FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Digital Products

Group Pty Ltd [2006] FCA 1732

 TRADE PRACTICES – Restrictive Trade Practices – Resale Price Maintenance – Enforcement & Remedies – Jointly proposed penalty – Principles to be applied by the Court in determining whether to order the imposition of a pecuniary penalty where parties propose a particular sum – Establishment of compliance and education programmes

 Federal Court of Australia Act 1976 (Cth), s 21

Trade Practices Act 1974 (Cth), s 48

 Australian Competition and Consumer Commission v ABB Power Transmission Pty Ltd [2004] FCA 819; (2004) ATPR 42-011

Australian Competition and Consumer Commission v Francis (2004) 142 FCR 1

ACCC v Humax Pty Ltd [2005] FCA 706; (2005) ATPR 42-072

Australian Competition and Consumer Commission v Midland Brick Company Pty Ltd (2004) 207 ALR 329

Commerce Commission v New Zealand Milk Corporation [1994] NZLR 730

Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72

NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1997) 71 FCR 285

Rural Press Limited v Australian Competition and Consumer Commission (2003) 216 CLR 53

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v DIGITAL PRODUCTS GROUP PTY LTD (ACN 090 626 403), JAI MYLES KEMP AND MARK DOPSON

VID 1062 OF 2006

TRACEY J

13 DECEMBER 2006

MELBOURNE

BY CONSENT THE COURT DECLARES THAT:

Declarations against the First Respondent

1        The first respondent, by a statement made by the second respondent in an email sent to Matthew Wren of Hantrex Pty Ltd (‘Hantrex’) on 7 October 2003, attempted to induce Hantrex not to advertise for sale on its internet website the Topfield TF3000T digital set top box (‘TF3000’), which was supplied to Hantrex by the first respondent, at a price less than a price specified by the first respondent, namely the first respondent's recommended retail price for the TF3000 of $349 including GST and, thereby, the first respondent 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 ss 96(3)(b) and 96(7)(a) of the Act.

2        The first respondent, by statements made by the second respondent in:

(a)     a telephone discussion with Matthew Wren of Hantrex in or around late November 2003 to about mid-December 2003; and

(b)     each of an additional two telephone discussions with Matthew Wren of Hantrex between December 2003 and about January 2004,

induced Hantrex not to advertise for sale on its internet website the TF3000 which was supplied to Hantrex by the first respondent, at a price less than a price specified by the first respondent, namely the first respondent's recommended retail price for the TF3000 of $349 including goods and services tax (‘GST’) and, thereby, the first respondent engaged in the practice of resale price maintenance in contravention of s 48 of the Act by engaging in three acts referred to in ss 96(3)(b) and 96(7)(a) of the Act.

3        The first respondent, by statements made by the second respondent in:

(a)     an email sent to Matthew Wren of Hantrex on 9 December 2003 regarding Hantrex's internet website;

(b)     two emails sent to Matthew Wren of Hantrex on 20 December 2003 regarding Hantrex's internet forum;

(c)     each of two telephone discussions with Matthew Wren of Hantrex from in or about December 2003 to in or about December 2004 regarding Hantrex's internet website; and

(d)     each of two telephone discussions with Matthew Wren of Hantrex from in or about December 2003 to in or about June 2004 regarding Hantrex's internet forum,

induced Hantrex not to advertise for sale on its internet website or internet forum the Topfield TF5000PVRt digital set top box (‘TF5000’), which was supplied to Hantrex by the first respondent, at a price less than a price specified by the first respondent, namely the first respondent's recommended retail price for the TF5000 of $1,099 including GST and, thereby, the first respondent engaged in the practice of resale price maintenance in contravention of section 48 of the Act by engaging in seven acts referred to in ss 96(3)(b) and 96(7)(a) of the Act.

4        The first respondent, by a statement made by the third respondent in an email sent to Matthew Wren of Hantrex on 26 August 2004, attempted to induce Hantrex not to advertise for sale on its internet website the TF5000, which was supplied to Hantrex by the first respondent, at a price less than a price specified by the first respondent, namely the first respondent's recommended retail price for the TF5000 of $1,099.00 including GST and, thereby, the first respondent engaged in the practice of resale price maintenance in contravention of s 48 of the Act by engaging in an act referred to in ss 96(3)(b) and 96(7)(a) of the Act.

5        The first respondent, by statements made by the third respondent in:

(a)     each of two telephone discussions with and three emails sent to Matthew Wren of Hantrex from in or about August 2004 to in or about December 2004; and

(b)     an email sent to Matthew Wren of Hantrex on 2 September 2004,

induced Hantrex not to advertise for sale on its internet website the TF5000, which was supplied to Hantrex by the first respondent, at a price less than a price specified by the first respondent, namely the first respondent's recommended retail price for the TF5000 of $1,099.00 including GST and, thereby, the first respondent engaged in the practice of resale price maintenance in contravention of s 48 of the Act by engaging in six acts referred to in ss 96(3)(b) and 96(7)(a) of the Act.

6        The first respondent, by statements made by the Third Respondent in a telephone discussion with Matthew Wren of Hantrex on 9 June 2005 induced Hantrex not to advertise for sale on its internet website the Topfield Masterpiece digital set top box (‘the Masterpiece’), which was supplied to Hantrex by the first respondent, at a price less than a price specified by the First Respondent, namely the first respondent's recommended retail price for the Masterpiece of $1,199 including GST and, thereby, the first respondent engaged in the practice of resale price maintenance in contravention of s 48 of the Act by engaging in an act referred to in ss 96(3)(b) and 96(7)(a) of the Act.

7        The first respondent, by an email sent by the third respondent to Matthew Wren of Hantrex on 27 May 2005 made a statement of a price that was likely to be understood by Wren of Hantrex as the price below which the Masterpiece was not to be advertised for sale by Hantrex, namely the first respondent's recommended retail price for the Masterpiece of $1,199 including GST and, thereby, the first respondent engaged in the practice of resale price maintenance in contravention of s 48 of the Act by engaging in an act referred to in ss 96(3)(f) and 96 (7) of the Act.

Declaration against the Second Respondent

8        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 orders 1 to 3 above in contravention of s 48 of the Act by the statements made by the second respondent in:

(a)     the email sent to Matthew Wren of Hantrex on 7 October 2003 referred to in order 1 above;

(b)     the telephone discussion with Matthew Wren of Hantrex in or around late November 2003 to about mid-December 2003 referred to in subparagraph (a) of order 2 above;

(c)     the additional two telephone discussions with Matthew Wren of Hantrex between December 2003 and about January 2004 referred to in subparagraph (b) of order 2 above;

(d)     the email sent to Matthew Wren of Hantrex on 9 December 2003 referred to in subparagraph (a) of order 3 above;

(e)     the two emails sent to Matthew Wren of Hantrex on 20 December 2003 referred to in subparagraph (b) of order 3 above;

(f)      the two telephone discussions with Matthew Wren of Hantrex from in or about December 2003 to in or about December 2004 referred to in subparagraph (c) of order 3 above; and

(g)     the two telephone discussions with Matthew Wren of Hantrex from in or about December 2003 to in or about June 2004 referred to in subparagraph (d) of order 3 above,

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.

Declaration against the Third Respondent

9        The third 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 orders 4 to 7 above in contravention of s 48 of the Act by the statements made by the third respondent in:

(a)     the email sent to Matthew Wren of Hantrex on 26 August 2004 referred to in order 4 above;

(b)     two telephone discussions with and approximately three emails sent to Matthew Wren of Hantrex from in or about August 2004 to in or about December 2004 referred to in subparagraph (a) of order 5 above;

(c)     the email sent to Matthew Wren of Hantrex on 2 September 2004 referred to in subparagraph (b) of order 5 above;

(d)     the telephone discussion with Matthew Wren of Hantrex on 9 June 2005 referred to in order 6 above; and

(e)     the email sent to Matthew Wren of Hantrex on 27 May 2005 referred to in order 7 above,

and thereby the third 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:

Injunctions

10      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 electronic goods supplied by the first respondent (‘the Retailer’) inducing or attempting to induce the Retailer not to advertise for sale or not to sell the electronic goods at a price less than a price specified by the first respondent.

11      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 using in relation to any electronic goods supplied, or that may be supplied, by the first respondent to a Retailer a statement of price that is likely to be understood by the Retailer as the price below which the goods are not to be advertised for sale or sold.

12      Each of the second and third respondents 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 Retailer inducing or attempting to induce the Retailer not to advertise for sale or not to sell the electronic goods at a price less than a price specified by the first respondent.

13      The third 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 uses in relation to any electronic goods supplied, or that may be supplied, by the first respondent to a Retailer a statement of price that is likely to be understood by the Retailer as the price below which the goods are not to be advertised for sale or sold.

Other orders

14      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 of the Act (including s 48 of Part IV and s 96 of Part 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; and

(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 12 months during the first three years which the program is being implemented and administered.

15      The first, second and third respondents pay the applicant's costs of and incidental to the proceeding fixed in the sum of $10,000 on 31 January 2007 or the third day following the date of this order, whichever is the later.

AND THE COURT FURTHER ORDERS BY CONSENT THAT:

Pecuniary penalties

16      The first respondent pay to the Commonwealth of Australia a pecuniary penalty in the sum of $238,000 payable by the following seven instalments:

(a)     $35,000 to be paid on or before 31 January 2007 or the third day following the date of this order, whichever is the later;

(b)     $33,833 to be paid on or before the 28th day on the fifth calendar month following the date of this order;

(c)     $33,833 to be paid on or before the 28th day on the tenth calendar month following the date of this order;

(d)     $33,833 to be paid on or before the 28th day on the fifteenth calendar month following the date of this order;

(e)     $33,833 to be paid on or before the 28th day on the twentieth calendar month following the date of this order;

(f)      $33,833 to be paid on or before the 28th day on the twenty-fifth calendar month following the date of this order; and

(g)     $33,835 to be paid on or before the 28th day on the thirtieth calendar month following the date of this order,

(collectively, the first respondent's instalment payments).

17      The second respondent pay to the Commonwealth of Australia a pecuniary
penalty in the sum of $42,000 payable by the following seven instalments:

(a)     $1,400 to be paid on or before 31 January 2007 or the third day following the date of this order, whichever is the later;

(b)     $6,766 to be paid on or before the 28th day on the fifth calendar month following the date of this order;

(c)     $6,766 to be paid on or before the 28th day on the tenth calendar month following the date of this order;

(d)     $6,766 to be paid on or before the 28th day on the fifteenth calendar month following the date of this order;

(e)     $6,766 to be paid on or before the 28th day on the twentieth calendar month following the date of this order;

(f)      $6,766 to be paid on or before the 28th day on the twenty-fifth calendar month following the date of this order; and

(g)     $6,770 to be paid on or before the 28th day on the thirtieth calendar month following the date of this order,

(collectively, the second respondent's instalment payments).

18      The third respondent pay to the Commonwealth of Australia a pecuniary penalty in the sum of $17,500 payable by the following seven instalments:

(a)     $583 to be paid on or before 31 January 2007 or the third day following the date of this order, whichever is the later;

(b)     $2,819.50 to be paid on or before the 28th day on the fifth calendar month following the date of this order;

(c)     $2,819.50 to be paid on or before the 28th day on the tenth calendar month following the date of this order;

(d)     $2,819.50 to be paid on or before the 28th day on the fifteenth calendar month following the date of this order;

(e)     $2,819.50 to be paid on or before the 28th day on the twentieth calendar month following the date of this order;

(f)      $2,819.50 to be paid on or before the 28th day on the twenty-fifth calendar month following the date of this order; and

(g)     $2,819.50 to be paid on or before the 28th day on the thirtieth calendar month following the date of this order,  

(collectively, the third respondent's instalment payments).

19      In the event that there is a default in the making of any of the:

(a)     First respondent's instalment payments referred to in order 16 above;

(b)     Second respondent's instalment payments referred to in order 17 above; or

(c)     Third respondent's instalment payments referred to in order 18 above,

and that default continues for 14 days, the whole of the outstanding amount is to become due and payable by the respondent or respondents in default.

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

REASONS FOR JUDGMENT

1                     The Australian Competition and Consumer Commission (‘the ACCC’) made application to the Court on 27 September 2006 for various remedies arising from alleged contraventions, by each of the respondents, of the Trade Practices Act 1974 (Cth) (‘the Act’).  Specifically, it was alleged that the first respondent (‘DPG’) contravened s 48 of the Act by engaging in the practice of resale price maintenance and that the second (‘Mr Kemp’) and third (‘Mr Dopson’) respondents were directly knowingly concerned in those contraventions and were, for this reason, liable to pecuniary penalties under s 76(1) of the Act.

2                     In the relatively short period which has followed the commencement of the proceeding the parties have acted with commendable celerity.  On 1 November 2006 a joint defence was filed which contained substantial admissions of liability.  A statement of agreed facts was filed on 15 November 2006.  An amended version of the statement was filed on 30 November 2006.  At that time the Court was also provided with minutes of orders sought by consent of the parties.  On 6 December 2006 joint submissions were filed.  This morning I heard brief oral submissions on behalf of the ACCC and the respondents.

3                     DPG carries on the business of importing digital set top boxes which are used to facilitate the reception of digital signals in analogue television sets.  The DPG supplied various models of digital set top boxes to retailers in Australia.  One of those retailers was Hantrex Pty Ltd (‘Hantrex’).  Mr Kemp was the sole and managing director of DPG.  Mr Dopson was the national sales manager of DPG.

4                     The ACCC statement of claim alleged that:

(a)        DPG was liable as the principal contravener in respect of 24 acts of resale price maintenance, contrary to s 48 of the Act;

(b)       Mr Kemp was liable as a person directly knowingly concerned in and a party to 14 of DPG’s contraventions of s 48 of the Act; and

(c)        Mr Dopson was liable as a person directly knowingly concerned in and a party to 10 of those contraventions.

5                     On 1 November 2006, in their joint defence, the respondents made the following admissions:

(a)        DPG admitted 20 of the 24 contraventions alleged against it;

(b)        Mr Kemp admitted 11 of the 14 contraventions alleged against him;

(c)        Mr Dopson admitted 9 of the 10 contraventions alleged against him.

6                     The ACCC did not press the allegations which were not admitted by the respondents.

7                     The statement of agreed facts, which I accept, explains the details of the conduct on which the allegations, made by the ACCC, are founded.  The 20 contravening acts admitted by DPG were performed between 7 October 2003 and 9 June 2005.  They involved either Mr Kemp or Mr Dopson requesting Hantrex to cease advertising digital set top boxes supplied by DPG at prices less than those stipulated by DPG as its recommended retail price.  In each case Hantrex responded by either increasing the advertised price or removing reference to a price from its advertising.  There is no evidence as to the extent of any pecuniary losses sustained by Hantrex or by consumers as a result of the respondent’s conduct.

8                     Resale price maintenance is a form of anti competitive conduct which the legislature has been concerned to prevent in the public interest.  Corporations, and those through whom they act, who engage in resale price maintenance face serious pecuniary penalties.  The maximum penalty for a contravention, by a corporation, of s 48 is $10 million:  see s 76(1A)(b).  The maximum penalty for an individual who is directly knowingly concerned in such a contravention is $500,000:  see s 76(1B).  Where contraventions have occurred the Court is empowered, in addition to imposing pecuniary penalties, to grant injunctions which are designed to prevent repetition of conduct which constitutes a contravention of the Act.  By s 86C of the Act the Court is empowered to make what are termed ‘probation’ orders.  Such orders may require the establishment of compliance and education programmes within a company which are designed to ensure that employees are aware of the requirements of the Act.  Section 21 of the Federal Court of Australia Act 1976 (Cth) further empowers the Court by providing for the making of binding declarations of right.

9                     The consent orders proposed by the parties include:

(a)        Declarations that particular conduct, engaged in by each of the respondents constituted a contravention of the Act;

(b)        Injunctions restraining each of the respondents from engaging in proscribed conduct for a period of three years from the date of the order;

(c)        Orders requiring DPG to establish an education programme for its employees;

(d)        An Order that the respondents pay the ACCC’s costs fixed in the sum of $10,000;

(e)        An Order that the first respondent pay a pecuniary penalty of $238,000 in seven instalments;

(f)         An Order that Mr Kemp pay a pecuniary penalty of $42,000 in seven instalments; and

(g)        An Order that Mr Dopson pay a pecuniary penalty of $17,500 in seven instalments.

A further Order provides for what is to occur in the event of any default, on the part of a respondent, in relation to the timely payment of any instalment.

10                  The Court is not, of course, bound to make Orders giving effect to the terms of settlement agreed on by the parties.  However, having considered the submissions made in support of the proposed Orders, I am persuaded that it is appropriate that those Orders should be made.

11                  The proposed declarations are appropriate in the circumstances.  They serve the public interest by making it plain that conduct of the kind admitted by the respondents contravenes the act:  see Australian Consumer & Competition Commission v Midland Brick Company Pty Ltd (2004) 207 ALR 329 at 333; Rural Press Limited v Australian Competition and Consumer Commission (2003) 216 CLR 53 at 91.

12                  The injunctive relief is clearly expressed so as to make it plain to the respondents what conduct on their parts is proscribed in the three year period during which the injunctions will be operative:  see Australian Competition and Consumer Commission v Francis (2004) 142 FCR 1 at 39.

13                  The probation order is modelled on an order made by Merkel J in ACCC v Humax Pty Ltd [2005] FCA 706; (2005) ATPR 42-072.  It is an agreed fact that the contraventions for which the respondents accept responsibility in the present case occurred as a result of inadvertence on the part of Mr Kemp and Mr Dopson.  Neither of them became aware that they had been acting in a manner proscribed by the Act until February 2006 when the ACCC served a notice on DPG under s 155 of the Act.  It was also agreed that Mr Kemp had an incorrect understanding of the relevant law and had communicated his errant views to staff.  In these circumstances it is appropriate that a regime should be established to ensure that all employees of DPG are made aware of the legal obligations imposed on DPG and its employees by the Act.

14                  The principles to be applied by the Court in determining whether to order the imposition of a pecuniary penalty for contravention of the Act, where parties propose a particular sum, are expounded in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1997) 71 FCR 285 at 290-295.  They are refined and elaborated upon in Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72 at [51] to [58].  I am also mindful of the observations of Emmett J in Australian Competition and Consumer Commission v ABB Power Transmission Pty Ltd [2004] FCA 819; (2004) ATPR 42-011at [46] to [56].  In particular, I note the following observations made by His Honour in that case.

‘[53]… there is a public interest in promoting settlement of litigation, particularly litigation that is likely to be lengthy and complex.  Thus, in giving weight to a joint submission on a proposal that would resolve a proceeding, the Court can have regard to the savings of resources both for a regulator, such as the Commission, and for the Court if the proposal were to be accepted.  The savings in resources, for example, are capable of being used by the regulator to increase the likelihood that other contraveners will be detected and brought before the court.

[54]    The view of a regulator such as the Commission as a specialist body is relevant in determining the question of penalty, although it is by no means determinative. The Court will expect a regulator such as the Commission to explain to it the process of reasoning that has led to the resolution proposed.  In particular, if a proposed penalty involves a discount from that which might otherwise be considered to be the appropriate penalty so as to reflect a degree of cooperation, the Court would expect the Commission to explain the basis upon which the discount had been calculated.

            …

[56]    The Court will be mindful that, where an agreed penalty is proposed, there may be elements of compromise involved in both sides.  Thus, it may be that evidentiary difficulties perceived by the Commission would warrant the abandonment of some claims.  Certainty of outcome for both parties may be a very significant factor in the reasoning process that leads to agreement on penalty.  For reasons such as those, if the Court is not disposed to impose a penalty proposed by the parties, it would be appropriate to give the parties the opportunity to withdraw consent for all of the proposed orders and to permit the proceeding to continue on a contested basis.’

See also Commerce Commission v New Zealand Milk Corporation [1994] NZLR 730 at 733.

15                  In determining to accept the proposed monetary penalties in this case I have had regard to the following considerations:

·                    The seriousness of the contravening conduct.

·                    The need for specific and general deterrence.

·                    The period over which the contraventions occurred (some 20 months).

·                    The contraventions occurred as a result of an inadequate and imperfect understanding, on the part of Mr Kemp and Mr Dopson, of the provisions of the Act.  They did not arise from any considered decision to act in breach of the restrictions imposed by the Act in order to obtain commercial advantage.

·                    In dealing with Hantrex Mr Kemp and Mr Dopson did not act in an aggressive or overbearing manner when seeking to influence Hantrex not to sell the digital set top boxes at prices lower than the recommended retail prices.

·                    DPG is a relatively small but growing family company.

·                    The capacity of DPG and the personal respondents to pay the proposed penalties.

·                    The substantial cooperation provided by the respondents in the course of the ACCC’s enquiry.

·                    The early acknowledgement of liability by the respondents.

·                    The view of the ACCC that the proposed monetary penalties are appropriate in the circumstances.  (In this context I note the advice of the parties that a 30% discount has been applied to reflect the level of co-operation provided by the respondents and the consequential savings to the ACCC of costs which would otherwise have been incurred in the conduct of any investigation).

·                    The absence of any prior contraventions of the Act by any respondent.

·                    The totality principle.

·                    The public interest in promoting the settlement of litigation.

16                  Orders will be made by consent in the terms proposed.

Associate:

Dated:         13 December 2006