FEDERAL COURT OF AUSTRALIA
Australian Competition & Consumer Commission v G.O. Drew Pty Ltd
[2007] FCA 1246
Federal Court of Australia Act 1976 (Cth) s 21(1)
Trade Practices Act 1974 (Cth) Pt V, ss 52, 52(1), 53(a), 53(c), 55, 80, 80(4)(a), 87B
VID 1395 OF 2005
GRAY J
16 AUGUST 2007
MELBOURNE
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY |
VID 1395 OF 2005 |
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BETWEEN: |
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
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AND: |
G.O. DREW PTY LTD (ACN 004 578 312) First Respondent
TIMOTHY DREW Second Respondent
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GRAY J |
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DATE OF ORDER: |
16 AUGUST 2007 |
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WHERE MADE: |
MELBOURNE |
BY CONSENT THE COURT DECLARES THAT:
1. The first respondent, between in or about March 2003 and in or about March 2005, by:
(a) supplying eggs to retailers and other participants in the food industry, in packaging which stated that the eggs were “Organic”, “Organic Free Range” and “Certified Organic by NASAA” (the National Association for Sustainable Agriculture Australia) and cited “Organic Producer No 3282”; and
(b) thereby representing that:
(i) all eggs labelled as ‘organic’ were different to eggs not so labelled, having regard to the chemicals, feed and other substances used in the production of the eggs;
(ii) all eggs so packaged were certified organic by NASAA; and
(iii) all eggs so packaged were produced by NASAA certified Organic Producer No 3282,
when in fact in relation to some of the eggs so packaged:
(iv) the eggs were not ‘organic’ and were not different to eggs not so labelled having regard to the chemicals, feed and other substances used in the production of the eggs;
(v) the eggs had not been certified organic by NASAA; and
(vi) the eggs had not been produced by NASAA certified Organic Producer No 3282,
has, in trade or commerce:
(c) engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 52 of the Trade Practices Act 1974 (Cth); and
(d) in connection with the supply of goods represented that goods were of a particular standard, quality, value, grade or composition which they were not in contravention of section 53(a) of the Trade Practices Act 1974; and
(e) in connection with the supply of goods, represented that goods had approval they did not have in contravention of section 53(c) of the Trade Practices Act 1974; and
(f) engaged in conduct that was liable to mislead the public as to the nature and characteristics of goods in contravention of section 55 of the Trade Practices Act 1974.
2. The second respondent was directly knowingly concerned in the first respondent’s contraventions of sections 52, 53(a), 53(c) and 55 of the Trade Practices Act 1974 by, as the manager of the first respondent, packing eggs, in packaging which represented, in trade or commerce, that:
(a) all eggs labelled as ‘organic’ were different to eggs not so labelled, having regard to the chemicals, feed and other substances used in the production of the eggs;
(b) all eggs so packaged were certified organic by NASAA; and
(c) all eggs so packaged were produced by NASAA certified Organic Producer No 3282,
when in fact in relation to some of the eggs so packaged, the second respondent knew that:
(d) the eggs were not ‘organic’ and were not different to eggs not so labelled having regard to the chemicals, feed and other substances used in the production of the eggs;
(e) the eggs had not been certified organic by NASAA; and
(f) the eggs had not been produced by NASAA certified Organic Producer No 3282.
BY CONSENT THE COURT ORDERS THAT:
3. The first respondent be restrained, whether by itself, its servants or agents or any of them or otherwise howsoever for a period of three years from the date of these orders from, in trade or commerce, supplying eggs in packaging to retailers and other participants in the food industry which represents by the packaging of the eggs that:
(a) the eggs were certified organic by NASAA when they were not so certified; or
(b) the eggs were produced by a NASAA certified organic producer when they were not so produced.
4. The second respondent be restrained for a period of three years from the date of these orders from being directly knowingly concerned in conduct by the first respondent or any other corporation whether by itself, its servants, agents or otherwise howsoever, in trade or commerce, involving supplying eggs in packaging to retailers and other participants in the food industry which represents by the packaging of the eggs that:
(a) the eggs were certified organic by NASAA when they were not so certified; or
(b) the eggs were produced by a NASAA certified organic producer when they were not so produced.
5. The respondents pay the applicant’s costs of the proceeding, fixed at $25,000.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
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IN THE FEDERAL COURT OF AUSTRALIA |
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VICTORIA DISTRICT REGISTRY |
VID 1395 OF 2005 |
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BETWEEN: |
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
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AND: |
G.O. DREW PTY LTD (ACN 004 578 312) First Respondent
TIMOTHY DREW Second Respondent
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JUDGE: |
GRAY J |
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DATE: |
16 AUGUST 2007 |
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PLACE: |
MELBOURNE |
REASONS FOR JUDGMENT
The nature of the proceeding
1 The principal question in this proceeding is whether it is appropriate to make the orders sought by consent of the parties in a case of admitted contravention of several provisions of the Trade Practices Act 1974 (Cth) (“the Trade Practices Act”). The orders sought have been refined substantially as a result of discussions at directions hearings, in the course of managing the case. The orders that were sought by consent at the hearing were further refined with the consent of both parties at the hearing, in order to make them clearer.
2 The contraventions in respect of which the orders are sought were constituted by the incorrect labelling of eggs as organic eggs. One issue bearing upon the appropriateness of the orders sought arises from the fact that there is no standard of general application by reference to which it can be determined that an egg is, or is not, organic. The result of this is that there is a difficulty in formulating an injunction that would prevent a repetition of the contravening conduct, without introducing elements that go beyond the provisions of the Trade Practices Act that were contravened. The second major issue is whether the fact that the respondents have ceased dealing in organic eggs means that it is pointless to grant an injunction restraining repetition of conduct that is unlikely ever to be repeated in any event.
3 Altogether, the applicant, the Australian Competition and Consumer Commission (“the ACCC”) has filed four versions of the application and the statement of claim, in an attempt to compose orders that would be appropriate, based on admitted facts that would justify them. The latest version of the application and statement of claim (the second further amended application and the second further amended statement of claim respectively) were filed on 17 May 2006. Leave to file each of those documents was granted subsequently, at the hearing of the proceeding. On 6 July 2006, pursuant to leave granted on 30 June 2006, the respondents filed an amended defence, in which they admitted every allegation in the second further amended statement of claim. Prior to the filing of these versions of the pleadings, on 23 December 2005, the parties had filed a statement of agreed facts, on which they asked me to rely at the hearing. Further facts were asserted in a letter from the respondents’ solicitors to the applicant’s solicitors, dated 25 May 2006, a copy of which was provided to me by consent, and in a further letter from the respondents’ solicitors to the applicant’s solicitors, dated 16 March 2007, a copy of which was also provided to me by consent. Senior counsel for the respondents stated further facts relevant to my consideration of the proposed consent orders from the bar table, without objection by counsel for the ACCC, who did not seek to contest any of the facts so stated. There was also a joint submission filed.
The legislation
4 Section 52(1) of the Trade Practices Act provides:
A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
5 Section 53 of the Trade Practices Act provides, so far as is relevant:
A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services:
(a) falsely represent that goods are of a particular standard, quality,
value, grade, composition, style or model or have had a particular
history or particular previous use;
...
(c) represent that goods or services have sponsorship, approval,
performance characteristics, accessories, uses or benefits they do not
have
6 Section 55 of the Trade Practices Act provides:
A person shall not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods.
7 Those provisions are all found in Pt V of the Trade Practices Act. Section 80 of the Trade Practices Act provides relevantly as follows:
(1) ...where, on the application of the Commission or any other person,
the Court is satisfied that a person has engaged, or is proposing to
engage, in conduct that constitutes or would constitute:
(a) a contravention of any of the following provisions:
(i) a provision of Part...V...
(c) aiding, abetting, counselling or procuring a person to
contravene such a provision;
...
(e) being in any way, directly or indirectly, knowingly concerned
in, or party to, the contravention by a person of such a
provision;...
the Court may grant an injunction in such terms as the Court
determines to be appropriate.
...
(4) The power of the Court to grant an injunction restraining a person
from engaging in conduct may be exercised:
(a) whether or not it appears to the Court that the person intends
to engage again, or to continue to engage, in conduct of that
kind
8 Section 21(1) of the Federal Court of Australia Act 1976 (Cth) (“the Federal Court Act”) provides:
The Court may, in relation to a matter in which it has original jurisdiction, make binding declarations of right, whether or not any consequential relief is or could be claimed.
The facts
9 The ACCC is a body corporate, established under s 6A of the Trade Practices Act. The first respondent is a trading corporation, within the meaning of the Trade Practices Act, which carried on the business of farming and supplying eggs. The second respondent was employed by the first respondent as its manager and was responsible for the management of the first respondent’s business. In respect of his involvement in the matters alleged in the proceeding, he was acting in his capacity as manager of the first respondent, on behalf of the first respondent and within his authority as a servant and agent of the first respondent. From about March 2003, the first respondent, in trade or commerce, supplied eggs to participants in the food industry, including supermarkets, wholesalers, other farmers and retailers. In particular, it supplied eggs purchased and collected from an independent organic producer, certified by the National Association for Sustainable Agriculture Australia (NASAA). The first respondent also supplied eggs not purchased from an independent organic producer certified by NASAA or a similar body. From March 2003 until March 2005, the first respondent in trade or commerce supplied 4,012 boxes of 15 dozen eggs each, totalling 722,160 eggs. Each dozen eggs was packaged with a label containing various representations. The label contained the word “Organic” in prominent lettering and again in less prominent lettering. Also twice, appeared the words “12 Organic Free Range EGGS”. There were three small bordered areas, bearing the inscription “CERTIFIED ORGANIC BY NASAA”. Another small black area contained the letter “e” in a circle, and the words “essential foods” in white lettering, underneath which appeared the word, in larger green lettering “Organic”. Immediately beneath the small black area with those inscriptions was the word “guarantee”. The part of the label that extended over the side of the egg carton carried the inscription “Certified Organic by NASAA”, followed by the words “Organic Producer No 3282”.
10 By packaging the eggs in this way, the first respondent represented, in trade or commerce, that the eggs were different from eggs not labelled as “Organic”, having regard to the chemicals, feed and other substances used in the production of the eggs, that the eggs were certified organic by NASAA and that the eggs were produced by Organic Producer No 3282.
11 In fact, 2,147 boxes of 15 dozen eggs, totalling 386,460 eggs, or approximately 53.5 per cent of the eggs packaged and sold as organic, were not properly described as organic, in that they were not different from eggs not labelled as organic, having regard to the chemicals, feed and other substances used in their production, they were not certified organic by NASAA and they were not produced by Organic Producer No 3282. In respect of those 2,147 boxes, the first respondent contravened ss 52, 53(a), 53(c) and 55 of the Trade Practices Act.
12 The second respondent packed the 2,147 boxes of 15 dozen eggs falsely labelled as organic, knowing that they were not organic and were not different from eggs not so labelled, having regard to the chemicals, feed and other substances used in their production, that they were not certified organic by NASAA and that they were not produced by Organic Producer No 3282. In this way, the second respondent was directly knowingly concerned in the first respondent’s contraventions of ss 52, 53(a), 53(c) and 55 of the Trade Practices Act.
13 The first respondent was a family egg farming business located at Marshall, near Geelong, from 1937 until recent times. It was started by Geoff Drew. In 1963, his son Neil Drew joined the business. He is now 62 years old and the sole shareholder, director and secretary of the first respondent. Neil Drew’s son is Timothy Neil Drew, the second respondent, who is 34 years old. The second respondent became responsible for the general management of the first respondent’s business in 2001.
14 In 2003, the ACCC approached the first respondent with a concern that a logo on two of the first respondent’s products was confusingly similar to the “tick” logo licensed by the National Heart Foundation. The confusing logo appeared on the labels of two products that were not organic eggs. The first respondent ceased distribution of those products after being advised of the ACCC’s concerns and acted promptly to cease any contravening conduct. In February 2004, the first respondent provided undertakings to the ACCC, including an undertaking:
to put in processes which seek to ensure that it will not, whether by itself, its servants or agents or howsoever otherwise, in trade or commerce:
(i) represent that its egg products have approval from any organisation
when this is not the case; and
(ii) utilise logos, marks or pictures that are substantially identical with the
logos, marks or pictures of any organisation, company or business
unless it has the consent of the owner to use the logo, mark or
picture.
15 The first respondent also undertook to develop and implement a trade practices compliance program. The second respondent became the first respondent’s trade practices compliance officer as part of that compliance program.
16 From June 2002 until March 2005, the first respondent sold eggs labelled as organic. It did not produce them, but purchased and collected them from a small independent organic producer certified by NASAA, with the certification number 3283. The first respondent inspected the organic eggs for quality and packaged and distributed them to retailers by way of contractors. It experienced a number of problems in obtaining organic eggs. It was unable to obtain a consistent level of supply from NASAA Certified Producer No 3282. Despite assurances from the supplier, the first respondent was also unable to increase the level of supply. Between March 2003 and March 2005, the first respondent sold approximately $10.7 million worth of eggs to supermarkets, wholesalers, other farmers, retailers and the food industry generally. Of that sum, $258,934.37, or approximately 2.4 per cent, was the turnover for the sale of organic eggs.
17 Organic farming encourages the use of renewable resources, the conservation of resources such as energy, soil and water, the preservation of the environment and animal welfare. It rejects genetic modification and radiation technology. There is a wide and diverse range of organic products available in Australia, including eggs, fruit, nuts, vegetables, various animal meats, dairy products, cereals, oil, seeds, plant and animal fibres, and health and body care products. In 2004, the Commonwealth Department of Agriculture, Fisheries and Forestry published the results of a major study it commissioned into the organic industry in Australia. That study estimated that in Australia in 2003 there were 1,511 certified organic farms, 7.9 million hectares of certified organic farmland (about 1.7 per cent of Australia’s total agricultural area), approximately 2,340 organic farmers, processors, exporters and retailers and $140.7 million in farm receipts from the sale of certified organic produce. The study also found that there was no systematic promotion of organic products in Australia, so that Australian consumers were likely to have a low level of understanding of organic products and the certification processes, including the significance of certifying organisation labels. Those who conducted the study suggested that a single Australian organic label and improved communication of the values and qualities of organic food could strengthen the Australian organic industry.
18 Since the early 1990s, an arrangement has existed for organic inspection and certification. The Australian Quarantine and Inspection Service and seven approved certifying organisations participate in this scheme. The organisations are Australian Certified Organic (Biological Farmers of Australia), Bio-Dynamic Research Institute (Demeter), NASAA, Organic Food Chain, Organic Growers of Australia, Safe Food Production Queensland and Tasmanian Organic-Dynamic Producers. The Export Control (Organic Produce Certification) Orders 1997, made under the Export Control (Orders) Regulations 1982, in turn made under the Export Control Act 1982 (Cth), require every person who produces or manufactures organic produce for export to be certified. Certification is optional for the domestic market. The Australian Quarantine and Inspection Service publishes the National Standard for Organic and Bio-Dynamic Produce, which sets out the minimum requirements for products placed on the export market labelled as organic or bio-dynamic. This standard was first implemented in 1992 and amended in January 2005. It has become a de facto standard for the domestic market. The seven certifying organisations are authorised to issue organic produce certificates on behalf of the Australian Government under the national standard. Those organisations may also stipulate their own additional requirements. NASAA is a not-for-profit community-based certifying organisation, formed in 1986. It certifies approximately 900 producers, processors and retailers, over 7 million acres in Australia and approximately 7,000 operators and cooperative based farmers in the Australasia-Pacific region. NASAA is effectively funded by royalties it collects from its large number of members and certified producers. NASAA is accredited internationally by the International Federation of Organic Agricultural Movements.
19 There is currently no mandatory certification for organic produce for the domestic market. The Organic Federation of Australia, which represents all sectors of the organic industry, is working on remedying this deficiency. It released a discussion paper in 2004, committing it to negotiating domestic regulation to protect the integrity of organic products with a code of conduct, clarifying certification, assurance logos and their equivalents, promotion of the organic industry to the community and promotion of organics to the agricultural industry.
20 The first respondent deliberately packed the eggs the subject of this proceeding so that they would appear to be organic eggs, when it ran out of stock of organic eggs in March 2003. The second respondent started the practice. It was a deliberate act on his part. The respondents were motivated by frustration at the unreliability of the supply of organic eggs.
21 When the first respondent offered its undertaking to the ACCC in February 2004, the second respondent did not turn his mind to the fact that the first respondent was also contravening the Trade Practices Act with respect to the labelling of eggs as organic. In the period of approximately two years relevant to this case, the first respondent estimates that it made a profit of $69,326.57 by supplying eggs that were not organic at prices applicable to organic eggs. During the same period, the first respondent lost an estimated $19,507.95 on the purchase and supply of organic eggs.
22 On 8 or 9 March 2005, the first respondent notified its NASAA certified producer that it would stop purchasing organic eggs from him, due to insufficient supply. At approximately 2.11 pm on 9 March 2005, the first respondent received a fax from NASAA, stating that NASAA believed that eggs currently being sold under the name “Essential Foods” and claiming to be NASAA certified did not meet the product specification description as supplied by a NASAA certified producer. NASAA requested the first respondent to verify its procedure for pick-up, storage and delivery to retail outlets of eggs being sold under the name “Essential Foods” and claiming to be NASAA certified, during the period 7 - 18 February 2005, and the quantity supplied to each retailer during that period.
23 On 16 March 2005, the first respondent, through its solicitors, voluntarily contacted and met with the ACCC in relation to the conduct. The first respondent’s solicitors organised this meeting within 24 hours of receiving instructions from the first respondent. The first respondent sought to make full and frank disclosure of its conduct with a view to determining what further action it should take and what further action the ACCC would take in response to the conduct. A further meeting took place on 21 March 2005.
24 On 11 March 2005, the first respondent replied to the fax from NASAA, without referring to its own relevant conduct. On 22 and 23 March 2005, the first respondent’s solicitors met with NASAA, provided a full explanation of the situation, and commenced confidential discussions about how to resolve the matter to NASAA’s satisfaction.
25 In March 2005, the first respondent began to take action to rectify the damage it had caused. It issued a recall to all of its customers who had been supplied non-organic eggs instead of organic eggs and issued credit notes to those who returned eggs. The first respondent also ceased entirely to operate its organic eggs business, with no intention to recommence it. The first respondent or its solicitors contacted all retailers of the first respondent’s organic labelled eggs over the two year period and provided the retailers with an indemnity for damage they suffered as a result of the respondent’s conduct.
26 Recognising that its conduct involved not only contraventions of the relevant provisions of the Trade Practices Act, but also breaches of the undertaking it had given to the ACCC in February 2004, the first respondent advised the ACCC from its first contact that it wished to make amends for its wrongdoing, accept an appropriate punishment, avoid damage to NASAA and the organic food industry, and avoid as far as possible its own financial ruin and the suffering of its employees, creditors and competitors. The first respondent also indicated an intention to compensate, as far as possible, anyone who suffered loss as a result of its conduct. Because eggs are perishable, it was practically impossible to determine who purchased eggs labelled as organic, the quantity purchased by each such person and the number of non-organic eggs involved. Purchasers would be unlikely to remember these details. It is difficult to assess compensation for someone who has consumed non-organic eggs. Therefore, creating a system providing for consumers to claim loss would be open to abuse. Retailers have suffered loss by not receiving what they paid for, but they have unwittingly passed that loss onto consumers. The organic food industry and the certifying bodies, including NASAA, have suffered a potential loss of consumer confidence in certification procedures as a consequence of the respondents’ conduct.
27 Between 30 June 1999 and December 2005, the first respondent recorded a net loss of around $140,000. It had a number of significant liabilities and a responsibility to its employees, many of whom had been with it since the 1960s.
28 The first respondent sold its egg business to Farm Pride Foods Limited (“Farm Pride”), the sale taking effect on 29 November 2005. The second respondent is engaged as a consultant to Farm Pride, to be its national business manager for two years, which is due to expire in November 2007. Neither party has an option to renew the contract, although Farm Pride may still wish to avail itself of the second respondent’s experience. Farm Pride attempted to engage in the sale of organic eggs, but no longer does so. As part of the sale of the business, the first respondent leased land to Farm Pride on which Farm Pride currently operates an egg business. That lease is also due to expire in November 2007, and there is no option to extend it. The contract of sale of the business also included a five-year restraint on the respondents being involved in the egg industry. There is no evidence before the Court of the geographical area covered by that clause. In addition, the second respondent and his father are directors of Moriac Services Pty Ltd, a company supplying labour to Farm Pride for the purposes of its egg business. The current contract is for 12 months, expiring in December 2007. There is no option to renew that contract either.
29 In addition to its other remedial action, the first respondent has earmarked $270,000, by paying that sum into the trust account of its solicitors, for distribution to the Organic Federation of Australia and NASAA. The purpose of this fund is to assist the organic industry to review its certification procedures, to develop a uniform industry code, and otherwise to support organic food producers. It is intended that the development of a uniform code and the review of certification procedures should benefit consumers by enabling the promotion of organic produce that is clearly identified and of certifiable quality, thereby increasing consumer confidence for the benefit of the organic industry. The first respondent has given an undertaking to the ACCC, pursuant to s 87B of the Trade Practices Act, that, on a date to be advised by the ACCC, it will instruct its solicitors to make payments of $216,000 to the Organic Federation of Australia and $54,000 to NASAA for the purposes to which I have referred. If either body is unable to utilise its allocation for those purposes, the first respondent will instruct its solicitors to make payment to some other organisation or organisations within the organic industry for those purposes, following consultation with the ACCC.
The orders sought by consent
30 The parties submitted the following orders, which they joined in asking the Court to make:
BY CONSENT THE COURT DECLARES THAT:
1 The First Respondent, between in or about March 2003 and in or
about March 2005, by:
(a) supplying eggs to retailers and other participants in the food
industry, in packaging which stated that the eggs were
“Organic”, “Organic Free Range” and “Certified Organic by
NASAA” (the National Association for Sustainable Agriculture
Australia) and cited “Organic Producer No 3282”; and
(b) thereby representing that:
(i) all eggs labelled as ‘organic’ were different to eggs not
so labelled, having regard to the chemicals, feed and
other substances used in the production of the eggs;
(ii) all eggs so packaged were certified organic by NASAA;
and
(iii) all eggs so packaged were produced by NASAA
certified Organic Producer No. 3282,
when in fact in relation to some of the eggs so packaged:
(iv) the eggs were not ‘organic’ and were not different to
eggs not so labelled having regard to the chemicals,
feed and other substances used in the production of the
eggs;
(v) the eggs had not been certified organic by NASAA; and
(vi) the eggs had not been produced by NASAA certified
Organic Producer No. 3282,
has, in trade or commerce:
(c) engaged in conduct that was misleading or deceptive or was
likely to mislead or deceive in contravention of section 52 of
the TPA; and
(d) in connection with the supply of goods represented that goods
were of a particular standard, quality, value, grade and/or
composition which they were not in contravention of section
53(a) of the TPA; and
(e) in connection with the supply of goods, represented that goods
had approval they did not have in contravention of section
53(c) of the TPA; and
(f) engaged in conduct that was liable to mislead the public as to
the nature and characteristics of goods in contravention of
section 55 of the TPA.
2 The Second Respondent:
(a) aided, abetted, counselled or procured the First Respondent in
its contraventions of sections 52, 53(a), 53(c) and 55 of the
TPA; and
(b) was directly or indirectly knowingly concerned in, or party to
the First Respondent’s contraventions of sections 52, 53(a),
53(c) and 55 of the TPA:
by, as the manager of the First Respondent, packing eggs, in
packaging which represented, in trade or commerce, that:
(c) all eggs labelled as ‘organic’ were different to eggs not so
labelled, having regard to the chemicals, feed and other
substances used in the production of the eggs;
(d) all eggs so packaged were certified organic by NASAA; and
(e) all eggs so packaged were produced by NASAA certified
Organic Producer No. 3282,
when in fact in relation to some of the eggs so packaged, the Second
Respondent knew that:
(f) the eggs were not ‘organic’ and were not different to eggs not
so labelled having regard to the chemicals, feed and other
substances used in the production of the eggs;
(g) the eggs had not been certified organic by NASAA; and
(h) the eggs had not been produced by NASAA certified Organic
Producer No. 3282.
BY CONSENT THE COURT ORDERS THAT:
3 The First Respondent be restrained, whether by itself, its servants or
agents or any of them or otherwise howsoever for a period of three
years from the date of these orders from, in trade or commerce,
supplying eggs in packaging to retailers and other participants in the
food industry which represents by the packaging of the eggs that:
(a) all eggs labelled as ‘organic’ are different to eggs not labelled
as ‘organic’, having regard to the chemicals, feed and other
substances used in the production of the eggs, when at the time
of making the representation, the First Respondent does not
have an honestly held belief that the representation is true;
(b) the eggs were certified organic by NASAA when they were not
so certified; and/or
(c) the eggs were produced by a NASAA certified organic
producer when they were not so produced.
4 The Second Respondent be restrained for a period of three years from
the date of these orders from aiding, abetting, counselling or
procuring the First Respondent or any other corporation or being
directly knowingly concerned in, or party to, conduct by the First
Respondent or any other corporation whether by itself, its servants,
agents or otherwise howsoever, in trade or commerce, involving
supplying eggs in packaging to retailers and other participants in the
food industry which represents by the packaging of the eggs that:
(a) all eggs labelled as ‘organic’ are different to eggs not so
labelled, having regard to the chemicals, feed and other
substances used in the production of the eggs, when at the time
of making the representation, the First Respondent or the other
corporation, does not have an honestly held belief that the
representation is true;
(b) the eggs were certified organic by NASAA when they were not
so certified; and/or
(c) the eggs were produced by a NASAA certified organic
producer when they were not so produced.
5 The Respondents pay the Applicant’s costs of this proceeding in an
amount agreed between the parties.
31 In consequence of discussions that took place at the hearing, all parties agreed to amend para 2 of these orders, by deleting the subpara designated as (a) altogether, and also by deleting the words “or indirectly”, the comma after “in”, and the words “or party to”. The effect of this would be to make the opening words of the second declaration sought read:
The Second Respondent was directly knowingly concerned in the First Respondent’s contraventions of sections 52, 53(a), 53(c) and 55 of the TPA by, as the manager of the First Respondent…
32 These amendments are appropriate, to provide certainty to any declaration that the Court might make. It is undesirable that the Court make a declaration containing alternatives, at least where the true position is known, because it makes it appear that the Court does not know what it is declaring.
33 Also at the hearing, counsel for all parties informed me that the amount of the applicant’s costs of the proceeding to be paid by the respondents pursuant to para 5 of the agreed orders was $25,000. This further agreement will necessitate amendment to para 5 of the proposed orders to reflect the agreement.
The appropriateness of the orders
34 There can be no doubt that the conduct of the respondents was very serious. Although it arose because of frustration due to the inconsistent supply of organic eggs, the conduct was deliberate. Altogether, it spanned a period of two years, the last 13 months of which followed the giving of the earlier undertaking to the ACCC. Under that undertaking, the second respondent, who was responsible for packing the mislabelled eggs, was the first respondent’s trade practices compliance officer. If he had taken seriously the responsibilities attached to that position, and to the undertaking given, he would surely have realised that the labelling as organic of eggs that could not properly be described as organic was entirely inconsistent with his responsibilities. The remedial action taken by the first respondent was apparently not the result of a spontaneous change of heart. It appears to have begun as a result of the NASAA fax of 8 or 9 March 2005, which caused the first respondent to realise that its conduct was very likely to be discovered.
35 Having had a change of heart in consequence of that realisation, however, the first respondent has acted very responsibly. Of its own volition, it has made full and prompt disclosure to the ACCC. To the extent that it can, it has compensated those affected adversely by its conduct, although complete compensation is not practicable. In an endeavour to repair the damage done to the organic food industry, the first respondent has made available a generous sum of money to be used in ways that will benefit that industry and those who consume its products. This voluntary penance is of considerable significance. The first respondent has also placed itself beyond any temptation to resume its contravening conduct, or any similar conduct, at least for the time being. It first ceased its organic eggs business, and then sold its eggs business altogether. The first respondent’s only role in the egg industry now is as the lessor of premises on which Farm Pride conducts an egg business. The lease is due to expire later this year, and will only be renewed if Farm Pride and the first respondent agree that it should be. The second respondent has a greater involvement in the egg industry, although not the organic egg industry, both as a consultant to Farm Pride, acting as its national business manager, and as one of two directors of a company supplying labour to Farm Pride for the purposes of its egg business. His involvement in both roles will only continue beyond November or December of this year if the second respondent (and his father in the case of the second contract) and Farm Pride wished to enter into similar contracts once the present ones have expired.
36 For contraventions of the provisions of the Trade Practices Act relevant to this proceeding, there is no financial penalty available. If there had been, it would have been necessary to assess the impact of the first respondent’s voluntary penance on any decision whether to impose a further financial penalty, and any decision as to the amount of such a penalty. These considerations are not relevant to the present case. The only question is whether it is appropriate to grant declarations and injunctions and, if so, whether those should be in the terms to which the parties have consented.
37 The practice of granting declarations, which are not true declarations of right pursuant to s 21 of the Federal Court Act, appears to have become entrenched in proceedings of this kind. See BMW Australia Ltd v Australian Competition and Consumer Commission [2004] FCAFC 167 (2004) 207 ALR 452 at [35]. With the amendments made to them at the hearing, the proposed declarations satisfy the need to be precise, and to inform as to the basis on which the Court has found that the relevant contraventions have occurred. Subject to proper reference to the Trade Practices Act, it is appropriate to grant those declarations.
38 In the circumstances of this case, it is also appropriate to grant injunctions. Notwithstanding the remedial actions taken, the seriousness of the conduct, and particularly the circumstance that it was committed in part while the previous undertaking, involving a trade practices compliance program, was in existence, requires that the Court ensure that any repetition of the conduct can be visited with the more serious consequences attaching to punishment for contempt of court. Of course, there is no threatened or intended future conduct in contravention of any of the relevant provisions of the Trade Practices Act, but an injunction can be granted in the absence of threatened or intended conduct, in consequence of s 80(4)(a) of the Trade Practices Act. Although neither respondent is currently in a position to repeat the contravening conduct, it cannot be guaranteed that that situation will remain. Given their experience in the egg industry, the respondents might well decide to resume activity in it in the future, when any contractual restraint on them has expired. The second respondent may not be responsible for any decision Farm Pride might make to resume involvement in the organic egg business, and might thereby be exposed to temptation of the kind that he could not resist previously. Subject to satisfaction that the terms of the injunctions sought are appropriate, injunctions should be granted.
39 In one respect I have a serious concern about the form of each injunction to which consent has been given.
40 As a matter of principle, if an injunction is to be granted when there is no threatened or intended contravening conduct, such an injunction ought to be limited precisely to preventing a repetition of contravening conduct that has occurred. In the absence of threatened or intended conduct, there can be no justification for an injunction with broader scope, covering possible contraventions that the person subject to the injunction has neither committed before nor threatened or intended to commit in the future. The practical difficulty of limiting an injunction to avoiding a repetition of the contravening conduct in one respect in the present case arises from the absence of any commonly accepted, or recognised standard for determining what is an organic egg. The Macquarie Dictionary gives a number of alternative meanings for the word “organic”. One of them is “characteristic of, pertaining to, or derived from living organisms”. In that sense, every egg is organic. There can be little doubt that the word “organic” has acquired a colloquial meaning, used to distinguish foods produced without inputs that are regarded as artificial, particularly chemicals. The acquisition of this meaning is reflected in an additional definition, now appearing in the fourth edition of the Macquarie Dictionary: “of or relating to farming and the produce of such farming which does not use chemical fertilisers or pesticides”. The colloquial meaning, and even the new definition, are imprecise, however, in that there is no general agreement on precisely what inputs are to be regarded as artificial, or as chemical, and to be avoided in the production of organic foods. This is certainly the case for eggs.
41 The absence of any recognised norm by which to judge whether eggs are, or are not, organic has created difficulty for the ACCC from the outset of this case, in its attempts to frame orders that would express with sufficient precision what the respondents are to be enjoined from doing by way of repetition of their contravening conduct. Initially, the ACCC proposed injunctions prohibiting the respondents from representing falsely by the packaging of non-organic eggs that they were organic eggs. Plainly, such an injunction would be almost impossible to enforce, because of its vagueness. A similar criticism could be levelled at the ACCC’s second attempt, which was to enjoin false representations on packaging that eggs were organically produced and consequently were, at a minimum, produced without the use of artificial or synthetic fertilisers, herbicides or pesticides. In addition, this version may not have covered all the possible inputs that some might think should be considered in determining whether eggs are organic. Any reference to a supposed minimum standard was removed in the ACCC’s third attempt at amendment. The fourth attempt at amendment would restrain the respondents from:
supplying eggs in packaging to retailers and other participants in the food industry which represents by the packaging of the eggs that:
(a) all eggs labelled as ‘organic’ are different to eggs not labelled as
‘organic’, having regard to the chemicals, feed and other substances
used in the production of the eggs, when at the time of making the
representation, the First Respondent does not have an honestly held
belief that the representation is true…
42 This is the form of order to which the respondents now consent. It introduces an element that has no basis in any of the relevant provisions of the Trade Practices Act. That is the element of honestly held belief in the truth of the representation. Each of the relevant provisions focuses on the misleading or deceptive nature of conduct. It is no defence to an allegation of misleading or deceptive conduct in making a representation that the maker of the representation believed honestly in its truth. Conversely, in proving such an allegation, it is unnecessary to prove the absence of an honest belief. Enforcement of an injunction in the form proposed would require the enforcer to prove the absence of an honest belief, thereby making the issues different in substance from those presented by the provisions of the Trade Practices Act. Counsel for the ACCC attempted to argue that the proposed element of honest belief in the truth of the representation was simply narrowing the ambit of the contravening conduct, repetition of which the ACCC seeks to prevent. In a sense, this is true. Rather than misleading or deceptive representations, the enforcer of the injunction would be required only to prove misleading or deceptive representations within a certain class, namely those as to the truth of which the maker of the representations did not have an honest belief. I do not regard this factor as saving the form of injunction chosen. In my view, the departure from the legislative underpinning of the injunction, by the addition of the requirement of dishonest falsity, rather than simply falsity, is impermissible.
43 I am therefore of the view that the attempts to overcome the lack of a clear criterion by which it can be said that eggs are, or are not, organic have been unsuccessful. In this respect, I would not grant an injunction in any of the forms proposed. In reality, the absence of such an injunction does not amount to a serious omission in the circumstances of this case. The other paragraphs of the injunctions proposed will effectively prevent packaging and supplying eggs as organic if they were not NASAA certified or produced by a NASAA certified organic producer. It is true that the packaging might not make these representations, but might still describe the eggs as organic. If that were to occur, it would simply be an example of the problem that there is no certainty about the meaning of the term “organic” in relation to eggs, and no means whereby it can be determined with any certainty whether eggs are, or are not, organic.
Conclusion
44 For these reasons, I would make orders in the terms sought by consent, subject to the following: a correct description of the name of the Trade Practices Act wherever appearing in the declarations; the amendments to the second declaration to which the parties agreed at the hearing; the omission of para (a) in each of the injunctions, and the consequent redesignation of paras (b) and (c) as paras (a) and (b); the replacement of the “and/or” combination with the conjunction “or” in each of the injunctions; and the amendment of para 5 of the orders, so that it reads “the respondents pay the applicant’s costs of the proceeding, fixed at $25,000.”
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I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gray. |
Associate:
Dated: 16 August 2007
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Counsel for the applicant: |
CM Scerri QC |
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Solicitor for the applicant: |
Corrs Chambers Westgarth |
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Counsel for the first and second respondents: |
M Gordon SC |
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Solicitor for the first and second respondents: |
Arnold Bloch Leibler |
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Date of hearing: |
22 March 2007 |
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Date of judgment: |
16 August 2007 |
