FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Chrisco Hampers Australia Limited (No 2) [2016] FCA 144

ORDERS

THE COURT ORDERS THAT:

1.    In respect of its contravention of s 29(1)(m), the respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $200,000.

2.    The applicant provide a minute of proposed declarations by 3 March 2016.

3.    The matter be relisted at 2.15pm on 4 March 2016.

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

REASONS FOR JUDGMENT

EDELMAN J:

Introduction

1    On 10 November 2015, following a trial in this proceeding, I held that the applicant (the ACCC) had established that the respondent (Chrisco) had committed two contraventions of the Australian Consumer Law. The ACCC had alleged a third contravention. This was that Chrisco, as a supplier and party to a lay-by agreement, contravened s 97(3) of the Australian Consumer Law by failing to ensure that the amount of its termination charge was not more than its reasonable costs in relation to the agreement. That contravention was not established.

2    The first contravention was that a Headstart term in Chrisco’s written and website terms and conditions was an “unfair term” within s 24 of the Australian Consumer Law. The primary focus was upon whether the term caused “a significant imbalance in the parties’ rights and obligations arising under the contract”. The term permitted the removal of money from the accounts of Chrisco’s customers without interest for a prospective order. That detriment caused a significant imbalance in the parties’ rights and obligations when considered in the context of the contract as a whole, including the extent to which the term lacked clarity, legibility, and plain language.

3    The second contravention was of s 29(1)(m) of the Australian Consumer Law by a false or misleading representation by Chrisco that customers could not cancel a lay-by agreement once an order was fully paid, and before delivery.

4    These reasons consider separately the consequential issues of:

(1)    the declarations sought by the ACCC;

(2)    the injunctions sought by the ACCC;

(3)    the appropriate pecuniary penalty; and

(4)    the appropriate costs orders.

5    For the reasons below, I consider that one declaration should be made in the form sought by the ACCC, although the ACCC should have the opportunity of reformulating its second declaration. The injunction sought by the ACCC should not be made. Chrisco should pay a pecuniary penalty of $200,000. And I will hear any further submissions concerning costs in light of these reasons.

The declarations

6    One of the reasons why declarations of contravention are made is because it is in the public interest to inform consumers of the contravening conduct (here, of Chrisco) and to deter other corporations from contravention: see Australian Competition and Consumer Commission v The Construction, Forestry, Mining and Energy Union [2006] FCA 1730; [2007] ATPR 42-140 [6] (Nicholson J). The corollary of this proposition is that declarations should be expressed as simply and as clearly as possible. In many cases, cooperation between the parties will result in an agreed, proposed form of declaration which has been drafted with this purpose (among others) in mind.

7    In this case, the ACCC seeks declarations in the following terms:

1.    The Court declares that the respondent (Chrisco), during the period from 1 January 2011 to December 2013 in trade or commerce and in connection with the supply or possible supply of goods, by making a statement in its order confirmations and on its website to the effect that consumers could not terminate their lay-by agreements after the final payment was made but before delivery of the goods, made a false or misleading representation concerning the existence, exclusion or effect of a condition, warranty, right or remedy in contravention of section 29(1)(m) of the Australian Consumer Law (the ACL) (Schedule 2 of the Competition and Consumer Act 2010) because at all material times section 97(1) of the ACL provided that a consumer who is a party to a lay-by agreement can terminate the agreement at any time prior to delivery of the goods.

2.    The Court declares that:

(a)    by reason of the consumer contracts the respondent made with its customers or the supply, in 2014 of goods for personal, domestic or household use or consumption, packaged as Christmas Hampers:

(i)    comprising documents prepared by Chrisco before any discussion relating to the transaction occurred with the customer;

(ii)    being presented in a pre-prepared form with terms that a consumer was in effect required to accept or reject;

(iii)    containing terms that were not the subject of an opportunity for negotiation on the part of the consumer;

the said contracts were standard form contracts, within the meaning of section 27 of the ACL; and

(b)    a term of the said contracts:

(i)    as stated in Chrisco’s website terms and conditions, for the 2014 year, that:

“HeadStart Plan

Your direct debit payments will continue until your order is fully paid for (no later than 24th October 2014). After the 24th October 2014, a HeadStart Plan will be created for you and direct debit payments will continue accordingly. A HeadStart Plan allows you to make payments towards next year’s order, while giving you time to decide exactly which products you want. We will write to you to confirm your HeadStart Plan payments prior to commencing your direct debits. Your HeadStart Plan is fully refundable at no cost to you, should you change your mind”; or

(ii)    as stated in the 2014 Chrisco Catalogue Terms and Conditions that:

“How does a HeadStart Plan work? Your direct Debit payments will continue until your order is fully paid (no later than 24th October 2014). After the 24th October 2014, a HeadStart Plan will be created for you and payments will continue accordingly. A HeadStart Plan will be created for you and payments towards next year’s order, while giving you time to decide exactly what products you want. We will write to you to confirm your HeadStart Plan payments prior to commencing Direct Debits”; and

(iii)    as stated in the 2014 Catalogue Order Form and 2014 Online Order Form that:

“When your 2014 (…) Order is fully paid you will automatically roll into a 2015 HeadStart Plan for the following year. Your HeadStart Plan is fully refundable. You can choose not to have this option by ticking here”; and

(iv)    as stated in the 2014 Order Confirmation that:

“Unless you’ve advised us otherwise, we’ll keep your payments going for any fully paid Hamper 2014 order, so that you can keep saving for next years order. Please see above for your final payment date”;

(c)    was not presented clearly to the consumer;

(d)    did not explain how the HeadStart Plan was to work in plain language in that it;

(i)    failed to clearly identify the amounts that would be direct debited by Chrisco under the HeadStart Plan or the means by which those amounts would be determined;

(ii)    included the words, “We will write to you to confirm your HeadStart Plan payments prior to commencing Direct Debits”, but failed to explain that Chrisco would not write to the consumer seeking the consumer’s confirmation to proceed but would only write to confirm the amount of the payments Chrisco would take;

(iii)    failed to explain the means by which the consumer could cancel the HeadStart Plan and obtain a refund;

(e)    failed to make information on the full effect of the operation of the HeadStart Plan readily available to the consumer;

(f)    permitted or had the effect of permitting the respondent to withdraw regular direct debit payments from the consumer’s bank account after the completion of the consumer’s existing financial obligations for the 2014 order without any corresponding right to the consumer;

(g)    caused a significant imbalance in the rights and obligations of the respondent arising under the contract compared with the consumer;

(h)    was not reasonably necessary in order to protect the interests of the respondent;

(i)    would cause financial detriment to the consumer if it were to be applied or relied on by the respondent; and

(j)    by reason of the foregoing, was an unfair term within the meaning of section 24(1) of the ACL and accordingly, is void pursuant to section 23(1) of the ACL.

8    Chrisco does not oppose the form of the first declaration and the declaration is appropriate. The difficulty with the form of the second declaration is that its length and complexity is likely to defeat one of its purposes: to inform consumers of the contravening conduct of Chrisco and deter other corporations from contravention. As the ACCC properly accepted, it also fails to provide for the source of the power to make a declaration. In this case, the only power relied upon by the ACCC was s 250 of the Australian Consumer Law.

9    In contrast, Chrisco’s proposed declaration concerning contravention of s 24(1) is an example of a declaration which is far more precise and succinct. Chrisco submits that the Court should declare, pursuant to s 250 of the Australian Consumer Law, that:

Where there is a term providing for a Headstart Plan in a consumer contract entered into by Chrisco for delivery of a Christmas Hamper in 2014, such a term is unfair.

10    But this proposed declaration is too succinct. There would be greater utility in a declaration which also provided for the basis upon which the liability was found, albeit without attempting to summarise the reasons of the Court: see Australian Competition and Consumer Commission v MSY Technology Pty Ltd [2012] FCAFC 56; (2012) 201 FCR 378, 388 [35] (the Court).

11    For instance, there is no need to declare all the uncontroversial reasons why the relevant contracts were standard form contracts. But, on the other hand, if the Headstart term is set out in the declaration (which is useful for the reader), then the declaration must also provide for the basis upon which the term was found to be unfair although not as an attempt to summarise my reasons for decision. The essential bases included that it (i) caused a significant imbalance in the parties’ rights and obligations in a context in which the terms were not presented clearly, and in sufficiently plain language, to the consumer; (ii) was not reasonably necessary in order to protect the interests of the respondent; and (iii) would cause financial detriment to the consumer if it were to be applied or relied on by the respondent.

12    It is appropriate that the ACCC have a brief period of time, in light of these reasons and after conferral with Chrisco, to formulate alternative proposed declarations. That should be done by 3 March 2016.

The injunction sought

13    The injunction sought by the ACCC is in the following terms:

An order, pursuant to section 232 of the Australian Consumer Law, that Chrisco, by its servants or agents or otherwise, be restrained, for a period of five years from the date of such an order being made, from entering into agreements to supply, in a particular year, goods for personal, domestic or household use or consumption and that include a term that permits or has the effect of permitting Chrisco to withdraw direct debit payments from the consumer’s bank account for goods to be ordered and delivered in the following year (“the Headstart Plan”), unless the agreement documents given to the consumer prior to entering into the agreement:

(a)    clearly and conspicuously explain to the consumer the full effect and operation of the HeadStart Plan;

(b)    clearly identify the amounts that would be direct debited by Chrisco under the HeadStart Plan or the means by which those amounts would be determined;

(c)    clearly and specifically require a consumer’s express consent to enter into the HeadStart Plan prior to any monies being deducted from the consumer’s nominated bank account;

(d)    clearly and conspicuously explain to a consumer the means by which the consumer can terminate the HeadStart Plan at any time and obtain a full refund of payments made under the Plan;

(e)    clearly and specifically require a consumer’s consent to convert the HeadStart Plan into an order for goods (the new lay-by agreement);

(f)    clearly and conspicuously explain to a consumer that he or she can terminate the new lay-by agreement at any time prior to delivery of the goods.

14    Chrisco submits that no injunction should be ordered. It does not dispute that the Court has jurisdiction to order an injunction in this case. It makes three submissions, all of which are concerned with whether the power should be exercised. First, Chrisco says that there is no risk of it continuing to include the unfair term in its standard contracts. Secondly, Chrisco says that the form of the injunction sought by the ACCC goes beyond the findings of the Court. Thirdly, Chrisco says that the injunction is too imprecise and that it is not reasonably capable of being obeyed. Each of these submissions should be accepted. In combination they point powerfully against an injunction in the terms sought by the ACCC or any similar terms.

15    As for the first matter, I accept that there is very little chance that Chrisco will include in its contracts the term found to be unfair, or any other in similar terms. Chrisco’s evidence at this hearing is that its 2016 terms and conditions and customer explanations (in its catalogue and on its website) contains very substantial differences from the 2014 terms. As I explained during the oral hearing this morning, my reasons for decision did not consider the Headstart term in a vacuum. They were concerned, as I explained, that an assessment of unfairness should consider “the HeadStart term together with the parties’ other rights and obligations arising under the contract in order to assess whether the HeadStart term causes a significant imbalance in the rights and obligations arising under the contract” and as part of an evaluative exercise which considered the contract as a whole and the extent to which the Headstart term was transparent: Australian Competition and Consumer Commission v Chrisco Hampers Australia Limited [2015] FCA 1204 [51], [70].

16    On my first assessment of the revised terms and conditions it seems that Chrisco has addressed almost every unfairness factor mentioned in my reasons concerning the opt-out Headstart term, save for the mere existence of the opt-out provision which I did not conclude to be unfair. The substantial changes to the terms and conditions include the following:

(1)    they contain a bold heading in the description of the Headstart Plan which reads “What if I don’t want a Headstart Plan?” The text under that heading explains that the red box at the bottom of the order form can be ticked or a number provided could be called.

(2)    They provide explanations, with bold headings, about (i) what the Headstart payments will be, (ii) that the payments are fully refundable until they are converted into an order for 2017 (when the Cancellation policy applies), and (iii) the consequences if a person does not convert the Headstart Plan into an order.

(3)    They provide that one free gift per customer, with a retail value of at least $25, will be given to customers who convert their Headstart Plan to an order for 2017.

17    There may be some residual uncertainty which remains. For instance, there is uncertainty about the amount of the Headstart Plan direct debits. In the revised terms that amount is said to be “the same amount as your second last payment for your 2016 order”. As the ACCC observed, it is not clear whether this would include any $3.50 fee for a missed payment. Another matter of uncertainty is that the time when a Head Start Plan is “auto converted” by Chrisco it will be to an order “of similar value to your 2016 order”.

18    However, these matters were only two of the numerous circumstances upon which I relied for my conclusion that the Headstart term was unfair and were far from the most significant. The significance is diminished because in Chrisco’s revised terms, Chrisco says that it will write to the consumer prior to commencing direct debits to confirm the amount of the direct debits and orders that are automatically placed are fully refundable until the order is confirmed (at which time the cancellation policy applies). The significance is also diminished by a written undertaking offered by Chrisco at the conclusion of the hearing this morning in the following terms:

The respondent Chrisco Hampers Australia Limited ACN 080 852 535 (Chrisco) undertakes to the Court that for a period of five years from the date of this undertaking:

(a)    If Chrisco enters into an agreement with a customer to supply, in a particular year, goods for personal, domestic or household use or consumption; and

(b)    The agreement includes a term that permits or has the effect of permitting Chrisco to withdraw periodic direct debit payments from the customer’s bank account for goods to be supplied in a year following the particular year (HeadStart payments); and

(c)    The amount of the HeadStart payments is to be calculated by reference to the amount of the second last payment (or any other particular payment) for the goods to be supplied in the particular year;

(d)     then when calculating the amount of the HeadStart payments, Chrisco will disregard any fee for a missed payment that might be included in the said second last payment (or other particular payment).

19    Although there is negligible chance that Chrisco will include in its contracts the term found in my reasons to be unfair, or any other in similar terms, this does not preclude an injunction. The power to order an injunction under s 232 of the Australian Consumer Law may be exercised for a past contravention whether or not it appears to the court that the person intends to engage again, or to continue to engage, in conduct of a kind referred to in that subsection (s 232(4)(a)) and whether or not there is an imminent danger of substantial damage to any other person if the person engages in conduct of that kind (s 232(4)(c)). Nevertheless, there must be some useful purpose, not served by other remedies such as a declaration, for an injunction which carries the consequence of contempt: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146; (2007) 161 FCR 513, 544 [114] (the Court).

20    The ACCC submits that an injunction will serve the purpose of specific deterrence. It says that Chrisco “continues to operate the same business with the same modus operandi inclusive of a term in its standard form contract identified as a Headstart term”. The ACCC says that Chrisco has provided no evidence that its Headstart terms for 2015 and 2016, published prior to these proceedings, were revised. The difficulty with this submission is that an injunction cannot restrain a party from conduct which has already occurred. It was not an issue at trial whether Chrisco’s 2015 or 2016 Headstart terms were unfair. And whether or not they are unfair, as I have explained Chrisco’s future terms appear to address most of the concerns raised in my reasons for decision.

21    The second reason why the injunction sought by the ACCC should not be awarded is because the terms of the injunction go beyond my findings of contravention. It is possible that the terms of an injunction might go beyond particular findings of contravention and might even restrain the commission of lawful conduct where that is the only manner in which the public can be protected. In BMW Australia Limited v Australian Competition & Consumer Commission [2004] FCAFC 167; (2004) 207 ALR 452, 465 [36] the Full Federal Court remarked in relation to the power to order an injunction under s 80 of the Trade Practices Act 1974 (Cth) that:

the Court is given a wide discretion as to the terms of an injunction. Section 80(4)(a) removes the normal rule that an injunction is only to be granted to restrain threatened or impending conduct, in the case of a restraining injunction. Section 80(5) removes the same rule in the case of a mandatory injunction. In such cases, it is clear that the terms of any injunction based only on past conduct should be limited to restraining a repetition of precisely that conduct. The case of an injunction based on an intention to commit further conduct is different. There, the terms can be cast more widely, in order to catch conduct of any kind threatened or intended. (Emphasis added).

22    An example of a widely cast injunction is the decision in Foster v Australian Competition and Consumer Commission [2006] FCAFC 21; (2006) 149 FCR 135. In upholding the injunction awarded in that case, at 149 [35], the Full Federal Court said that “[i]f the Court considers that a complete prohibition, whether permanently or for a specified period, on a respondent’s engaging in a particular field of commercial activity or industry is required to protect the public from conduct of the kind which constituted the contravention, s 80 [or s 232 of the Australian Consumer Law] is wide enough to support such a prohibition as a matter of power”.

23    In this case, the protection of the public does not require that an injunction be issued in the broad terms proposed by the ACCC which would potentially preclude lawful conduct, and which certainly go beyond my reasons for decision. Subparagraphs (a) to (f) of the proposed injunction purport to be mandatory requirements for a contract which contains a Headstart term. But in my reasons for decision, these matters (apart from (f)) were only context from which the unfairness of the Headstart term was assessed. They were not cumulative requirements, the failure of any of which would render the term unfair.

24    I do not consider that it is appropriate to order an injunction against each matter of conduct (i) which might be lawful, (ii) which is only one or more aspects of the context in which an unfair term arose, and (iii) where no allegation was made at trial, and no finding made, that any of these items of context, by itself, was unfair. In any event, there is no need in this case to cast the terms of an injunction more widely than my reasons for decision because I am satisfied that the conduct I described in my reasons as involving an unfair term is no longer threatened or intended.

25    The third reason why the injunction sought by the ACCC should be refused is because of the vague nature of some of its proposed terms. It is not necessary to decide whether, by itself, this factor would lead to the refusal of the injunction in this case or whether the proposed injunction could have been ordered with minor amendments in oral submissions. It suffices to say that combined with the other two matters the injunction sought must be refused.

26    Any injunction “should be in such terms that is reasonably capable of being obeyed”. It should not “create uncertainty and place the respondent in a position where it would not know with any precision what was required of it”: Maclean v Shell Chemical (Australia) Pty Ltd [1984] ATPR 40-462; (1984) 2 FCR 593, 599 (Toohey J); see also Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146; (2007) 161 FCR 513, 541 [104], 544 [112] (the Court).

27    The use in each of the proposed subparagraphs of the injunction of adjectives such as “clearly and specifically” or “clearly and conspicuously” introduces elements of vagueness and uncertainty. The phrases, and their associated uncertainty, are not necessary transplants from the Australian Consumer Law. As senior counsel for Chrisco submitted, there is a difference between the application by the Court of open-ended evaluative concepts such as “transparent” or “clear” and the inclusion of those terms in an injunction which directs the future conduct of a commercial entity with the attached sanction of contempt for failure to comply. When combined with (i) the lack of any real threat or intention of future contravening conduct as described in my principal reasons for decision, and (ii) the extent to which the proposed injunction goes beyond my reasons for decision, this uncertainty requires that the proposed injunction must be refused.

The appropriate penalty for contravention of s 29(1)(m)

28    The legal issues concerning pecuniary penalties were not in dispute. Both counsel referred to the principles I described in Australian Competition and Consumer Commission v Woolworths Ltd [2016] FCA 18 [113] – [137]. I rely on my remarks in that decision without repetition. Perhaps surprisingly, despite agreement on the basic principles to apply there was a vast gulf between the parties in the application of those principles. The ACCC submitted that an appropriate penalty would be $600,000. Chrisco submitted that an appropriate penalty would be $150,000.

29    To recap, in broad outline, the essential factors to consider, s 224(2) of the Australian Consumer Law provides that in determining the appropriate pecuniary penalty, the court must 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 a court in proceedings under Chapter 4 or this Part to have engaged in any similar conduct.

30    Apart from the three matters specified in s 224, other common matters which the Court must have regard to, if relevant, are:

(1)    the size of the contravening company;

(2)    the deliberateness of the contravention and the period over which it extended;

(3)    whether the contravention arose out of the conduct of senior management of the contravener or at some lower level;

(4)    whether the contravener has a corporate culture conducive to compliance with the Act (or the new Australian Competition and Consumer Law) as evidenced by educational programmes and disciplinary or other corrective measures in response to an acknowledged contravention;

(5)    whether the contravener has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention;

(6)    whether the contravener has engaged in similar conduct in the past;

(7)    the financial position of the contravener;

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

(9)    the extent of contrition;

(10)    whether the contravening company made a profit from the contraventions;

(11)    the extent of the profit made by the contravening company; and

(12)    whether the contravening company engaged in the conduct with an intention to profit from it.

31    Many authorities explain that the underlying concern behind many of these factors is the principal object in the award of civil penalties: deterrence. That deterrence is either “specific” to the respondent or “general” to persons in the same or similar circumstances.

32    In this case, the four essential issues in dispute between the parties are: (1) the number of contraventions of s 29(1)(m) committed by Chrisco (and hence the maximum penalty), (2) the extent of co-operation by Chrisco, (3) the relevance and application of the turnover and profit made by Chrisco, and (4) comparative cases. I turn to those matters before considering all of the remaining factors in reaching a conclusion.

The number of contraventions and the maximum penalty

33    The ACCC submitted that Chrisco had committed two contraventions of s 29(1)(m) by statements made (i) in Chrisco’s order confirmations and (ii) on Chrisco’s website. On one view, there were multiple contraventions committed by Chrisco in relation to each consumer to whom these representations were made. However, the parties proceeded on the assumption that the identical nature of those representations meant that the maximum penalty would effectively be treated as $1.1 million for all those “same” contraventions unless the order confirmation contraventions could be treated separately from the website contraventions. I am content to proceed on the same basis: Australian Competition and Consumer Commission v Woolworths Ltd [2016] FCA 18 [117]-[118].

34    The difficulty with the ACCC’s submission is that on a proper construction of the ACCC’s pleadings the two matters concerning the order confirmation and the website had been treated conjointly. The ACCC was right to have pleaded the matter this way because the contraventions arose from the same circumstances, involved broadly the same conduct, and could fairly be treated as the same contravention. More importantly, however, I consider that the ACCC should not be permitted now, at the conclusion of a hearing on penalty, to resile from that construction. In fairness, senior counsel for the ACCC properly accepted that if her construction of the ACCC’s case was not accepted then the maximum penalty should be treated as $1.1 million.

35    The ACCC’s pleading of a single contravention can be seen from its originating application and statement of claim. In its originating application, its plea for pecuniary penalties referred back to the terms of the declarations of contravention. In relation to s 29(1)(m), the ACCC pleaded as follows in relation to a statement (singular) and treating catalogues, order confirmations (which made the representation for catalogue orders) and website orders in the same way:

A declaration that Chrisco, during the period from 1 January 2011 to at least December 2013 in trade or commerce and in connection with the supply or possible supply of goods, by making a statement in its catalogues, order confirmations, on its website … to the effect that consumers could not terminate their lay by agreements after the final payment was made but before delivery of the goods made a false or misleading representation concerning the existence, exclusion or effect of a condition, warranty, right or remedy in contravention of s.29(1)(m) of the ACL because at all material times s.97(1) of the ACL provided that a consumer who is a party to a lay by agreement can terminate the agreement at any time prior to delivery of the goods. (Emphasis added.)

36    The ACCC pointed to the particulars of its Sixth Amended Statement of Claim which relevantly provided:

18.    From at least January 2011 until about December 2013, the Chrisco lay-by agreements included terms to the effect that after the cooling off period of 21 days from the date of the original order confirmation, the following cancellation fees would apply:

(a)    prior to 1st August in the relevant year: 20% of monies paid at the cancellation date;

(b)    from 1st August to the Final Payment Due Date: 50% of monies paid at the cancellation date;

provided the order was not fully paid.

Particulars

(i)    Terms and conditions of purchase published on the website as at 14 October 2013;

(ii)    The Cancellation Policy published on Chrisco’s order confirmation.

…

24.    From 1 January 2011 to at least December 2013 Chrisco, in publishing or causing to be published the statements to the effect of the terms pleaded in paragraph 18 above (Cancellation Policy), represented that a consumer could not cancel their lay-by agreement once an order was fully paid for and before delivery of the goods:

Particulars

(i)    the Cancellation Policy was published on the Chrisco website, order confirmations … when at all material times s.97(1) of the ACL provided that a consumer who is a party to a lay-by agreement can terminate the agreement at any time prior to delivery of the goods.

25.    By reason of the matters pleaded in the preceding paragraph, Chrisco:

(a)    made representations about the exclusion of rights concerning goods and services that were false or misleading; and thereby

(b)    contravened s.29(1)(m) of the ACL

37    These particulars do not establish a case that the website representations were somehow separate from the order confirmation representations. Rather, they were again treated conjointly.

38    Further, Chrisco admitted in the statement of agreed facts that between 1 January 2011 and about December 2013 the terms and conditions published on Chrisco’s website and in the Order Confirmation included a statement that “your order cannot be cancelled once it is fully paid for”. Chrisco then admitted that in publishing “the statement” it represented that a consumer could not cancel their agreement with Chrisco once an order was fully paid for and before delivery of the goods.

39    The case therefore proceeded on the basis that the website and order confirmation contraventions were the “same”. In my earlier reasons, only one contravention was found. Although I referred to representations (plural), the contravention was the making of the relevant representation to multiple consumers in Chrisco’s order confirmations and on its website (see [144]-[145] of my reasons).

40    The maximum penalty for contravention of s 29(1)(m) in this case should be $1.1 million. In any event, even if I had not reached this conclusion, I consider that the $1.1 maximum would have powerfully informed an assessment of penalty by an evaluative judgement about the course of conduct principle due to the high degree of interrelationship between the legal and factual elements of the contraventions involved in relation to the order confirmations and website.

Chrisco’s financial position and profits from contraventions

41    There was a dispute between the parties concerning the evidence surrounding Chrisco’s financial position and profits from contraventions. After Chrisco filed an affidavit which clarified the amounts involved (previously in New Zealand dollars but converted based upon audited conversion rates) and provided to the ACCC financial statements which had been submitted to the Australian Securities and Investments Commission, the following affidavit evidence from Chrisco (which was, in any event, undisputed) became uncontroversial.

42    The information in this table reveals that although Chrisco has an enormous turnover, its annual profit margin on that turnover is relatively much smaller. During the period over which the false representations were made – January 2011 to the end of 2013 – Chrisco’s after tax profit (in Australian dollars) was $11,647,074.

43    There was dispute between the parties about the extent to which that profit could be attributed to the contravention of s 29(1)(m). Chrisco submitted that a penalty of $150,000 would be the equivalent of the profit made from 3,600 customers during the relevant period which contrasts with the evidence that only around 100 customers were deterred from cancelling their orders each year.

44    This attribution of profit calculation by Chrisco is, at best, an informed guess. It artificially attributes an amount of total profit to each hamper. It also involves a guess about the number of consumers who might have been deterred from cancelling orders based upon the few consumers who cancelled in subsequent years. The relevant point, however, is that on any view, a pecuniary penalty of $150,000 or more, as proposed by Chrisco, would exceed, perhaps many times over, any profit that might have been made from the contravention. This is also not a case where a penalty “must be fixed with a view to ensuring that the penalty is not such as to be regarded by [the] offender or others as an acceptable cost of doing business”: Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640, 659 [66] (French CJ, Crennan, Bell and Keane JJ quoting from Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249, 265).

Co-operation with the ACCC

45    Chrisco’s co-operation mitigates penalty on its own account as well as being evidence of contrition. There was some dispute about the extent of Chrisco’s co-operation. The matters in dispute do not substantially affect penalty. Although Chrisco’s co-operation was not absolute, it was still significant.

46    One way in which Chrisco co-operated was that it removed the representations as soon as they were brought to its attention by the ACCC. Chrisco volunteered information, met with the ACCC, and attended mediation. Chrisco made a substantial concession that 99% of sales made by it were pursuant to agreements that had the effect that the price was to be paid by three or more instalments. This concession was significant even though the ACCC submitted that the matter could have been proved without the concession. Although Chrisco did not admit its contravention, the only point it ultimately took about contravention was a narrow legal point about the meaning of a lay-by agreement.

Other factors: senior management involvement, compliance programmes, customer loss

47    In reaching a conclusion about penalty, I have taken into account all of the circumstances of this case and not merely those discussed above which were a matter of dispute. There are three other matters of significance which were not in substantial dispute but which I specifically consider below. They include the involvement of senior management, Chrisco’s compliance programmes (and, again associated with that, contrition), and loss to customers.

48    I accept the ACCC’s submission that a reasonable inference is that Chrisco’s senior management, including the person who (at the time) was its Head of Customer Service and Marketing, were responsible for the marketing of its products including the representations which contravened s 29(1)(m). However, that involvement of senior management did not involve an intentional contravention in the sense that Chrisco was aware that its conduct did, or might, breach the Australian Consumer Law. Rather, the contravention occurred as a result of inadequate systems in place for which senior management is responsible.

49    From October 2014, Chrisco put in place a formal consumer law compliance programme. Although this programme took months to implement, which was probably the outer limit of acceptable time for a programme of that nature, it is substantial. I do not accept that compliance measures could appropriately have been implemented properly by some more immediate, but less substantial, programme. Even the mere process of advertising and appointing a Compliance Officer would probably have taken several months. As Chrisco summarises those measures from its evidence, they involved the following:

(1)    a Consumer Law Compliance Policy, with staff roles and responsibilities, document review and sign-off procedures and quality assurance procedures;

(2)    associated with the Consumer Law Compliance Policy, Chrisco engages Monitors and a Secret Shopper to help ensure staff are complying with policies and procedures;

(3)    a Consumer Law Compliance Officer, who deals with all of Chrisco’s departments and supports ongoing consumer law compliance within the company;

(4)    face-to-face Consumer Law Compliance Training to key staff delivered by a law firm in 2014;

(5)    face-to-face Consumer Law Compliance Training to all call centre staff in November 2014, and then to all new call centre staff hired by Chrisco since that time, as part of their induction training; and

(6)    the provision of a training manual, which includes Consumer Law Compliance information, to all new customer service staff.

50    Finally, the evidence of loss or damage to consumers is limited. The representation might have deterred some consumers from cancelling an order after it had been fully paid. The loss to those consumers who were deterred from cancelling, and who would instead have received their hamper, is very difficult to assess. In any event, in 2014, after the representations were withdrawn, only 90 fully paid orders were cancelled. This was from a total of 102,698 customers. In 2015, only 67 were cancelled. This is from a total of 78,509 customers.

Comparable cases

51    The utility of comparable cases in the determination of penalty in this case is limited for similar reasons to those that I explained in Australian Competition and Consumer Commission v Woolworths Ltd [2016] FCA 18 [128]-[137]. Nevertheless, I consider that it is appropriate to have regard to the three cases about which the parties made submissions. These are the cases which provide the closest analogy even though they have little utility for either direct comparison or establishing anything like a range.

52    The first case is Australian Competition and Consumer Commission v Startel Communication Co Pty Ltd [2014] FCA 352. In that case, a mobile phone reseller made two misrepresentations about their customers’ rights. The misrepresentations were made over the course of two years. The misrepresentations concerned the customers’ statutory rights to (i) a cooling-off period and (ii) to the termination of their contracts.

53    Startel admitted the contraventions of the Australian Consumer Law alleged by the ACCC. The penalty imposed was designed “to ensure that consumers negotiating agreements with dealers in such circumstances are provided with agreements which fully and fairly inform them of their rights” ([49]). A total penalty of $200,000 was agreed, and found to be appropriate. That represented $100,000 for each course of conduct.

54    There are similarities between Startel and this case. Startel co-operated with the ACCC. But it probably did so to a greater degree than Chrisco. Startel had no compliance program in place at the time of contravention although it rectified this after the ACCC commenced investigation. Startel’s contravention was the result of a failure by Startel to review and update its marketing materials, customer agreements and procedures in light of the Australian Consumer Law amendments.

55    However, there are also substantial differences between Startel and this case. The misrepresentations in Startel might have dissuaded customers from terminating if they found a better deal. The first misrepresentation affected 2588 customers. The second affected 2133 customers. However, it was not possible to know how many of those customers might have acted differently ([51]). In contrast with Chrisco, Startel was only a small company with 10 employees. Its turnover and profit was a fraction of Chrisco’s.

56    The second case to which the parties referred was Australian Competition and Consumer Commission v Spreets Pty Ltd [2015] FCA 382. In that case, Spreets Pty Ltd operated a website which allowed merchants to offer vouchers for significantly discounted prices for goods and services. Spreets breached the Australian Consumer Law by four sets of misrepresentations about customers’ rights to a refund. The misrepresentations affected 1,179 vouchers that were sold. Each of the four courses of contravention attracted a penalty of $50,000. Other contravening conduct increased the penalty to $600,000.

57    Again, there are significant similarities as well as significant differences from this case. Spreets co-operated very substantially with the ACCC. Spreets had significant annual revenue (around $10 million in 2012 and around $3 million in 2013) although it made a loss in 2012 (of around $4 million) and a profit of $653,000 in 2013. Spreets’ conduct was deliberate in the sense of being part of its standard business practices but not intentional. Senior management were involved by a failure to implement adequate processes. Spreets also upgraded its compliance program after the ACCC investigation. The conduct, however, occurred only over 10 months. Further, a number of customers sought, and were granted, a refund despite the wording of the vouchers.

58    The final case relied upon by the parties was Australian Competition and Consumer Commission v Scoopon Pty Ltd [2014] FCA 820. In that case, Scoopon was another company which also offered vouchers for merchants’ goods or services. It admitted to seven contraventions of s 29(1)(m) of the Australian Consumer Law which included making misrepresentations to customers that they had no contractual right to a refund if the merchant was unable to honour the voucher in its last two weeks of validity. A $90,000 penalty was imposed for each of the seven contraventions. Scoopon was a large company with assets of $99 million and liabilities of $18 million. In the relevant financial years, Scoopon made profits of around $6 million and $4 million after tax. Scoopon acted deliberately, but with no intention to contravene the Australian Consumer Law. Scoopon implemented a compliance program and made admissions after the ACCC commenced its investigation. Scoopon’s senior management was not involved in the contraventions and the loss or damage suffered by specific consumers as a result of Scoopon’s misrepresentations was small, as the cost of the vouchers was minimal.

Conclusion on penalty

59    Chrisco properly accepts that its contravention of s 29(1)(m) by its course of conduct was serious. It occurred over several years. Chrisco is also a very large company even though its total profit is a small percentage of its turnover. In light of all the matters discussed above, including the underlying need for specific and general deterrence embodied in those factors as well as the matters which mitigate the penalty, I consider that the appropriate penalty is $200,000.

The order as to costs

60    The ACCC seeks an order that Chrisco pay one-third of its costs of this proceeding with the proviso that Chrisco may set off in full the benefit of Order 2 of the orders I made on 13 October 2015. That order was to the effect that the ACCC pay Chrisco’s costs of the amendments occasioned by the fourth and fifth amended statements of claim, including the costs of the directions hearing on 12 October 2015.

61    In contrast, Chrisco seeks an order that the ACCC pay one-quarter of Chrisco’s costs of the proceeding. Chrisco also submitted that the Court might consider making individual orders as to the costs of particular issues.

62    Although I accept that there can sometimes be real advantages in making costs orders by reference to issues rather than outcome, I do not consider that it would be useful in this case to attempt to make separate awards of costs for different issues. Although, in one sense, the issues were discrete with different consequences, there was a common substratum of facts underlying all the issues involving the nature of Chrisco’s business and its contractual arrangements with consumers. It would be an extremely difficult, and possibly arbitrary, exercise to attempt to apportion the costs of particular pleadings. A costs award which differentiated each issue would also be further complicated by another separate award in relation to this penalty hearing. An attempt to split the costs by reference to issues would also unreasonably complicate any taxation in a case where the costs are not vast by comparison with other matters in this Court.

63    An overall assessment of costs in relation to the liability hearing cannot simply proceed upon the basis that the ACCC was successful in relation to two of the three issues. Even accepting a degree of overlap, the significance, the time, and the expense involved in relation to each issue needs to be weighed, in very broad terms, in an overall assessment. For instance, although the unfair term (s 24) issue was extremely significant and vigorously contested, the issue concerning breach of s 29(1)(m) upon which the ACCC was successful in relation to liability ultimately required no evidence and did not ultimately occupy substantial time in written or oral submissions. Nevertheless, I take into account that the s 29(1)(m) issue, and preparation in relation to it, was significant particularly as it was the subject of potential pecuniary penalties.

64    My overall assessment is that the time and effort at trial, and in preparation, in relation to the unfair term issues (s 24) and the s 29(1)(m) issue (in combination) outweighed the time and effort involved in relation to the s 97(3) issue upon which Chrisco was successful. This takes into account the correspondence between the parties, the amendments, and the particulars in relation to the s 97(3) issues on which Chrisco was successful. It also takes into account the evidence from witnesses which was prepared by the ACCC but not read at trial, although the significance of that matter is reduced because the witnesses were not called after the parties prepared a statement of agreed facts. That statement of agreed facts had removed some matters in controversy and resulted in a shorter and more clearly defined trial.

65    Although my overall impression is that the ACCC was successful in relation to issues which occupied more time and were, in combination, of heightened significance, the difference is small. The proportion of the ACCC’s costs which should be paid by Chrisco should be small. If a separate award of costs were to be made in relation to the liability issues, it would be appropriate that Chrisco pay a small portion (such as one sixth or one seventh) of the ACCC’s costs in relation to the liability hearing.

66    The costs order described above would be subject to two matters. The first is the order that I made on 13 October 2015 which was that the ACCC was to pay Chrisco’s costs of the amendments to the fourth and fifth statement of claim including the costs of the directions hearing on 12 October 2015. Chrisco would remain entitled to set off those costs against the costs in favour of the ACCC. The second matter to which the costs order above would be subject is any order for costs of this penalty hearing (albeit which was considerably smaller than the liability hearing). If a separate award of costs were made in relation to this penalty hearing then my provisional view (subject to submissions) is that the ACCC should pay a substantial proportion of Chrisco’s costs of this penalty hearing. My provisional view is that this is so even though the penalty hearing has arisen as a consequence of Chrisco’s contraventions because my conclusions came close to accepting many of Chrisco’s submissions on disputed points.

67    When these two matters are taken into account, and in circumstances in which a taxation of costs is not an exercise in precision, it may be that an appropriate order would be that there be no payment of costs rather than embark upon the expense of preparing for, and engaging in, a taxation of costs of (i) the liability hearing, (ii) the costs of amendments to the fourth and fifth statement of claim, and (iii) the costs of the penalty hearing. Such a taxation might either lead to the same result (no order as to costs) or might cost more in legal expense than any award of costs. However, in circumstances in which the parties have not had the opportunity of making submissions about the costs of this penalty hearing I will adjourn briefly to allow them the opportunity to consider these matters and to make considered submissions, if necessary.

Conclusion

68    Orders should be made in the following terms:

(1)    declaring the contraventions that were committed by Chrisco, but the parties should have several days to formulate the terms of the declarations in light of these reasons;

(2)    imposing a pecuniary penalty of $200,000 on Chrisco for its contravention of s 29(1)(m) of the Australian Consumer Law; and

(3)    in relation to costs, after the parties have conferred in light of these reasons.

69    The matter will be relisted for 2.15pm on Friday 4 March 2016 in the event that the remaining orders cannot be agreed between the parties in light of these reasons and, if appropriately formulated, made by consent in chambers.

Associate:    

Dated:    1 March 2016