FEDERAL COURT OF AUSTRALIA

 

Australian Competition and Consumer Commission v Chubb Security Australia Pty Limited [2004] FCA 1750

TRADE PRACTICES – reasonable grounds for believing that the defendant was not able to supply contracted services – offences – s 58(b) and s 75AZL(3) of the Trade Practices Act 1974 (Cth) – twenty-six charges – plea of guilty – agreed facts – provision of mobile security services – previous civil proceedings for failing to provide contracted services – systemic failure – failure to carry out review measures and audits – failure to provide services – compliance systems not operating effectively – failure to provide services - contracted services provided by franchisees, licensees and sub-contractors – offences occurred over prolonged time period– payments of rebates to clients – dismissal of senior managers – early plea – full cooperation – audits – compliance procedures introduced – buying-back of franchises – introduction of electronic verification system – applicable penalty - deterrence – rehabilitation – future compliance – parity – totality principle – s 4K(3) of the Crimes Act 1914 (Cth) – grouping of contracts under s 79(2) of the Trade Practices Act 1974 (Cth) – ‘at or about the same time’

WORDS AND PHRASES –  ‘at or about the same time’

Crimes Act 1914 (Cth) s 4K, s 16A(1), s 16A(2)

Criminal Code Act 1995 (Cth) s 6.1(1)

Trade Practices Act 1974 (Cth), s 58(b), s 75AZL, s 75AZL(3), s 75AZL(4), s 79(1), s 79(2)

Australian Competition and Consumer Commission v Allans Music Group Pty Ltd  [2002] FCA 1552

Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238

Australian Competition and Consumer Commission v Commercial and General Publications Pty Ltd (No 2) (2002) ATPR 41-905

Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd  (2001) ATPR 41-811

Australian Competition and Consumer Commission v Hartwich [2002] FCA 273

Australian Competition and Consumer Commission v Nissan Motor Co (Aust) Pty Ltd (1998) ATPR 41-660

Australian Competition and Consumer Commission v The Vales Wine Co Pty Ltd   (1996) ATPR 41-528

Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618

Cameron v The Queen (2002) 209 CLR 339

Camilleri’s Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR 683

Crossan v Commons (1985) ATPR 40-542

Dawson v World Travel Headquarters Pty Ltd (1981) 53 FLR 455

Director of Public Prosecutions (Cth) v Said Khodor El Karhani (1990) 21 NSWLR 370

Ducret v Colourshot Pty Ltd  (1981) 35 ALR 503

Ducret v Nissan Motor Co (Australia) Pty Ltd (1979) ATPR 40-111

Eva v Mazda Motors (Sales) Pty Ltd (1977) ATPR 40-020

Kovacevic v Mills (2000) 174 ALR 77

Mill v The Queen (1988) 166 CLR 59

The Queen v Browne [1999] VSC 282

Siganto v The Queen (1998) 194 CLR 656

Thompson v Magnamail (No 1) (1977) ATPR 40-032

Trade Practices Commission v Advance Bank Australia Limited (1993) ATPR 41-229

Trade Practices Commission v Cue Design Pty Ltd  (1996) ATPR 41-475

Trade Practices Commission v Farrow (1990) 95 ALR 53

Trade Practices Commission v J & R Enterprises Pty Ltd (1991) ATPR 41-1

Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd  (1978) ATPR 40-091

Trade Practices Commission v Sun Alliance Australia Ltd  (1994) ATPR 41-286

Trade Practices Commission v TNT Australia Pty Limited  (1995) ATPR 41-375

 

 

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v CHUBB SECURITY AUSTRALIA PTY LIMITED (ACN 003 605 098)

 

NSD901 OF 2004

 

BENNETT J

30 DECEMBER 2004

SYDNEY

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD901 OF 2004

 

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION PROSECUTOR
AND:	CHUBB SECURITY AUSTRALIA PTY LIMITED (ACN 003 605 098) DEFENDANT
JUDGE:	BENNETT J
DATE OF ORDER:	30 DECEMBER 2004
WHERE MADE:	SYDNEY

 

THE COURT ORDERS THAT:

 

1.      The parties forward to my associate draft orders to give effect to these reasons.

      2.   The question of costs be reserved.

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

IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY	NSD901 OF 2004

 

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION PROSECUTOR
AND:	CHUBB SECURITY AUSTRALIA PTY LIMITED (ACN 003 605 098) DEFENDANT

 

JUDGE:	BENNETT J
DATE:	30 DECEMBER 2004
PLACE:	SYDNEY

REASONS FOR JUDGMENT

1                     Two summonses, filed on 3 June 2004, and one summons filed on 24 June 2004 set out the charges against the defendant (‘Chubb’).  There are, in total, 26 charges brought under the Trade Practices Act 1974 (Cth)(‘the Act’).

2                     Twelve of those charges in two summonses, covering a time period from 5 June 2001 to 21 December 2001 are laid under s 58(b) of the Act.

3                     Section 58 provides:

A corporation shall not, in trade or commerce, accept payment or other consideration for goods or services where, at the time of the acceptance: …

(a)               …

(b)       there are reasonable grounds, of which the corporation is aware or ought reasonably to be aware, for believing that the corporation will not be able to supply the goods or services within the period specified by the corporation or, if no period is specified, within a reasonable time.’

4                     Pursuant to s 79(1)(g) of the Act, as it stood up to 26 July 2001, the penalty for a corporation breaching s 58(b) was a fine not exceeding $200,000.  This applies to four of the charges.  From 26 July 2001 to 15 December 2001, the penalty under s 79(1) (as amended) was 2000 penalty units, that is $220,000.  This penalty applies to seven of the charges.

5                     Fourteen of the charges, covering a time period from 24 December 2001 to 4 November 2002, are laid under s 75AZL(3) of the Act which was inserted into the Act in 2001. That section provides:

‘If:

(a)               a corporation, in trade or commerce, accepts payment or other consideration for goods or services; and

(b)               at the time of acceptance, there are reasonable grounds for believing that the corporation will not be able to supply the goods or services within the period specified by the corporation or, if no period is specified, within a reasonable time;

the corporation is guilty of an offence punishable on conviction by a fine not exceeding 10,000 penalty units.’

6                     10,000 penalty units equates to $1,100,000.

7                     Section 75AZL(4) provides that an offence against s 75AZL(3) is an offence of strict liability within the context of s 6.1(1) of the Criminal Code Act 1995 (Cth).

8                     The date of the offence has been taken to be the date of accepting consideration for the promise of services. The period covered by the charges is from 5 June 2001 to 4 November 2002 (‘the Charge Period’).

9                     Chubb pleads guilty to each of the charges.  While that plea was formally entered only at the substantive hearing, Chubb indicated at the first directions hearing that it would plead guilty.

The agreed facts

10                  The matter has proceeded on the basis of agreed facts.  While all of those facts are relevant and have been taken into account, I shall refer to them only as necessary for the purposes of these reasons.

11                  The charges are concerned with the failure by Chubb to provide promised services on certain mobile security control runs in the Australian Capital Territory (‘ACT’), in New South Wales (‘NSW’) and Tasmania.  The nature of the promised service and of the default in provision of those services has been set out in [8]-[10] of the agreed facts:

‘8.        A security patrol involves a uniformed officer, in a Chubb marked patrol vehicle, calling upon a client’s premises for an agreed number of times to perform particular services, such as checking that doors, gates and fire exits are secure, and checking perimeter fences for unauthorised entry. In the course of performing these patrols, Chubb’s officers may be called upon to respond to a client’s alarm to ascertain the cause of the alarm. This is the meaning of an “alarm response”.

 9.        Each of the charges alleges that the defendant accepted consideration from a particular customer, namely payment or the promise of payment for security patrols and alarm responses in relation to the customer’s property.  At the time of acceptance of such consideration in each case there were reasonable grounds for the defendant believing that it would not be able to supply the contracted services during the period specified in the agreement.

 10.      The central allegation against the defendant is that at the time it entered into each of the agreements the subject of the charges, the relevant security run to which the new client would be added, which provided security services for other clients, was already unserviceable. That is, the security officer or officers assigned by the defendant were already unable to perform all of their contracted for services for clients within the time allocated for the run.  Based on the defendant’s systems and records there were reasonable grounds of which the defendant’s personnel (and through them the defendant itself) were aware, for believing that the new clients could not be supplied by the defendant with the services contracted for.’

The defendant

12                  Chubb has operated as a supplier of security services since 9 September 1988 and is a subsidiary of Chubb Limited, a global provider of security services.  Chubb is Australia’s largest provider of security patrols and alarm responses.  During the hearing, it was stated that Chubb has approximately 30 per cent of the market. The next competitor has about 5 per cent of the market.

13                  At the relevant times, Chubb’s mobile security patrol services were provided through subcontracting businesses, licensees and franchisees that were independently owned and operated.  During the charge period Chubb was servicing approximately 9,000-9500 mobile patrol clients across Australia.

14                  Chubb Mobile Services (‘CMS’) manages the provision of mobile security patrol services by structuring those services into “runs”, being the grouping of clients and services which a patrol officer is required to undertake in one night.  A run involves a patrol officer attending a number of clients’ premises which are usually located in close proximity and in a defined geographic area.  Each run has a unique identification number.

15                  In July 2003, Chubb Limited was acquired by United Technologies Corporation.

The previous civil proceedings

16                  On 20 December 1996, the prosecutor (‘the ACCC’) instituted Federal Court proceedings against Chubb for failing to provide mobile security patrol services which it contracted with its clients to provide and for forwarding deliberately falsified “touch probe” reports to clients in the Newcastle area falsely representing that clients’ sites had been visited on certain occasions when those sites had not in fact been visited.

17                  Chubb consented to declarations and orders and provided undertakings to the ACCC, which undertakings were in force until 17 December 2000.  Included was a declaration to the effect that Chubb contravened s 52 of the Act by representing that it would provide mobile patrol services to customers when it did not have reasonable grounds to make such representations and by representing to clients that mobile patrol services had been carried out when in fact it had not provided those services.  Restraining orders were to take effect for four years from 19 December 1996.  One of those orders was to the effect that Chubb not publish or cause to be published any advertisement or other promotional material whereby it represents that it is in a position to provide mobile patrol services when it has no reasonable grounds for making such representations.

18                  One of the undertakings was to the effect that Chubb would implement for four years a management control program for its mobile patrol services business which was to enable Chubb, inter alia, to monitor on a daily basis the calls made for each client of the mobile patrol business.  Further, Chubb undertook to prepare and present to all of its mobile patrol clients  a “Code of Ethics in Mobile Patrol Services”.  This Code was publicly released by Chubb in February 1997.

Defendant’s systems and procedures during the charge period

19                  Chubb entered into service agreements with clients in relation to the provision of mobile security patrol services.  The agreements specify the security services required to be performed during a patrol in relation to the client’s property.

20                  The security service offered by Chubb was a shared service, with clients’ sites grouped together in ‘runs’ of properties geographically close to each other. During the relevant period there were:

i)                    34 runs being operated by Chubb in the Sydney Region

ii)                  25 runs being operated by Chubb in the Gosford Region

iii)                 8 runs being operated by Chubb in the ACT Region

iv)        9 runs being operated by Chubb in the Tasmania Region

21                  Chubb was aware of the necessity for it to monitor the time demands of each run.  Time demands had to be assessed having regard to:

(a)        The number of customers/premises on the run

(b)        The frequency of visits required to each location

(c)        The tasks required to be completed by the patrol officer at each site

(d)        An allowance for alarm responses, emergencies, unavoidable delays

22                  Chubb was further aware of the need to evaluate, on an ongoing basis, the capacity of its assigned patrol officers (being subcontractor, franchisee and licensee patrol officers) to service new clients in light of the demands upon their time of existing patrol commitments and to take this capacity into account when contracting with any new clients.  The measures that were supposed to be taken by Chubb to evaluate existing capacity included formal run reviews, which assessed the required number of hours to be worked for each shift in order to provide the contracted services. In addition, patrol officers’ log sheets were supposed to be monitored to identify any difficulty in completing work required by contracted clients. However, it is agreed that these measures were implemented inconsistently by Chubb throughout the Charge Period.

23                  Chubb collected “shift reports” and maintained “client run folders” for each run.  A review and analysis of the shift reports, the run reviews and the client run folders for the runs the subject of these charges demonstrated to Chubb’s staff that the requirements of those runs could not be met during the period June 2001 to August 2002 for reasons being that on those runs:

(a)        More hours were required to complete the run than were available to the assigned patrol officers;

(b)        The assigned patrol officers failed to work the required hours; or

(c)        There was an amalgamation of runs.

24                  Chubb’s operating procedure manuals and instructions provided for review by Chubb’s respective State General Managers of monthly, missed call reports and client complaints registers as well as requiring State General Mangers to review selected runs and clients on a monthly basis and to ensure that all documentation relating to the provision of patrol services was being correctly completed.

25                  In addition, during the Charge Period, Chubb’s operating procedures documentation purported to call for audits of the serviceability of all runs on a six monthly basis (for metropolitan locations) or annually (in the country).  The nominated audit procedures included physical testing of serviceability by an audit officer who was to complete each run in order to verify that the assigned patrol officer carried out the services contracted for.

Chubb’s co-operation

26                  Chubb did not contest the charges and advised the ACCC at an early stage of its preparedness to plead guilty.

27                  From the commencement of an investigation by the ACCC in 2002, Chubb co-operated with the ACCC investigation and responded by conducting its own internal investigation into allegations that had been made by the ACCC.

28                  As a result of the investigation, Chubb ascertained that its compliance systems, as outlined above, were not operating effectively.  In particular, documentation of the performance of patrols and service calls was not being properly completed or checked.  Shift reports were being falsified.  This ought to have been apparent to management earlier, even as it occurred, through the review and analysis of reports and through audit procedures.

29                   The fact that runs were not serviceable was not always addressed, although some customers were being provided with credits on their accounts for missed calls in accordance with the contract.  The crediting of customers’ accounts for missed calls was inadequate however and did not cover all instances where customers were not receiving the contracted services.

30                  In December 2002, Chubb acknowledged that the allegations in respect of some runs in Sydney and the ACT were correct.  Chubb also acknowledged similar issues in relation to some runs in Tasmania and the Gosford region.  Chubb now admits that, because some runs in those particular geographic locations were not serviceable, some mobile patrol customers did not receive contracted services.  Chubb also admits that contracts were entered into with customers for mobile security patrol services to be provided in these geographic locations when Chubb had reasonable grounds for believing that it would not be able to supply the contracted services.

31                  The investigations conducted by Chubb revealed that a large number of runs were unserviceable. Some clients on these runs were not receiving the services that Chubb had contracted to provide.

32                  Chubb has taken disciplinary action against a number of senior managers within the organisation for their failure adequately to perform their compliance roles.

33                  Chubb has paid total rebates of $632,092.33 (excluding GST) to customers on the runs the subject of the charges.

34                  Chubb has cooperated fully with the ACCC investigation by providing all relevant information and documentation requested. Chubb also provided the ACCC with details of non-serviceable runs in Gosford and Tasmania where the ACCC had not investigated or received complaints.  Chubb’s early plea and co-operation, including the provision of documents, is of considerable utility in view of the time and expense which would have been involved in gathering all necessary evidence for a trial of the charges and in conducting the trial itself.

 

THE CHARGES LAID UNDER s 58(b) AND s 75AZL(3) OF THE ACT

35                  The agreed facts and the evidence supporting them establish that, in respect of each charge, Chubb entered into a security agreement and accepted consideration, namely the payment of monthly fees, in return for security services.  Those security services involved an agreed number of random security attendances. 

36                  With respect to the charges laid under s 58(b) of the Act in the summons filed 3 June 2004 the duration of the agreement was:

·        For charge 1, the agreement with Centrelink on or about 5 June 2001, for the period 4 June 2001 to 3 June 2003

• For charge 2, the agreement with the National Museum of Australia on or about 22 June 2001, for the period 22 June 2001 to 21 June 2003
• For charge 3, the agreement with Ulli Tuisk on or about 3 July 2001, for the period 3 July 2001 to 2 July 2003
• For charge 4, the agreement with the Austwide Group on or about 24 July 2001, for the period 24 July 2001 to 23 July 2002
• For charge 5, the agreement with the Commonwealth Department of Health and Aged Care on or about 17 September 2001, for the duration of 12 months

• For charge 6, the agreement with P K Holdings Pty Ltd on or about 17 September 2001, for the period 19 September 2001 to 18 September 2002
• For charge 7, the agreement with Hills Ford on or about 26 October 2001, for the period 26 October 2001 to 25 October 2002
• For charge 8, the agreement with Hornsby & District Locksmiths on or about 12 November 2001, for the period 12 November 2001 to 11 November 2002
• For charge 9, the agreement with Ecolab Pty Ltd on or about 16 November 2001 for the period 1 September 2001 to 31 August 2002
• For charge 10, the agreement with R and R Engineering and Performance Pty Ltd on or about 13 December 2001, for the period 26 October 2001 to 25 April 2002

37                  With respect to the charges laid under s 58(b) of the Act in the summons filed 24 June 2004, the duration of the agreement was:

• For charge 1, the agreement with Belconnen Soccer Club, for the period 26 October 2001 and 25 October 2002
• For charge 2, the agreement with Belconnen Cars & Boats, for the period 26 October 2001 and 25 October 2003

38                  With respect to the charges laid under 75AZL (3) of the Act in summons filed 3 June 2004, the duration of the agreement was:

• For charge 1, the agreement with Tyremaster Wholesale Pty Ltd on or about 24 December 2001, for the period 24 December 2001 to 23 December 2002
• For charge 2, the agreement with AGL on or about 17 January 2002, for the period 22 January 2002 to 21 January 2003
• For charge 3, the agreement with Bourke Properties on or about 20 February 2002, for the period 1 February 2002 to 31 January 2004
• For charge 4, the agreement with Price Waterhouse Coopers on or about 1 March 2002, for the period 27 February 2002 to 26 February 2004
• For charge 5, the agreement with the Salvation Army (Tyler Village) on or about 20 March 2002, for the period 1 April 2002 to 31 March 2004
• For charge 6, the agreement with Ciba Speciality Chemicals Pty Ltd on or about 3 April 2002, for the period 1 May 2002 to 30 April 2004
• For charge 7, the agreement with Patch’s Liquidation on or about 13 May 2002, for the period 13 May 2002 to 12 May 2003
• For charge 8, the agreement with Mayne on or about 25 June 2002, for the period 25 June 2002 to 24 June 2003
• For charge 9, the agreement with Gough & Gilmour on or about 27 June 2002, for the period 28 June 2002 to 27 June 203
• For charge 10, the agreement with St Luke’s Anglican Association on or about 16 July 2002, for the period 1 August 2002 to 31 July 2003
• For charge 11, the agreement with Elmac Welding and Fabrication on or about 23 July 2002, for the period 23 July 2002 to 22 July 2004
• For charge 12, the agreement with Carter Holt Harvey on or about 7 August 2002, for the period 10 August 2002 to 9 August 2004
• For charge 13, the agreement with Fleetwood Timbers Pty Limited on or about 4 October 2002, for the period 3 October 2002 to 2 October 2004
• For charge 14, the agreement with Warner Vale Railway Store Café on or about 4 November 2002. for the period 4 November 2002 to 3 November 2003

39                  The date on which Chubb entered into each of the agreements and accepted consideration was on or about the date on which it commenced.

40                  At the time that Chubb entered into the agreement, there were already a number of sites to be serviced on each run.  An assessment subsequently conducted found that prior to and during this period there was an estimated average serviceability failure rate:

• For the run to which Centrelink was added, 21% for the period 1 January 2001 and 30 June 2002
• For the run to which the National Museum of Australia, Ulli Tuisk, the Commonwealth Department of Health and Aged Care, R and R Engineering and Performance Pty Ltd and Price Waterhouse Coopers were added, 14% for the period 1 January 2001 and March 2002
• For the run to which the Austwide Group was added, 11% for the period 1 April 2001 and 30 June 2002

• The run to which PK Holdings Pty Ltd and Ecolab Pty Ltd were added was not ‘serviceable at all times’ for the period June 2001 and November 2001
• For the run to which Hills Ford was added, 11% for the period 1 April 2001 and 30 June 2002

·        For the run to which Hornsby & District Locksmiths was added, 11% for the period 1 April 2001 and 30 June 2002

·        For the run to which Belconnen Soccer Club and Belconnen Cars & Boats were added, 44% for the period October 2001 and February 2002

·        The run to which Tyremaster Wholesale Pty Ltd, Mayne, Gough & Gilmour and Carter Holt Harvey were added was not serviceable on Thursday to Friday nights for the period 1 September 2001 to 31 August 2002

·        For the run to which AGL was added, 15% for the period 22 January 2001 to March 2002

·        For the run to which Bourke Properties was added, 12% for the period October 2001 to December 2002

·        For the run to which the Salvation Army (Tyler Village) and St Luke’s Anglican Association were added, 12% for the period October 2001 to December 2002

·        For the run to which Ciba Speciality Chemicals Pty Ltd, Elmac Welding and Fabrication, Fleetwood Timbers Pty Limited and Warner Vale Railway Store Café were added, 12% for the period 1 April 2002 and 30 November 2002

·        For the runs to which Patch’s Liquidation was added, 12% for the period October 2001 to December 2002

41                  Each site was newly added to an existing run:

• Centrelink was added to run 1
• National Museum of Australia, Ulli Tuisk, the Commonwealth Department of Health and Aged Care, R and R Engineering and Performance Pty Ltd and Price Waterhouse Coopers were added to run 4
• The Austwide Group was added to run 73 

• P K Holdings Pty Ltd and Ecolab Pty Ltd were added to run 83
• Hills Ford was added to run 71
• Hornsby & District Locksmiths was added to run 72
• Belconnen Soccer Club and Belconnen Cars & Boats were added to run 48
• Tyremaster Wholesale Pty Ltd, Mayne, Gough & Gilmour and Carter Holt Harvey were added to run 81
• AGL was added to run 3
• Bourke Properties was added to run 12
• The Salvation Army (Tyler Village) and St Luke’s Anglican Association were added to run 11
• Ciba Speciality Chemicals Pty Ltd, Elmac Welding and Fabrication, Fleetwood Timbers Pty Limited and Warner Vale Railway Store Café were added to run 407
• Patch’s Liquidation was added to runs 10, 11 and 12

42                  It is agreed that, in each case, the reasonable grounds for believing the run to have been unserviceable may be inferred to have been known to Chubb through its staff and records, having regard to the systems and procedures that it had in place.  Accordingly, in the language of s 58(b) and of s 75AZL(3), there were reasonable grounds (of which Chubb was aware) for believing that Chubb would not be able to supply the service identified in the contracts with each of the relevant parties during its term.

43                  As conceded by Chubb, this means that the security patrol officers assigned to each of the affected runs could not perform all of the contracted services in the time allotted for the runs.

The evidence of Mr Chamberlain

44                  Mr Chamberlain is the President of Chubb Australasia and has been in that position since March 2004.  As such, he is responsible for the overall operation of the Chubb group of companies in Australia and New Zealand, including the defendant, Chubb.  He is a director of Chubb and of its holding company, Chubb Security Holdings Australia Pty Ltd, which is a subsidiary of Chubb Limited.  Mr Chamberlain gave evidence by affidavit and was cross-examined as to the background of Chubb’s operations and the steps that Chubb has taken before and since notification by the ACCC of the complaints that led to the filing of the summonses. 

45                  That evidence, which was not objected to, has added to the factual matrix set out in the agreed facts. I have taken all of Mr Chamberlain’s evidence into account and extract the relevant parts below.

46                  Mobile security patrol services involve a patrol officer attending a client site and performing certain security services.  The relationship between Chubb and its clients is governed by a written contract in a standard form.  The services provided may include:

(a)        External and internal property security checks, for example checking aspects of a client’s premises such as doors, windows, gates and lighting

(b)        Staff escorts

(c)        Machinery operation checks

(d)        Staff welfare checks

(e)        Alarm response

(f)         Business opening and closing security

47                  Prior to the early to mid 1990s, all contracted services were carried out by patrol officers employed by Chubb or sub-contractors of Chubb.  In the early to mid 1990s, CMS introduced license arrangements whereby some runs were serviced by the patrol officers employed by CMS licensees.   

48                  CMS’s business model for the provision of mobile security patrol services changed again in 2000 when CMS introduced a franchise system, in addition to having existing licensees and sub-contractors.  Each franchise arrangement provided the franchisee with a right to receive a share of revenue derived from mobile security patrol clients in a particular fixed geographical area, in return for the franchisee providing mobile security patrol services to those clients on behalf of CMS.  Franchisees would typically operate three runs each.  In all cases Chubb entered into the contract with the client for the supply of the contracted  services.

49                  As a consequence of both the separation of the operation and sales and marketing functions within CMS and the outsourcing of patrol officer functions to licensees or franchisees, the effectiveness of the co-ordination between the persons responsible for the sale of mobile security patrol services and the persons responsible for the provision of those services was reduced.

50                  Prior to becoming aware that the ACCC was investigating Chubb’s provision of mobile security patrol services, Chubb had already identified a number of steps to be taken to increase the level of understanding and importance of compliance issues.

51                  Once Chubb received notification from the ACCC, its focus was directed to investigating and seeking to address the particular compliance issues identified by the ACCC.

52                  The steps taken by Chubb included:

(a)        Undertaking audits of the 16 runs which are the subject of these proceedings (‘the 16 runs’).  These audits were undertaken in the period March 2002 to August 2003 to identify whether there were any issues with the provision of mobile security patrol services to clients on the 16 runs

(b)        Reparation, in the form of rebates paid to clients who should have been serviced on the 16 runs (c)        Review of management personnel, involving the termination of senior management as a result of their failure to pay proper adherence to CMS’s protocols (d)        Initiatives to ensure compliance with customer contracts and the serviceability of mobile patrol runs

(e)        A project entitled “Project Clean Skin”, which involved the review of all CMS runs in NSW, Victoria and Tasmania to identify issues with client service delivery and taking steps to address those issues

53                  Further steps included terminating relevant licences, replacing franchisees or buying back the franchise; extending or restructuring the run, adding a further run and reauditing the run after corrective steps were taken.  Where a further audit was undertaken, it found that the runs had been made serviceable.

54                  Individuals with the following titles were terminated by CMS:

(a)        The General Manager of Chubb Mobile Services from 15 April 2001 and Executive General Manager Chubb Mobile Services from 1 October 2002, who was terminated on 28 February 2003

(b)        The National Operations Manager of Chubb Mobile Services from 1 February 2000 (including a period as Acting General Manager of Chubb Mobile Services between July 2000 and April 2001), who was terminated on 21 March 2003

(c)        The General Manager Victoria/Tasmania of Chubb Mobile Services from 1 October 2002 (and previously Victorian State Manager Patrol for Chubb Security from 1997), who was terminated on 21 March 2003

(d)        The National General Manager for Chubb Mobile Services between January 2000 and June 2000 (and subsequently General Manager for respectively, Chubb Security Services, Chubb Home Security and Chubb Security Australia South Australia/Northern Territory), who was terminated on 15 September 2003

55                  Neither the General Manager of NSW nor the General Manager of Victoria were dismissed.  However, the General Manager for NSW left his position shortly after a review was conducted.

56                  As part of Project Clean Skin, clients on runs where serviceability issues were identified and who, as a result, were reasonably likely not to have been provided with some contracted mobile security patrol services, were provided with rebates.  The total rebates paid or scheduled to be paid by CMS to clients as part of Project Clean Skin was $1,511,695 (excluding GST), which amount includes the rebates paid to clients on the 16 runs.

57                  Mr Chamberlain arranged for reviews to be conducted to ascertain the factors which led to Chubb’s deficient compliance history and profitability.  Strategies have been identified for addressing those issues.

58                  Key changes that have been taken or are in the process of being taken are:

(a)        the introduction of an electronic verification of service delivery system

(b)        the buy-back of franchises 

59                  The cost of implementing the strategies and actions arising out of the business review, including the cost of buying back the franchises, restructuring the business, paying rebates to Chubb clients and introducing the electronic verification of service delivery system, is estimated to be $25.6 million.

60                  Chubb relies on the electronic verification system (at an estimated cost of $1.6 million) to monitor patrol officers and site visits by them.  It allows for an efficient interface between the operations and sales teams.  The electronic verification system will involve the use of handheld devices by patrol officers to scan a bar code at key locations on client sites. The handheld device will transmit this data to a centralised database, from which it can be analysed, for the purpose of ensuring that a patrol officer has attended the site where the security check is to be conducted. The barcode scan information will be collected and matched with client, site and contact details.  Sales people will be able to review the data uploaded to the database to determine the serviceability of the runs.  CMS will “lock” particular runs which are designated as “saturated” to prevent salespeople from adding new clients to that run.

61                  Mr Chamberlain also gave extensive evidence of various changes that he has caused to be introduced, including revised run serviceability procedures and revised compliance audit procedures.  The evidence was put forward on the basis that there is no suggestion that, those procedures, if followed, will be inadequate prevent the reoccurrence of the failures in monitoring and control that led to the offences. Mr Chamberlain gave considered reasons why future compliance systems should work better than they have in the past.  The contrary has not been suggested.

62                  As a consequence of the various audits and investigations by CMS into the mobile security patrol services, it was apparent that a significant change needed to be made to improve CMS’s client service, to ensure CMS could in the future comply with its legal obligations and to return the CMS business to profitability.  A number of key programs have been introduced or accelerated for the purpose of pursuing these goals, and, in particular, the fostering of a culture of compliance at all levels of the CMS business and Chubb Australasia more generally.

63                  Chubb is in the process of recruiting a new General Manager Compliance who will have responsibility for compliance throughout the Chubb Australasia group of companies.

Applicable penalty

64                  I have received detailed written submissions from the ACCC and from Chubb.  Those submissions were addressed orally at the hearing.  There is, to a large degree, agreement on the principles to be applied in the imposition of a penalty. 

65                  The applicable sentencing provisions are those of the Crimes Act 1914 (Cth)(‘the Crimes Act’) and, in particular, s 16A.  The governing principle under s 16A(1) of the Crimes Act is that the Court must impose a sentence ‘that is of a severity appropriate in all the circumstances of the offence’.  Section 16A(2) sets out the matters which the Court must take into account, in addition to any other matters, to the extent that they are relevant and known to the Court as follows:

‘In addition to any other matters, the court must take into account such of the following matters as are relevant and known to the court:

(a)       the nature and circumstances of the offence;
(b)       other offences (if any) that are required or permitted to be taken into

            account;
(c)        if the offence forms part of a course of conduct consisting of a series

            of criminal acts of the same or a similar character—that course of

            conduct;
(d)       the personal circumstances of any victim of the offence;
(e)        any injury, loss or damage resulting from the offence;
(f)        the degree to which the person has shown contrition for the offence:
           (i)           by taking action to make reparation for any injury, loss or  

                                     damage resulting from the offence; or

                      (ii)          in any other manner;
(g)        if the person has pleaded guilty to the charge in respect of the

            offence—that fact;
(h)       the degree to which the person has co-operated with law enforcement

            agencies in the investigation of the offence or of other offences;
(j)        the deterrent effect that any sentence or order under consideration

            may have on the person;
(k)       the need to ensure that the person is adequately punished for the

            offence;
(m)      the character, antecedents, cultural background, age, means and

            physical or mental condition of the person;
(n)       the prospect of rehabilitation of the person;
(p)       the probable effect that any sentence or order under consideration

            would have on any of the person's family or dependants.’

 

66                  Also relevant is s 79(2) of the Act, which has the effect of limiting the penalties which can be imposed in respect of contraventions of the same nature or a substantially similar nature and which occur at or about the same time. Section 79(2) provides:

‘Where a person is convicted of two or more offences constituted by, or relating to, contraventions of the same provision of Part VC, being contraventions that appear to the Court to have been of the same nature or a substantially similar nature and to have occurred at or about the same time (whether or not the person is also convicted of an offence or offences constituted by, or relating to, another contravention or other contraventions of that provision that were of a different nature or occurred at a different time), the Court shall not, in respect of the first-mentioned offences, impose on the person fines that, in the aggregate, exceed the maximum fine that would be applicable in respect of one offence by that person against that provision.’

67                  Mr Fagan SC, who appears with Mr Wigney for the ACCC, submits that it is clear from the penalty applicable to the offences that the Parliament regards them as serious and that serious contraventions of the Act should be punished by substantial penalties which reflect the degree of culpability involved and have a deterrent quality (Eva v Mazda Motors (Sales) Pty Ltd (1977) ATPR 40-020 at 17,309 per Smithers J).

68                  Mr Bathurst QC, who appears with Ms McCallum for Chubb, draws attention to Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd  (1978) ATPR 40-091 at 17,896 (‘Stihl’) where Smithers J observed that ‘the penalty should constitute a real punishment proportionate to the deliberation with which the defendant contravened the provisions of the Act’ and that commercial standards must be observed but that the penalty should not be so high as to be oppressive.

Section 16a(2) of the Crimes Act

69                  I shall deal first with the ‘check list’ of s 16A(2) of the Crimes Act.

The nature and circumstances of the offence

70                  The nature and circumstances of the offence are set out in [11] and [35] to [42] of these reasons.

71                  Mr Fagan draws attention to what he describes as ‘aggravating features of the offences’ which, he submits, are factors which attract a higher penalty because of their objective seriousness.  These features are:

(i)         A serious breach of trust which existed between the defendant and its customers

(ii)        A serious departure from the standards of commercial probity and the exploitation of the consumer

(iii)       The knowledge of the offending conduct extended to the level of senior management of the defendant

(iv)       The conduct occurred over a lengthy period, of 17 months

(v)        The charges before the Court are a representative sample of the offending conduct, which involved a wide pattern of unserviceability affecting a large number of clients in different geographic locations

72                  Mr Bathurst submits that the departure from the appropriate standards, affecting a breach of trust between company and client and a departure from the standards of commercial probity are inherent in the contravention and the fact that it amounts to criminal conduct.  As such, it is submitted, they are not properly regarded as “circumstances of aggravation”.

73                  Acknowledging that the contraventions occurred over a lengthy period, Chubb submits that this is reflected in the number of charges and is not separately a circumstance of aggravation.  With respect to the representative nature of the charges the subject of these proceedings, Chubb submits that the Court may only impose sentences in respect of the particular charges before it. That is clearly correct. Mr Bathurst submits that the only relevance of the charges being a “representative sample” is that Chubb is not entitled to additional leniency on the basis that the offences are isolated events.

74                  Chubb also points to the fact that the senior managers who were identified as having had knowledge of the offending conduct have been dismissed.

75                  Mr Bathurst draws attention to factors, that have been held to warrant the imposition of a heavier penalty, that are not present in this case:

(a)        The harm that the defendant intended

(b)        Whether or not the offence was planned or deliberately committed

(c)        Whether or not the defendant’s motive in committing the crime was personal profit, political objectives or revenge

76                  Mr Bathurst also relies upon the evidence of Mr Chamberlain referred to above.

77                  Chubb places strong reliance on evidence that goes to ‘structural problems’ or ‘systemic problems’ within Chubb during the relevant period.  These included the separation of the sales and operations divisions and the franchising of the operations arm.  Chubb acknowledges that its compliance systems ‘were not operating effectively’. 

78                  The system in place was that Chubb entered into the service agreement with the client and then handed over the service contract to an operation team which assigned each client to a particular run.  Each run was serviced by a patrol officer employed by CMS, or a CMS franchisee, licensee or sub-contractor. 

79                  As it was put by Mr Chamberlain:

‘As a consequence of both the separation of the operation and sales and marketing functions within CMS and the outsourcing of patrol officer functions to licensees or franchisees, the effectiveness of the co-ordination between the persons responsible for the sale of mobile security patrol services and the persons responsible for the provision of those services was reduced.’

That is, those selling the services were not close to those in operations.  These problems were compounded by the fact that Chubb’s compliance systems were not operating effectively.

80                  Chubb’s actions were consciously taken, in the sense that Chubb knew or ought to have known that the customers were not getting the services that they had paid for. However, it is submitted by Chubb that its conduct arose out of systemic failures and that steps have subsequently been taken to address those failures.

81                  Chubb submits that the nature and circumstances of the offence are such as to warrant a penalty in the low end of the range.  Mr Fagan submits that, given the seriousness of the offending conduct, without consideration of mitigating factors, a penalty towards the higher end of the range would be appropriate. 

82                  I note the Charge Period is from June 2001 to November 2002.  Chubb’s procedures provided not only for monthly reviews but also for six monthly audits on all runs for metropolitan locations and annually for runs in the country.  It is clear that the procedures were formally in place but that they were ineffective in practice.  The fact that Chubb failed in the way described to provide services to its clients and still contracted with new clients on those runs where services were not being provided, shows a somewhat cavalier approach on the part of Chubb to its responsibilities and to its own compliance procedures and procedure manuals.  This approach existed despite the previous civil proceedings and the purported attempt on the part of Chubb to ensure that such compliance systems were in place and followed.

83                  It is simply not good enough to point to formal procedures and compliance programs if they are not followed.  It is important for Chubb to ensure that the new and proposed programs and systems, of which Mr Chamberlain has given evidence, are not just formalities. 

84                  It seems to me that the nature and circumstances of the offences demonstrate the seriousness of the failure on the part of Chubb to implement a system to ensure that it could meet the obligations which it had contracted to perform.  I do not see a systemic failure as a matter for mitigation.  True it is that there were no deliberate decisions to deprive the customers of their contracted services or not to deliver the services. However, to contract for services with no assurance that they could be delivered is, in my view reckless behaviour.   A company of the size and sophistication of Chubb cannot plead insufficient resources or inexperience. 

85                  The length of time over which the offences occurred suggests a disregard within Chubb of the obligation to ensure that it had systems in place to monitor the delivery of contracted services.  The fact that those services, which Chubb had contracted to perform, were to be performed by licensees, sub-contractors or franchisees, made it apparent that it was Chubb’s responsibility to ensure that it had adequate systems to ensure that the services for which it contracted were monitored and delivered. 

86                  In Ducret v Nissan Motor Co (Australia) Pty Ltd (1979) ATPR 40-111 at 18,153 (‘Nissan’), Northrop J pointed out, in respect of a breach of s 53(c) of the Act, ‘Lax or inefficient management control…cannot amount to a defence… nor can it mitigate against the sentences of the offences committed.’ Such reasoning applies, in my view, to the offences which are the subject of these proceedings.

87                  It is also relevant that Chubb was on notice, by reason of the earlier civil proceedings, of the problems of its failure to provide contracted for mobile patrol services and of the need to put in place systems to ensure that this did not reoccur.  That the undertaking that had been given had expired is no answer to the fact that Chubb was or should have been aware of the possibility of the lack of provision of contracted services and of the need to ensure that systems were adequate to ensure and monitor such provision.

88                  The clients contracted with Chubb.  Chubb had a reputation and position in the security services market that would have been part of the attraction to a client seeking security services.  That reputation attracts a responsibility.  It is simply no excuse to say that it was not Chubb’s fault because the services were carried out by independent operators.

89                  Chubb submits that the length of time over which the offences occurred was not an aggravating feature because it is reflected in the number of charges.  It then submits that the penalty should be imposed on the basis of a single charge because it was due, in effect, to a single default – that of the system that Chubb had put in place.  In my view, those submissions are inconsistent.  The effect of these submissions is, on one hand, to consider the number of charges rather than the length of time and, on the other, to consider a single charge over a prolonged period of time.  It is not appropriate, in my opinion, to discount the penalty on the basis of both the length of time and the number of charges, as if what took place was an isolated event.

Other offences (if any) that are required or permitted to be taken into account; the character, antecedents and means of the person

90                  Chubb has no criminal antecedents.  However, as already noted Chubb has, as submitted by Mr Fagan, ‘transgressed in the past and could not, therefore, relevantly be regarded as being a good corporate citizen’.

91                  It is not suggested that Chubb will be unable to pay any penalty imposed.

If the offence forms part of a course of conduct consisting of a series of criminal acts of the same or a similar character

92                  The offences occurred over a lengthy period of time and in relation to a number of different runs in a number of geographic regions.  Mr Fagan submits that the offences cannot be regarded as isolated incidents but rather that they constituted ‘a course of conduct involving a serious departure from the standards of commercial probity.’

93                  Chubb’s submissions on this matter are really subsumed in its submission on the application of s 79(2) of the Act, which are dealt with later in these reasons.

The personal circumstances of any victim of the offence

94                  The victims were Chubb’s customers who did not receive the security services that they had paid for and expected.  Mr Fagan submits that these customers were in a position of vulnerability, to the extent that it was difficult for them to check whether the services contracted for were being provided. 

95                  There is no evidence directly on this point but it seems to me to be a reasonable conclusion and it has not been challenged by Chubb.

Injury, loss or damage resulting from the offence and the degree to which the person has shown contrition for the offence by taking action to make reparation for any injury, loss or damage resulting from the offence

96                  The relevant customers suffered loss by paying for services that they did not receive and by being exposed to risk of loss and damage. There is no evidence of any actual loss or damage to any customer by reason of the failure to provide services, such as burglaries or unauthorised entries.

97                  Reparation is a factor relevant to the sentencing process, both as an indication generally of contrition and of an attempt to ensure that the injured parties suffer no loss as a result of the contraventions. 

98                  Chubb has made rebates in the sum of $4,815.01 (excluding GST) for the contraventions as set out in the summonses, based on an audit report that it voluntarily undertook.  The rebates were based on the serviceability ratings assigned to the sixteen runs. The rebates were calculated reliably to estimate the reparation due to each customer.  Chubb asked its customers to notify it if they regarded the refund as insufficient; no complaints were received.

99                  While Chubb may have been doing no more than meeting an obligation imposed by law and cannot ‘buy [its] way out of severe punishment by repaying what they should never have received’ (Kovacevic v Mills (2000) 174 ALR 77 at 93), it is a matter to be taken into account by reason of s 16A(2)(f)(i) of the Crimes Act.

100               It is not possible to calculate precisely which customers did not receive the services contracted for but I am satisfied that Chubb has made appropriate efforts to ascertain those customers and the appropriate rebates.

101               In addition to the payments of rebates to the clients on the contracts the subject of these proceedings, Chubb has paid rebates to all clients on the 16 runs, based on the serviceability ratings assigned to each run as set out in the audit reports.  This was on the basis that it was reasonably likely that those clients were not provided with all contracted services.  Those additional rebates amount to $627,283.71 (excluding GST).

The degree to which the person has shown contrition in any other manner

102               The ACCC acknowledges that the fact that Chubb assisted the ACCC in its investigation and pleaded guilty at the earliest opportunity demonstrates contrition.

If the person has pleaded guilty to the charge in respect of the offence

103               A plea of guilty should be taken into account, especially as it was entered at the first available opportunity.  I accept that Chubb’s plea of guilty at an early stage in these proceedings is evidence of remorse, an acceptance of responsibility and a willingness to facilitate the course of justice. The community has also been spared the expense of a trial (Siganto v The Queen (1998) 194 CLR 656 at 663 - 664; Cameron v The Queen (2002) 209 CLR 339 at 343).

104               The ACCC submits that it is permissible to identify the measure of discount allowed for a plea of guilty.  Chubb submits that the appropriate discount is that applied by Drummond J in Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd  (2001) ATPR 41-811 at 42,829, a discount by one third of the fines that would otherwise be appropriate.  I note that Drummond J referred to ‘the conventional substantial discount of about one-third for Dimmeys co-operation and prompt plea of guilty’.

The degree to which the person has co-operated with law enforcement agencies in the investigation of the offence or of other offences

105               Chubb co-operated with and provided substantial assistance to the ACCC during the  course of its investigation.  Chubb conducted its own investigations and kept the ACCC informed of developments.  As early as 2 May 2002, Chubb sent a letter to the ACCC informing them of steps Chubb was taking to investigate the matters raised by the ACCC.

106               Indeed, Chubb volunteered information to the ACCC which resulted in the charges being laid in relation to patrol runs in Tasmania and the Gosford region.

107               Chubb signed the agreed statement of facts prior to the ACCC commencing proceedings on 3 June 2004.  Chubb’s co-operation saved time and expense which would have been involved in gathering all necessary evidence for a trial of the charges.

108               In the absence of any submission to the contrary, I accept that it would be appropriate in the present circumstances to apply the discount of one third by reason of the early guilty plea and the co-operation shown.

The deterrent effect that any sentence or order under consideration may have on the person; the need to ensure that the person is adequately punished for the offence

Specific deterrence

109               The ACCC submits that the penalty must provide a real deterrent to Chubb and should reflect the seriousness of Chubb’s departure from ‘acceptable standards of commercial probity and exploitation of customers’.

110               Chubb submits that there is no need to include specific deterrence as a factor because there is ample evidence that Chubb is unlikely to reoffend. Chubb submits that its cooperation with the ACCC demonstrates the seriousness with which it views the offences.

111               Realistically, Chubb recognises that the Court would be concerned to understand why the contraventions occurred notwithstanding the earlier civil proceedings and the undertakings given to the ACCC in relation to those proceedings.

112               I add the concern that, despite having had these problems and the need for proper control and monitoring raised in those civil proceedings, Chubb failed to implement appropriate procedures after the expiration of the previous undertakings.  Chubb submits that it is a mitigating factor that the contraventions took place after the expiration of the previous undertakings.  I do not see it that way.  It could be concluded that, once the undertakings expired, Chubb ceased to be concerned and ceased to ensure that necessary systems were implemented.  This would suggest that a penalty that provided specific deterrence was necessary.

113               Chubb additionally points to a number of factors and the evidence of Mr Chamberlain and in particular:

• It sought to identify the systemic problems
• United Technology Corporation (‘UTC’) has a rigorous compliance ethic
• Chubb has implemented lasting change at considerable expense
• The earlier civil proceedings related to s 52 of the Act, a different provision
• Chubb has demonstrated that it is taking a number of steps to prevent the conduct from re-occurring and a harsher penalty is not necessary to ensure that this occurs
• There was an absence of intention and planning by Chubb.  The contraventions were ‘primarily due to structural problems and system failures’

114               The question is whether Chubb has established that it is unlikely to re-offend.  The change in the method of operation of the business and the procedures that are now in place should mean that there is a low likelihood of recidivism.  I am prepared to accept that those procedures will now be followed. A submission to the contrary was not advanced. In those circumstances there is little need for specific deterrence (The Queen v Browne [1999] VSC 282 at [21].

General deterrence

115               While s 16A(2)(j) of the Crimes Act only refers to specific deterrence, Mr Fagan submits that the Court should also have regard to general deterrence.  In Director of Public Prosecutions (Cth) v Said Khodor El Karhani (1990) 21 NSWLR 370, the New South Wales Court of Criminal Appeal considered whether the absence of specific reference to general deterrence in that sub-section means that no consideration can be given to the general deterrent effect of the sentence.  The Court held, at 377-378 that, notwithstanding the absence from the checklist of s 16A(2) of any reference to general deterrence, such a matter must be taken into account in determining the sentence to be passed.

116               The Court of Criminal Appeal also noted that s 16A(2), which provides for matters to be taken into account ‘in addition to any other matters’, is read subject to the primary obligation of the court stated in s 16A(1) to ‘impose a sentence or make an order that is of a severity appropriate in all the circumstances of the offence’.  One such relevant matter is, said the Court, ‘clearly the general deterrent effect of the sentence’.

117               As was stated by Goldberg J in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) 75 FCR 238 (‘Safeways’) at 240:

‘The deterrent aspect of a penalty is both specific and general.  It is calculated to deter repetition by the party penalised and to serve as a warning to the community at large.’

118               As von Doussa J observed in Trade Practices Commission v Farrow (1990) 95 ALR 53 (‘Farrow’) at 64 (approved  by Spender J in Australian Competition and Consumer Commission v Hartwich [2002] FCA 273 (‘Hartwich’) at [21]):

‘It is to be remembered that as the policy of the TP Act is consumer protection it is important that the penalty is such that it will not only deter the particular offenders from engaging in similar conduct again, but will also deter others from engaging in conduct that is prohibited by the TP Act.’

119               The ACCC submits that considerations of deterrence are particularly important when the offences, as here, involve serious departures from acceptable standards of commercial probity and the exploitation of consumers.  Reliance is placed upon Stihl at 17,896 where Smithers J observed that while deterrence of those minded to contravene provisions is not likely to be achieved by penalties that are not substantial, penalties should not be oppressive.

120               The ACCC points out that Chubb is Australia’s largest and most well known provider of security patrols and alarm responses.  It submits that the penalty must provide a real deterrent to Chubb and to others in the security services industry in relation to the non-provision of contracted-for services.  I agree that a measure of general deterrence is appropriate.

The prospect of rehabilitation

121               The ACCC has submitted, fairly in my view, that it can be concluded that, during the relevant period, compliance with the Act had low priority within Chubb’s objectives and that such compliance systems and procedures that it had were applied inconsistently and ineffectively, notwithstanding the earlier civil proceedings.

122               The ACCC concedes that the evidence demonstrates a recent willingness to investigate and improve the systems which led to the contravening conduct.  It also concedes that this suggests that the prospect of rehabilitation is good.  However, the ACCC contends that co-operation and modification of practices after discovery of the conduct by the ACCC should not be sufficient to avoid a substantial penalty.  It is contended that this would undermine general deterrence.

123               Chubb has had a change in management.  Chubb has dismissed those senior managers whose conduct was identified as having contributed to compliance failures.  Those terminations took place in 2003.  The ACCC submits that dismissal of employees and officers responsible for the breakdown in the systems and the offences cannot amount to a defence nor mitigate against the seriousness of the offences (Nissan at 18, 153). 

124               Chubb’s actions may not amount to a defence or mitigate the seriousness of the offences but they do demonstrate a genuine desire to effect changes and make hard decisions to ensure future appropriate behaviour.

125               Section 16A(2)(n) of the Crimes Act requires consideration of the prospect of rehabilitation as a matter to be taken into account.  To my mind, that involves, inter alia, a consideration of corrective steps taken after the offences have been discovered.

126               Chubb points to the extensive investigations that it has undertaken to identify the causes of the problems in its systems and has implemented steps to address them.  It also relies upon factors set out in [52] to [54] and [60] above as well as:

• The creation and refining of dedicated compliance roles
• The development of a compliance program, presentations and training sessions containing key compliance messages
• Auditing runs
• Rebates to customers
• The review and restructure of management personnel
• The creation of a team to undertake a review of all runs in New South Wales and Victoria to identify any issues with client service delivery, any unserviceable runs and any material compliance issues.  This involved a “desk top audit” of all franchises and multiple run licences followed by an additional audit where areas of concern were identified
• Varying payments made to franchisees and licensees depending on different runs to ensure a reasonable return so that provision of services can be improved and the franchisee or licensee does not “cut corners”
• Improved compliance audit procedures
• A recently undertaken detailed business review and the taking of steps to eliminate the structural impediments that were identified.  These steps include the introduction of the electronic verification of service delivery system and the buy-back of franchises to remove the problems arising out of fixed client runs

127               Chubb is also undertaking a number of steps to foster a culture of compliance including trade practices compliance training, the implementation of an ethics in business training program and a code of conduct. Chubb is also implementing patrol officer training, including a focus on client services.

128               As a further factor in mitigation, Chubb relies upon its resipiscence (the recognition of error and a change for the better). I am satisfied that Chubb has, in changing the culture of compliance and the systems affecting its provision of mobile security services, rehabilitated itself such that there is a low likelihood of future offences of this kind.

Parity principle

129               It is accepted that the court should endeavour to ensure that, to the extent possible, similar contraventions should incur similar penalties (Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) (2002) 201 ALR 618 at 626).  It is inevitable, however, that the different circumstances of each case mean that an analysis of the penalties imposed in other cases can only give a broad indication of the appropriate range.

130               I have been referred by counsel to a number of cases in which penalties have been imposed by the Court for contraventions of s 58(b) of the Act and also of Part V and Part IV of the Act but not for contraventions of s 75AZL(3).  Apart from the difficulties in comparison at the level of the individual factual circumstances, there are difficulties in comparing contraventions of different provisions.  Further, Parliament has increased the penalty for conduct that amounts to a contravention of s 75AZL(3) from that applicable to contraventions of s 58(b). 

131               In Australian Competition and Consumer Commission v Commercial and General Publications Pty Ltd (No 2) (2002) ATPR 41-905, Heerey J imposed a penalty of $5000 in respect of five contraventions of s 58(b) by an individual in circumstances where the individual payments received in contravention of the Act were less than $200 and they had been returned.  His Honour made reference to the circumstances of the individual concerned and expressed disquiet at to why the prosecution was brought.  Heerey J did observe, however at [23], that an important consideration in the deterrence of s 58(b) contraventions is that the amount of penalty should be substantially more than the amount of the payment accepted.

132               In Trade Practices Commission v J & R Enterprises Pty Ltd (1991) ATPR 41-133, O’Loughlin J considered two contraventions of s 58(b) in circumstances where there was no contrition and a long trial.  The circumstances included the making of false claims and the circulation of false information.  There had been no previous convictions. His Honour said that he reduced the fines that would otherwise have been applicable because of his “grave concern” at the individual’s financial situation and he marked down the penalties to be paid by the company, which had suffered substantial financial losses as a result of the trial.  It was in that context that a total penalty of $13,000 of a maximum of  $200,000 was imposed. 

133               The capacity on the part of the defendant to pay has been a factor in a number of cases, for example Hartwich where penalties were imposed for offences against s 79(1)(d) of the Act.

134               In Dawson v World Travel Headquarters Pty Ltd (1981) 53 FLR 455, Fisher J imposed a penalty of $3200, being $3,000 for the first and $100 for each of the two subsequent contraventions of s 58(b) where the maximum penalty was $50,000 for each contravention.  The contraventions, considered by his Honour to arise from a single default, occurred in respect of a single tour in which the defendant had made a loss and where alterations to the itinerary had not been drawn to the attention of at least two tourists.  There was no evidence of prejudice.  There had been a failure of the defendant’s ‘fail-safe’ system on a particular occasion, not at the principal place of business but after transmission of information from Sydney to Perth.  Corrective measures had subsequently been put in place.

135               In Australian Competition and Consumer Commission v Allans Music Group Pty Ltd  [2002] FCA 1552, Tamberlin J imposed a fine of $80,000 for nine contraventions of s 53(e) of the Act.  The maximum applicable penalty was $200,000, as it was agreed that the nine contraventions were to be grouped by reason of s 79(2).  The effect of the conduct of the defendant in advertising false discounts on goods in a catalogue was to mislead or be likely to mislead members of the public.  The scale of the advertising was broad.  There was no evidence of actual damage.  The representations were said to have arisen from inadequate procedures.  Tamberlin J said at [23] ‘in my view, the failure to have any satisfactory process in place to ensure compliance with the Act is an important consideration when examining the conduct of the defendant’.  His Honour did not accept that the actions were matters of mere oversight.  However, an extensive compliance program was subsequently established, the defendant had co-operated with the ACCC and pleaded guilty and, as ‘an important consideration’, there were no prior convictions.  There were no complaints by customers and the defendant proposed to offer to each of the affected customers a gift voucher. 

136               In those circumstances, which resonate to some extent with those of the present case, although the contravention was of a different section of the Act, his Honour imposed a penalty which was 40% of the maximum.

137               It is apparent that there are difficulties in simply referring to penalties previously imposed for contraventions of the section in widely differing circumstances or in circumstances where some of the factors are similar but others dissimilar to those of the present case.  It is also apparent that the Court has, in each case, taken into account the deterrent effect of the fines and the fact that the penalties ‘should reflect the will of Parliament that the commercial standards laid down in the Act must be observed but not be so high as to be oppressive’  (Stihl at 17,896).

138               Chubb submits that a penalty for all contraventions that exceeds the maximum penalty for one contravention ($1.1 million) would be outside the proper range of penalties.

139               Mr Fagan does not accept that conclusion.  He points out that previous cases are not necessarily a guide, that the present offences are unusually serious and that there is no reason in principle to adopt the arbitrary maximum applied by Mr Bathurst.

140               I do not see, in principle, why such a maximum should apply. In my view, Mr Bathurst has not established why it should, save for his submissions on s 79(2) of the Act, which I will address.

Totality principle

141               The parties agree that, because Chubb is being sentenced for a number of offences, the Court must have regard to the totality principle to ensure that the penalties in aggregate are just and appropriate (Mill v The Queen (1988) 166 CLR 59 at 62-3).

142               The principle of totality is applicable where the penalty imposed is by way of fine, although of less force than in cases of imprisonment (Camilleri’s Stock Feeds Pty Ltd v Environment Protection Authority (1993) 32 NSWLR 683 at 704; Trade Practices Commission v TNT Australia Pty Limited  (1995) ATPR 41-375 at 40,169).

143               Mr Fagan submits that the appropriate course is to fix an appropriate fine for each offence and that the totality principle applies when those fines are aggregated to consider whether that total is just and appropriate and whether it needs adjusting.  That approach is consistent with the approach of Goldberg J in Safeways.

Mr Bathurst submits that the application of the totality principle should result in an aggregate penalty that does not exceed the maximum penalty for a single breach of that provision.  That does not seem to me to follow from the application of the totality principle

The application of s 79 (2) of the Act

144               Chubb relies on s 79 (2) of the Act which provides, in effect, for like contraventions to be “grouped” and limits the penalty which can be imposed in respect of each group to the maximum for a single contravention in that group.  Chubb submits that s 79(2) must be applied in this case as:

(a)        The contraventions are constituted by or relate to contraventions of the same provision

(b)        The contraventions are of the same or of a substantially similar nature

(c)        The contraventions occur at or about the same time

Contraventions of the same provision

145               Chubb acknowledges that the contraventions of s 58(b) cannot be grouped with contraventions of s 75AZL of the Act.

Same or substantially similar nature

146               Chubb submits that the contraventions are of the same or of a substantially similar nature.  I accept that the conduct which was in contravention of the Act was the entering into of security agreements when there were reasonable grounds for believing that the services in the agreement would not be able to be supplied.  While the contraventions occurred in respect of different runs in different locations and in different States, the gravamen of each charge was the same (as in Trade Practices Commission v Cue Design Pty Ltd  (1996) ATPR 41-475 at 41,831 (‘Cue’)).  In Cue, as here, so much is apparent from the standard form of the charges, where matters such the dates and identity of the client differed but the substantive details of Chubb’s conduct remained the same.

At or about the same time

147               As to whether the offences occurred at or about the same time, Smithers J observed in Ducret v Colourshot Pty Ltd  (1981) 35 ALR 503 (‘Ducret’) at 508:

‘Whether in the ordinary affairs of mankind it may be said that an event occurred at about the same time as another event, depends largely on the context.’

His Honour also commented that, according to the words ‘at or about the same time’their ordinary meaning, s 79(2) of the Act would seem to reflect the principle that a man shall not be punished twice for the same offence. He favoured a practical, rather than strict, application in determining whether the coincidence in time of the offences was so close as to impart unity to them. 

148               On that basis, Smithers J was of the view that the span of time contemplated must reflect an ‘emphasis on the notion of contemporaneity of the contraventions rather than the notion of the collection into a fictional unity of contraventions separated by a distinct, measurable and substantial period of time’ (at 508).  The offences must be so close together ‘that there is a basis in reality for attributing to them a unity in the commission of the actus reus of each offence’: (Trade Practices Commission v Advance Bank Australia Limited (1993) ATPR 41-229 (‘Advance Bank’) at 41,164 per Gummow J applying Ducret). 

149               Smithers J concluded in Ducret that separate contraventions committed at an interval of two months could not reasonably be regarded as having occurred at about the same time but that offences committed within four days of each other could be said to occur at about the same time (at 508).  Gummow J did not accept in Advance Bank that advertisements appearing over a period of three weeks appeared at or about the same time.  In Trade Practices Commission v Sun Alliance Australia Ltd  (1994) ATPR 41-286, Einfeld J adopted the views of Gummow J in Advance Bank on the application of s 79(2) of the Act and found, at 41, 851, that ‘the placing of the advertisements over a three-week period precludes any conclusion that the offences were so close together in time that there was a basis in reality for attributing to them a unity in the commission of them’.

150               In Farrow at 65, the prosecutor conceded and von Doussa J accepted that groups of offences, one group occurring over a period of 23 days, occurred at or about the same time.  In that case, representations were made to a series of investors to invite them to engage in a business activity.  Similarly in Thompson v Magnamail (No 1) (1977) ATPR 40-032 it was submitted by counsel for the defendant, the prosecution did not argue to the contrary and St John J accepted that s 79(2) applied to three offences resulting from two advertisements nearly six months apart.  In neither case were reasons given for the acceptance.

151               In Hartwich Spender J found that groups of offences, two of which were committed 6 weeks and 5 days apart occurred at or about the same time.  Those dates represented the time frame in which representations were made by named persons to specified persons to invite them to engage in a specific business activity.  His Honour did not elaborate on the reason for the application;  it would seem to have been inherent in the nature of the offences themselves.

152               In Australian Competition and Consumer Commission v The Vales Wine Co Pty Ltd   (1996) ATPR 41-528 at 42,776 – 42,777 O’Loughlin J made an ‘assessment’ that s 79(2) applied to three offences that occurred over a period of 47 days, which were said to be ‘sufficiently close in point of time’ but not to an additional offence which occurred eight or nine months later.  His Honour made no reference to Ducret and did not give detailed reasons for his conclusion, made without the benefit of counsel’s submissions.

153               In Australian Competition and Consumer Commission v Nissan Motor Co (Aust) Pty Ltd (1998) ATPR 41-660, offences on 21 September 1996 and 10 October 1996 were held not to have occurred at or about the same time. In Crossan v Commons (1985) ATPR 40-542, nine advertisements published between 5 January 1983 and 16 February 1983 were held not to have occurred at or the same time; however, invitations to engage in business which were made between 1 January 1983 and 5 January 1983 were held to constitute one offence.

154               Chubb submits that s 79(2) applies because all of the offences came about due to one course of conduct and systemic failure rather than planned and separate incidents.  This, it is submitted, makes it permissible to group all charges under one provision.  It would follow that a single penalty should be imposed in respect of those charges and assessed on the basis that the maximum penalty is the maximum for one of those charges under that provision.

155               The ACCC submits that s 79(2) is not applicable because the contraventions did not occur at or about the same time.  They occurred over a seventeen month period and, with limited exceptions, each offence was separated by periods of a week or more.

156               The ACCC submits that the only offences which occurred within days of  each other and which could ‘conceivably be regarded as having occurred at or about the same time’ were charges 5 and 6 (both on 17 September 2001), charges 8 and 9 (12 and 16 November 2001) and charges 11 and 12 (20 and 21 December 2001).  However, the submission was that even these do not qualify for grouping under s 79(2).

157               Mr Fagan says, constrained by authority (Cue), that a difference in place and identity of personnel who take the action that constitutes the offending conduct does not prevent the application of s 79(2).  Time is the relevant factor but it is necessary, he submits, to consider the interaction between the nature of the offences and the time over which they were committed to determine whether the section applies.

158               Mr Fagan draws attention to the fact that the offences have been committed with respect to different customers and on different runs.  He submits that, while offences committed with respect to the same run and within days of each other may arguably be considered to be at or about the same time for the purposes of s 79(2), it is the ACCC’s contention that the more appropriately applicable section is s 4K of the Crimes Act, which gives the Court some flexibility in fixing an appropriate penalty.

159               There is a tension in Mr Fagan’s submissions.  On one hand he submits that the Court should consider 26 separate offences individually and not regard them as a single offence.  On the other hand, he submits that Chubb cannot properly suggest that the problem arose because of the delegation to franchisees, as Chubb’s function was the monitoring of the performance of the franchisees and it was Chubb that entered into the contracts and made the commitment to provide the mobile security services. In referring to the ‘representational character’ of the offences, Mr Fagan emphasises that they took place in the context of a ‘systemic breach of the provisions’. This tends to characterise Chubb’s responsibility in terms of a single, if continuing, breakdown.

160               The same tension arises in Mr Bathurst’s submissions.  He relies upon the systemic failure but draws attention to the actions of the individual service providers. Mr Bathurst’s primary submission is that the offences arose out of one matter and, although the actions the subject of these charges occurred over a lengthy period of time, there exists a unity in the commission of the actus reus for the purpose of s 79(2).

161               The offence is one committed by Chubb not by the sub-contractors, licensees or franchisees.  The elements of Chubb’s offences are relevantly, for the purposes of s 58(b) of the Act, at the time of acceptance of payment for the services there were reasonable grounds, of which Chubb was aware or ought reasonably to have been aware, for believing that it would not be able to supply the services.

162               For s 75AZL(3) of the Act, the elements are the same, except that at the time of acceptance there must be reasonable grounds for believing that Chubb will not be able to supply the services. There is no requirement in s 75AZL(3) of the Act of actual or constructive knowledge on the part of Chubb. It is in this sense that this provision can be said to create a strict liability offence. Chubb admits for the purpose of s 58(b) of the Act, that it was aware or ought reasonably to have been aware of the grounds for the believe that it was unable to supply the promised services.

163               The approach of Mr Fagan concentrates on the element of the time of acceptance as separating the offences. 

164               Mr Bathurst’s approach, on the other hand, emphasises that the existence of the reasonable grounds for believing that Chubb would not be able to supply the services arose from what he described as the systemic failure of Chubb’s systems.

165               To my mind, the grounds for believing that Chubb would not be able to supply the services was not Chubb’s awareness of the failures within the runs but the state of the runs themselves.  Those failures were not constant over time or between runs.  The failures did not exist in all runs for which consideration was accepted by Chubb nor were all persons within the runs the subject of some failure deprived of the services for which they had contracted.  At the time of acceptance of payment, Chubb may well have been able to supply services to a particular client.

166               The systemic failure meant that Chubb was not monitoring service delivery in the various runs.  In each case, the new client was added to an existing run.  Before that occurred, Chubb should have satisfied itself that the operator of the run could provide that service.  In each case Chubb failed to do so. 

167               This means, in my view, that the there was not a single offence comprising the systemic failure.  The audits carried out by Chubb have shown which runs were not providing contracted services and the reasons for that failure.  Chubb’s failure meant that, at the time of the acceptance of consideration from each client the subject of each charge, Chubb was not aware whether or not the service provider would be able to supply the services to that client in that run.

168               Section 79(2) of the Act links the nature of the contravention and the time.  Smithers J in Ducret referred to the context of the contravention in deciding whether they occurred in or about the same time. 

169               The reference in s 79(2) is to the contraventions being ‘of the same nature or a substantially similar nature and to have occurred at or about the same time’ (emphasis added).  Chubb’s submissions rely on a single systemic failure on the part of Chubb.  That takes care of the first of these requirements, as effectively conceded by the ACCC.  To my mind, s 79(2) does not apply to a single systemic failure without regard to the time of the offences committed as a result of that failure or the context of that failure or the actions that were part of Chubb’s ‘systems’ during that time.

170               Chubb’s procedures which were, as discussed above, in theoretical operation during the Charge Period, should have resulted in monthly reviews by State General Managers that should have alerted them to deficiencies in operations.

171               The contraventions of s 58(b) occurred over a time period of over six months.  The contraventions of s 75AZL occurred over nearly eleven months.  The promised provision of services was to a number of different clients in different States in respect of different runs operated by different licensees or franchisees.  While these latter factors do not of themselves preclude the application of s 79(2), they are matters that assist in determining the context of the time period.

172               In my opinion, it cannot be said that all of the contraventions of s 58(b) or all of the contraventions of s 75AZL occurred at or about the same time.

173               That is not, however, the end of the matter.  It is submitted that there were some charges that relate to dates of acceptance of the consideration for services to be provided that were on or about the same time and should be grouped by reason of the application of s 79(2) of the Act. 

Charges laid under section 58(b) of the Trade Practices Act 1974

 

Summons 3 June 2004

Charge No	Date	Run No/State
1	5 June 2001	1 – ACT
2	22 June 2001	4 – ACT
3	3 July 2001	4 – ACT
4	24 July 2001	73 – NSW
5	17 September 2001	4 – ACT
6	17 September 2001	83 – NSW
7	26 October 2001	71 – NSW
8	12 November 2001	72 – NSW
9	16 November 2001	83 – NSW
10	13 December 2001	4 – ACT

 

Summons 24 June 2004

Charge No	Date	Run No/State
1	20 December 2001	48 – ACT
2	21 December 2001	48 – ACT

 

Charges laid under section 75AZL(3) of the Trade Practices Act 1974

 

Charge No	Date	Run No/State
1	24 December 2001	81 – NSW
2	17 January 2002	3 – ACT
3	20 February 2002	12 – TAS
4	1 March 2002	4 – ACT
5	20 March 2002	11 – TAS
6	3 April 2002	407 – NSW
7	13 May 2002	10, 11, 12 – TAS
8	25 June 2002	81 – NSW
9	27 June 2002	81 – NSW
10	16 July 2002	11 – TAS
11	23 July 2002	407 – NSW
12	7 August 2002	81 – NSW
13	4 October 2002	407 – NSW
14	4 November 2002	407 – NSW

 

174               Mr Fagan acknowledges that, where the contravention occurred in respect of the same run and on or close to the same date, it was arguable that they could be grouped for the purposes of s 79(2).  This could apply, he submitted, to charges 2 and 3 under s 58(b) of the Act of the summons of 3 June 2004, to charges 1 and 2 of the summons of 24 June 2004 under s 58(b) of the Act and to charges 8 and 9 of the charges laid under s 75AZL(3).

175               He concedes that where it is a single run which is affected by the one body of knowledge concerning capacity to provide service, the state of knowledge could be said to be the same over a short period of time, such as eleven days.  He submits that there must be some unifying feature to justify treating the different offences as one.

176               Mr Bathurst seeks to extend the groupings.  His proposition is that offences relating to a run or runs operated by the same franchisee in respect of which, in effect, identical complaints are made, can be grouped together.  He submits that adjoining runs may be grouped.  For example, runs 71, 72 and 73 are adjoining runs in Sydney so there is, he submits, “in a practical sense the necessary unity”.  Similarly, runs 1 and 4 are in the same areas of the ACT.  Runs 81 and 82 are operated by the same franchisee.

177               Mr Bathurst submitted that the groupings could be made on a number of different bases. He submitted that groupings could occur for contraventions in respect of:

• Contracts that were made out of the same Chubb branch office
• Runs that were grouped by Chubb for the purposes of addressing issues raised by the ACCC
• Runs that were grouped by Chubb and serviced by the same service provider
• Runs that were in the same or similar broad geographic location, for example, all runs located in the ACT

178               In order to be eligible for grouping for the purposes of s 79(2), the contraventions have to comply with both criteria of the subsection.  I am prepared to accept that each run would have had similar factors affecting the delivery of services to the properties within that run and that each run should have been monitored for compliance.  On that basis, on the assumption that these factors of which Chubb ought to have been aware remained constant over a short time, I am of the view that some grouping should be applied.  That does not mean, however, that the requirement of “at or about the same time” can be waived or extended beyond a reasonable assessment.  I am not satisfied that the environment was static.  Further, it is reasonable to conclude that Chubb, were it properly monitoring each run, would do so by monthly review. In a practical sense, the ‘necessary unity’ of the charges would cover a particular run over the period between monthly compliance checks by Chubb, giving Chubb the grounds for believing that, in that time period, services could or could not be supplied.

179               The agreed statement of facts says that Chubb’s operating procedure manuals and instructions:

 ‘…purported to provide for the defendant’s respective State General Managers to review, monthly, missed call reports and client complaints registers. These procedures further purported to require the State General Managers to review selected runs and clients on a monthly basis and to ensure that all documentation relating to the provision of patrol services was being correctly completed.’

It seems to me to be logically incorrect, therefore, to join those charges which occurred substantially more than one month apart, where the State General Managers had failed to comply with this duty to monitor the runs on a monthly basis. Such a check would have established the state of the delivery of the services on each run.

180               The groupings that apply, in my opinion, are:

Charges laid under s 58(b) under summons 3 June 2004:

·        Charges 2 and 3 which are 11 days apart involving run 4 in the ACT.

Charges laid under s 58(b) under summons 24 June 2004:

·        Charges 1 and 2 which are 1 day apart involving run 48 in the ACT.

Charges laid under s 75AZL(3):

·        Charges 8 and 9 which are two days apart involving run 81 in NSW.

·        Charges 13 and 14 which are one month apart involving run 407 in NSW.

Section 4K of the Crimes Act

181               Subsections 4K(3) and (4) of the Crimes Act which, it is accepted by Mr Fagan, apply to the summonses provide:

‘(3)      Charges against the same person for any number of offences against the same provision of a law of the Commonwealth may be joined in the same information, complaint or summons if those charges are founded on the same facts, or form, or are part of, a series of offences of the same or a similar character.

(4)       If a person is convicted of 2 or more offences referred to in subsection (3), the court may impose one penalty in respect of both or all of those offences, but that penalty shall not exceed the sum of the maximum penalties that could be imposed if a separate penalty were imposed in respect of each offence.’

182               Mr Fagan submits and Mr Bathurst agrees that the Court could, by applying s 4K(4) of the Crimes Act, adjust the overall sentence if it were of the view that the total penalty imposed as a result of aggregating individual fines otherwise appropriate to each offence were excessive, having regard to the totality principle.  The circumstances in which s 4K(3) and (4) of the Crimes Act may apply are not, it is submitted, identical with the circumstances of application of s 79(2) of the Act.  There is no requirement in s 4K(3) and (4) of the Crimes Act that the offences occurred at or about the same time.

183               Mr Fagan submits that the reliance by Chubb upon systemic or structural problems is an attempt to minimise the seriousness of the matter and demonstrates a failure on the part of the company to appreciate that ‘the whole essence of this service business was doing what was contracted to be performed and it makes no difference that the company was using franchisees to actually send the servicemen around to the premises and examine them’.  He submits that the Chubb submissions appear to attempt to disown knowledge of the failures in the delivery of services.

184               While Mr Fagan concedes that the offences form part of a series of offences of the same character, he submits that they cannot properly be regarded for sentencing purposes as one instance of conduct.  There is, he contends, a fresh offence each time there is a new contract with a client which involves the acceptance of consideration for the provision of a service where Chubb knew or ought to have known that the services could not be provided. He points out that there has been a breach of the section in different locations and spread over a substantial time period.  This is not, he contends the same as, for example, misrepresentations made in a number of stores by a number of personnel pursuant to a the adoption of a single policy or marketing strategy (Cue).  In the present case, he contends, Chubb denies a cohesion of policy.

185               Mr Bathurst submits that Chubb could not have had a more serious response. He points out that Chubb has not been charged with actual knowledge or an intention not to supply services. 

186               It does not seem to me that since the Charge Period Chubb has failed to appreciate its role in the fundamental failure to provide the services.  The evidence and submissions based on the systemic problems are by way of explanation of how the system was not working and how agreements came to be entered into without consideration of the ability to deliver services.  Chubb should have known whether in fact the services were being provided, whether by Chubb directly or by its licensees, franchisees or sub-contractors.  It should have had effective systems to monitor the service delivery.  Chubb acknowledges that the systems in place during the Charge Period were inadequate and has dismissed a number of senior personnel who should have ensured that Chubb did have such knowledge.  Chubb acknowledges that it was aware of facts from which there were reasonable grounds for believing that new clients could not be supplied with the services.

187               Chubb points out:

(a)        That there was no intention on its part not to provide services

(b)        There were compliance processes that had been put in place and had been reported to the ACCC pursuant to the civil undertakings

(c)        While the shortfalls in each run were as alleged, this meant that the runs were, in the worst case 56% but generally around 86-88% serviceable

(d)        It was the shortfalls that were not being ‘picked up’

188               Mr Fagan submits that the offences are ‘in the mid range of seriousness’, acknowledging that there would be more serious and less serious contraventions.  He submits that the appropriate range is between 25 and 75 per cent of the penalty for each charge.

Conclusions on penalty

189               Giving effect to the grouping of charges, there are now three offences which each attract a maximum penalty of $200,000 each; seven offences which each attract a maximum penalty of $220,000 and 12 offences which each attract a maximum penalty of $1,100,000.

190               Taking into account all of the matters in s 16A(2) of the Crimes Act each offence, on its own should, in my view, attract a penalty of 20% of the maximum.  In coming to that figure I have determined that what might be called the negative aspects of the offence, such as the seriousness of the conduct and the necessary deterrence, including the fact that Chubb had previously been made aware of its shortcomings in delivering promised services in the civil proceedings, attract a penalty of 40% of the maximum.  I have discounted that to take account of what might be described as the positive aspects of Chubb’s response, such as lack of intention, the plea of guilty, co-operation and rehabilitation as described. I also take account of the moneys and effort that Chubb has expended in effecting a comprehensive change to its procedures and compliance programs and the commitment that comprehends to effecting future compliance. 

191               This would mean a penalty for the s 58(b) offences of $428,500 ($384,000 for the summons of 3 June 2004 and $44,000 for the summons of 24 June 2004) and, for the s 75AZL(3) offences, $2,640,000.  This would result in a total penalty of $3,068, 500.

192               In applying s 4K(4) of the Crimes Act to each summons and giving effect to the totality principle and the parity principle, I am of the view that it is appropriate to reduce that penalty.  The offences, both as to number and as to time, arose out of a failure in Chubb’s procedures and systems. This was a failure to comply with the very systems that were in place to prevent the behaviour that occurred. This systemic failure does not avoid the fact that there were a large number of offences but it is a factor to be taken into consideration in reducing the penalty to be applied in respect of that total number.

193               It is also the case that the financial benefit to Chubb, the consideration for each contract, was not large and that there was no deliberate intent on the part of Chubb to fail in the delivery of security services. This is not a case where a corporation has weighed the commercial benefit of the offences against the risk of prosecution.

194               I am of the opinion that the appropriate penalties are: for the s 58(b) offences set out in the summons of 3 June 2004,  $190,000; for the s 58(b) offences set out in the summons of 24 June 2004, $20,000; for the s 75AZL(3) offences, $1,300,000.  This results in a total penalty of $1.51 million.

195               I have been asked to reserve the question of costs and I do so.

196               I direct the parties to forward to my associate draft orders to give effect to these reasons.

 

I certify that the preceding one hundred and ninety-six (196) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Bennett.

 

 

Associate:

 

Dated:              30 December 2004

 

 

Counsel for the Prosecutor:	D J Fagan SC with M A Wigney
Solicitor for the Prosecutor:	Commonwealth Director of Public Prosecutions
Counsel for the Defendant:	T F Bathurst QC with L McCallum
Solicitor for the Defendant:	Mallesons Stephen Jaques
Date of Hearing:	15 October 2004
Date of Judgment:	30 December 2004