FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Hobie Cat Australasia Pty Ltd (ACN 095 150 413) [2008] FCA 402

TRADE PRACTICES – resale price maintenance – contraventions admitted – proposed consent orders – court’s function in such circumstances

Constitution s 71

Trade Practices Act 1974 (Cth) ss 48, 76(1), 80, 86C(2)(b), 86C(2)(c), 86C(4), 96(1), 96(3), 96(7)  

Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 cited

Australian Competition and Consumer Commission v Econovite Pty Ltd [2003] FCA 964 cited

NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 considered

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

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

Australian Competition and Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881 cited

Australian Competition and Consumer Commission v TEAC Australia Pty Ltd [2007] FCA 1859 considered

Trade Practices Commission v ICI Operations Pty Ltd (1991) 105 ALR 115 cited

Australian Competition and Consumer Commission v Dermalogica Pty Ltd (2005) 215 ALR 482 cited

Trade Practices Commission v Milreis Pty Ltd (No 2) (1978) 32 FLR 234 cited

Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301 considered

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v HOBIE CAT AUSTRALASIA PTY LTD (ACN 095 150 413)

NO SAD 145 of 2007

FINN J

28 MARCH 2008

ADELAIDE

THE COURT DECLARES THAT:

1.         The respondent (“Hobie”) engaged in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth) (“the Act”) by reason of entering into the Glascraft Kayak Dealership Agreement with Glascraft Marine Pty Ltd (“Glascraft”) between about 24 August 2004 and 31 August 2004 and Kayak Dealership Agreements with the Kayak Dealers (including Glascraft) from about September 2005 to about September 2006, in that Hobie: 

            1.1       made it known to the Kayak Dealers (including Glascraft) that it would not supply Kayaks to the Kayak Dealers unless the Kayak Dealers agreed not to sell and/or advertise for sale Kayaks at prices less than the prices specified by Hobie; 

            1.2       attempted to induce the Kayak Dealers (including Glascraft) not to sell and/or advertise for sale Kayaks at prices less than the prices specified by Hobie; 

            1.3       entered into agreements for the supply of Kayaks, including a term that the Kayak Dealers (including Glascraft) would not sell and/or advertise for sale Kayaks at prices less than the prices specified by Hobie.

2.         Hobie engaged in the practice of resale price maintenance in contravention of s 48 of the Act by reason of entering into the Sail Boat Dealership Agreements with the Sail Boat Dealers from about September 2005 to about September 2006, in that Hobie: 

            2.1       made it known to the Sail Boat Dealers that it would not supply Sail Boats to the Sail Boat Dealers unless the Sail Boat Dealers agreed not to sell and/or advertise for sale Sail Boats at prices less than the prices specified by Hobie; 

            2.2       attempted to induce the Sail Boat Dealers not to sell and/or advertise for sale Sail Boats at prices less than the prices specified by Hobie; 

            2.3       entered into agreements for the supply of Sail Boats, including a term that the Sail Boat Dealers would not sell and/or advertise for sale Sail Boats at prices less than the prices specified by Hobie.

3.         Hobie engaged in the practice of resale price maintenance in contravention of s 48 of the Act by reason of sending to Glascraft a “Hobie Dealer – Account Application” on or about 28 September 2005, in that Hobie: 

            3.1       attempted to induce Glascraft not to sell and/or advertise for sale Hobie Products at prices less than the prices specified by Hobie; 

            3.2       entered into and offered to enter into an agreement with Glascraft for the supply of Hobie Products, including a term that Glascraft would not sell and/or advertise for sale Hobie Products at prices less than the prices specified by Hobie.

4.         Hobie engaged in the practice of resale price maintenance in contravention of s 48 of the Act by reason of sending Glascraft a “Domestic Sailboat and Kayak Dealer Handbook” in or about October 2005, in that Hobie attempted to induce Glascraft not to sell and/or advertise for sale Hobie Products at prices less than the prices specified by Hobie. 

5.         Hobie engaged in the practice of resale price maintenance in contravention of s 48 of the Act by reason of during the period from about 24 August 2004 to about September 2006 using a statement of price or statements of prices that were likely to be understood by Glascraft, the Sail Boat Dealers and Kayak Dealers as the prices below which Hobie Products were not to be sold and/or advertised for sale.

THE COURT ORDERS THAT:

6.                  Hobie be restrained (whether by its directors, employees, agents or otherwise howsoever) for a period of 3 years from the date of this order, in relation to the supply or potential supply of Hobie Products from: 

            6.1       making it known to a person that Hobie will not supply Hobie Products to the person unless that person agrees not to sell and/or advertise Hobie Products at a price less than a price specified by Hobie; 

            6.2       inducing or attempting to induce a person not to sell and/or advertise Hobie Products at a price less than a price specified by Hobie; 

            6.3       entering into or offering to enter into an agreement for the supply of Hobie Products to a person, being an agreement one of the terms of which is that the person will not sell and/or advertise Hobie Products at a price less than a price specified by Hobie; 

            6.4       using, in relation to Hobie Products, a statement of price or statements of prices that are likely to be understood by a person as the prices below which Hobie Products are not to be sold and/or advertised for sale. 

7.                  Hobie pay to the Commonwealth of Australia a pecuniary penalty in the sum of $168,000.00.  The said sum is to be paid by instalments as follows: 

            7.1       $140,000.00 within 28 days following the date of this order;

            7.2       $28,000.00 within 12 months following the date of this order.

8.                  Hobie:

            8.1       within 3 months of the date of this order, is to establish a trade practices compliance program (“the compliance program”) for employees, agents or other persons involved in Hobie’s business which: 

            8.1.1    is designed to ensure an awareness of the responsibilities and obligations contained in Pt IV of the Act, and of the responsibilities and obligations in relation to the contravening conduct in this proceeding or any similar or related conduct; 

             8.1.2    includes practical training sessions on Pt IV of the Act, for all employees and agents of Hobie whose duties could result in them being concerned with conduct that may contravene Pt IV of the Act, that shall:

            (a)        be conducted by an independent person with experience in Pt IV of the Act; 

            (b)        occur within three months of the date of this order and annually in the following two years;  and

            (c)        include information about:

             (i)          the potential consequences of contravening Pt IV of the Act; 

            (ii)         the obligations of Hobie under this order as relevant to the performance of their duties;  and

             8.1.3    subject to the compliance program being tailored to Hobie’s circumstances, is consistent with the Australian Standard on Compliance Programs AS3806; 

            8.2       within a month of the date of this order, appoint an independent person with experience in trade practices compliance programs to advise Hobie as to the content of the compliance programs; 

            8.3       implement and maintain the compliance program for a period of 3 years from the date it is established;  and

            8.4       within 3 months of the date of this order, provide a written report to the applicant describing the contents of the compliance program, and provide a further written report to the applicant on the implementation and maintenance of the compliance program at the conclusion of each period of 12 months during which the program is being implemented and maintained. 

9.         Hobie, within 2 weeks of the date of this order, provide information in accordance with the terms of the Annexure to this order (in letter format on Hobie’s letterhead) to all Dealers. 

10.       Hobie, within 2 weeks of the date of this order, provide to the applicant a copy of all letters sent to Dealers pursuant to para 9. 

11.       Hobie pay the applicant’s costs of and incidental to the proceedings to be agreed or taxed. 

ANNEXURE

BY ORDER OF THE FEDERAL COURT OF AUSTRALIA

Dear valued dealer,

The Federal Court of Australia has declared that Hobie engaged in resale price maintenance in breach of the Trade Practices Act 1974 in relation to the agreements entered into between Hobie and its dealers and other documents supplied by Hobie to its dealers.

This was as a result of action taken by the Australian Competition and Consumer Commission against us.

The Court’s findings include that we acted unlawfully:

1.         By attempting to prevent dealers from selling or advertising Hobie Products at a price less than that specified by us;  and 

2.         By entering into agreements which provided for this.

The above conduct is known as resale price maintenance and it is illegal.  Suppliers must not specify to retailers a minimum price below which goods or services are not to be resold or advertised for sale. 

Hobie may only recommend a retail price.  You can advertise and offer Hobie Products for sale below Hobie’s recommended retail prices.

Hobie now accepts that the conduct engaged in was unlawful.

The Court has ordered us to pay a penalty of $168,000 and to improve the quality and integrity of our business systems, by implementing a corporate compliance program to bring them in line with the Trade Practices Act.

Regards

Steve Fields

Managing Director

Hobie Cat Australasia Pty Ltd

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

REASONS FOR JUDGMENT

1                     The respondent, Hobie Cat Australasia Pty Ltd, has admitted to engaging in resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth) in its dealings with retailers of its products for a period which commenced in August 2004 and which, for present purposes, ceased in September 2006.  Put shortly, the contravening conduct was evidenced in Hobie’s terms of trade with its dealers which specified the prices below which they were not permitted to sell, or to advertise for sale.  The possibility that Hobie was contravening the Act was raised by the Australian Competition and Consumer Commission with it by letter of 1 November 2006.  In response to that letter, Hobie instructed lawyers to redraft its documentation to ensure it conformed with the Act and it notified the ACCC accordingly.  Its revised documentation has been tendered in this proceeding. 

2                     Liability for the contraventions alleged by the ACCC has been admitted.  The parties seek that I make consent orders in this matter.  Before I consider those orders, it is necessary that I consider the circumstances and context of the admitted contraventions.  I should add I have been supplied by the parties with a Statement of Agreed Facts.

Factual Setting

3                     Hobie is a wholly owned subsidiary of a United States company, details about which are not in evidence.  Hobie is a manufacturer and importer of Hobie brand recreational watercraft, principally, for present purposes, sail boats and associated sail boat products and kayaks and associated kayak products.  Hobie appointed Australian retailers of its watercraft as either, or both, dealers in sail boats and dealers in kayaks.  At times of present relevance there were 12 sail boat dealers and 18 kayak dealers throughout Australia.  Beginning in May 2003 until about 1 October 2006 Hobie supplied its dealers with an array of documents each of which stated prices for Hobie products.  The price lists contained in those documents each referred to the Manufacturer’s Recommended Retail Price (“MRRP”) and the Manufacturer’s Recommended Retail Price inclusive of GST.  The documents were updated on an annual basis. 

4                     The conduct contravening s 48 of the Act commenced in August 2004 when Hobie entered into a written agreement with Glascraft Marine Pty Ltd.  The terms on which Glascraft could sell and otherwise deal with kayaks included (inter alia) express terms to the following effect:

1.         Glascraft shall endeavour at all times to sell kayaks at the MRRP;

2.         Glascraft shall not advertise kayaks below the MRRP by more than 10%; 

3.         Hobie commits to make alternative arrangements (inter alia):

3.1       for any violation of the Glascraft Kayak Dealership Agreement; 

3.2       for violation of any policies as outlined in the dealer handbook;  or 

3.3       if it feels it is in the best interest of promoting Hobie Products.

5                     The decision to stipulate such terms was taken by the Managing Director in Australia of Hobie, Mr Steve Fields.  Mr Fields was the sole resident Australian director.  He was responsible for the conduct of Hobie’s operations in Australia, for its dealer network and for its pricing policies.  Hobie did not obtain any legal advice in stipulating terms to the above effect or to their later use.  Mr Fields was unaware of the provisions of s 48 of the Act.

6                     The parties have agreed, properly in my view, that the contravening conduct was founded upon the decision of Mr Fields referred to above, which decision it continued to implement, as will be seen, until the ACCC’s notification to Hobie of its concerns on 1 November 2006.  For this reason they have not sought to disaggregate the individual contraventions to which that decision gave rise.  Rather, they invite me to deal in aggregate with the decision and its implementation. 

7                     From about September 2005 to September 2006, Hobie entered into written agreements with both dealers in sail boats and dealers in kayaks which contained, inter alia, express terms to the same effect as those referred to above in relation to the Glascraft dealership.

8                     Additionally, on 28 September 2005 Hobie sent to Glascraft a “Hobie Dealer – Account Application” which included express terms to the effect that:

(i)         no price less than the MRRP may be offered in any form of advertising;  and 

(ii)        listing of Hobie products on the world wide web is considered a form of advertising.

Glascraft executed that application on 28 September 2005.  In October 2005 Hobie sent Glascraft a “Domestic Sail Boat and Kayak Dealer Handbook” which included express terms to like effect as in the above application. 

Hobie’s Admission of Liability

9                     Hobie has admitted that it engaged in the practice of retail price management in contravention of s 48 of the Act when engaging in the conduct to which I have referred.  In particular it has admitted, in relation to the Glascraft kayak dealership agreement, that its contravention involved conduct of the kinds described in ss 96(3)(a), (b), (c) and (f) of the Act.  It equally admits that, in relation to the sail boat dealers and kayak dealers respectively, it contravened s 48 by engaging in conduct of the same kinds.  Further, Hobie has admitted that in respect of the “Hobie Dealer – Account Application” which was executed by Glascraft, it contravened s 48 through conduct of the kinds described in ss 96(3)(b), (c) and (f) and that in supplying Glascraft with the Handbook it contravened s 48 by conduct of the kinds described in ss 96(3)(b) and (f).

10                  Hobie admits that it engaged in the above conduct in respect of Glascraft with the intention that Glascraft would not sell and/or advertise for sale kayaks or Hobie products at prices less than the prices specified by Hobie.  A similar admission of intention is made in respect of its conduct with respect to the sail boat dealers and kayak dealers.

Other Relevant Facts

11                  As the principal matter to be considered in relation to the relief sought by the ACCC concerns the imposition of a pecuniary penalty under s 76 of the Act, there is a number of matters to which I should refer.  First, as I have already indicated, Hobie is the subsidiary of a United States corporation.  It currently has less than 10 employees.  Its financial position insofar as presently relevant is as follows:

It is estimated net profit for the 2007 year is $740,000.  While its whole year profit and loss statement for 2007 has been tendered, I am content to rely upon the above which has been agreed as no issue of solvency arises in light of the pecuniary penalty agreed to by the parties.

12                  As I noted earlier, Mr Fields was responsible for inserting into Hobie’s documentation the clauses which gave rise to the contravening conduct.  What is to be noted about the obligations so imposed is that they were not repeated orally to any of the dealers nor did Hobie terminate or penalise any of the dealers for non-compliance with them. 

13                  On 25 October 2007 Hobie sent a letter to all of its then current dealers notifying them of the ACCC’s application.  It emphasised that the dealers were free to set their own selling price for the Hobie products they re-sold.  The ACCC considers that Hobie has cooperated with it during its investigation by providing information and documents voluntarily.  As already noted, Mr Fields, on being notified of the Commission’s investigation, acknowledged the contravention of the Act and expressed Hobie’s willingness both to cease that conduct and to take steps necessary to correct it, and, to this end, Hobie has agreed to the consent orders and to the Statement of Agreed Facts in these proceedings.  Prior to the contravening conduct, Mr Fields had not undertaken trade practices compliance training nor did Hobie have a compliance programme in place.  Hobie now consents to the establishment of such a programme.  Finally, I should note Hobie has not previously been found to have contravened the Act.

The Legislative Setting

14                  Section 48 of the Act prohibits a corporation or other person from engaging in the practice of resale price maintenance.  Resale price maintenance is, insofar as presently relevant, defined in s 96(1) and (3) in the following terms:

“(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).

…

(3)       The acts referred to in subsections (1) and (2) are the following:

(a)        the supplier making it known to a second person that the supplier will not supply goods to the second person unless the second person agrees not to sell those goods at a price less than a price specified by the supplier;

(b)        the supplier inducing, or 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 the supplier or by a third person who, directly or indirectly, has obtained the goods from the supplier;

(c)        the supplier entering into an agreement, or offering to enter into an agreement, for the supply of goods to a second person, being an agreement one of the terms of which is, or would be, that the second person will not sell the goods at a price less than a price specified, or that would be specified, by the supplier;

…

(f)         the supplier using, in relation to any goods supplied, or that may be supplied, by the supplier to a second person, a statement of a price that is likely to be understood by that person as the price below which the goods are not to be sold.”

15                  Section 96(7) deems the references in ss 96(3)(a), (b) and (c) to the selling of goods at a price less than a price specified by the supplier to include reference to the advertising of goods for sale at a price less than a price specified by the supplier, and similarly deems the reference in s 96(3)(f) to a price below which the goods are not to be sold to include reference to the price below which the goods are not to be advertised for sale. 

16                  Section 76(1) of the Act as it applies to this matter provides that, if the Court is satisfied that a person has contravened s 48, it 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.”

17                  It is unnecessary that I set out in any detail the provisions of s 80 of the Act which contains the Court’s power to grant injunctive relief.  The only additional provision to which I should make reference is s 86C which empowers the Court, on application by the ACCC, to make orders in relation to a person who has engaged in contravening conduct which include:

“(2)(c)  an order requiring the person to disclose, in the way and to the persons specified in the order, such information as is so specified, being information that the person has possession of or access to.”

Section 86C equally empowers the Court in subs (2)(b) to make a “probation order” for a period of no longer than three years.  Such an order is defined in s 86C(4) in the following terms:

“probation order, in relation to a person who has engaged in contravening conduct, means an order that is made by the Court for the purpose of ensuring that the person does not engage in the contravening conduct, similar conduct or related conduct during the period of the order, and includes:

(a)        an order directing the person to establish a compliance program for employees or other persons involved in the person’s business, being a program designed to ensure their awareness of the responsibilities and obligations in relation to the contravening conduct, similar conduct or related conduct; and

(b)       an order directing the person to establish an education and training program for employees or other persons involved in the person’s business, being a program designed to ensure their awareness of the responsibilities and obligations in relation to the contravening conduct, similar conduct or related conduct; and

(c)        an order directing the person to revise the internal operations of the person’s business which lead to the person engaging in the contravening conduct.”

The Relief Sought by Consent

18                  Hobie has consented to (i) the award of declaratory relief in respect of its contravening conduct;  (ii) injunctive relief for a period of three years, restraining it from engaging in like conduct in relation to the future supply or potential supply of its products;  (iii) the payment of a pecuniary penalty to the Commonwealth of Australia in the sum of $168,000, the sum to be paid in two instalments;  (iv) the establishment of a trade practices compliance programme;  (v) provide information in a specified form concerning the outcome of this proceeding, to all of its dealers and to notify and to provide the ACCC a copy of all letters of notification sent to dealers;  and (vi) pay the ACCC’s costs of and incidental to the proceedings. 

19                  Though I will revert to this matter specifically when dealing with the proposed pecuniary penalty, I should emphasise at the outset, and the parties themselves acknowledge, that the Court retains the responsibility for imposing penalties and for making orders, the parties’ agreement notwithstanding.  That responsibility derives ultimately from s 71 of the Constitution and cannot be circumscribed by private agreement:  see Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 at [18].  This said, the Court has long recognised the propriety of encouraging fair and appropriate settlements so reducing the burden of litigation on public and private resources:  see eg Australian Competition and Consumer Commission v Econovite Pty Ltd [2003] FCA 964 at [11];  NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 290-291. 

Consideration

The Declarations Sought

20                  It is unnecessary for me to rehearse the principles governing the award of declaratory relief particularly in cases of public interest such as the present;  see generally Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329.  I am satisfied that there is utility in making the declarations both to publicise the types of conduct that can give rise to contravention of s 48 and also to provide the basis for the orders by way of injunction and pecuniary penalty.  I equally am satisfied with the form in which the declaratory orders have been cast.

Injunctive Relief

21                  The injunctions sought clearly fall within the requirements of s 80 of the Act.  They relate directly to the contraventions found to have occurred and against which injunctive relief can be granted:  cf ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 267.  Further they have been formulated with sufficient precision so as to be capable of being complied with without the continual supervision of the Court.  I am satisfied they are consistent with the public interest in the matter.  Notwithstanding that Hobie has ceased to engage in contravening conduct, it nonetheless continues to wholesale Hobie products within Australia.  The three year duration of the injunction parallels the proposed order relating to the compliance programme and will assist in preventing a recurrence of contravening conduct notwithstanding that such a recurrence is not now reasonably to be anticipated:  cf s 80(4)(a). 

The Proposed s 86C Orders

22                  Two distinct species of order are sought under this section.  The first, which embodies a number of interlocking orders, requires the establishment and implementation of a trade practices compliance programme which is to be maintained for three years and relatedly imposes periodic reporting obligations to the ACCC.  The second would require Hobie to provide information to all of its dealers in letter format concerning this proceeding and its outcome in terms annexed to the proposed consent order. 

23                  As to the first of the above, I am with some hesitation prepared to make the orders proposed.  On the material before me only Mr Fields has been shown to have been engaged in the conduct founding the contravention;  the company has less than 10 employees;  and there is no evidence as to the respective responsibilities of those employees such as to permit a judgment to be made as to the utility of making the relatively elaborate orders proposed.  Nonetheless, because Hobie has consented to what is proposed;  because the orders, in intent at least, have both preventative and educational purposes and this is reflected in their design:  cf Australian Competition and Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881 at [267];  and because the programme is one to be tailored to Hobie’s circumstances (notwithstanding the reference to the Australian Standard on Compliance Programs AS3806:  cf Econovite at [17]), I am prepared to make the proposed compliance programme orders. 

24                  The orders requiring communication with the dealers in terms prescribed in the annexure to the proposed orders do little more than formalise the course that Hobie had foreshadowed in its 25 October 2007 correspondence with its dealers.  I am prepared to make these orders in the terms agreed.

The Pecuniary Penalty

25                  The order proposed by consent is that Hobie pay the Commonwealth a penalty in the sum of $168,000 payable in two instalments.  That sum represents a 30 per cent discount on the penalty that otherwise would have been sought but for Hobie’s cooperation during the ACCC’s investigations, its early acceptance that its conduct contravened the Act and its willingness to correct its conduct and to resolve the proceedings by consent orders.

26                  I have referred already to the requirements of s 76(1) and to the considerations it includes amongst matters relevant for the Court to have regard to in determining an appropriate pecuniary penalty.  I need not repeat them.  Additionally, a considerable body of authority has enlarged upon the principles governing the imposition of pecuniary penalties.  Those principles were helpfully distilled by Kenny J in Australian Competition and Consumer Commission v TEAC Australia Pty Ltd [2007] FCA 1859 at [16].  Her Honour there said:

“The relevant principles governing the imposition of pecuniary penalties are discussed in Australian Consumer and Competition Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146 at [60]-[75]; Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52,151-52, 154; NW Frozen Foods Pty Ltd v Australian Consumer and Competition Commission (1997) 71 FCR 285 at 290-295; J McPhee & Son (Aust) Pty Ltd v Australian Consumer and Competition Commission (2000) 172 ALR 532; and Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72 at [51]-[58].  These  authorities indicate that further relevant matters include:

(a)        the size of the contravening company;

(b)       the degree of power the company has, as evidenced by its market share and ease of entry into the market;

(c)        whether the conduct was systematic, deliberate, or covert;

(d)       the period over which the conduct occurred;

(e)        the effect on the functioning of the market and other economic effects of the conduct;

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

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

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

See also Australian Consumer and Competition Commission v Jurlique International Pty Ltd [2007] FCA 79 at [51]; Australian Consumer and Competition Commission v Knight [2007] FCA 1011 at [70]; and Australian Consumer and Competition Commission v Visy Industries Holdings Pty Limited (No 3) [2007] FCA 1617 at [303].”

27                  Before analysing the circumstances revealed in this matter in light of the considerations and principles referred to in s 76(1) and in the above extract, it is appropriate to note the observations of Burchett and Kiefel JJ in the Full Court in NW Frozen Foods.  Having referred to the “unity” in the case law affirming the public interest in the promotion of settlements, especially in this area where litigation is likely to be very lengthy, their Honours observed (at 298-299):

“We agree with the statement made in several of the cases cited that it is not actually useful to investigate whether, unaided by the agreement of the parties, we would have arrived at the very figure they propose.  The question is not that;  it is simply whether, in the performance of the Court’s duty under s 76, this particular penalty, proposed with the consent of the corporation involved and of the Commission, is one that the Court should determine to be appropriate.”

28                  In considering the appropriateness of the proposed quantum of pecuniary penalty it is necessary to have regard to the various considerations to which I have referred above and to which I now turn. 

(i)         The nature and extent of the contravening conduct and the circumstances in which it took place:  s 76(1)

29                  The contravening conduct was born of Mr Fields’ decision in August 2004 and was thereafter implemented in all of its dealership agreements until revoked at the end of 2007.  It was directed at all of Hobie’s sail boat and kayak dealers across Australia.  It was the product of the unilateral action of Mr Fields which was taken without legal advice.  Its documentary expression was clear and unequivocal in its purport:  Hobie did not want its dealers to discount Hobie products. 

(ii)        The amount of loss or damage occasioned:  s 76(1)

30                  No attempt has been made to quantify loss or damage caused by Hobie’s conduct either to consumers or to its dealers.  This said, I do not consider the absence of such evidence in the circumstances to be either a mitigating or an aggravating factor:  cf Trade Practices Commission v ICI Operations Pty Ltd (1991) 105 ALR 115 at 119. 

(iii)       Prior Contraventions:  s 76(1)

31                  Hobie has not been found previously to have contravened the Act.

(iv)       Hobie’s size, resources and market power

32                  Though Hobie is a significant participant in the recreational watercraft market – I am prepared to assume for present purposes that such was the market – and has a well recognised brand and high quality products, it is only a small to medium enterprise.  Nonetheless, the evidence indicates it has substantial and growing revenue and net profits.  There is no evidence of its market power or of the commercial impact of its conduct on the market.  Even if that impact (if measurable with any precision at all) was slight, it would be no less blameworthy for that reason:  cf Australian Competition and Consumer Commission v Dermalogica Pty Ltd (2005) 215 ALR 482 at [81].

(v)        Was the conduct systematic, deliberate or covert?

33                  The decision taken by Mr Fields and its implementation was intentional and purposive but it involved no knowing (or deliberate) contravention of the Act.  It was systematic in the sense that there was no differentiation between dealers, but it was not covert in that on the evidence before me it simply cannot be said that it did other than represent Hobie’s terms of trade with any prospective dealer.

(vi)       The period over which the conduct occurred

34                  In the case of Glascraft, the conduct commenced in August 2004 and ceased on the termination of Glascraft’s relationship with Hobie on 25 August 2006 for reasons unrelated to Hobie’s price/advertising requirements.  In relation to all other dealers, the only conduct relied upon occurred between September 2005 and September 2006.

(vii)      The involvement of senior management

35                  As already noted Mr Fields is Hobie’s managing director;  he was responsible for Hobie’s pricing policy;  and he was directly involved in, and responsible for, all of Hobie’s conduct the subject of these proceedings. 

(viii)     Corporate culture of compliance

36                  Prior to the ACCC’s notification to Hobie of its concerns on 1 November 2006, Mr Fields did not have any understanding of the Act.  The company did not then have either a compliance programme or a culture conducive to compliance.

(ix)       Cooperation with the ACCC

37                  I have already referred to this matter.  The level of cooperation Hobie has demonstrated has resulted in a 30 per cent discount in the proposed pecuniary penalty.

(x)        Hobie’s Financial Position

38                  I have referred above to Hobie’s revenue position and net profit.  The reason the parties have agreed to payment by two instalments over one year is to assist Hobie’s cashflow.

(xi)       Pecuniary penalties in other proceedings

39                  While the parties have provided me with a list of the pecuniary penalties imposed in cases dealing solely with s 48 contraventions for the period 1996 to 2007, I would have to say that “the parity principle” has yielded little by way of direct assistance.  Such is not uncommon in cases concerned with TP Act contraventions:  cf the observations of Burchett and Kiefel JJ in NW Frozen Foods at 295. 

40                  In determining whether the proposed pecuniary penalty is appropriate, it is of course important to recognise that the sum agreed represents a settlement between the parties:  cf Trade Practices Commission v Milreis Pty Ltd (No 2) (1978) 32 FLR 234 at 243.  However, it is also important to acknowledge the deterrent function, specific and general, of such a penalty.  As Goldberg J observed in Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301 at [39]:

“The penalty imposed must be substantial enough that the party realises the seriousness of its conduct and is not inclined to repeat such conduct.  Obviously the sum required to achieve this object will be larger where the Court is setting a penalty for a company with vast resources.  However, as specific deterrence is only one element and general deterrence must also be achieved, consideration of the party’s capacity to pay must be weighed against the need to impose a sum which members of the public will recognise as significant and proportionate to the seriousness of the contravention.”

41                  I am, in the circumstances, satisfied that the various contraventions engaged in by Hobie were related to Mr Fields’ August 2004 decision and should be seen as such with the total penalty imposed not being one that exceeds what is appropriate for the entire contravening conduct in question.

42                  I equally am satisfied that the penalty proposed is an appropriate one, having regard to the considerations to which I have referred.  It is substantial and significant for a company of Hobie’s size and is proportionate to the seriousness of the contraventions. 

43                  I will make orders in the terms of the proposed consent orders.

Associate:

Dated:         28 March 2008