention arose out of conduct at senior management level.  Since Sundaze's incorporation, Mr Perry has been Sundaze's managing director.  When approached by the managing director of Sunglass World in relation to the supply of Oakley sunglasses by Sundaze to Sunglass World, and when told that Sunglass World was a "discounter", Mr Perry told him that "based on what you told me today, we don't need a company like yours in our business.  There is no point in discussing it further".  Both Mr Perry and Ms Kempsey, the national marketing manager, have told retailers who were negotiating with Sundaze for the supply of Oakley sunglasses that "your account will be closed if there is any discounting".  The conduct was engaged in by the managing director of Sundaze and one of its most senior employees.

59                  The joint submission suggests that there have been attempts made to educate employees of Sundaze prior to the contraventions.  According to Mr Perry, as at 10 October 1996, staff of Sundaze had been provided with a manual relating to the Act.  This manual was prepared by Sundaze's solicitors.  In addition, in 1996 a Trade Practices lecture was conducted for employees and representatives of Sundaze.  It is to be noted, however, that there were no previous educational programs regarding compliance with the Act.  For example, from 1987 to 1991, the person responsible for servicing retailers who held Oakley accounts with Sundaze, and for attempting to establish new accounts with retailers, in the area of Ballina in the State of New South Wales to Port Douglas in the State of Queensland, had not at any time been advised of the provisions of the Act by anyone from Sundaze.

60                  Sundaze has indicated that it has introduced a compliance program.  Sundaze has, as a result of the present application, agreed with the Commission that it will maintain and upgrade the program and keep its employees informed of obligations under the Act and amendments to it.

61                  It is clear that the instances of the conduct which occurred from 1987 to 1997 in various parts of Queensland, Victoria, and South Australia, were not the result of a mistake on the part of a single employee.  It is also clear that the conduct did not simply occur on an isolated occasion.

62                  Sundaze has never been the subject of a previous application for a pecuniary penalty under the Act, and it is accepted in the joint submission that it has introduced a compliance program in relation to its obligations under the Act, and has agreed to maintain and upgrade the program to keep its employees informed of these obligations.  However, it is relevant to note that in August 1992 and March 1995 the Commission drew to Sundaze's attention allegations of the conduct which is now before the Court.  Sundaze then denied it had engaged in conduct in contravention of the Act.  All the contraventions before the Court, except those referred to at paragraphs 36 to 48 of the statement of claim, occurred after the Commission requested Sundaze's response to those allegations.

63                  Mr Perry, as well as Ms Kempsey, who was the national sales manager of Sundaze at all material times, and Mr Horton, who was in 1994 and 1995 an agent for Sundaze for the distribution of Oakley products for Queensland and northern New South Wales, were examined pursuant to s 155(1)(c) of the Act.  When the allegations comprising the contraventions now before the Court were put to them, they gave evidence that they either did not recall the incidents, or their basis for denying them previously.

64                  After a series of extensive negotiations both before the filing of this application and since, the position now is that Sundaze has admitted it engaged in the resale price maintenance conduct and, by its amended defence filed 11 November 1999, has admitted the allegations in the amended statement of claim.  This co-operation has resolved the proceedings and saved the expense of what would have been a very lengthy trial.

65                  In the light of the facts and circumstances detailed above, the Court is minded to impose the penalties which the parties suggest would be appropriate.

66                  I find the contraventions alleged in the amended statement of claim filed 9 July 1998 proved.  In respect of the withholding of supply of Oakley sunglasses to Sunglass World Pty Ltd as alleged in par 45 of the amended statement of claim, I impose a pecuniary penalty of $120,000.  In respect of the contravention of the Act alleged in par 60 of the amended statement of claim relating to attempts to induce the proprietor of a store in South Australia not to sell Oakley sunglasses at a price less than that specified by Sundaze, being the Sundaze's recommended retail sale price, I impose a pecuniary penalty of $65,000.

67                  In respect of each of the other nine contraventions of the Act, in each case I impose a pecuniary penalty of $35,000.  The total of the pecuniary penalties is $500,000.  I make it plain that the orders that I make are not accurately to be described as consent orders.  The parties have submitted that the Court should note, and I do, that it is said that Sundaze will improve its compliance program which is designed to promote its and its directors', officers', and other employees' and agents' compliance with the provisions of the Trade Practices Act.

68                  I order that Sundaze Australia Pty Ltd be, and is hereby, restrained for a period of three (3) years, whether by its directors, servants or agents or otherwise howsoever, from making it known to any person that Sundaze Australia Pty Ltd will not supply sunglasses manufactured by Oakley Inc, or bearing the trademark or description "Oakley", to that person unless that person agrees not to sell such goods at a price less than a price specified by Sundaze Australia Pty Ltd.

69                  I further order that Sundaze Australia Pty Ltd be, and is hereby, restrained for a period of three (3) years, whether by its directors, servants or agents or otherwise howsoever, from inducing, or attempting to induce, any person not to sell, at a price less than a price specified by Sundaze Australia Pty Ltd, sunglasses manufactured by Oakley Inc, or bearing the trademark or description "Oakley", supplied to that person by Sundaze Australia Pty Ltd or by a third person who, directly or indirectly, has obtained such goods from Sundaze Australia Pty Ltd.

70                  I further order that Sundaze Australia Pty Ltd be, and is hereby, restrained for a period of three (3) years, whether by its directors, servants or agents or otherwise howsoever, from withholding the supply of sunglasses manufactured by Oakley Inc or bearing the trademark or description "Oakley" to any person for the reason that that person:

(a)          has not agreed not to sell such goods at a price less than a price specified by Sundaze Australia Pty Ltd; or

(b)          has sold, or is likely to sell, goods supplied to that person by Sundaze Australia Pty Ltd, or goods supplied to that person by a third person who, directly or indirectly, has obtained such goods from Sundaze Australia Pty Ltd, at a price less than a price specified by Sundaze Australia Pty Ltd as the price below which the goods are not to be sold.

71                  Finally, I order that Sundaze Australia Pty Ltd pay the applicants costs of an incidental to this application, fixed in the sum of $120,000, within seven days of today's date.

72                  So far as the paying of the pecuniary penalties that the Court has imposed, of the pecuniary penalty of $120,000 imposed in respect of the contravention identified in paragraph 45 of the statement of claim, I order that $100,000 of that amount be paid within seven days of today;  I further order that a further amount of $200,000 be paid on or before 1 July 2000; and that the further amount of $200,000 in total be paid on or before 1 July 2001.  In addition, I order that if any instalment is not paid on or before the due date that I have specified, then the entire balance of the total of $500,000 of the amounts of the pecuniary penalties not then paid, shall be immediately due and payable.

73                  I once again indicate that it is my opinion that the total of the penalties imposed, having regard to the size of the operation and the size of the company and its profitability, is a very significant one.

Associate:

Dated:              30 November 1999