FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v C.I. & Co Pty Ltd [2010] FCA 1511

THE COURT DECLARES THAT:

1.    From April 2004 until 31 May 2008, the First Respondent has in trade or commerce, engaged in conduct that:

(a)    was misleading or deceptive, or was likely to mislead or deceive, in contravention of section 52 of the Trade Practices Act 1974 (Cth) (Act);

(b)    falsely represented that goods were of a particular standard or quality in contravention of section 53(a) of the Act; and

(c)    was liable to mislead the public as to the nature or characteristics of goods in contravention of section 55 of the Act;

by:

(a)    applying labels bearing the prominent words “FREE RANGE” in large red text on a white background (Free Range Labels) to packages of 12 eggs (Cartons) and supplying Cartons labelled with Free Range Labels to customers including food retailers, cafes and restaurants in Western Australia (Customers); and

(b)    thereby expressly representing to Customers and to consumers and potential consumers of eggs, that the eggs contained in those Cartons labelled with Free Range Labels were free range eggs;

when in fact, a substantial proportion of the Cartons labelled with the Free Range Labels did not contain free range eggs.

2.    From 1 June 2008 until in or around April 2010, the Second Respondent, in trade or commerce, engaged in conduct that was liable to mislead the public as to the nature or characteristics of goods in contravention of section 55 of the Act, by:

(a)    applying Free Range Labels to Cartons and supplying them to Customers; and

(b)    thereby expressly representing to Customers and to consumers and potential consumers of eggs, that the eggs contained in those Cartons labelled with Free Range Labels were free range eggs;

when in fact, a substantial proportion of the Cartons labelled with the Free Range Labels did not contain free range eggs.

3.    From on or around 12 April 2010 until in or around June 2010, the Second Respondent, in trade or commerce, engaged in conduct that was liable to mislead the public as to the nature or characteristics of goods in contravention of section 55 of the Act, by applying labels bearing the prominent words “FRESH RANGE” in large red text on a white background (Fresh Range Labels) to Cartons and supplying them to Customers and thereby:

(a)    representing to Customers, consumers and potential consumers of eggs that the eggs contained in those Cartons were free range eggs; and

(b)    leading Customers, consumers and potential consumers of eggs to erroneously believe or form the mistaken impression that those Cartons were labelled “FREE RANGE” and contained free range eggs;

when in fact a substantial proportion of the Cartons labelled with the Fresh Range Labels did not contain free range eggs.

4.    From 1 June 2008 until in or around April 2010, the Third Respondent, in trade or commerce, engaged in conduct that was liable to mislead the public as to the nature or characteristics of goods in contravention of section 55 of the Act, by:

(a)    applying Free Range Labels to Cartons and supplying them to Customers; and

(b)    thereby expressly representing to Customers and to consumers and potential consumers of eggs, that the eggs contained in those Cartons labelled with Free Range Labels were free range eggs;

when in fact, a substantial proportion of the Cartons labelled with the Free Range Labels did not contain free range eggs.

5.    From on or around 12 April 2010 until in or around June 2010, the Third Respondent, in trade or commerce, engaged in conduct that was liable to mislead the public as to the nature or characteristics of goods in contravention of section 55 of the Act, by applying Fresh Range Labels to Cartons and supplying them to Customers and thereby:

(a)    representing to Customers, consumers and potential consumers of eggs that the eggs contained in those Cartons were free range eggs; and

(b)    leading Customers, consumers and potential consumers of eggs to erroneously believe or form the mistaken impression that those Cartons were labelled “FREE RANGE” and contained free range eggs;

when in fact, a substantial proportion of the Cartons labelled with the Fresh Range Labels did not contain free range eggs.

THE COURT DECLARES THAT:

6.    The Second Respondent be restrained for a period of five years, whether by himself, his servants, agents or howsoever otherwise, in trade or commerce in Australia, from:

(a)    representing that eggs are free range;

(b)    labelling eggs in such a manner as would lead a consumer to believe or assume that the eggs are free range; or

(c)    aiding, abetting, counselling or procuring, or being directly or indirectly knowingly concerned in, or party to, any person or corporation:

(i)    representing that eggs are free range; or

(ii)    labelling eggs in such a manner as would lead a consumer to believe or assume that the eggs are free range;

when, in fact, the eggs are not free range.

7.    The Third Respondent be restrained for a period of five years, whether by herself, her servants, agents or howsoever otherwise, in trade or commerce in Australia, from:

(a)    representing that eggs are free range;

(b)    labelling eggs in such a manner as would lead a consumer to believe or assume that the eggs are free range; or

(c)    aiding, abetting, counselling or procuring, or being directly or indirectly knowingly concerned in, or party to, any person or corporation:

(i)    representing that eggs are free range; or

(ii)    labelling eggs in such a manner as would lead a consumer to believe or assume that the eggs are free range;

when, in fact, the eggs are not free range.

8.    Pursuant to section 86C of the Act, the Second and Third Respondents, at their own expense and within 28 days of the date of these orders, cause:

(a)    a letter to be sent to all Customers to whom the Second and Third Respondents supplied eggs from 1 June 2008 until the present, in terms of Annexure A to these orders, advising of the Court’s judgment, including its findings and the remedy granted; and

(b)    to be published an advertisement, in terms of Annexure B to these orders, in the West Australian newspaper and use their best endeavours to ensure that such advertisement is:

(i)    within the first 10 pages of the newspaper; and

(ii)    is of a size not less than 12 cm wide by 20 cm long.

9.    Pursuant to section 76E of the Act, the Second Respondent pay to the Commonwealth a pecuniary penalty of:

(a)    $30,000 in respect of the Second Respondent having engaged in conduct referred to in order 2 above in contravention of section 55 of the Act in the period 15 April 2010 to 30 April 2010; and

(b)    $20,000 in respect of the Second Respondent having engaged in conduct from 15 April 2010 referred to in order 3 above in contravention of section 55 of the Act;

10.    The Respondents pay the Applicant’s costs of and incidental to the proceedings, fixed at $15,000.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court’s website.

Annexure A

[insert retailer details]

[insert date]

Dear [insert retailer name]

Following an investigation and legal action by the Australian Competition and Consumer Commission (ACCC) the Federal Court has declared that we have breached section 55 of the Trade Practices Act 1974 by labelling eggs as free range when they were not.

Between 1 June 2008 and April 2010 we sold cartons of eggs which were labelled ‘Free Range Eggs’ when in fact the contents were cage laid eggs. From April 2010 until around June 2010 we sold cartons of eggs labelled ‘Fresh Range – Omega 3’ which created an impression the eggs contained in those cartons were free range when in fact those eggs were also cage laid eggs.

We sold you eggs during one or both of those periods.

In addition to issuing declarations, the Court also ordered:

•    injunctions restraining us from engaging in egg substitution in the future;

•    the publication of an information notice in The West Australian;

•    us to send this letter to you;

•    us to pay the ACCC’s legal costs; and

•    the imposition of a civil pecuniary penalty on Antonio Pisano in the amount of $50,000.

We apologise for misleading you by engaging in the conduct outlined above. If you require any further information, please contact us on [insert phone number].

Yours sincerely

Antonio (Tony) and Anna Pisano

C I & Co

Annexure B

BY ORDER OF THE FEDERAL COURT OF AUSTRALIA

The Federal Court has declared that Antonio (Tony) Pisano and Anna Pisano, trading as C I and Company (C I & Co), misled the public as to the nature and characteristics of eggs they supplied to customers by labelling eggs as being free range when the eggs were not.

The conduct involved:

    between 1 June 2008 and April 2010, labelling and marketing cartons of eggs prominently using the words ‘Free Range Eggs’ when in fact the contents were cage laid eggs; and

    from around April 2010 until around June 2010, labelling and marketing cartons of eggs prominently using the words ‘Fresh Range - Omega 3’ and creating the overall impression that the eggs were free range, when in fact the contents were cage laid eggs.

Following legal action by the Australian Competition and Consumer Commission (ACCC) the Federal Court has declared that Antonio Pisano and Anna Pisano contravened section 55 of the Trade Practices Act 1974.

In addition to the declarations, the Court issued injunctions restraining Antonio Pisano and Anna Pisano, from engaging in similar conduct in the future. They were also ordered:

    to publish this notice in The West Australian;

    send this notice to all retailers of C I & Co eggs; and

    pay ACCC costs.

Antonio Pisano was also ordered to pay a pecuniary penalty in the amount of $50,000.

If you require any further information, please contact C I & Co on [insert contact details]

REASONS FOR JUDGMENT

1    The applicant, the Australian Competition and Consumer Commission, commenced proceedings on 23 September 2010 against the respondents, alleging against the first respondent breaches of ss 52, 53(a), and 55 of the Trade Practices Act 1974 (Cth), and alleging against the second and third respondents breaches of s 55 of the Act. In broad terms the applicant alleges that the respondents supplied eggs described as free range eggs when those eggs were produced by caged hens. The respondents have now admitted the contraventions and consent to orders being made against them. The applicant agrees that the orders proposed should be made. The question before the Court is whether the agreed orders should be made.

The relevant statutory provisions

2    Section 52 of the Act states:

(1)    A corporation shall not, in trade or commerce, engage in conduct

that is misleading or deceptive or is likely to mislead or deceive.

(2)     Nothing in the succeeding provisions of this Division shall be taken as

limiting by implication the generality of subsection (1).

3    Section 53(a) of the Act states:

53    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;

4    Section 55 of the Act states:

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.

5    In support of the application that the Court make the orders by consent, the parties have filed a statement of agreed facts, submissions in writing and a minute of orders by consent. The applicant also relies on an affidavit sworn on 21 December 2010 by Anthony Gerard Hilton, a deputy director employed by the applicant, concerning the process of investigation undertaken by the applicant.

The facts

Conduct of the First Respondent

6    Between April 2004 and 31 March 2008, the first respondent conducted the business of acquiring eggs from egg farms and supplying the eggs to customers, including food retailers, cafes, and restaurants in Western Australia.

7    In that period, it applied to cartons of one dozen eggs labels which indicated that the cartons contained free range eggs. The statement of agreed facts indicates that, in this period, the first respondent acquired 744,589 dozen eggs produced by caged hens, and a substantial proportion of these eggs were supplied by the first respondent in cartons with labels indicating that the eggs contained in the cartons were free range.

8    Annexure 4 to the statement of agreed facts shows that 234,360 dozen eggs were supplied to specified retailers and labelled free range eggs. The major customers were Gwelup Fruits and More, which purchased 55,420 dozen eggs, IGA Beaconsfield, Grand Prom, Hampton Road and Innaloo, which purchased 21,180 dozen eggs, Garden Glow which purchased 31,740 dozen eggs and Gilbert Fresh, which purchased 20,360 dozen eggs. These supplies were established by direct proof. There were a significant number of other smaller purchases. In relation to the remainder of the 744,589 dozen eggs, the conclusion that these eggs were supplied with misleading labels depends on an inference to be drawn by the high disproportion of the labels ordered by the company stating or endorsed with the words “free range” as against other labels. Ninety per cent of the labels purchased by the company indicated free range eggs.

Conduct of the Second and Third Respondents

9    The statement of agreed facts shows that the second and third respondents carried on business from 1 June 2008 until April 2010. In that period, they purchased 1,449,674 dozen eggs produced by caged hens and 12,800 dozen eggs produced by free range hens. Despite these figures, they supplied 878,420 dozen eggs labelled “free range”. The largest customers for this supply again included Garden Glow which purchased 152,080 dozen eggs, Gilbert Fresh, which purchased 121,280 dozen eggs, IGA at various locations, including Beaconsfield, Beechboro, Girrawheen, Grand Prom, Hampton Road, Kardinya, Osborne Park, Rossmoyne, and South Perth, which purchased 76,940 dozen eggs, and Bunbury, Bunbury Farmer, Bunbury Farmer Market, Bunbury Fresh, Bunbury Fresh Market, and Bunbury Market, which purchased 63,840 dozen eggs.

10    The second respondent collected the eggs from suppliers and could not avoid knowing that the eggs he collected came from caged hens.

11    The applicant received a complaint from a competitor which caused it to investigate the respondents. In the course of that investigation, on 23 December 2009, the applicant served on the first respondent a notice under s 155(1)(a) and (b) of the Act. Further notices were served, including a notice on the second respondent on 12 April 2010. Perhaps in consequence of receiving notice of the applicant’s investigation, the second respondent, from 12 April 2010 to June 2010 changed the labelling on the cartons of eggs.

12    The changed labelling replaced the words “free range eggs” with the words “fresh range Omega 3.” The get up of the label in its colouring and lettering was similar to the free range egg label previously used. Whilst the new label included the words “12 cage eggs” in moderately sized letters, the overall impression from the fresh range labels would likely have indicated to a purchaser rushing through a supermarket that the purchaser was buying the same product as had previously been sold as free range eggs.

13    Counsel for the applicants said, from the bar table, that it was not possible, from the records of the second and third respondents, to determine the quantity of eggs sold in the period under the fresh range label. All that was known was that such eggs were supplied in that period to Bunbury Farmers Market, Beaconsfield IGA, The Herdsman, and Mr Fresh, Carine.

14    In relation to the free range labelled cartons, the statement of agreed facts shows that in the 15 days between 15 April and 30 April 2010, the second respondent supplied approximately 8,160 cartons of one dozen eggs labelled with free range labels at an average price of $3.03. It is agreed that the average range of wholesale prices of the relevant types of eggs is, in relation to cage eggs, $1.90 to $2.30 and, in relation to free range eggs, $2.90 to $3.50. It is also agreed that during this period the second respondent did not acquire any free range eggs from any suppliers. It follows that the 8,160 dozen eggs labelled as free range eggs in this period were not, in fact, free range eggs. It is agreed that during the period the second and third respondents derived between about $5,744 and $9,008 in revenue which they would not have derived had the eggs been labelled clearly as “cage eggs.”

The legal character of the conduct

15    Against this background of facts, it is accepted by the parties that the first respondent contravened ss 52, 53(a), and 55 of the Act. The applicant, in helpful written submissions, correctly contends that labelling cage eggs as free range eggs is misleading and deceptive conduct in contravention of s 52 of the Act. The first respondent admits this.

16    In relation to s 53(a) of the Act, the question arises whether the free range label constitutes a representation that the eggs were of a particular standard or quality. I agree that the free range representation is a representation as to quality. The representation suggests that the eggs are produced by a more humane environment for the laying hens and that consumers might regard free range eggs as having a different quality, that is to say, a different circumstance of production.

17    The agreed facts also establish that the first respondent’s conduct was in breach of s 55 of the Act. One issue addressed by the applicant in its submissions is the question whether the representation that the eggs were free range eggs was conduct liable to mislead the public as to the nature or characteristics of the eggs within the terms of s 55. The representation concerns the method of the production of the eggs, or the environment in which the eggs were produced. These matters describe the characteristics of the eggs, namely, the circumstances in which they were produced. I prefer the view that the representation was liable to mislead as to the characteristics rather than the nature of the eggs.

The orders sought

18    The agreed orders which are sought against the first respondent are limited to a declaration that the first respondent acted in breach of ss 52, 53(a), and 55 of the Act by applying free range labels to cartons of eggs which were produced by caged hens. Whilst the parties have agreed that this is the appropriate relief which should be granted, the Court is not bound by their agreement. There are good reasons why the Court should accept the agreement of the parties. It is in the public interest that the time of the Court and the energy of regulators is conserved by parties accepting liability when conduct is in breach of the law.

19    However, the limited nature of the orders sought against the first respondent gave rise to a degree of concern by the Court. It will be remembered that the first respondent conducted business for a substantial period of time and, in that time, supplied a very large number of eggs by conduct in contravention of the Act.

20    The parties agreed that the second respondent should incur a pecuniary penalty for the same type of conduct in relation to the supply of a much smaller number of eggs in a much more limited period. This raised a question of the appropriateness of the agreement in relation to the first respondent. Consequently, the Court raised with counsel for the applicant some questions concerning the issue. As a result, information was proffered from the bar table but was not contradicted or objected to by counsel for the respondent. The information included that the first respondent was controlled by Mr D’Alessio, the father of the third respondent. The third respondent is married to the second respondent and effectively the business of the first respondent was continued by the second and third respondents.

21    On first impression, it appeared to the Court that given the substantial gains made by the first respondent from unlawful conduct it would seem inappropriate that the first respondent escape any consequences apart from the declaration sought. However, further information clarified the situation. The Court was told that Mr D’Alessio died a short time ago and that this had constrained the remedies which might be available against the first respondent. The applicant was only able to apply for pecuniary penalties for breaches of ss 53(a) and 55 of the Act after 15 April 2010 when s 76E of the Act came into operation. The only way by which the applicant could have proceeded against the first respondent for a pecuniary penalty prior to 15 April 2010 was by taking action for the commission by the first respondent of a criminal offence under the Act. The Court was told that the applicant had formed the view, after investigation, that the controlling mind of the first respondent was the late Mr D’Alessio. In his absence, the applicant concluded that it would likely have difficulty in establishing criminal liability. Against that background, the limited relief which is sought against the first respondent becomes explicable. In the absence of that explanation, it might have been concluded that the first respondent, together with the second and third respondent as, in effect, a family group, had escaped with a modest penalty following many years of unlawful conduct which must have yielded considerable undeserved profit. For the reasons outlined, the picture is rather more complex than that. I accept that a declaration, and no other penalty, sought against the first respondent is an appropriate remedy in all the circumstances.

22    Then the proposed orders provide for declarations against the second respondent that he breached s 55 of the Act by supplying eggs in cartons labelled free range when the eggs within the cartons were not free range. A further declaration is agreed against the second respondent in relation to the fresh range labels on the basis that those labels suggested that the eggs were the same free range eggs as were previously supplied in cartons bearing deceptively similar labels when, in fact, the eggs in those cartons were not free range eggs. Mirror declarations are also sought against the third respondent for both the free range and the fresh range representations.

23    It is further agreed that the Court grant injunctions against each of the second and third respondents for a period of five years to prevent a recurrence of the conduct.

24    It is also agreed that the second and third respondents write letters to all customers to whom they supplied eggs from 1 June 2008 until the present, which describe the investigation by the applicant, the declarations made, the essence of the wrongdoing, and the orders of the Court. The second and third respondents are also to publish an advertisement in the West Australian newspaper which explains that the Court has made declarations against the second and third respondents, and describes the conduct and the orders of the Court.

25    In relation to the second and third respondents the declarations, injunctions, and remedial advertising are appropriate in the circumstances. The respondents also agreed to pay the applicant’s costs, fixed at $15,000 and that, again, appears appropriate in the circumstances.

26    More attention needs to be given, however, to the agreement that the second respondent pay to the Commonwealth pecuniary penalties, pursuant to s 76E of the Act for contravention of s 55 of the Act. Section 76E came into operation on 15 April 2010. Consequently, only conduct after that date may be taken into account. It is proposed that the second respondent pay a pecuniary penalty of $30,000 for labelling cage eggs as free range eggs in the period from 15 April 2010 to 30 April 2010, and $20,000 for applying the fresh range label to cage eggs between 15 April 2010 and June 2010.

27    The maximum penalty, under s 76E, is $220,000 for each contravention. Every separate sale of free range labelled or fresh range labelled eggs to a consumer constitutes a breach of s 55 of the Act. However, the application of free range labels, between 15 April and 30 April, should be regarded as a course of conduct over that period and, for the purposes of assessment of the appropriateness of penalty, should attract one penalty even though there were multiple contraventions. ACCC v ABB Transmission and Distribution Ltd (No 2) [2002] FCA 559 at [38], and ACCC v Rural Press Ltd [2001] FCA 1065 at [19].

28    Similarly, in respect of the fresh range contraventions, although there were probably a large number of sales over a period of six to eight weeks, each of the contraventions should be viewed, for the purpose of the imposition of a penalty, as attracting a single maximum of $220,000.

29    The question, then, is whether, viewed against the maximum, these agreed amounts properly reflect the circumstances of the contraventions. Section 76E(2) of the Act requires the Court to have regard to all relevant matters, including:

(a)     the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and

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

(c)    whether the person has previously been found by the Court in proceedings under Part VC or this Part to have engaged in any similar conduct.

30    The factors which mitigate the penalty in this case are, in relation to the free range representations, that the conduct occurred over a short period, namely 15 days. Secondly, the second respondent has not previously been found to have contravened the Act. These are substantial factors.

31    However, on the other side of the ledger is the fact that the revenue obtained by the second and third respondents could have been as high as nearly $10,000 in a short period. The conduct involved a high level of dishonesty. The conduct was also extremely difficult to detect because, once the eggs were placed in the cartons, it was impossible to determine whether they were free range or not. The second respondent knew what he was doing and must have known that it was dishonest to a high degree. Further, the conduct amounted to a cruel deception on consumers who mostly seek out free range eggs as a matter of principle, hoping to advance the cause of animal welfare by so doing.

32    In the end I am satisfied that the pecuniary penalty, taken together with the other orders against the second respondent, serve the purpose of specific deterrence.

33    The orders must also serve the purpose of general deterrence. On this issue, the Court was told from the bar table the applicant believes that this type of conduct is a problem within the egg industry. The case represents the first attempt by the applicant to ensure that such conduct is not allowed to continue. It is necessary that the penalties are sufficient to send the message that such conduct will be dealt with quickly, and in such a way that makes the conduct uneconomic. Viewed against the total potential liability for $220,000, $30,000 is perhaps not a particularly high level of penalty. However, taking into account that the penalty only relates to conduct in a short period, it is unlikely that other operators in the industry could be in any doubt about the Court’s view of the gravity of the deception visited upon unsuspecting and often well motivated consumers.

34    Much the same approach applies in relation to the fresh range representations. In this case the penalty proposed is somewhat less, namely, $20,000. But, again, the period of the conduct was not long, namely, about six to eight weeks. Again, the fact that the second respondent has not contravened the Act previously is a significant mitigating factor. In relation to the fresh range representations, however, no estimate has been made of the revenue obtained as a result of trading in contravention of the Act. The character of the contraventions is similar in its effect on consumers. The applicant, however, submitted that a lesser penalty than for the contraventions in relation to the free range representations was justified because the level of dishonesty could be seen to have been less. The fresh range label included the words “12 cage eggs,” thereby, notifying the observant purchaser that the eggs were not free range. This was a charitable view of the circumstances. It will be recalled that the fresh range labelling followed the notification by the applicant of its investigation of the free range representations. It is possible to view the fresh range labelling as at a higher level of dishonesty, if one concluded that the second respondent, knowing of the applicant’s investigation, nonetheless, intended to continue undeterred in his fraudulent activities. However, in the end, I am prepared to accept the more charitable view which explains the fresh range labelling as, although misleading to the consumer, an attempt, albeit misguided, to avoid the use of the word “free range” and, thereby, comply with the law as perceived by the second respondent. Viewed in that way, there is some justification for the lesser penalty. But, again, the quantum of the penalty should signal to the suppliers of eggs that to mislabel free range eggs will be viewed as a very serious contravention of the Act, attracting severe penalties, even for a short period of trading as occurred in this case.

35    It is further necessary for the Court to view the orders together as a package and to determine whether, viewed in such a way, they achieve the aims of both specific and general deterrence. Counsel for the respondents drew attention to the importance, in this regard, of the remedial orders proposed under s 86C of the Act. He submitted that the requirement that the second and third respondent explain to their customers, and to the world at large, that they had engaged in dishonest conduct is a severe penalty. Their conduct reflects upon their integrity. Their departure from proper standards of probity will be widely known. This will potentially affect their capacity to do business with others. Their integrity and reputation is likely to be severely damaged by the orders made by the Court.

36    When reviewing an agreement reached by the parties in such proceedings, the Court does not ask the question whether it would have made orders in the same terms, but rather whether the orders proposed are within the range of potential orders which the Court might make. I am satisfied that, taken together, the agreed orders are appropriate even though, if left to determine the pecuniary penalties independently of the agreement of the parties, I expect I might have come to the conclusion that higher penalties were justified. The pecuniary penalties are, however, within range. Consequently, the orders of the Court will be in the terms of the proposed minutes of consent orders submitted by the parties.

Associate:

Dated:    1 February 2011