FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Artorios Ink Co Pty Ltd [2013] FCA 753

THE COURT ORDERS THAT:

1.     Subject to paragraph 2 of these orders, the applicant is granted leave pursuant to s 500(2) of the Corporations Act 2001 (Cth) to proceed against the first respondent, Artorios Ink Co Pty Ltd (in liquidation) (ACN 133 112 419), in respect of the conduct set out in the statement of claim filed in this proceeding.

2.    Leave to proceed against the first respondent is granted on the following conditions:

(a)    The applicant has agreed not to seek any orders against the first respondent for the payment of money, whether by way of penalty, costs or otherwise;

(b)    The applicant pay the costs of the liquidators of the first respondent in respect of the interlocutory application dated 24 May 2013 up to and including the costs of 23 July 2013, to be taxed in default of agreement;

(c)    The applicant pay the liquidators’ costs of providing discovery under paragraph 3 of these orders, to be taxed in default of agreement.

3.    By 4:00pm on 13 August 2013, the liquidators provide discovery in accordance with r 20.16 of the Federal Court Rules of the following categories of documents:

(a)    financial statements, profit and loss statements and balance sheets of the first respondent for the period 1 January 2011 to 30 December 2012;

(b)    tax returns for the first respondent for the financial years ending 30 June 2011 and 30 June 2012;

(c)    documents referring to or recording the volume of sales of printer cartridges by the first respondent for the period 1 January 2011 to 30 December 2012; and

(d)    documents referring to or recording sales targets and sales performance for the first respondent’s staff for the period 1 January 2011 to 30 January 2012.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011 (Cth).

REASONS FOR JUDGMENT

NATURE OF THE PROCEEDING AND SUMMARY OF CONCLUSIONS

1    This is an application by the Australian Competition and Consumer Commission (the ACCC) for leave under s 500(2) of the Corporations Act 2001 (Cth) (the Act) to proceed against the first respondent (Artorios) for the purpose of seeking declaratory relief against it, in relation to contraventions of ss 18, 29(1)(d) and (h) and 40(1) of Sch 2 to the Competition and Consumer Act 2010 (Cth) (the CCA), known as the Australian Consumer Law (the ACL). In the application dated 24 May 2013, the ACCC also moves the Court for orders for further discovery by Artorios.

2    The application for leave was supported by two affidavits, of Mr Paul Edward Zawa, filed on 24 May 2013, and Mr Dean Robert Kambovski, filed on 17 July 2013. Annexure ‘DRK-1’ (DRK-1) to Mr Kambovski’s affidavit is a statement of facts agreed between the ACCC and the second and third respondents, on which the ACCC intends to rely at the hearing of its application for penalties and other relief against the second and third respondents. The agreed statement also contains admissions by the second and third respondents. As I understand it, DRK-1 will also be relied upon against Artorios in respect of the declaratory relief sought, if leave is granted. In formulating these reasons and making orders, I have had regard to those two affidavits, to the proposed agreed statement of facts and admissions, and to the written and oral submissions made on behalf of the ACCC. Where relevant, I have noted and taken into account oral submissions made on behalf of the liquidators.

3    Artorios carried on business as a supplier of printer cartridges. The second respondent was at all material times the sole director of Artorios and held 50% of the shares in the company. The third respondent was the shareholder as to the remaining 50% of the shares at the time of the alleged contravention and until 28 September 2012. He and the second respondent ran the business. The second and third respondents have admitted the contraventions alleged against them, and in DRK-1 they have agreed the factual basis for the orders sought. They consent to the grant of leave under s 500(2).

4    Artorios was placed into voluntary liquidation on 25 February 2013. Michael Carrafa, Terry Grant van der Velde and Peter Gountzos of SV Partners were appointed joint and several liquidators on that day. The liquidators are represented by Tisher Liner FC Law and Mr McMahon appeared on their behalf at the hearing of the ACCC’s application before me. Subject to some submissions made to me about their costs, and the process of further discovery sought by the ACCC, the liquidators did not oppose the orders sought by the ACCC.

5    There will be orders granting leave under s 500(2) of the Act, conditional upon the ACCC paying certain of the costs incurred to date, and in the future, by the liquidators. A different set of considerations applies to the grant of leave under s 500(2) to a regulator than to a private party. In the current circumstances of this case, I find the grant of leave advances the purposes of the enforcement of the CCA and the ACL, and that the granting of relief against Artorios is capable of providing some level of general deterrence, as well as being compatible with the continuation of this proceeding against the second and third respondents.

6    There will also be orders for further discovery in the categories sought by the ACCC. However I am not prepared to waive compliance with r 20.16 of the Federal Court Rules 2011 (Cth) (the Rules) and I set out the reasons for this at [27] below.

THE APPLICABLE PRINCIPLES

7    The original explanation for staying proceedings and requiring leave to proceed against a company in liquidation was directed at ensuring the liquidation process remains fair and orderly, avoiding a multiplicity of actions which would be expensive and time consuming, and in some cases unnecessary: Re Gordon Grant and Grant Pty Ltd [1983] 2 Qd R 314 at 316. So, too, the considerations set out by Zeeman J in Oceanic Life Ltd v Insurance and Retirement Services Pty Ltd (in liq) (1993) 11 ACSR 516 at 520 substantially reflect the approach taken where an applicant would otherwise have a claim in the liquidation of a corporation but seeks instead to pursue a proceeding against that corporation.

8    The proposition that s 500(2) is principally directed at these circumstances finds some support in the location of s 500(2) in the Act, placed as it is amongst other provisions designed to give efficacy, and some priority, to the liquidation process.

9    Although some of the considerations referred to in Grant and Oceanic Life may be relevant, where leave is sought by a regulator to continue a contravention proceeding against a company in liquidation, a different focus is required.

10    In bringing proceedings such as these, the ACCC is performing important regulatory functions under the CCA and the ACL. It is seeking to ensure that the objects in s 2 of the CCA are fulfilled by seeking penalties for conduct said to contravene the ACL, as well as orders restraining future alleged contraventions if appropriate. By s 131 of the CCA, the prohibitions in ss 18, 29 and 40 extend to the conduct of corporations. In this proceeding the conduct constituting the contraventions is alleged, at paragraphs 17–18, 31–32, 52–54, 74–76 and 93–94 of the applicant’s statement of claim dated 10 September 2012, to be that of the corporation Artorios. The second and third respondents’ alleged liability under s 224 of the ACL, set out at paragraphs 19(b), 20(b), 33(b), 34(b), 56(b), 57(b), 78(b), 79(b), 95(b) and 96(b) of the applicant’s statement of claim, is dependent on their knowledge of, or involvement in, Artorios’ conduct. Similarly with their alleged liability under s 232(1)(e) and 248(1)(a), set out at paragraphs 19(c)–(d), 20(c)–(d), 33(c)–(d), 34(c)–(d), 56(c)–(d), 57(c)–(d), 78(c)–(d), 79(c)–(d), 95(c)–(d) and 96(c)–(d), such liability depends on the principal conduct alleged against Artorios. It is, as the ACCC submitted, incongruous that the principal entity towards whom the alleged contraventions are directed, and against whom in this context the relevant prohibitions in the ACL are intended to operate, should escape liability by reason of voluntary liquidation, while proceedings continue only against those whose liability is dependent upon the alleged conduct of the corporation.

11    Some of the factors referred to in the authorities dealing with leave sought by a regulator, usually the ACCC, are:

a)    General deterrence in respect of the alleged conduct and contraventions: Australian Competition and Consumer Commission v SIP Australia Pty Ltd [2003] ATPR 41-937 at [59] per Goldberg J; and

b)    General public policy considerations flowing from the ACCC’s position as regulator under the ACL: Australian Competition and Consumer Commission v ACN 135 183 372 (admin appted) [2012] FCA 586 at [6] per Marshall J.

12    The factors that overlap with applications for leave by a private person or entity include some of those set out in Oceanic Life at 520, as well as factors such as the stage to which the proceedings have progressed: Viscariello v Bernsteen Pty Ltd (in liq) (2004) 235 LSJS 277 at 280 per Besanko J, Doyle CJ and White J agreeing at 277 and 284 respectively.

13    It is by no means automatic that leave will be granted, and the Court must be satisfied there is utility in the proceeding continuing against the corporation: Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd [2007] FCA 794 at [58] per Gray J. In Leahy Petroleum, Gray J found, in the circumstances of a proceeding with a large number of corporate and individual respondents, there was no utility in the ACCC being given leave to seek declaratory relief against the first respondent, Leahy Petroleum. His Honour was also not persuaded that the “trouble and expense” of seeking pecuniary penalties against Leahy Petroleum had utility, where there was little or no prospect of those penalties being collected. His Honour’s reasons, and the other authorities to which I have referred, demonstrate the importance of considering the circumstances of the particular proceeding in which leave is sought, the nature of the relief sought by the regulator and the circumstances of other parties to that proceeding.

THE ACCC’S SUBMISSIONS

14    Taking account of both her written and oral submissions, I understood Ms Neskovcin’s principal submissions in favour of the grant of leave to be:

a)    There is a serious question to be tried against Artorios in the proceeding;

b)    The proceedings were vigorously contested by Artorios until its liquidation, and by the two individual respondents until the mediation in April and May of 2013. Consequently, the proceedings are at an advanced stage, approaching final determination, with considerable time and public resources having been expended on them;

c)    No active role in the proceeding will be required by the liquidators, and any reasonable costs of the discovery orders will be paid by the ACCC;

d)    Relief is otherwise not available to the ACCC within the liquidation, in contrast to a private cause of action;

e)    By reason of its agreement to cover the liquidator’s costs of discovery and not seek pecuniary penalties, a grant of leave to the ACCC will not prejudice the rights of Artorios’ creditors;

f)    It is in the public interest for the ACCC to be able to seek declaratory relief against a company such as Artorios which has contravened the ACL; and

g)    There would be an incongruity in this proceeding continuing against the second and third respondents yet not against the corporation itself.

15    Ms Neskovcin submitted that Gray J’s decision in Leahy Petroleum could be distinguished on the basis that the individual respondents against whom that proceeding would have continued were managers, rather than the controlling minds of the corporation.

THE LIQUIDATORS’ SUBMISSIONS

16    On the grant of leave, Mr McMahon informed the Court that the liquidator did not oppose the grant of leave, provided there was an appropriate condition as to payment of the liquidator’s costs.

CONCLUSION ON THE LEAVE APPLICATION

17    The particular circumstances of this case provide a firm basis for the grant of leave. Given there are extensive proposed agreed facts, and admissions by the second and third respondents, there is clearly a serious question to be tried. The second and third respondents consent to the grant of leave and the liquidator does not oppose the grant. These are factors of some weight.

18    The proceeding, which has been vigorously contested until relatively recently, is at an advanced stage. Subject to some procedural orders, it is ready for hearing as to relief. Public resources employed by the ACCC in proving its case against all three respondents in the proceeding would – at least to some extent – have been wasted if there could be no relief sought against the first respondent. Particularly so where it is the corporation’s conduct that is alleged to constitute the contraventions. In circumstances where the conduct alleged is now conceded and the contraventions admitted, a decision by the sole member of the first respondent to enter into voluntary liquidation should not be permitted to avoid the proper conclusion of this proceeding against it.

19    In the particular circumstances of this proceeding (cf Gray J’s view in Leahy Petroleum at [58]), the grant of declarations has utility. Declaratory relief is granted not only to mark out the boundaries of lawful conduct for the future, but also to make plain the Court’s finding as to unlawful conduct in the past: Australian Securities and Investments Commission v McDougall (2006) 229 ALR 158 at [55] per Young J; Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 97–99 per Sheppard J, Foster and Hill JJ agreeing. In Australian Securities and Investments Commission v Sweeney [2001] NSWSC 114 at [35], Austin J said (of the regulator’s role and functions under the Australian Securities and Investments Commission Act 1989 (Cth), but there is in my opinion no material difference for present purposes):

These provisions imply that it is appropriate for the Commission to take civil proceedings for declaratory and injunctive relief in respect of past events, even if there is no risk of repetition, where the outcome may establish that the conduct complained of was wrongful (and thereby mark the Court’s and the community’s disapproval of it) and may deter other wrongdoers.

20    Especially in a legislative scheme where the liability of others is linked to, or dependent upon, contravening conduct of a corporation, the formal recognition by the Court of the unlawfulness of the corporation’s conduct is significant. Indeed, it may be essential.

21    In both SIP Australia and Leahy Petroleum, the seeking of pecuniary penalties was an important factor in the Court’s reasoning, albeit to different outcomes. In the context of the current proceeding, the ACCC’s abstention from seeking such relief against Artorios tends both for and against the grant of leave. It tends against the grant of leave because the principles of general deterrence are of less weight than they might be if penalties were sought. Declaratory relief of itself is unlikely to persuade wrongdoers to adjust or alter their conduct in the future, although it nevertheless makes clear for those regulated by the ACL what conduct is lawful and what is not. The abstention by the ACCC tends in favour of the grant of leave because there is no likely impact on the liquidation, and the Court need not consider the question whether penalties if ordered could not be satisfied (cf Gray J’s concerns in Leahy Petroleum). Overall, the fact that the ACCC does not seek the imposition of pecuniary penalty weighs in favour of the grant of leave in the particular circumstances of this proceeding.

22    Finally I accept that, where there are now agreed facts and admissions as to contravening conduct, there would be some incongruity in not allowing the ACCC to seek relief against Artorios as the principal actor in that conduct so far as the operation of the ACL in this case is concerned. I also accept that, perhaps especially in a sole member corporation, an election to go into voluntary liquidation should not be permitted to frustrate or avoid the legal consequences which that sole member, by his agreement to facts and admissions of contravening conduct, otherwise now accepts should flow from the conduct alleged.

THE APPLICATION FOR FURTHER DISCOVERY

23    Ms Neskovcin agreed that the application for further discovery is supplementary to the application for leave to proceed, and is intended by the ACCC to facilitate the submissions it will make, and the evidence it can rely upon, in seeking penalties against the second and third respondents.

24    If further discovery against the first respondent were the only basis for the application under s 500(2) I may not have granted leave. The ACCC’s purpose in seeking further discovery could have been achieved by seeking leave to issue a subpoena to the company. Since final relief by way of declarations is sought against Artorios and since I have concluded the seeking of that relief is appropriate, I need not rely on the ACCC’s application for further discovery in the grant of leave.

25    However, having decided to grant leave, I consider it is appropriate in the circumstances to order further discovery in the terms sought by the ACCC, so as to facilitate the conduct of the penalty hearing. Given Artorios has already made discovery while it actively contested the proceeding, and the substance of the ACCC’s submission is that discovery was inadequate, further orders are appropriate.

26    Again, the second and third respondents consent to the orders for further discovery sought by the ACCC. The liquidators made no submission about the categories of further discovery sought, nor did they oppose the orders for further discovery. However Mr McMahon made some submissions about the need for compliance with the Court’s rules as to the making of discovery, subject to compliance being dispensed with.

27    Ms Neskovcin submitted the ACCC did not anticipate there should be a need for any further discovery if the proposed orders were made and complied with. Appropriately, she accepted she could not rule out entirely such an application. In those circumstances, and in order to ensure discovery proceeds regularly in this matter as it has done to date, I do not propose to dispense with compliance with r 20.16 as to the making of discovery by way of a list of documents annexed to an affidavit. The Court and all parties will then be clear about what is in the possession, custody or control of the company and what is not, and whether there are any documents over which privilege is claimed or there are not.

28    There will be orders as to leave and discovery in accordance with these reasons.

Associate:    

Dated:    1 August 2013