FEDERAL COURT OF AUSTRALIA

ACCC v Humax Pty Ltd [2005] FCA 706

TRADE PRACTICES – Resale price maintenance – agreed facts – consent orders sought – consideration of factors relevant to penalty

Trade Practices Act 1974 (Cth) ss 48, 76, 80, 86C and 96(3)(b)

BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452 - considered

Australian Competition and Consumer Commission v Leahy Petroleum (No 2) (2005) 215 ALR 281 - applied

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v HUMAX PTY LTD (ACN 110 119 063) AND ANDREW SONG

VID 100 OF 2005

MERKEL J

10 JUNE 2005

MELBOURNE

BY CONSENT THE COURT DECLARES THAT:

1.                  The First Respondent, by statements made by the Second Respondent in a telephone conversation with Narelle Lea Huett both on 10 September 2004 and on 13 September 2004, engaged in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth) (“the Act”) by engaging in an act referred to in s 96(3)(b) of the Act by attempting to induce Kim David Huett and Narelle Lea Huett trading as Rapid Services (“Rapid Services”) not to sell Humax HD-7000 Digital Set Top Boxes (“the Humax STBs”), which were supplied to Rapid Services by Multimedia Technology Pty Ltd who indirectly obtained the Humax STBs from the First Respondent, at a price less than a price specified by the First Respondent, namely:

(a)        $599.00 including GST;

(b)        the recommended retail price (RRP) for the Humax STBs; and

(c)        $570.00 including GST.

2.                  The First Respondent, by statements made by the Second Respondent in an email sent to Quontar Pty Ltd trading as Quontcom (“Quontcom”) on 10 September 2004, engaged in the practice of resale price maintenance in contravention of s 48 of the Act by engaging in an act referred to in s 96(3)(b) of the Act by attempting to induce Quontcom not to sell the Humax STBs, which were supplied to Quontcom by Multimedia Technology Pty Ltd who indirectly obtained the Humax STBs from the First Respondent, at a price less than a price specified by the First Respondent, namely:

(a)                $599.00 including GST; and

(b)               the RRP for the Humax STBs.

3.                  The First Respondent, by statements made by the Second Respondent in a voice message left on the answering service of Luke Waples trading as Selpaw Services (“Selpaw Services”) on 10 September 2004, engaged in the practice of resale price maintenance in contravention of s 48 of the Act by engaging in an act referred to in s 96(3)(b) of the Act by attempting to induce Selpaw Services not to sell the Humax STBs, which were supplied to Selpaw Services by Multimedia Technology Pty Ltd who indirectly obtained the Humax STBs from the First Respondent, at a price less than a price specified by the First Respondent, namely:

(a)                $599.00 including GST; and

(b)               the RRP for the Humax STBs.

4.                  The Second Respondent was directly knowingly concerned in, and party to, the First Respondent’s conduct of engaging in the practice of resale price maintenance referred to in paragraphs 1, 2 and 3 of this order in contravention of s 48 of the Act by:

(a)        the statements made by the Second Respondent in telephone conversations with Narelle Huett on 10 and 13 September 2004 referred to in paragraph 1 of this order;

(b)       the statements made by the Second Respondent in the email sent to Quontcom on 10 September 2004 referred to in paragraph 2 of this order; and

(c)               the statements made by the Second Respondent in the voice message left on the answering service of Selpaw Services on 10 September 2004 referred to in paragraph 3 of this order -

and thereby the Second Respondent engaged in conduct of the kind referred to in ss 76(1)(e) and 80(1)(e) of the Act.

BY CONSENT THE COURT ORDERS THAT:

5.                  The First Respondent be restrained, whether by itself, its servants, agents or otherwise howsoever, for a period of three years from the date of this order, from making statements to a person retailing the Humax STBs (“a Humax STB retailer”) inducing or attempting to induce a Humax STB retailer not to sell the Humax STBs at a price less than a price specified by the First Respondent.

6.                  The First Respondent:

(a)               within three months of the date of this order, establish an education, training and trade practices compliance program (“the Compliance Program”) for employees or other persons involved in the First Respondent’s business, which is designed to ensure:

(i)      an awareness of the responsibilities and obligations contained in Parts IV and VIII (including s 48 of Pt IV and s 96 of Pt VIII) and of the responsibilities and obligations in relation to the contravening conduct in this proceeding or any similar or related conduct; and

(ii)     subject to the Compliance Program being tailored to the First Respondent’s circumstances, it be consistent with Australian Standard on Compliance Programs AS3806;

 (b)      within one month of the date of this order appoint a person with experience in trade practices law to advise the First Respondent as to the content of the Compliance Program;

(c)        implement and administer the Compliance Program for a period of three years from the date it is established;

(d)               within three months of the date of this order provide a written report to the applicant on the content of the Compliance Program and provide a further report to the applicant on the implementation and administration of the Compliance Program at the conclusion of each period of twelve months during which the program is being implemented and administered.

7.                  The Second Respondent be restrained for a period of three years from the date of this order from being directly or indirectly knowingly concerned in, or party to, conduct by the First Respondent whereby the First Respondent whether by itself, its servants, agents or otherwise howsoever makes statements to a Humax STB retailer inducing or attempting to induce a Humax STB retailer not to sell the Humax STBs at a price less than a price specified by the First Respondent.

8.                  The First and Second Respondents pay the Applicant’s costs of and incidental to the proceeding in the sum of $18,000, payable by 6 monthly instalments of $3,000 commencing on 24 June 2005 and on the 21st day of each month thereafter. 

AND THE COURT FURTHER ORDERS THAT:

9.                  (a)        The First Respondent pay to the Commonwealth of Australia a pecuniary penalty in the sum of $150,000 payable by 18 monthly instalments of $8,333.33 commencing on 24 June 2005 and on or before the 21^st day of each month thereafter.

(b)                The Second Respondent pay to the Commonwealth of Australia a pecuniary penalty in the sum of $7,500 payable by 18 monthly instalments of $416.66 commencing on 24 June 2005 and on or before the 21^st day of each month thereafter.

(c)               In the event that there is a default in the making of any of the instalment payments and that default continues for fourteen days, the whole of the outstanding amount is to become due and payable by the party in default.

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

REASONS FOR JUDGMENT

1                     The applicant (“the ACCC”) has applied to the Court for declarations, injunctions, pecuniary penalties and other relief in relation to four separate acts of resale price maintenance engaged in by the first respondent, Humax Pty Ltd (“Humax”), in contravention of s 48 of the Trade Practices Act 1974 (Cth) (“the Act”).  Similar relief is also being sought against the second respondent, Andrew Song (“Song”), who was involved in each of the contraventions of s 48 by Humax.

2                     Prior to the hearing the parties provided the Court with a Statement of Agreed Facts (“the Agreed Facts”) and Joint Submissions in relation to the declaratory and injunctive relief and penalty.  The Joint Submissions summarise the Agreed Facts and the relevant issues to be determined.  In those circumstances it is appropriate to set them out in full, save for the annexures and footnotes:

“A.      INTRODUCTION AND SUMMARY OF ISSUES

1.             These submissions are made jointly on behalf of the Applicant (the Commission) and both Respondents.

2.             On 14 February 2005, the Commission commenced this proceeding against Humax Pty Ltd (Humax) and its manager, Andrew Song (Mr Song), alleging that:

2.1       Humax was liable as a principal contravenor for conduct constituting four separate acts of resale price maintenance within the meaning of section 96(3)(b) of the Trade Practices Act 1974 (Cth) (the Act) in contravention of section 48 of the Act; and

2.2       Mr Song was liable as a person involved in each of the four contraventions of section 48 of the Act by Humax.

3.         On 30 March 2005, Humax and Mr Song filed separate Defences admitting their respective liability for each of the four contraventions of the Act alleged in the Statement of Claim.

4.         The parties have filed:

4.1       a Statement of Agreed Facts signed by the representatives of all parties; and

4.2       proposed Consent Orders signed by the representatives of all parties, including (inter alia) proposed pecuniary penalties to be imposed upon Humax and Mr Song.

These joint submissions are made on behalf of all parties in support of the Court making orders in accordance with the proposed Consent Orders on the basis of the Statement of Agreed Facts.

B.        THE CONTRAVENING CONDUCT

5.         The contravening conduct is set out in the Statement of Agreed Facts.  In summary, this proceeding concerns four contraventions of section 48 of the Act arising out of conduct engaged in by Mr Song on behalf of Humax on 10 and 13 September 2004 in respect of the retail selling price of Humax HD-7000 High Definition Digital Set Top Boxes (the Humax HD-7000 STBs) which Humax supplied to distributors in Australia. 

6.         The contraventions arose out of conduct engaged in by Mr Song on behalf of Humax by the following communications by him to three retailers of the Humax HD-7000 STBs:

6.1       Statements made by Mr Song in a telephone discussion between Mr Song and Narelle Lea Huett, the manager and a partner of a business owned by Narelle Lea Huett and Kim David Huett trading as ‘Rapid Services’ (Rapid Services), on 10 and 13 September 2004. 

6.2       An email written and sent by Mr Song to Quontar Pty Ltd trading as ‘Quontcom’ (Quontcom) on 10 September 2004.

6.3       A voice message left by Mr Song on the answering service for Luke Waples trading as ‘Selpaw Services’ (Selpaw Services) on 10 September 2004.

7.         Humax admits that, by the above conduct by Mr Song, Humax engaged in the practice of resale price maintenance in contravention of section 48 of the Act by engaging in four separate acts referred to in section 96(3)(b) of the Act by attempting to induce each of the three retailers not to sell the Humax HD-7000 STBs, which were supplied to the retailers by Multimedia who, indirectly, obtained the Humax HD-7000 STBs from Humax, at a price less than a price specified by Humax, namely:

7.1       in the case of each of the three retailers-

7.1.1.     $599.00 including GST; and

7.1.2.     the recommended retail price (RRP) for the Humax HD-7000 STBs;

7.2         in addition, in the case of Rapid Services - $570.00 including GST.

8.         Mr Song admits that he was directly knowingly concerned in, and party to, Humax’s conduct of engaging in the practice of resale price maintenance in contravention of section 48 of the Act being conduct of the kind referred to in sections 76(1)(e) and 80(1)(e) of the Act.

C.        THE RELEVANT LEGISLATIVE PROVISIONS

9.         Section 48 of the Act states:

‘A corporation or other person shall not engage in the practice of resale price maintenance.’

10.       The expression ‘practice of resale price maintenance’ is defined in section 4.  It means the ‘practice of resale price maintenance’ referred to in Part VIII of the Act.  Part VIII in turn contains section 96 which is headed ‘Acts constituting engaging in resale price maintenance’ and provides:

‘(1) Subject to this Part, a corporation (in this section called ‘the supplier’) engages in the practice of resale price maintenance if that corporation does an act referred to in any of the paragraphs of subsection (3).’

11.       In this case, Humax admits that it has engaged in four acts of resale price maintenance within the meaning of sub-section 96(3)(b).  This sub-section relevantly provides:

‘(3) The acts referred to in subsections (1) … are the following: …

(b)     the supplier … attempting to induce … a second person not to sell, at a price less than a price specified by the supplier, goods supplied to the second person …  by a third person who, directly or indirectly, has obtained the goods from the supplier;’

12.       A contravention by a person of any of the provisions in Pt IV of the Act may lead to an order by the Court that that person pay to the Commonwealth a pecuniary penalty in respect of each act or omission by the person to which section 76 applies.  Section 76(1) relevantly provides:

‘If the Court is satisfied that a person:

(a)     has contravened any of the following provisions:
(i) a provision of Part IV;
…

(e)     has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision;
 …;

the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct.’

13.       Section 80 of the Act provides that where, on the application of the Commission, the Court is satisfied that a person has engaged in conduct that constitutes a contravention of a provision of Part IV it may grant an injunction in such terms as it determines appropriate.  Section 86C provides for various non-punitive orders including probation orders as to trade practices compliance programs.

14.       Section 21 of the Federal Court of Australia Act 1976 (Cth) enables the Court, in relation to a matter in which it has original jurisdiction, to make binding declarations of right.

D.        RELIEF 

15.       The proposed Consent Orders provide for:

15.1       Declarations in relation to the liability of Humax (as principal) and Mr Song (a person involved in the contraventions);

15.2       injunctions restraining Humax (as principal) and Mr Song (a person involved in the contraventions);

15.3       pecuniary penalties to be imposed upon Humax and Mr Song;

15.4       a trade practices compliance program for Humax by a non-punitive probation order; and

15.5       costs.

16.       The Commission and the Respondents fully acknowledge that it is for the Court to make its own assessment of, and to determine, the appropriate relief that should be ordered for a contravention of Part IV of the Act.  It is to assist the Court in that task that the parties are jointly making these submissions.

E.        DECLARATIONS, INJUNCTIONS AND RELIEF APART FROM PENALTIES 

17.       The parties have filed signed, proposed Consent Orders seeking declarations, injunctions and other orders.  The Court is entitled to treat the Respondents’ consent as involving an admission of all facts necessary or appropriate to the granting of the relief sought:  Thomson Australian Holdings Pty Ltd v TPC (1981) 148 CLR 150 at 164 per Gibbs CJ, Stephen, Mason and Wilson JJ.

18.       There is a well-recognised public interest in the settlement of cases under the Act.  See the oft-cited observations of Justices Burchett and Kiefel in NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285 at 291:

‘There is an important public policy involved.  When corporations acknowledge contraventions, very lengthy and complex litigation is frequently avoided, freeing the courts to deal with other matters, and investigating officers of the Australian Competition and Consumer Commission to turn to other areas of the economy that await their attention. At the same time, a negotiated resolution in the instant case may be expected to include measures designed to promote, for the future, vigorous competition in the particular market concerned.  …’

19.       The Court is careful to ensure that the proposed agreed Orders under the Act are within power and otherwise appropriate.  However, the Court will not refuse to give effect to settlements under the Act which are within the Court’s jurisdiction and are otherwise not inappropriate.  As Lee J explained in ACCC v Target Australia Pty Ltd (2001) ATPR 41-840 at [24]:

‘In conclusion, I mention the role of the Court in making consent orders in matters under the Act.  It is the Court's duty in receiving consent orders in any matter to scrutinise such orders as to their appropriateness.  However, after being satisfied as to the appropriateness of the orders, the Court should be slow to impede final settlement of such matters, particularly those involving public interest considerations.  Moreover, the public has an interest in the mutual resolution of litigation, and subject to the foregoing the Court should be careful not to refuse to make orders simply because the orders may have been different had it been the Court's task to formulate them.’

20.       The proposed Consent Orders do not raise any of the difficulties that have previously caused the Court not to make consent orders because:

‘1.        the order is one which the Court does not have power to make;

2.         the order bears no relationship to the admitted contravention - eg a compliance program covering Parts IV and V of the Trade Practices Act is generally not appropriate where the relevant contraventions related only to Part V: Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 at 202 (Merkel J); Australian Competition and Consumer Commission v Office Link (Aust) Pty Ltd (1997) 19 ATPR 41-598;

3.         an injunctive order is too vague or imprecise or requires continuing supervision by the Court;

4.         a multiplicity of overlapping injunctions and/or declarations is proposed which involve unnecessary repetition and may give rise to confusion about the scope of the obligations being imposed pursuant to the orders’:

 ACCC v Econovite Pty Ltd (2003) ATPR 41-959 per French J at [12].

21.       The parties jointly submit that the declarations, injunctions and other relief in the proposed Consent Orders are within the Court’s power to make and are appropriate to be made. 

21.1     The declarations sought in this case contain sufficient indication of how and why the conduct complained of is a contravention of the Act. 

21.2     Injunctions under section 80 of the Act are available and appropriate, not only to restrain an apprehended repetition of the contravening conduct, but also to deter a repetition of the conduct.  As Gray J said in ACCC v Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union [2004] FCA 517 at [12]:

‘I have not been troubled significantly by the injunctions sought by consent as to future conduct …  Again, left to my own devices, I might not have granted injunctions in the terms sought, but the consent of the respondents overcomes any difficulties I may have had.  …  If the respondents are prepared to submit themselves to such a regime, I do not propose to interfere with their choice.’

21.3   The probation order is also within power and otherwise appropriate to be made.  Merkel J observed in ACCC v Leahy Petroleum (No 2) [2005] FCA 254 at [83]:

 ‘…if any lesson is to be learned it should be that the best protection against contraventions and penalties arising from anti-competitive conduct is the elementary step of ensuring that directors and employees of substantial commercial enterprises are educated and properly instructed about the anti-competitive conduct that is proscribed by Pt IV of the Act.  As the facts in the present case demonstrate, the failure to do so can be a very costly exercise for those involved in such contraventions’.

          The compliance program proposed in the Consent Orders is not wider than one which is designed to prevent repetition of the contravening conduct in this case.  cf ACCC v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 (which concerned section 80 of the Act, whilst the compliance program sought in the present case is under section 86C of the Act). 

21.4   There is clearly not an issue as to whether the costs orders are within power and otherwise appropriate.

F.        AGREED PECUNIARY PENALTIES  -  THE RELEVANT PRINCIPLES

22.       In addition to the above relief, the parties jointly submit that the Court should order that Humax and Mr Song each pay a pecuniary penalty to the Commonwealth of Australia and that an appropriate penalty would be: 

22.1     in the case of Humax, $200,000 discounted to $150,000 payable by 18 monthly instalments of $8,333.33; and

22.2     in the case of Mr Song, $10,000 discounted to $7,500 payable by 18 monthly instalments of $416.66.

23.       There have been many cases in which agreement has been reached between the Commission and a person or corporation that it was investigating or against whom proceedings had been instituted.  The matters relevant to the question of whether the Court should accept a penalty that has been agreed between the Commission and a respondent are now well established.  See, generally, the Full Court in NW Frozen Foods v ACCC (1997) 71 FCR 285, the reasoning of which was affirmed by the Full Court in Minister for Industry, Tourism & Resources v Mobil Oil Pty Ltd [2004] FCAFC 72. 

24.       Where there is agreement that a contravention has occurred and agreement as to the appropriate penalty, it remains a matter for the Court to fix the penalty in its discretion.  However, the Court has in the great majority of such cases decided that the agreed penalty is the appropriate penalty.  In only isolated cases has the Court decided that a different penalty should be imposed.

25.       The reasoning of the Full Court in NW Frozen Foods involves the following propositions.

25.1     It is the responsibility of the Court to determine the appropriate penalty to be imposed under section 76 of the Act for a contravention of the Act.

25.2     Determining the quantum of a penalty is not an exact science.  Within a permissible range, the courts have acknowledged that a particular figure cannot necessarily be said to be more appropriate than another.

25.3     There is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy.  Accordingly, when the regulator and contravenor have reached agreement, they may present to the Court a statement of facts and opinions as to the effect of those facts, together with joint submissions as to the appropriate penalty to be imposed.

25.4     The view of the regulator, as a specialist body, is a relevant, but not determinative consideration on the question of penalties. In particular, the views of the regulator on matters within its expertise (such as the Commission’s views as to the deterrent effect of a proposed penalty in a given market) will usually be given greater weight than its views on more ‘subjective’ matters.

25.5     In determining whether the proposed penalty is appropriate, the Court examines all of the circumstances of the case.  Where the parties have put forward an agreed statement of facts, the Court may act on that statement if it is appropriate to do so.

25.6     Where the parties have jointly proposed a penalty, it will not be useful to investigate whether the Court would have arrived at that precise figure in the absence of agreement. The question is whether that figure is, in the Court’s view, appropriate in the circumstances of the case.  In answering that question, the Court will not reject the agreed figure simply because it would have been disposed to select some other figure.  It will be appropriate if within the permissible range.

26.       The Full Court of this Court in Mobil Oil recently reaffirmed the correctness of these propositions from NW Frozen Foods and added the following five further points.

‘[55] First, the rationale for giving weight to a joint submission on penalty is said by the Court to be the savings in resources for the regulator and the Court, as well as the likelihood that a negotiated resolution will include measures designed to promote competition.  As Jeremy Thorpe points out, a related advantage is that the savings in resources can be used by the regulator to increase the likelihood that other contraveners will be detected and brought before the courts.  This has the effect of increasing deterrence which is one of the principal justifications, if not the only justification for imposing civil penalties under the Act …: J Thorpe, ‘Determining the Appropriate Role for Charge Bargaining in Part IV of the Trade Practices Act’ (1996) 4 Comp & Cons LJ 69, at 72-74.  Of course the arguments in favour of negotiated settlements have to take account of the fact that it is the Court that bears the ultimate responsibility for determining the appropriate penalty.

[56]  Secondly, the sixth proposition drawn from the reasoning in NW Frozen Foods does not mean, in our opinion, that the Court must commence its reasoning with the proposed penalty and limit itself to considering whether that penalty is within the permissible range.  A Court may wish to take that approach.  However, it is open to a Court, consistently with the reasoning in NW Frozen Foods, first to address the appropriate range of penalties independently of the parties’ proposed figure and then, having made that judgment, determine whether the prepared [sic-proposed] penalty falls within the range.

[57] Thirdly, as has been noted, the appellant in NW Frozen Foods admitted contravening the Act and had reached agreement with the ACCC upon the facts to be put before the Court.  There was no suggestion that the admissions or statement had been tailored or modified to reflect the difficulties faced by the ACCC in proving its case.  The Full Court therefore acted on the basis of clear admissions and a detailed statement of agreed facts setting out how the contraventions had occurred.  …

[58] Fourthly, as the Full Court in Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2002] ATPR 41-851, has pointed out, the regulator should always explain to the Court the process of reasoning that justifies a discounted penalty. …

[59] …  It follows that a court considering an ‘agreed’ penalty is entitled to expect the regulator to explain the basis on which a discount from the otherwise appropriate penalty has been calculated having regard to the contravenor’s co-operation and, for that matter, other relevant factors. …

[60] Fifthly, there is nothing in NW Frozen Foods that is inconsistent with any of the following propositions:

(i)         The Court, if it considers that the evidence or information before it is inadequate to form a view as to whether the proposed penalty is appropriate, may request the parties to provide additional evidence or information or verify the information provided.  If they do not provide the information or verification requested, the Court may well not be satisfied that the proposed penalty is within the range.

(ii)        … [re the absence of a contradictor]

(iii)       If the Court is disposed not to impose the penalty proposed by the parties, it may be appropriate, depending on the circumstances, for each of them to be given the opportunity to withdraw consent to the proposed orders and for the matter to proceed as a contested hearing.’

27.       For the reasons set out in sections G and H below, all parties jointly submit that the suggested penalties agreed between the Commission and the Respondents are within the appropriate range and ought to be imposed by the Court.

G.        QUANTUM OF PECUNIARY PENALTIES - THE RELEVANT PRINCIPLES

28.       The factors relevant to the exercise of the discretion under section 76 of the Act are clear and can be usefully analysed as follows.

            28.1     The factors under section 76 are:

(i)      the nature and extent of the act or omission constituting the contravening conduct;

(ii)     the nature and extent of any loss or damage suffered as a result of the contravening conduct;

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

(iv)    whether the contravenor has previously been found by the Court to have engaged in similar conduct.

28.2     The ‘French factors’ include the factors in paragraphs 28.1(i), (ii) and (iii) above and the following:

(v)     the size of the contravening company;

(vi)    the degree of its power, evidenced by its market share and the ease of entry into the market;

(vii)   the deliberateness of the contravention and the period over which it extended;

(viii)  whether the contravention arose out of the conduct of senior management or at a lower level;

(ix)    whether the company had a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and

(x)     whether the contravenor has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention.

28.3     The ‘Heerey factors’ include the factor in paragraph 28.1(iv) above and the following:

(xi)    the respondents’ financial position; and

(xii)   the deterrent effect.

28.4     In TPC v TNT Australia Pty Ltd (1995) ATPR 41‑475 at 40,169 Burchett J stated that the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct involved (the ‘totality principle’ as known in the criminal law).

28.5     Finally, there is the parity principle.  All other things being equal, like cases should be treated alike.

H.        QUANTUM OF PECUNIARY PENALTIES - APPLICATION

Summary

29.       The Respondents agree with the Commission that contraventions of section 48 are serious.  As Weinberg J said in ACCC v Colgate – Palmolive Pty Ltd (2002) ATPR 41-880 at [29].

‘…  Contraventions of s 48 are serious violations of the conditions laid down by Parliament for the conduct of corporate trade and commerce.  The prohibition upon resale price maintenance is intended to create conditions under which the public will benefit from traders competing with each other in respect of prices, unfettered by price restraints imposed by suppliers of goods upon retailers.  …’

30.       In all of the circumstances of the case, the Commission and the Respondents jointly submit that the following penalties should be ordered under section 76 of the Act:

30.1     in the case of Humax, $200,000 discounted to $150,000 payable by 18 monthly instalments of $8,333.33; and

30.2     in the case of Mr Song, $10,000 discounted to $7,500 payable by 18 monthly instalments of $416.66.

The parties jointly submit that it is appropriate that the Respondents’ penalties be discounted by 25% in this manner due to their full cooperation and acknowledgment of liability.  See paragraph 48 below.

Deterrence

31.       The parties have taken into account that it is well-established that the principal object of a penalty under section 76 is deterrence (specific and general).  The parties have borne in mind the recent comments in ACCC v Leahy Petroleum (No 2) [2005] FCA 254 at [23] where Merkel J cited with approval the following observation of Finkelstein J in ACCC v ABB Transmission and Distribution Limited (2001) ATPR 41-815 at 42,938 [13]:

 ‘If general deterrence is the principal object of imposing a penalty, the number of cases that still come before the court, and the seriousness of the conduct that is involved in some of them, suggests that past penalties are not achieving that object.  For a penalty to have the desired effect, it must be imposed at a meaningful level.  Most antitrust violations are profitable.  Accordingly, the penalty must be at a level that a potentially-offending corporation will see as eliminating any prospect of gain.’

32.              The Commission, Humax and Mr Song submit that the proposed agreed penalties will have a sufficient deterrent effect both specifically and generally, without being so high as to be oppressive. 

33.              These penalties are at the lower end of the spectrum, as the maximum penalties are $10 million for a body corporate (section 76(1A)(b)) and $500,000 for a person other than a body corporate (section 76(1B)).  However, the parties jointly submit that the proposed agreed penalties are appropriate meaningful penalties in the circumstances of this case.  In particular:

33.1  The contraventions, whilst serious, are at the lower end of the spectrum.  The conduct occurred approximately 6 weeks after Humax commenced trading in Australia and occurred over two days, namely 10 September and 13 September 2004.  The conduct ceased at that time, which was prior to the Commission making any enquiries of Humax and was never repeated.  The proposed penalties are 1.5% of the maximum available penalties.

33.2  Although the Respondents ceased the contravening conduct of their own accord, it is submitted that the proposed agreed penalties (and the other relief in the proposed Consent Orders) will be a specific deterrent against the Respondents contravening Part IV of the Act again.

33.3  The proposed agreed penalties will also be a general deterrent against contravening the prohibition in the Act against resale price maintenance to persons analogous to the Respondents.  Humax, which only commenced operations in Australia in August 2004, does not have a large business and Mr Song is a young person, with English as a second language, who had minimal business experience prior to commencing employment with Humax and at the time the conduct occurred.

Nature and extent of the retail price maintenance conduct

34.              The four contraventions involve ‘attempting to induce’ within the meaning of section 96(3)(b). 

35.              The  contraventions occurred over 2 days, namely, Friday, 10 September 2004 and Monday, 13 September 2004.  Over those two days, Mr Song engaged in the conduct giving rise to the contraventions of the Respondents by contacting the following retailers by the following means:

35.1           Rapid Services was contacted by telephone on 10 and 13 September 2004;

35.2           Quontcom was contacted by email on 10 September 2004; and

35.3           Selpaw Services was contacted by a voice message service on 10 September 2004.

Amount of loss or damage caused

36.       There is no evidence or agreed fact as to the amount of loss or damage caused.  In particular there is no evidence that any of the three retailers increased their prices for the HD-7000 STB to the RRP of $599 in response to the communications from Mr Song.  Those communications were never repeated to those retailers.  The absence of evidence of loss or damage is not necessarily a mitigating factor in the imposition of penalties.  The parties submit that given the nature of the contravening conduct it is not likely that there was significant loss or damage, although there was potential for loss or damage to occur.

Circumstances in which the contravening conduct took place

36.              Humax was incorporated in Australia on 20 July 2004.  Humax began its operations in August 2004.  Humax imports five different electronic products including the Humax HD-7000 STBs into Australia from its parent company in Korea and supplies them to four distributors in Australia.  In Australia, Humax has four staff (including Mr Song) and one consultant.

37.              Since mid-August 2004 Humax had a RRP for the Humax HD-7000 STBs of $599.00 including GST each.  Mr Song was given instructions by Mr James Jin Hyong Kim, the managing director of Humax, to speak to the retailers that Mr Song spoke to in order to ask whether the retailers would price the Humax HD-7000 STBs nearer to the RRP.

38.              Mr Song is 28 years old and arrived in Australia from Korea in September 2000 to attend a language school run by the University of Sydney.  Mr Song completed a Bachelor of Commerce in Accounting and Economics at the University of Sydney in December 2003.  He commenced employment as manager of Humax on 20 July 2004.  Prior to commencing work with Humax, Mr Song worked in the Accounts Payable Department at Grace Fashion Pty Ltd.  He held this position for 3 months.

Size of the contravenor

40.       Humax, the principal contravenor, is properly to be regarded as a small proprietary company incorporated.  It is fully owned and controlled by its much more substantial parent company, Humax Co Ltd, which is located in Korea.   Humax Co Ltd has a large international presence and supplies digital set top boxes to over 90 countries worldwide.  However, Humax Co Ltd’s position is not of relevance given that there is no evidence that it was responsible for the contravening conduct. Although Humax has been sustaining operating losses since commencing operations in Australia in August 2004, it currently considers that it will have the capacity to pay the proposed penalty if an order is made in accordance with the terms set out in the proposed consent orders.  See Schneider Electric (Australia) Pty Ltd v ACCC (2003) 127 FCR 170 per Merkel J at [49] (with whom Black CJ agreed at [16]).

41.       Mr Song is the sole breadwinner for his mother and brother. Mr Song's monthly salary, expenses and available cash at bank are set out in items 2, 3 and 6 of Confidential Annexure B to the Statement of Agreed Facts.  Mr Song currently considers that he will have the capacity to pay the proposed penalty to which he has agreed if an order is made in accordance with the payment terms set out in the proposed orders by consent.

Degree of power of the contravenor

42.       The three retailers subjected to the contravening conduct (Rapid Services, Quontcom and Selpaw Services) are small retail suppliers of electronic goods which conduct business over the internet.  There is no evidence or agreed fact with respect to Humax’s market power other than the fact that Humax had only commenced business in Australia in August 2004.  In the period from the commencement of its operations in Australia in August 2004 to 14 September 2004,  Humax sold approximately:

42.1     580 set top boxes; and

42.3     284 of the Humax HD-7000 STBs.

43.       Since 14 September 2004, Humax has sold in Australia approximately:

43.1     9,752 set top boxes; and

43.2     2,880 of the Humax HD-7000 STBs.

The deliberateness of the contraventions and the period over which it extended

44.       The conduct of the Respondents was deliberate in that Mr Song’s conduct was not inadvertent.  Mr Song’s conduct followed an instruction from Humax’s managing director to speak to the retailers that Mr Song spoke to in order to ask whether the retailers would price the Humax HD-7000 STBs nearer to the RRP.  Mr Song carried out this conduct on behalf of Humax with the intention of so inducing the retailers.  Whilst ignorance of the law is no excuse, the conduct was the conduct of a corporation which had been trading in Australia for only a few weeks, and was carried out by a very inexperienced employee for whom English is a second language and who had no appreciation that the conduct was unlawful.  The corporation ceased the conduct of its own accord and has not repeated such conduct.

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

45.       The contravening conduct resulted from Mr Song, the manager of Humax, acting upon the instructions of Mr James Jin Hyong Kim, the managing director of Humax.  Mr Song is and was at all material times the person responsible for importing and wholesale supply to distributors of electronic goods, including the Humax HD-7000 STBs, in Australia.

Whether the company has a corporate culture conducive to compliance with the Act

46.       At all material times, including the time of the contraventions, Humax did not have in place a trade practices corporate compliance program and Mr Song had not undertaken any trade practices compliance training.  When first contacted by the Commission in October 2004, Humax informed the Commission that it would arrange trade practices compliance training for its staff.

47.       In the proposed Consent Orders Humax has agreed to implement a trade practices compliance program relevant to the contravening conduct in this case.

Acknowledgment of liability and disposition to cooperate with the Commission

48.       The Respondents have fully cooperated with the Commission in providing information which the Commission has requested since the beginning of its investigation.  Further, the Respondents have fully co-operated with the Commission in preparing the Statement of Agreed Facts, the proposed Consent Orders and this Joint Submission.  This has shortened the investigation, the proceeding and the trial, consequentially saved costs and enabled the Commission to focus on other investigations and proceedings.  The Respondents are entitled to credit for all of that.  The Commission has agreed to the proposed pecuniary penalties on the basis that it includes a 25% discount for the Respondents’ early acknowledgment of liability and co-operation with the Commission both prior to and during the proceeding.

Similar conduct in the past

49.       Humax and Mr Song regret the contravening conduct which they did not repeat and have no intention of repeating.

50.       Humax and Mr Song have not been found to have contravened a provision of Part IV of the Act at any time previously.  Indeed, Humax had only commenced operations in Australia approximately one month before the contravening conduct occurred.

Other matters

51.       The parties jointly submit that the proposed penalties are consistent with the proper application of the parity principle and the totality principle.

52.       The proposed Consent Orders provide for the penalties to be paid by instalments, as the Court has ordered in past cases involving contraventions of Part IV of the Act and having regard to the financial circumstances of the Respondents as detailed above and in the Statement of Agreed Facts.

I.         CONCLUSION

53.       All parties submit that it is appropriate for the Court to make orders in accordance with the proposed Consent Orders.”

3                     In the course of the hearing it became apparent that there were some disparities between the facts outlined in the joint submissions and the agreed facts.  Also, I indicated that the agreed facts were inadequate in relation to the mitigating factors the parties had relied upon in respect of penalty.  As a consequence, further statements of agreed facts were provided.  Those facts were:

“1.      The conduct ceased prior to the Commission making any enquiries of Humax and was never repeated.

2.         None of the three retailers increased their prices for the HD-7000 STBs to the RRP of $599 in response to the communications from Mr Song.  Rapid Services and Selpaw Services did not increase their retail prices at all.  Quantcom did increase its retail price to $550 including GST but for reasons other than Mr Song’s conduct.

3.         The communications constituting the contravening conduct were never repeated to those or other retailers.

4.         Humax and Mr Song regret the contravening conduct which they did not repeat and have no intention of repeating.

(5)       The parties admit that, subject to certain exceptions, the act of resale price maintenance is unlawful in South Korea pursuant to Article 29(1) of Chapter 7 of the Monopoly Regulation and Fair Trade Act.

(6)       Neither Mr Song nor Mr Kim were aware of the existence of Article 29 of Chapter 7 of the Monopoly Regulation and Fair Trade Acts at the time the conduct occurred.”

4                     The Agreed Facts did not adequately set out Humax’s financial position or the knowledge and understanding of its managing director, James Jin Hyoung Kim (“Kim”) in relation to Song’s conduct.  As a consequence, an affidavit by Kim was tendered on behalf of the respondents.  In that affidavit Kim states that he recently arrived in Australia to manage Humax’s business and was unaware that his instructions to Song were unlawful.  He also states that he did not instruct Song to exert any pressure on the retailers and that after he was told that one of the retailers complained that Song’s request to increase the prices for Humax’s products was illegal, no further requests for price maintenance were made.

Reasoning

5                     Engaging in resale price maintenance is a serious offence.  That is particularly so given that it must now be taken to be known generally that resale price maintenance, as defined in s 96 of the Act, is unacceptable and illegal conduct.  The attempts by the respondents to maintain the recommended retail price of Humax’s products in the present case were deliberate, blatant and involved threats of discontinuance of supply in relation to one retailer and a threat of legal action if Humax’s “instruction” to another retailer was not complied with.  Further, the instruction to attempt to engage in resale price maintenance came from senior management.

6                     The respondents’ attempts to maintain the resale price of Humax products involved four acts on two days, were not ongoing and may be seen as involving a single course of conduct flowing from the instruction to Song from Kim.  Thus, the present case is one in which the totality principle should apply with the consequence that the penalty should not exceed what is appropriate for the entire contravening conduct involved: see Australian Competition and Consumer Commission v Leahy Petroleum (No 2) (2005) 215 ALR 281 at [14].  Also, Humax, of its own accord, ceased to engage in the conduct prior to the ACCC’s interest in the matter coming to Humax’s attention.

7                     There are some mitigating factors.  First, there is no evidence that the attempts at resale price maintenance succeeded.  Thus, there is no evidence of loss or damage being suffered, although the parties accepted there was a potential for loss or damage to the public to occur.

8                     Second, the seriousness of the contravening conduct was, in part, due to the inexperience and ignorance of Song and Kim.  However, those factors need to be balanced against the fact that Humax is responsible for its omission to provide any trade practices compliance training.

9                     Third, the respondents have fully cooperated with the ACCC, have acknowledged their liability in respect of the contraventions, have expressed regret for the contravening conduct and have agreed to orders that they undertake a trade practices compliance program.

10                  Finally, in so far as Song is concerned, he acted on an instruction from Kim, as the managing director of Humax, and did not instigate the contravening conduct of his own accord.  Also, Song is a person of modest means and, through no fault on his part, received no trade practices compliance training.

11                  In all the circumstances and, in particular, having regard to the mitigating factors I have outlined, I consider that the appropriate penalties are the penalties outlined in the Joint Submissions which are $150,000 in respect of Humax and $7,500 in respect of Song.  I would add that, but for the mitigating factors, the penalties would have been significantly higher.

12                  I am also prepared to make the declaratory and injunctive orders sought by consent of the parties.  Although the instalment payments proposed by the parties are somewhat generous, I am satisfied that there is now sufficient financial information before the Court to justify the instalment arrangements agreed to by the ACCC.  As I am not satisfied that those arrangements are inappropriate or unreasonable, I am prepared to allow the penalties to be paid by the instalments proposed and agreed to by the parties.  However, I propose to order that if there is a default in payment that continues for more than 14 days the amount outstanding by the defaulting party is to become due and payable.

13                  Initially, the parties proposed that the trade practices compliance program include a requirement that Humax:

“(d)     appoint, within three months of the date of this order, and retain for a period of three years, an independent external auditor with experience in trade practices law and approved by the Applicant to:

(i)        at the end of each twelve month period from the date of this order until the third anniversary of the date of this order, audit the Compliance Program and the Training Program; and

(ii)       provide written reports to the Applicant and the First Respondent in relation to each audit within fourteen days of the completion of the audit.

14                  In BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452 at 466-469 ([42]-[53]) the Full Court explained why it had concluded that s 86C of the Act did not provide legislative authority for an order to be made for an external audit.  While the Full Court left open the question of whether such an order might be authorised by s 80 of the Act or by s 23 of the Federal Court of Australia Act 1976 (Cth), I doubt that the order would be authorised by those sections.  The difficulties with external audit orders were discussed by the Full Court in the passages cited above and need not be repeated.

15                  After indicating to the parties some of the difficulties with the external audit order which they proposed, they agreed that an order requiring expert input into the content of the trade practices compliance program prior to its establishment and implementation was more appropriate.  Accordingly, I propose to make such an order, which, in my view, is an order that is “for the purpose of ensuring that the [contravening party] does not engage in the contravening conduct, similar conduct or related conduct” and is therefore authorised by s 86C of the Act.

Associate:

Dated:              9 June 2005