FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Universal Music Australia Pty Limited (No 2) [2002] FCA 192

TRADE PRACTICES – pecuniary penalty - principles to be applied in assessing the appropriate pecuniary penalty for contravention of sections 46 and 47 of Part IV of the Trade Practices Act 1974 (Cth) – relevance of amendment increasing maximum penalties discussed.

TRADE PRACTICES – Injunctive relief – whether injunctive relief should be granted where respondents unlikely to reoffend.

COSTS – offer to settle on the basis that Australian Competition & Consumer Commission discontinue and no order be made as to costs – whether Calderbank offer – whether a genuine offer of compromise where no consideration of real value – no order for indemnity costs made.

Trade Practices Act 1974 (Cth) ss 80 (4), 80(5)

Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 applied

Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR 41-809 distinguished

Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2001] FCA 1716 cited

ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 cited

Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 discussed

John S Hayes v Kimberly-Clark (1994) 52 FCR 201 discussed

Calderbank v Calderbank [1975] 3 All ER 333 distinguished

Smallacombe v Lockyer Investment Co (1993) 42 FCR 97 followed

McKerlie v State of New South Wales (No2) [2000] NSWSC 1159 cited

SHORT MINUTES OF ORDER

THE COURT DECLARES THAT:

1.                  The first respondent in contravention of section 46(1)(b) of the Trade Practices Act 1974 (Cth) (“the Act”) took advantage of its substantial degree of power in a market, being the wholesale market for recorded music in Australia, by:

(a)    between July and September 1998 threatening to refuse to supply retailers in Australia; and

(b)   in August and September 1998 refusing to supply particular retailers being:

(i)                  West’s (Burwood) Pty Ltd, trading as “West’s Sound Bar”;

(ii)                Ultimate Music Pty Ltd, trading as Ultimate Music; and

(iii)               Trevan Enterprises Pty Ltd, trading as “Bull Creek Compact City”;

for the purpose of preventing the entry into that market of competitors, being persons who would sell by wholesale or export to Australia compact discs containing recorded music imported from overseas that are non-infringing copies within the meaning of section 10AA of the Copyright Act 1968 (Cth) (“non-infringing copies”).

2. The first respondent in contravention of section 47(1) of the Act:

(a)    between July and September 1998 offered to supply goods, being compact discs containing recorded music, to retailers in Australia on condition that the retailers would not acquire non-infringing copies from a competitor of the first respondent; and

(b)   in August and September 1998 refused to supply goods, being compact discs containing recorded music, to particular retailers in Australia being:

(i)                   West’s (Burwood) Pty Ltd, trading as “West’s Sound Bar”;

(ii)                 Ultimate Music Pty Ltd, trading as Ultimate Music; and

(iii)                Trevan Enterprises Pty Ltd, trading as “Bull Creek Compact City”;

for the reason that those persons had acquired non-infringing copies from competitors of the first respondent.

3. The third respondent was knowingly concerned in the contraventions by the first respondent

of sections 46 and 47 of the Act.

4. The fourth respondent was knowingly concerned in the contraventions by the first respondent of sections 46 and 47 of the Act.

THE COURT DIRECTS THAT:

5. The seal of the Court be affixed to the Reasons for Judgment of the Court dated 14 December 2001.

THE COURT ORDERS THAT:

Pecuniary Penalties

6.      The first respondent pay to the Commonwealth within 30 days of this order a pecuniary

Penalty pursuant to s 76 of the Act in the amount of $450,000.

7.                  The third respondent pay to the Commonwealth within 30 days of this order a pecuniary penalty pursuant to s 76 of the Act in the amount of $45,000.

8. The fourth respondent pay to the Commonwealth within 30 days of this order a pecuniary penalty pursuant to s 76 of the Act in the amount of $50,000.

Injunction

9. The first respondent be permanently restrained, whether by itself, its servants or agents or otherwise from refusing or threatening to refuse supply of compact discs containing recorded music to a retailer in Australia for the reason, or for reasons which include the reason, that the retailer has acquired or proposes to acquire from alternative suppliers non-infringing copies of compact discs containing recorded music within the Australian catalogue of the first respondent.

Costs

10. The first and fourth respondent pay 75% of the applicant’s costs and the third respondent pay 70% of the applicant’s costs, including reserved costs of and incidental to the application excluding:

(a) costs incurred by the applicant solely in respect of its claim against the second defendant; and

(b) costs incurred by the applicant of and incidental to the hearing on 8 October 1999.

Dismissal of Proceedings against the second respondent

11. The application be dismissed as against the second respondent.

12. The applicant pay to the second respondent any costs incurred by the second respondent of

and incidental to the application.

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

SHORT MINUTES OF ORDER

THE COURT DECLARES THAT:

1.      The first respondent in contravention of section 46(1)(b) of the Trade Practices Act 1974 (Cth) (“the Act”) took advantage of its substantial degree of power in a market, being the wholesale market for recorded music in Australia:

(a)    by letter dated 20 July 1998 threatening to refuse to supply retailers in Australia; and

(b)   in September and October 1998 refusing to supply a particular retailer being Raiders Music Pty Ltd;

for the purpose of preventing the entry into that market of competitors, being persons who would sell by wholesale or export to Australia compact discs containing recorded music manufactured overseas that are non-infringing copies within the meaning of section 10AA of the Copyright Act 1968 (Cth) (“non-infringing copies”).

2.      The first respondent in contravention of s 47(1) of the Act:

(a)    by letter dated 20 July 1998 offered to supply goods, being compact discs containing recorded music, and services, being trading terms, to retailers in Australia on condition that the retailers would not acquire non-infringing copies from a competitor of the first respondent; and

(b)   in September and October 1998 refused to supply a particular retailer being Raiders Music Pty Ltd for the reason that it had acquired non-infringing copies from competitors of the first respondent.

3.      The second respondent was knowingly concerned the contraventions by the first respondent of sections 46 and 47 of the Act.

4.      The third respondent was knowingly concerned in the contraventions by the first respondent of sections 46 and 47 of the Act.

THE COURT DIRECTS THAT:

5.      The seal of the Court be affixed to the Reasons for Judgment of the Court dated 14 December 2001.

THE COURT ORDERS THAT:

Pecuniary Penalties

6.      The first respondent pay to the Commonwealth within 30 days of this order a pecuniary penalty pursuant to s 76 of the Act in the amount of $450,000.

7.      The second respondent pay to the Commonwealth within 30 days of this order a pecuniary penalty pursuant to s 76 of the Act in the amount of $45,000.

8.      The third respondent pay to the Commonwealth within 30 days of this order a pecuniary penalty pursuant to s 76 of the Act in the amount of $45,000.

Injunction

9.      The first respondent be restrained, whether by itself, its servants or agents or otherwise from refusing or threatening to refuse supply of compact discs containing recorded music to a retailer in Australia for the reason, or for reasons which include the reason, that the retailer has acquired or proposes to acquire from alternative suppliers non-infringing copies of compact discs containing recorded music within the Australian catalogue of the first respondent.

Costs

10.  The respondents pay 75% of the applicant’s costs, including reserved costs, of and incidental to the application.

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

REASONS FOR JUDGMENT

1                     On 14 December 2001 I delivered judgment in each of the two proceedings brought by the Australian Competition and Consumer Commission (“the ACCC”), being respectively No 925 of 1999 against Universal Music Australia Pty Ltd (“Universal”) and three officers of Universal (Ms Cohen, Mr Handley and Mr Dickson) and No 924 of 1999 against Warner Music Australia Pty Ltd (“Warner”) and two of its officers, Mr Smerdon and Mr Maksimovic. I found that each of Universal and Warner had contravened ss 46 and 47 of the Trade Practices Act 1974 (Cth) (“the Act”) and that each of the individual respondents, other than Ms Cohen had contravened s 75B of the Act in that they were knowingly concerned in the respective contraventions of the corporate respondents. I found, however, that neither Warner nor Universal had contravened s 45 of the Act in respect of what I referred to in the judgment as the overseas conduct. It followed that allegations by the ACCC that the individual respondents had contravened s 75B in relation to the overseas conduct were, likewise, not made out.

2                     Upon giving judgment I ordered that each matter be stood over to a date to be fixed with counsel for argument as to the orders I should make and, in particular, the quantum of penalty that I should impose. That date was, ultimately, fixed for Friday 1 February, on which date I heard full argument on the matters outstanding. It can be said that the parties were in dispute with respect to four matters. These were, the quantum of penalty to be imposed, whether injunctive relief should be granted and if so, in what form, what, if any orders I should make with respect to a compliance program and finally what order for costs I should make. In addition, senior counsel for Universal made submissions as to the form of the declaratory relief which was sought by the ACCC.

3                     It appeared from evidence read that day that each of Universal and Warner had formulated and/or implemented a compliance program relating to its obligations under the Act. It was not clear in what respect, if any, the ACCC regarded these programs to be deficient. From such evidence as was read it was clear that each program was far reaching and that it would be inappropriate to make an order that each of Universal and Warner implement an entirely new program which inevitably would cover much the same ground as the existing programs. Ultimately the parties agreed that, rather than agitate that matter before me the ACCC should notify each of Universal and Warner in what respect each company’s existing program was in the Commission’s view deficient. Thereafter the parties would discuss the matter and attempt to agree on the changes if any which should be implemented and only to the extent of any disagreement should I deal with that matter. Accordingly I do not in these reasons consider further the question of compliance programs.

4                     It is convenient to deal first with the submissions of Universal concerning the form of declaratory relief which should be granted and then to consider the remaining three matters at issue between the parties.

The declaratory orders

5                     It is not in dispute that I should make declaratory orders recording the contraventions found. What is disputed by Universal is whether, in the reasons which I published, I found (as the ACCC contended and Universal denied) that Universal had, in breach of s 46(1)(b) of the Act between July and September 1998 threatened to refuse to supply retailers with compact discs for a proscribed purpose and further whether in those reasons I found (as the ACCC contended and Universal denied) that Universal had in the same period offered to supply compact discs and services being trading terms to retailers in Australia on condition that the retailers would not acquire non-infringing copies from a competitor of the First Respondent. If these findings were made it is not in dispute that declarations should be made reflecting them.

6                     In part, the confusion, if there is one, in the Universal matter, arises from the way in which the ACCC pleaded its case. It will be recalled (see judgment paras 18 and 19) that one claim made by the ACCC was that Universal contravened the Act by communications referred to as “the trading terms communications” with a number of Australian retailers to the effect that Universal reserved the right to review trading terms if the retailer chose to import non-infringing copies. Another claim was that Universal had adopted a policy, referred to as “the Universal policy” which was communicated to a number of retailers, where the policy included a term that Universal might cease to trade with the retailers if they chose to stock imports which were non-infringing copies. A third allegation was that Universal had in fact ceased to supply Compact City, Wests and Ultimate Music because they had imported non-infringing copies.

7                     I found, and as to this there is no dispute, that the third allegation was proved and constituted a contravention of both ss 46 and 47 of the Act. However, while I found that each of the first two allegations had been proved, on their own they did not constitute contraventions of these sections. A policy which involved no more than the decision that Universal would at some time in the future review whether to trade with a person who imported non-infringing copies and might or might not thereafter do so is not of itself a threat to refuse supply to retailers who did in fact import. Rather it is a threat to consider later whether or not to refuse supply to those retailers. There is a difference, however, where the threat phrased in terms of considering the question of refusal to supply in the future is made against the background of an actual refusal of supply to a retailer who in fact imported non-infringing copies, where that refusal is made known to the industry.

8                     As I found, Universal, when faced with the fact that Wests (or so Universal may have thought anyway) had imported a non-infringing disc and Compact City likewise, did in fact, it can be inferred, review their trading terms and decide to refuse supply at least in these cases. As I found, the refusal to supply Wests and Ultimate (see para 84) (and most likely Compact City – see para 456) was signalled to retailers. That operated to convert the mere threat to consider whether to refuse supply into something more concrete, namely that dealing in non-infringing imported copies would lead to a refusal to supply. It was for this reason that I said, at para 441 that Universal (and Warner) had exercised the substantial market power they had by “threatening to refuse and thereafter refusing supply to retailers who imported non-infringing copies of Universal or Warner titles as the case may be”. The sentence that follows thereafter deals, as it explicitly says, just with the “Universal Policy”. I said, and I adhere to what I said, that the policy itself, went no more than to threaten retailers that if they dealt in imported titles Universal might consider whether or not to supply or reconsider trading terms which “on its own” would not be a breach of s 46.

9                     That I was of the view that Universal (and for that matter Warner) had threatened to refuse supply to those who imported or dealt in non-infringing copies is repeated in the judgment as well at para 499. Accordingly I am of the view that the declaratory relief should extend beyond a declaration that Universal had infringed the Act by refusing supply for a proscribed reason to include infringement for threatening to do so.

10                  It is further submitted on behalf of Universal that I should not make a declaration that Universal had in the relevant period offered to supply goods (compact discs) or services (being trading terms) to retailers on condition that the retailers would not acquire non-infringing copies and in breach of s 47 of the Act because this was not in accordance with the findings I made. I disagree. In paragraph 451 I specifically noted that in respect of Wests and Ultimate on the one hand and Compact City on the other there was in conversations an offer to supply only if parallel imported products were not acquired for resale in the future. I accept, however, that in respect of Universal I made no finding that there was an offer to supply trading terms on a like condition. I will in due course make declarations in accordance with the above reasons.

11                  The same issue does not really arise in the case against Warner. The letter from Mr Harris dated 20 July 1998, (see my reasons at paras 117 & 118) and what was said by Mr Maksimovic to Mrs Knazko discussed in my reasons at para 124 –5 make it clear both that there was a threat by Warners not to supply and a like threat in respect of trading terms. I would accordingly make against Warner the declarations requested by the ACCC.

The quantum of penalty.

12                  On behalf of the ACCC it is submitted that I should impose on each corporation a pecuniary penalty of $8,000,000. It is further submitted that I should impose on the individual respondents in the Universal matter (save Ms Cohen) a pecuniary penalty of $250,000 on Mr Handley and $350,000 on Mr Dickson and on the individual respondents in the Warner matter the sum of $400,000 on Mr Smerdon and $250,000 on Mr Maksimovic. On behalf of Universal and Warner (and, it may be said the individual respondents) it is submitted that the pecuniary penalty should be at the low end of the scale, or, as it was put by senior counsel for Warner, the penalty should be a “modest” one.

13                  It may be said generally that, save for one matter, the parties were in agreement that the matters relevant for me to take into account in accessing penalty were those discussed by French J in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 and the cases referred to in that decision. The one matter, not relevant in the CSR case is the significance of the fact that in January 1993 the maximum penalties provided for in s 76 of the Act for contraventions were increased from $250,000 to $10 million for a corporation and from $50,000 to $500,000 for an individual. It is submitted on behalf of the ACCC that the increase reflects a legislative intention that a contravention of Part IVA of the Act is ordinarily to be reflected in the imposition of a substantial penalty on the corporation or individual involved. It is said that in the context of these maximum penalties I should reaffirm the serious nature of offences under the Part and give effect to the legislative policy of substantial penalty.

14                  I would adopt the comments made by French J as to the principles to be applied in determining the pecuniary penalty to be applied and, subject to the matter dealt with in the last paragraph of these reasons, the various factors canvassed in the cases (and listed in s 76 of the Act) to which regard may be had. It is convenient therefore to set out those factors and the significance of them in the circumstances of the present case. In addition to the factors, specifically referred to by French J, I have added as the last two factors other matters which are referred to in the case law. However, before considering these factors I would note that in the cases discussed by French J it has been pointed out that the penalty should be proportionate to the deliberation of the conduct, it should be high enough to have a deterrent quality, although not too high as to be oppressive, the public interest will be a relevant matter, as will the extent of the period over which the conduct continued. It is common ground that the contraventions under s 46 and 47, arising as they do from the same conduct, should be treated in determining the quantum of pecuniary penalty as a single offence and not as separate offences.

The nature and extent of the contravening conduct:

15                  It must be accepted that the conduct engaged in here was serious. It was a deliberate attempt to subvert the consequences of legislation designed to permit parallel imports of non-infringing copies of compact discs. One consequence of the legislation was to increase the competition in compact discs available in Australia. Subverting the legislation inevitably had the consequence of reducing the competition for discs in the catalogue of each respondent corporation to the extent that they were available for purchase overseas and subsequent sale in Australia. Universal and Warner engaged in the conduct they did with the deliberate purpose of preventing parallel importation of non-infringing copies and for the purpose of affecting competition in the market in Australia.

16                  On the other hand it must be said that the conduct each engaged in did not continue for long. It was discontinued as soon as the ACCC began its inquiries and was not resumed. However, it may well have continued had the ACCC not intervened. Against this, it may be noted that the finding of contravention involved difficult questions of law and could not be said to be clear cut. As will be seen at least in the case of Universal, it had obtained legal advice to the effect that it was lawful to refuse supply to retailers who imported non-infringing copies, even if it turned out that that advice was, in my opinion, incorrect.

The amount of loss or damage caused.

17                  There is little evidence of loss that was suffered and certainly none that could be quantified. Mrs Delaney intended to close Wests anyway. It is possible that there was some loss to Tempo but the evidence does not permit this to be assessed. There is little suggestion that loss arose in a way that could be quantified in respect of the conduct of Warner. In part the fact that there was little loss suffered was the result of the short period of time over which the conduct in question took place. Absence of evidence of loss will not, however, necessarily militate against the imposition of a penalty, cf Trade Practices Commission v ICI Australia Operations Pty Ltd (1991) 105 ALR 115 at 119 per Olney J and this must particularly so in cases where the conduct is discontinued on intervention by the ACCC but where it can be inferred (as it can here) that the conduct would have continued but for that intervention and in circumstances where it would be likely that loss would be suffered to some extent by those who might be expected to be affected by that continuance.

The circumstances in which the conduct took place.

18                  In the present cases the conduct in question took place against the background of the changes to the copyright law to allow parallel importation with the purpose of stopping parallel importation gaining a foothold in Australia and thereby to reduce competition.

19                  Senior counsel for Universal submitted that it was relevant under this heading to note that Universal had obtained legal advice from its solicitors to the effect that it would not be a contravention of the Act to withhold supply (or refuse discounts) to retailers who sold non-infringing copies and that advice was (subject to the acceptance by Universal that the relevant market was the market for CDs generally) to the effect that it was “most unlikely” that PolyGram (as Universal was then called) had a substantial degree of market power. It was submitted by senior counsel for the ACCC that the advice was qualified in that it suggested that it would be dangerous for PolyGram to tell a retailer that it was unwilling to supply or to supply at a higher discount unless the retailer agreed not to sell parallel imported CDs produced by other manufacturers or by manufacturers generally. The letter makes it clear that the ground for this part of the advice was the possibility of the conduct being seen as a “group boycott”. This was not the conduct complained of and I accept the submission of senior counsel for Universal that relevantly the advice was unqualified, save for the fact that the advisers assumed (correctly) that the relevant market was a market for CDs rather than particular CDs.

20                  I should repeat, here, that it is also relevant in determining the penalty that the question whether the conduct in question contravened the Act was a most difficult one on which minds could differ and a question which had not been previously agitated in a Court. In other words this was not a case (as many are) where the conduct in question was not merely deliberate, but such that, if discovered, it constituted a clear contravention. On the other side of the argument, however, is that it is a truism that ignorance of the law is no excuse and it may be said neither is the fact that the contravener (or his legal adviser) believed that the conduct did not contravene the relevant statutory prohibition. However, the existence of the advice obtained by Universal is clearly relevant to the penalty to be imposed upon it, so far as it makes clear that Universal did not deliberately engage in conduct it knew to be an offence. There is also nothing in the evidence which suggests that Warner knew the conduct to be an offence and I am prepared to assume that it did not, particularly having regard to the complexity of the question whether it indeed was.

Previous contraventions.

21                  None of the respondents, corporate or individual has previously been found to have contravened the Act. It seems, also, that the senior management of both companies has changed substantially since the events the subject of the proceedings. However, in the case of Warner I note that Mr Smerdon is now Vice President, Finance and Administration at Warner Music Asia Pacific but remains a director of Warner.

The respective sizes of the contravening companies.

22                  On behalf of the ACCC emphasis is placed upon the fact that each of Warner and Universal are wholly owned subsidiaries of multinational companies that are large and have significant overseas operations. That may be so. However, apart from the fact that the financial situation of the group, or for that matter the holding company of the group, is not in evidence, it is difficult to see why the size of a parent company should be relevant in determining the penalty payable by its subsidiary. It is the financial position of the respondent which is relevant, cf Australian Competition and Consumer Commission v Cromford Pty Ltd (1998) ATPR 41-618 per Lockhart J. It would be different if the conduct complained of involved an international arrangement between and Australian company and its overseas parent as was the case in Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR 41-809 when the relationship would be germane to the actual offence.

23                  In the 2000 financial year the merged Universal/Polygram company had a turnover of $112 million. Profit after tax in 1998 of Polygram was $7.1 million. Profit of Universal after tax in the financial year ended June 30, 2000 was $2.5 million.

24                  Although the financial results of Warner for the years ending 30 November 2000 and 30 November 2001, in evidence in the present proceedings were unaudited (a matter of criticism on the part of the ACCC) and were merely presented in summary form for the purposes of the penalty proceeding, the evidence showed a substantial pre-tax profit in those years. The figures are the subject of confidentiality orders. A criticism that no detail was given of interest or other expenses paid to the parent companies does not appear to me to be to the point, absent any suggestion that such interest or other expenses as there were, were other than legitimate business expenses.

25                  Of course size of a company on its own would not be a reliable guide to the appropriate penalty in any particular case, albeit relevant to capacity to pay. However, I am aware of no case where the penalty imposed in any way amounted to the percentage of gross sales or profits which a penalty of $8 million would in the present cases. Although the circumstances and contraventions are quite different, it may be noted that in Australian Competition and Consumer Commission v Rural Press Ltd (2001) ATPR 41-833 to which some of the submissions made reference, the penalty imposed on Rural Press Pty Ltd was $400,000 and in circumstances where sales revenue was $438 million and profit before tax $99 million. The penalty sought by the ACCC was $6.5 million. The quantum of penalty is, however, in that case, the subject of an appeal to a Full Court.

Degree of power, market share and ease of entry.

26                  Here the degree of market power each company had, looked at by reference to the overall music (or compact disc) market was relatively small. The substantial market power each respondent had came from the significance of particular hits, in respect of which each had a quasi monopoly. It is difficult to see that this factor aids either side to the debate.

Deliberateness of conduct and period over which contravention extended.

27                  I have already dealt with these matters under other headings. As it happened, neither respondent has been shown to have profited to any significant degree from the conduct it entered into, although it may be inferred that each hoped that deterrence of parallel importation would protect existing profits. As already noted, the conduct was discontinued on intervention of the ACCC and not resumed.

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

28                  In each case the contravention arose from conduct of senior management. This is not a case where lower level decision making created a problem for the respondents not, perhaps, appreciated by senior management. On the other hand, as is pointed out, in fact that management has now changed in both companies, at least in the case of Warner, subject to the continuation of Mr Smerdon in the office of a director of that company.

Educational programs or corrective measures.

29                  Both respondents have put in place compliance programs. In the case of Universal a program had been put in place before the contravention. It did not prevent the contravention, no doubt because legal advice suggested that the conduct of Universal would not lead to a contravention. The program has, it is said, been improved since. I am unable to judge, on the material before me, the extent, if any, that the program was, prior to the convention, or is now defective. Warner’s compliance program was, it would seem, devised after the conduct in question. Again I am not in a position to see whether that program should be improved. That is a matter presently under consideration by the parties. However, such evidence as is before me indicates that both companies now have in place compliance programs which suggest that each takes a most serious approach to educating its staff to ensure compliance with the Act and in consequence, that behaviour is not engaged in which constitutes a contravention of it.

Co-operation

30                  All the respondents chose (they were, of course, entitled so to do) to defend the proceedings. They did, however, provide in accordance with notices under s 155 of the Act information required of them, most of which was tendered in evidence and, perhaps more importantly, they did, while denying contravention, virtually immediately discontinue the conduct complained of. The present is not a case where the conduct was covert, or sought to be kept secret from the ACCC. Some discount should be allowed for the immediate discontinuance, even although that is not the same as accepting that a contravention has occurred and co-operating in such proceedings as the ACCC might bring.

31                  In comparing, as is appropriate, penalties imposed in other cases so as to ensure that, as far as possible, like cases will be treated in a like manner, it is important to note that in many cases respondents have admitted their contraventions and assisted the ACCC in such a way as would involve a substantial reduction in costs, both of investigation and hearing. Such co-operation has then been reflected in the level of penalties imposed by the allowance of an appropriate discount, (cf Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2001] FCA 1716, a case where the respondent had co-operated in the investigation and in the court proceedings and a penalty was imposed by the primary Judge in a considerably reduced amount which took account of penalties his Honour had imposed upon other respondents.)

Deterrence

32                  It is not in dispute that deterrence is, if not the principal object of the imposition of a penalty, certainly a significant object of such penalty; see per French J in CSR at 52,153. This is subject to the need to ensure that the penalty is proportionate to the contravention and not oppressive: Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091 at 17,896. Deterrence may be seen to be both specific to the particular respondent and general, in the sense of deterring other from engaging in similar conduct and thereby ensuring compliance with the Act and the protection of competition with which the Act is concerned.

33                  I do not think that either corporate respondent (or for that matter any of the individual respondents) would be likely to contravene again. This would be particularly so, of course, if an injunction was granted, a matter considered later in these reasons. Clearly the level of penalty, however, must be such that it would deter others from engaging in conduct of the kind here. To achieve that object it is necessary, absent some special consideration, that the penalty be imposed at a meaningful level: cf Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (2001) ATPR 41-815 at para 13 per Finkelstein J. While the penalty I would propose is reduced to take into account the complexity of the case and the uncertainty of the law prior to the present decision (a factor which here I see as a special consideration) and other matters referred to above, subsequent deliberate conduct of the kind here in question would, far from attracting a discount of this kind, of necessity, give rise to a penalty in a high amount. In the light of the factors I have discussed above I do not see the present case as providing any reasonable guideline for conduct of the kind here involved for the future nor indeed, for other conduct which may breach other sections of Part IV of the Act.

Parity

34                  As pointed out by Burchett and Kiefel JJ in N W Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 295, referred to with approval in Ithaca Ice Works it is a hallmark of justice that similar contraventions incur similar penalties. However, equally, it would be unusual that the facts of one case were identical to the facts of another case and even more rare where other discretionary matters, such as the financial status of a respondent were identical. Hence, while pecuniary penalties imposed in one case provide a guide, that guide will seldom if ever be able to be used mechanically.

35                  The highest penalties imposed since the present increased tariff was introduced in 1993 have been penalties of $15 million and $7.5 million imposed by Lindgren J in Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd (2001) ATPR 41-809. Although in that case the parties had agreed the penalty and their agreement was ultimately adopted by the primary Judge it is not irrelevant to note that the conduct in question was collusive, deliberate, extended for a considerable time and gave rise to substantial profit. The penalties were justified by these matters, although the extent of the particular profits made was unable to be calculated.

36                 The highest penalty imposed on an individual was, it is said, $150,000 in Australian Competition and Consumer Commission v Alice Car and Truck Rentals Pty Ltd (1997) ATPR 41-582 and Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (2001) ATPR 41-815. These cases also involved a discount for co-operation and the parties recommending to the Court an agreed figure.

37                 On the other hand, reference is made in the submissions of Universal to the decision of Mansfield J in Rural Press where the pecuniary penalties imposed on the respondents were $400,000 and $200,000 respectively for offences under s 46 involving taking advantage of substantial market power for the purpose of eliminating a competitor and under s47 of the Act in respect of an exclusionary provision aimed at restricting supply to the competitor. It was noted by Mansfield J that this was the first time in ten years that it had been necessary to fix a pecuniary penalty for breach of s 46, although his Honour does not seem to have regarded that fact as particularly relevant. His Honour saw the contraventions as not being at the serious end of the spectrum for reasons which his Honour expressed. The decision has been the subject of appeal.

38                 Senior counsel for Universal drew my attention to the level of penalties imposed in a number of cases for breaches of s 45 of the Act, including cases on price fixing, retail price maintenance, and horizontal and vertical arrangements, ranging from $750,000 imposed in Australian Competition and Consumer Commission v Australian Safeway Stores (1997) ATPR 41-562 for offences under s 45 to $10,000 imposed by Lockhart J in Australian Competition and Consumer Commission v Cromford Pty Ltd (1998) ATPR 41-618.

39                 Although I have taken into account penalties imposed in other cases I gain not too much assistance from them, mainly for the reason that, even where the penalty imposed was not a result of co-operation where a substantial discount would operate, the nature and content of the conduct and other matters provide substantial grounds for distinguishing those cases from the present.

Conclusion.

40                  As is apparent from the above discussion there are features of the present cases which point in both directions in setting a penalty which is both an appropriate deterrent on the one hand, yet fair and not crushing on the other. I do not think that the fact that the maximum penalties were increased by statute, while relevant, really requires that the maximum amount in the range should be imposed, or for that matter, that the penalty imposed should be in the order of over 80% of that maximum figure. In one sense the increase in the maximum penalty not only increased the maximum penalty which could be imposed, but also increased the range of penalties which could be imposed up to that maximum.

41                  I am of the view that the penalty to be imposed on both Universal and Warner should be $450,000, which, while clearly at the bottom of the range for an offence of the present kind, is arrived at in this case where the operation of the law to the conduct engaged in was properly to be regarded as uncertain and having regard to the other matters discussed above.

42                  In approaching the penalties to be imposed upon the individuals many of the factors relevant to the pecuniary penalty imposed upon the corporations are relevant to them. I note the evidence of the financial situation of the individual respondents in the Universal matter. Further, Mr Dickson has retired and was only a part-time employee for the last year.

43                  I am invited by counsel for the individual respondents in the Universal matter to note the pecuniary penalties imposed by Mansfield J in Rural Press which were $40,000, $30,000 and $15,000. I do not find these penalties particularly compelling in the light of the appeal against that judgment. Mr Dickson was not concerned with the Compact City matter, although Mr Handley was.

44                  To impose upon them the penalties sought by the ACCC would be crushing and unfair. I am of the view that the penalty to be imposed upon Mr Handley should be $45,000, and against Mr Dickson $50,000 to reflect his involvement additionally to Mr Handley in the Compact City matter.

45                  In the case of Mr Smerdon and Mr Maksimovic both were involved in the Warner conduct in breach of ss 46 and 47 of the Act. I see no reason to distinguish between them. Neither was directly involved in the letter written by Mr Harris, even if, as I have found, both may be inferred to have been aware of it. In all the circumstances, I think the appropriate penalty to be imposed on each should be $45,000. Neither is likely to reoffend.

Injunctive relief.

46                  It is submitted by counsel for all the respondents that no injunctive relief should lie. In the case of the individual respondents that submission is reinforced by the fact that most have ceased to be involved in the management of the respondent companies. In general, the submission is that because none of the respondents are likely to reoffend I should exercise my discretion in accordance with ordinary principles applicable to equitable relief and in the circumstances decline injunctive relief. To be fair to all counsel who made this submission it was accepted that the Court has power under subs, 80(4) and (5) to grant injunctive relief notwithstanding that a contravener did not intend to engage in the contravening conduct again or that there was no imminent risk that the contravener would refuse or fail to do that which it ought to do.

47                  As Lockhart J said in ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 256:

“In my opinion subss (4) and (5) are designed to ensure that once the condition precedent to the exercise of injunctive relief has been satisfied (ie contraventions or proposed contraventions of Pt IV or V of the Act), the court should be given the widest possible injunctive powers, devoid of traditional constraints, though the power must be exercised judicially and sensibly.”

Thus it can be said that while equitable principles generally applicable to the grant of injunctive relief may not be wholly irrelevant, they are far from determinative.

48                  On the whole I am of the view that it is appropriate in this case to mark the view of the Court as to the seriousness of the conduct, conduct that was engaged in deliberately, albeit perhaps in the view that it was not a contravention of the Act to give injunctive relief restraining the corporate respondents from engaging in conduct of the kind here engaged in. There is an issue, however, raised particularly by Universal that requires some consideration as to the form of that relief. It is pointed out particularly that to restrain the threat of giving, for example, higher discounts or other favourable terms to retailers who import non-infringing copies would have an anti-competitive effect since the large retailers in particular negotiate, as the judgment points out, under the threat of using the possibility of importing CDs to lever better deals on the purchase of locally manufactured titles. So it is said, if Universal, in the course of negotiation, in fact gave lesser discounts to a large retailer because the number of orders was comparatively small as a result of the retailer having imported non-infringing copies and thus not needing to acquire the relevant titles from Universal, that company would run the risk of being in breach of the injunction. It is further submitted that even if the injunctive relief dealt only with refusal to supply it should be limited to smaller retailers. Just how one might define smaller retailers was not stated.

49                  I do not accept the submission so far as it concerns refusal or threat of refusal to supply large retailers, because if that refusal is for the reason that the retailer has acquired from alternative suppliers non-infringing copies (as the proposed terms of the injunction would require) it would be for an anti-competitive purpose, whether the retailer were large or small. There is, however, some substance in the submission, so far as it concerns trading terms such as volume rebates or discounts depending on the volume of orders. Since I have not found that Universal engaged in any conduct which actually involved refusing discounts or other favourable trading terms because a retailer dealt in non-infringing copies I think that it would be inappropriate to grant injunctive relief against threatening to do so or in fact so doing. In saying this I do note that PolyGram did, after the Compact City incident give Mr Howson a document which noted that PolyGram did reserve the right to change trading terms where the retailer had imported or proposed to import goods from the PolyGram repertoire. This, itself, was a threat to do so in all the circumstances, although in fact that threat was never carried out.

50                  It is clear that if either Warner or Universal refused a discount for an anti-competitive purpose, including discouraging the import of non-infringing copies, it would contravene the Act. I do not think on the whole that it would be likely that either company would do so and subject itself to yet another prosecution. In these circumstances and given the possibility that refusal of discounts might arise in circumstances not involving a non competitive purpose, albeit related to parallel importation and having regard to the difficult of distinguishing between the case where there was a non competitive purpose and the one where there was not, I think it preferable not to grant injunctive relief so far as it relates to trading terms.

Costs

51                  It will be recalled that all respondents were successful so far as the case concerned alleged contraventions of s 45. In addition, as I have noted above, I held that the Universal Policy was not, as such a contravention, albeit that there was in all the circumstances a threat by Universal not to supply. To this extent it can be said that Universal was successful on that issue. In elaboration of the submission it is submitted for Universal that the ACCC had been unsuccessful in respect of seventeen alleged contraventions of ss 46 and 47 of the Act, which it had pleaded and had only been successful on two alleged offences (refusal to supply the Delaynes and Compact City) under those sections and had been wholly unsuccessful in its case under s 50 of the Act.

52                  It is submitted that in these circumstances I should not order Universal to pay all the costs, but rather make no order as to costs. It is submitted that considerable time and evidence were involved in the issues upon which Universal was successful or in which the ACCC was unsuccessful. Alternatively it was submitted that the ACCC should bear 50% only of the ACCC’s costs and, in consequence, Universal should be ordered to pay no more than 50% of the ACCC’s costs. A similar submission was made on behalf of Warner and the individual respondents.

53                  The time and evidence relating to the overseas conduct alleged to breach s 45 was not substantial. Most, if not all of the evidence was documentary. Some time was spent in submissions, but this was relatively insignificant compared to the overall time taken up by submissions on other issues. While it is true that the ACCC did not succeed in showing, for example, that the Universal Policy in itself was a contravention of the Act, it has to be said that much of the evidence adduced of communication of that policy, necessarily would have had to be adduced as background to the ultimate contraventions proved, or otherwise having regard to the necessity both sides saw in putting before the Court evidence which enabled the market not only to be identified, but its structure and incidents analysed. Similar comments may be made with respect to the allegations made in the Warner matters.

54                  Any apportionment of costs will, of necessity, be arbitrary. I think it is appropriate in the circumstances that the ACCC not recover the totality of its costs in either matter. The precise percentage is, ultimately, a matter of empirical judgment. On the whole I think that the appropriate order in each case is that each corporation be ordered to pay 75% of the costs of the ACCC.

55                  Senior counsel for the individual Universal respondents submitted that I should not order Mr Handley and Mr Dickson to be jointly liable with the Universal for the totality of the costs. It was said that while multiple contraventions were pleaded, ultimately Mr Handley had only been found liable in respect of one offence. A similar submission was advanced in respect of Mr Dixon, although I had found that he was involved in both refusals to supply, not merely the one.

56                  On behalf of Ms Cohen it was submitted that an order for costs should be made on an indemnity basis. Tendered in evidence was a letter recording an offer made on Ms Cohen’s behalf and dated 23 March 2001 to settle the proceedings, which it was claimed could not be won by the ACCC. It was suggested, on behalf of Ms Cohen that the proceedings should be dismissed with no order as to costs. The offer was not accepted. So, it was submitted that the letter of offer should be treated as a Calderbank offer and should have the consequence that the ACCC should pay all costs on an indemnity basis so far, at least, as those costs were incurred after 31 March 2001, being a reasonable time allowed for the solicitors for the ACCC to consider the offer and accept it. Reference was made to the very considerable costs that an individual in a prosecution of the present kind must invariably incur if separately represented and in circumstances where, for no fault of the individual, the case continues, as the present case did, for approximately three months.

57                  There has been some divergence among Courts in Australia as to the consequences of a Calderbank offer having been made. Rolfe J of the Supreme Court of New South Wales expressed the view in Multicon Engineering Pty Ltd v Federal Airports Corporation (1996) 138 ALR 425 at 446 that where there has been a rejection of a Calderbank offer of settlement and the offeree has failed to obtain a result better than the offer, the Court should approach the question of making a cost order with “a predisposition for holding that it [the offeree] is entitled to indemnity costs.” Reference may be made as well to other cases in that Court where a similar view has been expressed, eg Russell v Quinton [2000] NSWSC 369, Garcia v Fowler [2000] NSWSC 576 and Cremona v Roads and Traffic Authority [2000]NSWSC 735.

58                 By contrast in this Court the view has been taken that the offer of compromise in a Calderbank letter is but a factor to be taken into account in exercising, judicially, the discretion which the Court has in ordering costs to be paid, see eg my judgment in John S Hayes v Kimberly-Clark (1994) 52 FCR 201 at 206, Christofidellis v Zdrilic [2000] FCA 679 per Einfeld J and Australian Competition and Consumer Commission v Amcor Printing Papers Group Ltd [2000] FCA 163 at para 9 per Sackville J.

59                 In practical terms there may not really be any difference between the two approaches. Each accepts, properly, that the ultimate costs order will be in the discretion of the Court. In the present case there is a separate reason why the difference is immaterial here. That is because the weight of authority is against an offer of the kind here made on behalf of Ms Cohen being regarded as a Calderbank offer.

60                 In Calderbank itself, (Calderbank v Calderbank [1975] 3 All ER 333) the offer to settle divorce proceedings was one whereby the wife in divorce proceedings offered to transfer a house to the husband. It was an offer of a real compromise for a consideration of real value. By contrast the offer here made was to terminate the litigation with no cost orders being made. Spender J in Smallacombe v Lockyer Investment Co (1993) 42 FCR 97 at 102 expressed the view that an offer to settle for a figure which included party and party costs fell outside the principle discussed in Calderbank. One reason for his Honour’s view was that there would be a genuine doubt as to the worth of the offer, a doubt that would not exist where there was payment into Court under the Court Rules or by analogy an offer to pay the whole or some part of a claim contained in an open offer. His Honour’s view was followed by Goldberg J in Dr Martens Australia Pty Ltd v Figgins Holdings Pty Ltd (No 2) [2000] FCA 602, see at para 24.

61                 The Supreme Court of New South Wales in McKerlie v State of New South Wales (No2) [2000] NSWSC 1159 expressly held that an offer to settle a case by dismissing it with no order as to costs did not carry with it the consequences of a Calderbank letter. Dunford J in that case expressed the view that an offer in relation only to costs was not really a genuine offer of compromise.

62                  Even if it were the case that I should regard the present letter of offer as either covered by the principle in Calderbank or analogous to the offer in that case I would not, in the exercise of discretion take the view that it should, in the circumstances of the present case result in an order for indemnity costs incurred after a reasonable time had elapsed from the making of the offer in Ms Cohen’s favour. I do not think that rejection of the offer was unreasonable. The case against Ms Cohen was not manifestly hopeless. Ultimately, as it turned out, the evidence was not such as to satisfy me that Ms Cohen did commit the offences which the ACCC alleged. However, the case against Ms Cohen differed only in degree from the case brought by the ACCC against Mr Handley and the case brought against Mr Dickson, in both of which the ACCC was successful.

63                  I have considerable sympathy for the individual respondents in the Universal matter who had legal representation separate from that of Universal. They might well, at least if not reimbursed by Universal, become liable for a very considerable sum in costs and, even if, like Ms Cohen, successful, unless an order for indemnity costs is made, will suffer a considerable detriment because the order for payment of party and party costs operates only as a partial reimbursement of actual solicitor and client costs. There is, however, no material before me which would enable me to conclude whether reimbursement by Universal would be likely. The problem does not arise in the same way so far as the individual respondents in the Warner matter are concerned, because they were not separately represented and it may be inferred that their costs, at least, will be born by Warner.

64                  For the reasons I have given I do not think that the letter of offer to which I have referred is a Calderbank letter. I think that Ms Cohen was really in the same position as any litigant who is represented in proceedings and winning is entitled to have her costs paid in the ordinary way and not by way of indemnity costs. Accordingly I will merely order in her matter that in addition to the application being dismissed against her the ACCC pay her costs of the proceedings.

65                  I propose to order that Mr Handley pay 70% of the costs of the ACCC to reflect the fact that it failed to show any involvement on his part in the one refusal of supply and that Mr Dickson pay 75% of the costs. The difference reflects, to some extent at least, the difference arising from the fact that Mr Dickson was held to have been knowingly concerned inter alia in both acts of refusal. However, as I have already said when dealing with the costs payable by Universal and Warner a very considerable body of the evidence in respect of matters alleged by the ACCC but not proved to be contraventions, was evidence which in any event would need to have been adduced by the ACCC and dealt with by the respondents, including to the extent that they wished to go into evidence, the individual respondents. I do note for record purposes here that neither Mr Dickson nor Mr Handley went into evidence.

66                  I would accordingly make the orders shown on the short minutes of order attached to these reasons. Should the parties be unable to agree on orders with respect to the compliance program any party may have the matter relisted under the liberty to apply.

Associate:

Dated: 6 March 2002