FEDERAL COURT OF AUSTRALIA

Director of Consumer Affairs Victoria v Hocking Stuart (Richmond) Pty Ltd [2016] FCA 1184

ORDERS

THE COURT ORDERS THAT:

1.    The parties confer and submit agreed orders or, if in disagreement, short written submissions and proposed orders of each party within 14 days.

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

REASONS FOR JUDGMENT

MIDDLETON J:

INTRODUCTION

1    The respondent in this proceeding (Hocking Stuart (Richmond) Pty Ltd) (‘Hocking Stuart Richmond’) is a licensed estate agent under the Estate Agents Act 1980 (Vic) (‘Estate Agents Act’), and carries on a small franchise business as a real estate agent in Victoria, having entered into a franchise agreement with Hocking Stuart Pty Ltd. The director of Hocking Stuart Richmond, who had effective control of the franchise business for the purposes of the Estate Agents Act, was Mr Peter Perrignon. Mr Perrignon was also part of the sales staff team of Hocking Stuart Richmond and himself a licensed estate agent.

2    The Director of Consumer Affairs Victoria (‘Consumer Affairs’) alleges against Hocking Stuart Richmond misleading or deceptive conduct and conduct involving making false and misleading representations, in connection with the supply of services regarding the sale of 11 residential properties in Richmond and Kew in the State of Victoria during 2014 and 2015.

3    Consumer Affairs asserts that in relation to each property, Hocking Stuart Richmond underquoted the price range in the marketing and advertising of the property, by publishing advertisements online on a website known as www.realestate.com.au and in a publication known as the Redbook. The Redbook was published by Hocking Stuart Pty Ltd and provided on a weekly basis to each of its franchisees. The Redbook listed each property for sale or auction, and was distributed by each franchisee (including Hocking Stuart Richmond) to the public at large.

4    Underquoting can arise in many forms including where the estate agent:

(1)    advertises or advises a prospective buyer that a property is available for sale at an amount that is less than the vendor’s asking price or auction reserve price;

(2)    advertises or advises a prospective buyer of a price that is less than the salesperson’s current estimate of the likely selling price;

(3)    advertises or continues to advertise a price that is less than a genuine offer or expression of interest by a prospective buyer that the vendor refused; and

(4)    gives an inaccurate appraisal of the current market price of a property.

5    Hocking Stuart Richmond has now admitted all the allegations made by Consumer Affairs, and an Agreed Statement of Facts has been filed with the Court.

6    Hocking Stuart Richmond also has agreed to certain proposed orders which include declarations, a non-punitive publication order, an adverse publicity order, a compliance program and the payment of the costs of the application. Consumer Affairs has indicated that it will accept a contribution towards its costs between the range of $80,000 to $90,000. Consumer Affairs does not seek injunctive relief.

7    In accordance with established authority, it is appropriate to make the orders proposed by Consumer Affairs and agreed to by Hocking Stuart Richmond.

8    I only need to make one observation on this aspect of the orders, and that relates to the declaratory relief. I am satisfied the terms of the declarations proposed are appropriate and reflect the misconduct alleged by Consumer Affairs. I am also satisfied that there is an important utility in this case of making the declarations in the terms proposed. As the authorities recognise, this utility has included:

(1)    giving formal effect to the Court’s conclusion and showing that particular conduct is in breach of a statutory provision;

(2)    being an appropriate vehicle to record the Court’s disapproval of the contravening conduct;

(3)    vindicating the regulator’s claim that a respondent has contravened the law and being of some assistance to the regulator in the carrying out of the duties conferred on it by law;

(4)    assisting to inform consumers of the dangers arising from a respondent’s contravening conduct; and

(5)    being of assistance in deterring persons from contravening the relevant legislation.

9    The Agreed Statement of Facts and the evidence before the Court provide a proper basis for the declaratory relief, which I have accepted as providing a coherent and inherently credible narrative of the relevant facts.

10    The only disputed issue between the parties is whether a pecuniary penalty should be imposed, and if so, the amount of that penalty.

PECUNIARY PENALTY

11    I now turn to the question of the appropriate pecuniary penalty. I propose to order that the aggregate penalty be $330,000.

Introduction

Applicable principles – pecuniary penalties – legislative basis

12    The Fair Trading Act 1999 (Vic) was amended from 1 July 2012 to be renamed, restructured, and consolidated as the Australian Consumer Law and Fair Trading Act 2012 (Vic) (the ‘Fair Trading Act’).

13    Section 7 of the Fair Trading Act provides that the Australian Consumer Law (‘ACL’) text consists of sch 2 to the Competition and Consumer Act 2010 (Cth) and the regulations made under s 139G of that Act.

14    Section 8 of the Fair Trading Act applies the ACL text, as in force from time to time as a law of Victoria, referred to as the ACL (Vic). As so applying, the ACL text is a part of the Fair Trading Act.

15    By s 10 of the Fair Trading Act, in the ACL (Vic), “regulator” means the Director of Consumer Affairs.

16    Section 224(1) of the ACL (Vic) empowers the Court to impose a pecuniary penalty, where the Court is satisfied that a person has contravened any of the specified provisions or been involved in a contravention of such a provision. Section 224 of the ACL (Vic) is “picked up” and available to the Federal Court by virtue of s 79 of the Judiciary Act 1903 (Cth): Austral Pacific Group Ltd (in liq) v Airservices Australia (2000) 203 CLR 136 at [11]-[13] (per Gleeson CJ, Gummow and Hayne JJ).

17    Section 224(1) of the ACL (Vic) empowers the Court to order a person to pay a pecuniary penalty:

(1)    to the “Commonwealth, State or Territory, as the case may be”; and

(2)    “in respect of each act or omission by the person to which [the] section applies”.

18    By s 228 of the ACL (Vic), Consumer Affairs is empowered to commence a proceeding for the recovery, on behalf of the State of Victoria, of a pecuniary penalty provided for in s 224.

19    Section 21 of the Fair Trading Act ensures that there is no doubling up of liabilities for a pecuniary penalty. If a person has been ordered to pay a pecuniary penalty under the application law of another jurisdiction, the person is not liable to a pecuniary penalty under the ACL (Vic) in respect of the same conduct.

20    Section 134 of the Fair Trading Act establishes a trust account to be known as the Victorian Consumer Law Fund. According to s 34(2)(a), any pecuniary penalty ordered by a court under s 224 of the ACL (Vic) to be paid to the State of Victoria must be paid into the Victorian Consumer Law Fund.

21    Whilst s 224(1) of the ACL (Vic) empowers the Court to impose a pecuniary penalty “in respect of each act or omission by the person to which [the] section applies”, s 224(4) of the ACL (Vic) provides that if conduct constitutes a contravention of two or more provisions a person is not liable to more than one pecuniary penalty in respect of the same conduct.

22    In this proceeding, although the admitted conduct contravenes both s 18 and s 30(1)(c) of the ACL (Vic), no penalty can be imposed for a contravention of s 18 and the imposition of penalties is only to be imposed in respect of the contraventions of s 30(1)(c).

23    There is no real dispute that for the purposes of the imposition of a pecuniary penalty, the conduct in this case can be grouped as 11 separate contraventions (that is, one contravention in respect of each property).

24    Section 224(3) of the ACL (Vic) specifies that, for a body corporate, the pecuniary penalty for each contravention of a provision of Part 3-1 is not to exceed $1.1 million. Accordingly, for Hocking Stuart Richmond’s wrongful conduct in respect of 11 different properties, the notional maximum pecuniary penalty is $12.1 million.

Object of imposition of a pecuniary penalty

25    The principal object of an order for the payment of a civil pecuniary penalty under s 224 of the ACL (Vic) is deterrence, both specific and general: Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 at 52,152 (per French J), quoted with approval in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 90 ALJR 113 at [55] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ) (‘Fair Work Building Industry Inspectorate’).

26    The importance of deterrence is not to be understated. In NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, Burchett and Kiefel JJ (with whom Carr J agreed) said at 294-5:

The Court should not leave room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay, and detection lead merely to a compliance program for the future.

27    The legislated maximum penalties are important in understanding the seriousness with which Parliament views the proscribed conduct, and undoubtedly this is an important guiding principle in considering deterrence. Care must be taken in not focusing inappropriately on the detriment to a respondent.

28    The Full Court in Australian Competition and Consumer Commission v High Adventure Pty Ltd [2006] ATPR 42-091 at 44,564 (per Heerey, Finkelstein and Allsop JJ) observed that by focusing on the detriment to the respondents, the trial judge ignored both the seriousness of the contravention as well as the need to fix upon an appropriate penalty by reference to the need to deter future contraventions. The Full Court went on to say:

Moreover, as deterrence (especially general deterrence) is the primary purpose lying behind the penalty regime, there inevitably will be cases where the penalty that must be imposed will be higher, perhaps even considerably higher, than the penalty that would otherwise be imposed on a particular offender if one were to have regard only to the circumstances of that offender. In some cases the penalty may be so high that the offender will become insolvent. That possibility must not prevent the Court from doing its duty for otherwise the important object of general deterrence will be undermined.

29    Nevertheless, when considering the appropriate amount of a penalty, the size and financial circumstances of the contravener are a relevant factor. Whilst in the case of civil penalties there are no equivalent statutory provisions as found in s 16C(1) of the Crimes Act 1914 (Cth) and s 52(1) of the Sentencing Act 1991 (Vic), it would be incorrect to conclude that the size of the contravener (including the extent of their financial resources) is not a relevant factor in assessing the amount of a pecuniary penalty. If it is a relevant factor to take into account with a well-resourced contravener (as it clearly is on the authorities: see, eg, Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540 at [89]-[92] (‘Coles Supermarkets’)), then by the same logic it is a relevant factor to take into account when a contravener is without financial resources to pay a contemplated penalty.

30    I accept that care must be taken in transplanting principles from criminal law directly to the area of civil penalties. However, as in criminal sentencing, sanctions in the form of fines or penalties should strive to impose equal effects on offenders with differing resources. Further, the imposition of a fine or penalty that is beyond the ability of a contravener to pay does not necessarily promote general deterrence.

31    As Kirby P has remarked in Smith v The Queen (1991) 25 NSWLR 1 at 21:

The imposition of a fine which is totally beyond the means of the person fined and which the Court, the prisoner and the community realise has no prospect whatever of being paid, does nothing for the deterrence of others. Such a fine is seen by the community for what it is: a symbolic act of the law without intended substance which neither coerces the particular prisoner nor convinces the community.

32    Therefore, the amount of penalty should, in general, be set having regard to an amount the contravener can realistically be expected to discharge and should not be unnecessarily oppressive. This is not determinative, but is a factor. Of course, if the contravener has organised his or her affairs to render themselves beyond sanction, different considerations will apply.

33    Nevertheless, a penalty should not be set so low that it does not meet the goal of general deterrence, even if that low penalty acts in the circumstances as a specific deterrent having regard to the individual financial circumstances of the contravener.

34    The determination and imposition of a pecuniary penalty in civil penalty cases requires a court to impose a penalty that is proportionate to the gravity of the contravening conduct. There is no single prescribed method. Courts are often reminded that the methodology “is not cast in stone” and the fixing of the quantum of a penalty “is not an exact science”: see, eg, Construction, Forestry, Mining and Energy Union v Cahill (2010) 194 IR 461 at [47] (per Middleton and Gordon JJ); Fair Work Building Industry Inspectorate at [28] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ).

35    Undoubtedly, the recent decision of the High Court in Fair Work Building Industry Inspectorate demonstrates that the determination and imposition of a pecuniary penalty in civil penalty proceedings is a different exercise from the exercise of the sentencing discretion in criminal proceedings.

36    After a review of the authorities, the majority of the Court stated at [24] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ):

In essence, civil penalty provisions are included as part of a statutory regime involving a specialist industry or activity regulator or a department or Minister of State of the Commonwealth (the regulator) with the statutory function of securing compliance with provisions of the regime that have the statutory purpose of protecting or advancing particular aspects of the public interest. Typically, the legislation provides for a range of enforcement mechanisms, including injunctions, compensation orders, disqualification orders and civil penalties, with or, as in the BCII Act, without criminal offences. That necessitates the regulator choosing the enforcement mechanism or mechanisms which the regulator considers to be most conducive to securing compliance with the regulatory regime. In turn, that requires the regulator to balance the competing considerations of compensation, prevention and deterrence. And, finally, it requires the regulator, having made those choices, to pursue the chosen option or options as a civil litigant in civil proceedings.

37    The majority continued at [55]-[62]:

55    No less importantly, whereas criminal penalties import notions of retribution and rehabilitation, the purpose of a civil penalty, as French J explained in Trade Practices Commission v CSR Ltd, is primarily if not wholly protective in promoting the public interest in compliance:

Punishment for breaches of the criminal law traditionally involves three elements: deterrence, both general and individual, retribution and rehabilitation. Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act]. … The principal, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act.

56    Moreover, in criminal proceedings the imposition of punishment is a uniquely judicial exercise of intuitive or instinctive synthesis of the sentencing facts as found by the sentencing judge (consistently with the jury’s verdict) and the judge’s relative weighting and application of relevant sentencing considerations in accordance with established sentencing principle. There is no room in an exercise of that nature for the judge to take account of the Crown’s opinion as to an appropriate length of sentence. For the purposes of imposing a criminal sentence, the question is what the judge considers to be the appropriate sentence. Nor can there be any question of a sentencing judge being persuaded by the Crown’s opinion as to the range of sentences open to be imposed. As was observed in Barbaro, apart from the conceptually indeterminate boundaries of the available range of sentences and systemic problems which would likely result from a criminal sentencing judge being seen to be influenced by the Crown’s opinion as to the available range of sentences, the Crown’s opinion would in all probability be informed by an assessment of the facts and relative weighting of pertinent sentencing considerations different from the judge’s assessment. That is why it was held in Barbaro that it is inconsistent with the nature of criminal sentencing proceedings for a sentencing judge to receive a submission from the Crown as to the appropriate sentence or even as to the available range of sentences.

57    In contrast, in civil proceedings there is generally very considerable scope for the parties to agree on the facts and upon consequences. There is also very considerable scope for them to agree upon the appropriate remedy and for the court to be persuaded that it is an appropriate remedy. Accordingly, settlements of civil proceedings are commonplace and orders by consent for the payment of damages and other relief are unremarkable. So are court-approved compromises of proceedings on behalf of infants and persons otherwise lacking capacity, court-approved custody and property settlements, court-approved compromises in group proceedings and court-approved schemes of arrangement. More generally, it is entirely consistent with the nature of civil proceedings for a court to make orders by consent and to approve a compromise of proceedings on terms proposed by the parties, provided the court is persuaded that what is proposed is appropriate.

58    Possibly, there are exceptions to the general rule. There is, however, no reason in principle or practice why civil penalty proceedings should be treated as an exception. Subject to the court being sufficiently persuaded of the accuracy of the parties’ agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and, for the reasons identified in Allied Mills, highly desirable in practice for the court to accept the parties’ proposal and therefore impose the proposed penalty. To do so is no different in principle or practice from approving an infant’s compromise, a custody or property compromise, a group proceeding settlement or a scheme of arrangement.

59    It is true that there is a public interest in the imposition of civil penalties as opposed to the purely private interests which are in issue in many civil proceedings. But civil penalty proceedings are by no means the only civil proceedings in which the public interest is involved. Custody disputes involve the public interest. So do group proceedings and schemes of arrangement. So also do taxation, customs and social security appeals, and detention orders; and examples can be multiplied. Yet in each of those cases, it is wholly unexceptionable for a court to accept an agreed submission as to the nature and quantum of relief, provided the court is persuaded that it is an appropriate remedy. Once it is understood that civil penalties are not retributive, but like most other civil remedies essentially deterrent or compensatory and therefore protective, there is nothing odd or exceptionable about a court approving an agreed settlement of a civil proceeding which involves the public interest; provided of course that the court is persuaded that the settlement is appropriate …

60    It is also true, as the Full Court observed, that the regulator in a civil penalty proceeding is not disinterested. As has been seen, under the BCII Act, the Director’s statutory functions include monitoring and promoting appropriate standards of conduct by building industry participants generally. It is, therefore, naturally to be assumed that the Director will fashion penalty submissions with an overall view to achieving that objective and thus perhaps, if not probably, with one eye to considerations beyond the case in hand. That consideration, however, supports, rather than detracts from, the propriety of a court receiving joint (or separate) submissions as to facts and penalty and imposing the proposed penalty if persuaded that it is appropriate. As was emphasised in NW Frozen Foods, it is the function of the relevant regulator to regulate the industry in order to achieve compliance and, accordingly, it is to be expected that the regulator will be in a position to offer informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance.

61    That being said, the submissions of a regulator will be considered on their merits in the same way as the submissions of a respondent and subject to being supported by findings of fact based upon evidence, agreement or concession. As was also said in NW Frozen Foods: “Courts have learned to be suspicious of claims of secret knowledge; and justice should be done in the light, with the relevant facts exposed to view. It is the Court which bears the responsibility.” But, subject to that imperative, there is no indication in the purpose or text of the BCII Act that the court should be less willing to receive a submission as to the terms and quantum of penalty in a civil penalty proceeding than to receive a submission as to the terms and quantum of relief put up for approval by the court in any other kind of civil proceeding.

62    The BCII Act expressly provides that the Director’s functions include intervening in proceedings and making submissions in accordance with the Act and it does not impose any express limitation or restriction on the evidence, materials or submissions which may be received from the Director. By providing for civil penalty proceedings, it implicitly assumes the application of the general practice and procedure regarding civil proceedings and eschews the application of criminal practice and procedure.

38    The following may be a summary of certain propositions deriving from that High Court decision:

(1)    civil penalty proceedings are civil proceedings in which the issues and scope of possible relief are largely framed and limited as the parties may choose;

(2)    fixing the quantum of a civil penalty is not an exact science – there is a permissible range in which “courts have acknowledged that a particular figure cannot necessarily be said to be more appropriate than another”: Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd [2004] ATPR 41-993 at 48,626 (per Branson, Sackville and Gyles JJ), quoted with approval in Fair Work Building Industry Inspectorate at [47] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ);

(3)    civil penalties, like most other civil remedies, are “essentially deterrent or compensatory and therefore protective” in nature: Fair Work Building Industry Inspectorate at [59] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ);

(4)    the regulator in a civil penalty proceeding is not disinterested. It is naturally to be assumed that a regulator will fashion penalty submissions with an overall view to achieving statutory objectives and perhaps with some considerations beyond the case in hand; and

(5)    a regulator making submissions as to the terms and quantum of a civil penalty does not lead to erroneous views about the importance of the regulator’s opinion in the setting of appropriate penalties. It is consistent with the purposes of civil penalty regimes and therefore with the public interest, that the regulator takes an active role in attempting to achieve the penalty which the regulator considers to be appropriate. Accordingly, the regulator’s submissions as to the terms and quantum of a civil penalty are a relevant consideration.

39    Consumer Affairs submitted that care should be taken in utilising the approach taken by courts in the exercise of the sentencing discretion in criminal proceedings and continuing to apply that approach for determining and imposing pecuniary penalties in civil penalty proceedings.

40    Undoubtedly, the reasoning adopted by the High Court (at paragraph [56] compared with paragraphs [57], [60]-[62] as set out above) explains why a prosecutor’s view or opinion is not relevant, appropriate or permissible in a criminal sentencing context whereas a regulator’s view on the terms or quantum of a civil pecuniary penalty (and other relief) is appropriate for a court to receive and act upon in a civil penalty case.

41    Consumer Affairs submitted that the sharp distinctions drawn by the High Court in principle and practice, between the criminal sentencing discretion and determination or resolution of civil penalty proceedings, suggests that while the resolution of civil penalty proceedings still requires the exercise of a broad discretion, the task is not met by the processes involved in “instinctive synthesis”.

42    I do not accept this submission. The process of determining the appropriate amount of civil penalty still involves an “instinctive synthesis”. However, the relevant considerations to be taken into account between the imposing of fines in a criminal context and the imposing of a civil penalty are different.

43    An “instinctive synthesis” approach involves taking into account all of the relevant factors and arriving at a single result which takes account of them all. As the High Court said in Wong v The Queen (2001) 207 CLR 584 at [75] (per Gaudron, Gummow and Hayne JJ):

[T]he task of the sentencer is to take account of all of the relevant factors and to arrive at a single result which takes due account of them all. That is what is meant by saying that the task is to arrive at an “instinctive synthesis”. This expression is used, not as might be supposed, to cloak the task of the sentencer in some mystery, but to make plain that the sentencer is called on to reach a single sentence which, in the case of an offence like the one now under discussion, balances many different and conflicting features.

44    This approach is relevant to setting the amount of penalty, and still allows for consideration to be given to the views of the regulator, particularly on the aspects of the deterrent effect of a proposed penalty in a given market or environment. In this proceeding, the regulator’s view (supported as it was by evidence) as to the real concern in the marketplace about underquoting property values to potential purchasers is of particular significance.

45    There are many factors to consider in this context of fixing a penalty in civil proceedings. In Australian Competition and Consumer Commission v AGL Sales Pty Ltd [2013] ATPR 42-449, the Court summarised a (non-exhaustive) list of considerations to be taken into account:

The ACL requires me to consider the nature and extent of the breaches of the law and any loss or damage suffered as a result of the breach, the circumstances of the breaches of the law, and whether there has been any similar previous conduct: s 224(2).

Furthermore, the case law concerning s 76E of the TPA which preceded s 224 of the ACL established a number of further factors which should be considered (relevant to this proceeding):

(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 a lower level;

(4)    Whether the contravener has a corporate culture conducive to compliance with the legislation as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention;

(5)    Whether the contravener has shown a disposition to cooperate with the authorities responsible for the enforcement of the applicable legislation in relation to the contravention;

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

(7)    The financial position of the contravener; and

(8)    Whether the contravening conduct was systematic, deliberate or covert.

(See eg TPC v CSR Ltd (1991) ATPR 41-076 per French J at 52, 152-153, NW Frozen Foods at 292-4 and J McPhee & Son (Aust) Pty Ltd v ACCC (2000) 172 ALR 532, [150] ff (Black CJ, Goldberg and Lee JJ))

46    These factors do not necessarily exhaust potentially relevant considerations nor do they regiment the discretionary sentencing function: Coles Supermarkets at [9] (per Allsop CJ). The significance of each factor to the appropriate penalty depends on the facts of the case. The Court fixes a penalty that is proportionate to the gravity of the contravening conduct in all the circumstances of the case.

47    In determining the appropriate penalty to be applied in a particular case, the Court must also have regard to the “course of conduct principle” and to the “totality principle”. The “course of conduct principle” recognises that the same conduct should not be punished twice where there is an interrelationship between the legal and factual elements of two or more contraventions. The “totality principle” requires the Court to consider whether the total or aggregate penalty is “just and appropriate” and not out of proportion to the entire contravening conduct involved: see, eg, Registrar of Aboriginal and Torres Strait Islander Corporations v Matcham (No 2) (2014) 97 ACSR 412 at [128], [199]-[201], [274] and [292]-[293] (per Jacobson J).

Consideration of imposition of penalty

Preliminary observations

48    I make two preliminary observations. Whilst the respondent is a corporation, in reality Hocking Stuart Richmond is a small local real estate agency business run by Mr Perrignon. If not a corporate entity, the maximum penalty for an individual would be $220,000 for each contravention. Whilst the position as a matter of law is to regard the respondent as a corporation, as I have indicated, the Court should be mindful of the nature, size and financial resources of the contravener: see, eg, Australian Competition and Consumer Commission v SMS Global Pty Ltd [2011] ATPR 42-364 at 44,032 (per Murphy J).

49    Eleven contraventions have occurred. This strictly means the maximum penalty is $12.1 million. This is well beyond what any court would impose in this case.

50    Whilst the contravention occurred by reference to each sale of 11 properties, there was in a very general sense one advertising approach to effectively lure potential purchasers to a potential bargain. Nevertheless, it would be wrong to treat the maximum penalty as only $1.1 million.

51    No member of the public (being apprised of the relevant facts) would consider Hocking Stuart Richmond to be a large corporation, well resourced, and able to endure the imposition of a large penalty. Most members of the public, regarding the conduct of Hocking Stuart Richmond as serious, would view a penalty in the range of $300,000 to $350,000 as significant.

52    The second observation is this: I accept that, for the various reasons submitted by Hocking Stuart Richmond, the goal of specific deterrence is essentially achieved by the making of the consent orders, by the adverse publicity, and the flow-on effect of these orders and publicity on the business of Hocking Stuart Richmond. However, as the above observations stress, general deterrence is also of significance.

The position of the parties

53    Hocking Stuart Richmond submitted that the Court should not impose a pecuniary penalty as the elements of general and specific deterrence have been clearly met by the declarations, non-punitive publication orders, the adverse publicity orders, the extensive compliance program and the orders which require Hocking Stuart Richmond to pay Consumer Affairs’ costs of the proceeding.

54    It was submitted by Hocking Stuart Richmond that the Court should consider the following matters which are relevant to the imposition of, or the amount of, any pecuniary penalty:

(1)    Hocking Stuart Richmond is a small business, and any pecuniary penalty will dramatically affect its financial position;

(2)    The adverse publicity, both nationally and locally, which has been generated as a result of these proceedings, has and will continue to impact on the financial viability of Hocking Stuart Richmond;

(3)    The reporting of this decision will inevitably trigger another bout of negative publicity which places Hocking Stuart Richmond in a precarious position in the marketplace;

(4)    The publication of the information as required by the non-punitive publication order will have a punitive effect on Hocking Stuart Richmond in the marketplace and an impact on consumers, which will inevitably be another indirect pecuniary penalty on Hocking Stuart Richmond;

(5)    The orders which are consented to will assist Consumer Affairs in achieving a substantial milestone in its attempts to stamp out the practice of underquoting;

(6)    The adoption of the compliance program will act as a persuasive educative process which will ensure that Hocking Stuart Richmond will comply with all of its legal obligations;

(7)    Hocking Stuart Richmond has consented to the payment of Consumer Affairs’ costs of the proceeding, which in itself is a pecuniary penalty; and

(8)    The admission of all facts has saved the Court the need to hear and determine liability.

55    On the other hand, Consumer Affairs sought a penalty in the region of $750,000 which involves taking into account money obtained in connection with the contravening conduct (said by Consumer Affairs to be about $200,000).

56    I now turn to consider the relevant factors, in light of the above observations.

Nature, extent and deliberateness of the contravening conduct

57    The contravening conduct was serious. Price is an essential piece of information about the property being offered for sale for prospective buyers. Buyers should be able to rely on correct information to make an informed decision. Failure to provide the correct range of price by engaging in underquoting is misleading. The conduct involved the creation of an enticing (but illusory and fictitious) marketing web for the sale of 11 different residential homes over an 18 month period from approximately 1 January 2014 to 30 June 2015.

58    The price representations made by Hocking Stuart Richmond in respect of each of the properties were intended to and apt to create a particular mental impression in the representee, namely the “illusion of a bargain”. Hocking Stuart Richmond’s business stood to benefit from creating such an impression, although the exact calculation of such a benefit in monetary terms is difficult.

59    Consumer Affairs did not contend that Hocking Stuart Richmond acted with an intention to mislead or deceive. However, the manipulation of the “agent’s estimate of selling price” for the properties did demonstrate the lengths that Hocking Stuart Richmond went to in creating its enticing (but illusory and misleading) marketing web. There was a conscious decision to engage in the conduct.

60    In view of the “illusion of a bargain” created by Hocking Stuart Richmond in respect of each property, many consumers seeking to buy a home were likely to be significantly inconvenienced, disappointed and deceived. Some may have missed the opportunity to buy elsewhere, being lured to a bargain that did not, and was never going to, eventuate. Similarly, the vendors of other properties who were not marketing their properties in the same way may have missed out on getting potential purchasers into their properties. The real estate agents of such other properties not marketing their client’s properties in the same way were also the subject of unfair and improper competition in not getting potential buyers into their properties.

Circumstances in which contravening conduct took place

61    The context in which the contraventions took place was in assisting vendors to sell their homes by auction. It involved the conduct referred to above in respect of misleading potential purchasers. There is evidence before the Court regarding how some vendors were dissatisfied with the conduct of representatives of Hocking Stuart Richmond, although some in the context of disappointment with the final sale price achieved. This aspect of Hocking Stuart Richmond’s conduct is not alleged to be wrongful in this proceeding.

Prior contraventions or similar conduct

62    Hocking Stuart Richmond has not been found to have engaged in prior contraventions or similar conduct.

63    I will not make any assumption that the conduct is isolated or not, although it did occur over a relatively lengthy period. Hocking Stuart Richmond has provided no evidence to the Court to explain how or why the contravening conduct occurred.

Size and financial position of the contravener

64    I have already indicated my views as to the size and financial position of Hocking Stuart Richmond and the relevance of this fact. There is some evidence that the current financial position of Hocking Stuart Richmond is precarious, and the company is making a loss as it has (at least according to its tax returns) over many years.

Any profit made from the contravening conduct

65    It is difficult to determine on the material the exact “profit” made in connection with the sale of the properties. Whilst marketing costs (in the nature of disbursements) were some $58,846 and commissions earned were some $148,044, various expenses would need to be taken into account in assessing profit. However, I consider that I should at least consider as an indicator of relevant penalty the extent of the commissions earned in relation to the 11 properties. Advertising costs were disbursements, and I do not regard them as being an amount received to the benefit of Hocking Stuart Richmond.

Level of management involved in the conduct

66    The contravening conduct involved the owner and director of Hocking Stuart Richmond, Mr Perrignon, as well as other senior officers.

Culture of compliance

67    Hocking Stuart Richmond has produced no evidence of any culture of compliance with or understanding of the obligations imposed by the ACL or ACL (Vic) or their prior legislative versions.

68    Hocking Stuart Richmond has now consented to the Court imposing a compliance program as part of the resolution of this proceeding.

Cooperation with regulator’s investigation and approach to defending the proceeding

69    Hocking Stuart Richmond’s officers were examined under oath in a compulsory examination as part of Consumer Affairs’ investigation. Each officer cooperated to this extent.

70    Hocking Stuart Richmond should also be given credit for admitting liability and saving the time and resources of the Court and Consumer Affairs. Whilst the trial may not have been as extensive as suggested by Hocking Stuart Richmond, it was nonetheless a trial that could have potentially involved the resources of the Court in hearing and determining extensive evidence.

The views of the regulator

71    Consumer Affairs submitted that the admitted contraventions were serious, and residential property is the most sought after and expensive purchase that consumers are likely to make during their lifetime. It submitted that creating illusory and fictitious price marketing webs in respect of sales of homes is conduct that should not be treated lightly by the Court. I have accepted this characterisation of the seriousness of the admitted contraventions, as I have indicated above.

Comparable cases

72    There are no comparable cases in terms of the quantum of penalty that can assist the Court. While cases of more serious contravening conduct can be envisaged, I do not regard the contravening conduct as minor or trivial. In a somewhat similar case, in Australian Competition and Consumer Commission v Garry Peer & Associates Pty Ltd (2005) 142 FCR 506, no pecuniary penalty was sought nor was a pecuniary penalty available.

The adverse publicity

73    This proceeding has already been reported on national and state television programmes, in newspapers circulated in Victoria, on online real estate services and on specialist real estate “blogs”. This publicity will continue. Undoubtedly the publicity has been and will be adverse to the business of Hocking Stuart Richmond.

74    There is no suggestion that the adverse publicity can be characterised as being unfair, incorrect or misleading publicity initiated by Consumer Affairs.

75    Natalie Gay Allan, who is the Head of Franchise Operations of Hocking Stuart Pty Ltd, the franchisor, gave evidence that:

I understand that Hocking Stuart (Richmond) is subject to a hearing on 15 August 2016 to determine penalties. In my view, the Hocking Stuart Richmond Franchisees and their employees have already been significantly penalised as a result of ongoing negative publicity in both the media and in the market place whereby competitors have capitalised on an issues [sic] causing the Hocking Stuart Richmond business a decrease in sales revenue, considerable loss of staff during this period of uncertainty in addition to considerable legal costs.

76    Mr Perrignon also gave evidence about the impact of the investigation, the proceedings and the publicity on Hocking Stuart Richmond, its staff and himself.

77    I will accept that the loss of sales and loss of profits for a respondent caused by publicity are matters that can be taken into account in the assessment of specific and general deterrence. However, the causal connection between the publicity regarding the contraventions and any decline in sales must be properly established by probative evidence.

78    The evidence in this proceeding does not establish in all respects sufficient causal connection between the contraventions and any decline in sales or profit. The evidence before me is general in nature, and although there is a general decline in sales, I cannot attribute this on the balance of probabilities to the adverse publicity.

79    Ultimately, although I am not satisfied that the evidence supports any causal link between a decline in sales or profit and any adverse publicity, I am satisfied that there has been a personal impact on the staff and Mr Perrignon as a result of the investigations and this proceeding. I accept the evidence that, as a result of the publicity, competitors of Hocking Stuart Richmond have been able to gain some advantage in the marketplace over Hocking Stuart Richmond. However, the effect of this behaviour on the turnover of Hocking Stuart Richmond is unable to be quantified in monetary or profit terms.

80    Nevertheless, I accept that it is extremely unlikely Hocking Stuart Richmond or Mr Perrignon will be involved in underquoting again. In my view, in considering the element of specific deterrence, the monetary penalty does not need to be high.

Compliance program

81    The compliance program to be ordered will act as a persuasive educative process which will ensure that Hocking Stuart Richmond complies with all of its legal obligations under the ACL (Vic) in future. The compliance program is more extensive than the training programs offered by the franchisor. Whilst the compliance program will involve substantial management time and will impose an unquantified “cost of doing business” on Hocking Stuart Richmond, I do not regard the scope and potential cost of the compliance program as militating the need to impose a pecuniary penalty (as was submitted by Hocking Stuart Richmond). Hocking Stuart Richmond as a matter of course will need to ensure the compliance program is implemented so as to fulfil its obligations to consumers and to avoid misleading conduct of the type it has committed.

Costs orders

82    Hocking Stuart Richmond has consented to the payment of Consumer Affairs’ costs of the proceeding. The amount of costs has not been agreed upon, but Consumer Affairs has indicated it would accept an amount between $80,000 and $90,000. Whatever the amount the effect of the order is a further imposition of a financial burden on Hocking Stuart Richmond. The scope and potential of this costs order is relevant to the assessment of the amount of the pecuniary penalty.

CONCLUSION

83    Taking into account the above factors, I consider a penalty of $30,000 for each contravention to be an appropriate penalty. This amounts to a total payment of $330,000. In addition, Hocking Stuart Richmond will need to pay the costs of the proceedings, which could amount to $80,000 or $90,000.

84    For a company the size of Hocking Stuart Richmond this is a substantial penalty, but a penalty that needs to be imposed to meet the needs of general deterrence. This penalty effectively takes away the total commissions earned by Hocking Stuart Richmond in respect of the sales (some $148,044), and then imposes an additional amount. The imposition of this penalty should not be regarded as the cost of doing business. However, I have also taken into account the need to moderate and cumulate individual penalties for each contravention in accordance with the principle of totality.

85    As discussed during the hearing, I will give the parties the opportunity to consider these reasons, and confer as to whether Hocking Stuart Richmond wishes to seek an order that the penalty be paid by instalments.

86    I consider, as a matter of principle, that this is a situation where the Court should allow Hocking Stuart Richmond the opportunity to pay the pecuniary penalty by instalments. The fact that in principle an instalment arrangement may be appropriate has not influenced the Court’s decision to impose a penalty, nor the Court’s decision as to the appropriate amount of penalty to impose.

87    The parties may be able to agree upon an instalment arrangement, and provide appropriate proposed orders to this effect. If the parties cannot agree, then separate written submissions and proposed orders in this respect can be filed with the Court for consideration.

88    I will order that the parties confer and submit agreed orders or, if in disagreement, short written submissions and proposed orders of each party within 14 days.

Associate:

Dated:    6 October 2016