FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Apple Pty Ltd (No 4) [2018] FCA 953

ORDERS

THE COURT DECLARES THAT:

1.    The second respondent (Apple Inc) in trade or commerce:

(a)    engaged in misleading or deceptive conduct, or conduct that was likely to mislead or deceive, in contravention of s 18 of the Australian Consumer Law (ACL); and

(b)    in connection with the supply of iPhone and iPad devices (including all hardware and software used by those devices from time to time), made false or misleading representations concerning the existence, exclusion or effect of the consumer guarantees under Part 3-2 of the ACL, and the rights or remedies available under Part 5-4 of the ACL, in contravention of s 29(1)(m) of the ACL,

by:

(c)    from 21 December 2015 to 18 February 2016, impliedly representing on its website generally to consumers with iPhones and iPads affected by the Error 53 software fault; and

(d)    the first respondent (Apple Australia), through statements made by its representatives in the course of responding to after-sales complaints or enquiries from February 2015 to February 2016, with the consent of an employee of Apple Inc in circumstances which engaged s 139B(2)(b)(ii) of the Competition and Consumer Act 2010 (Cth), impliedly representing by those statements to at least the 275 consumers set out in Annexures A and B of the second further amended concise statement whose iPhones were rendered inoperable by the Error 53 software fault who had contacted Apple Australia concerning the availability of a remedy relating to the Error 53 software fault,

that, if a component of their device had previously been repaired, serviced or replaced by someone other than Apple Australia or an Apple-Authorised Service Provider, no Apple entity was required to, or would provide a remedy relating to the Error 53 software fault at no cost, when:

(e)    the mere fact that a component of their iPhones or iPads had been serviced, repaired or replaced by someone other than Apple Australia or an Apple-Authorised Service Provider, did not, and could not, of itself, result in:

(i)    the consumer guarantees provided under Part 3-2 of the ACL ceasing to have any operation in respect of those devices or the software used to operate them; and

(ii)    the right to any remedy under Part 5-4 of the ACL being extinguished.

THE COURT ORDERS THAT:

2.    Within 30 days of the date of this Order, Apple Inc pay to the Commonwealth of Australia a pecuniary penalty of $9 million in respect of its contraventions of s 29(1)(m) of the ACL.

3.    Apple Inc pay the applicant an amount as agreed in respect of its costs of and incidental to the proceeding or, failing agreement, an amount to be determined by the Court on a lump sum basis.

4.    Otherwise, the prayers for relief set out in the amended originating application be dismissed.

In the declaration set out above, the term ‘Error 53 software fault’ means the fault which occurred when certain iPhone or iPad users attempted to update the iOS software on their functioning device to iOS8 or iOS9 or restore the factory settings of their functioning device, by connecting it to Apple iTunes through a personal computer.

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

REASONS FOR JUDGMENT

(Revised from the transcript)

LEE J:

A    Introduction

1    This is a proceeding brought for the imposition of a pecuniary penalty by the Australian Competition Consumer Commission (ACCC). The joint submission filed by the parties in advance of this hearing describes Apple Inc as a “very large company”. To adapt the words of P G Wodehouse, anyone who was content to call Apple Inc a very large company would describe the Taj Mahal as a “pretty nifty tomb”. In truth, it is no overstatement to describe Apple Inc as a behemoth. For the year ended 30 September 2017, Apple Inc reported annual net sales of over USD229 billion, a net income of over USD48 billion, with total assets of over USD375 billion. Senior Counsel for the ACCC referred in oral address to the fact that Apple Inc has been described as the first trillion dollar company (I presume this figure is by reference to market capitalisation).

2    The principal object of a pecuniary penalty is to attempt to a put a price on a contravention that is sufficiently high to deter repetition by the malefactor and by others who might be tempted to contravene. Given this, and the notion that the size of a contravener is relevant to the size of the penalty needed to give effect to specific deterrence, the sheer scale of operation of Apple Inc presents an unusual situation.

3    The circumstances call for consideration of two well established principles that might be thought, in the case of a corporate colossus, to exhibit a degree of tension: first, the fact that the size of the corporation does not itself justify a higher penalty than might otherwise be imposed (see Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540 at 559-560 [89]-[92] per Allsop CJ), and secondly, the notion that where the penalty does not impose a sting or burden on a contravener, it is less likely to achieve the deterrent effect that is the raison d’être of its imposition (see Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2018] HCA 3; (2018) 351 ALR 190 per Keane, Nettle and Gordon JJ at 216-217 [116]).

4    Following admissions made by Apple Inc of conduct said by the ACCC (and admitted by Apple Inc) to be serious contraventions of statutory norms, the ACCC has struck an agreement to resolve the present controversy with Apple Inc and Apple Pty Ltd (Apple Australia) on the basis of:

(a)    a declaration being made in relation to the admitted contraventions;

(b)    an order for payment by Apple Inc of a pecuniary penalty of $9 million; and

(c)    payment by Apple Inc of the ACCC’s costs in an agreed amount.

5    Further, as part of this resolution, the parties have agreed that all other relief sought against Apple Inc (and any relief sought against Apple Australia) be dismissed.

6    There is an important public policy involved in promoting the predictability of outcomes in civil penalty proceedings which encourages corporations to acknowledge contraventions. Most obviously, such acknowledgements assist in avoiding lengthy and complex litigation and hence diminish the demand on the public resources constituted by both the Court and the regulator. As the High Court explained in Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482 at 507 [57], “in civil proceedings there is generally very considerable scope for the parties to agree on the facts and upon consequences”, and 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”. More specifically, in relation to civil penalty proceedings, French CJ, Kiefel, Bell, Nettle and Gordon JJ (with whom Keane J agreed) observed at 507 [58]:

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 … highly desirable in practice for the court to accept the parties’ proposal and therefore impose the proposed penalty.

(Original emphasis, citation omitted)

7    Accordingly, in the particular circumstances of this case, my function includes: first, forming a view as to whether I am sufficiently persuaded of the accuracy of the parties’ agreement as to the relevant facts and consequences; and secondly, whether the penalty the parties propose is an appropriate remedy in the all the circumstances. This includes an assessment, in the context of serious contravening conduct, as to whether the Court ought to accept the joint submission that a penalty of $9 million would not be seen as a mere ‘cost of doing business’ by a corporation the size of Apple Inc, and would serve to assist in securing future compliance by Apple Inc and by other potential wrongdoers.

8    In addressing these issues and determining relief, I will divide these reasons into the following sections:

    Section B – Relevant Factual Background

    Section C – The Proceeding and the Compromise

    Section D – The Admissions and the Norms Contravened

    Section E – Principles Regarding Penalties and Joint Submissions

    Section F – Factors to be Taken into Account in Assessing Penalty

    Section G – A Final Observation

B    Relevant Factual Background

9    What follows is taken largely (but not exclusively) from a statement of agreed facts and admissions dated 15 June 2018 (Agreed Facts).

10    As would be evident to those who had not, Rip Van Winkle-like, woken from prolonged hibernation, Apple Inc manufactures iPhones and iPads and has a number of subsidiaries which resupply those devices throughout the world, including in Australia. It also grants a licence to customers, to use its iOS operating system software, including any periodic updates to that software.

11    Apple retail stores, and the Apple Australia online store, also supplies iPhones and iPads to independent third-party resellers. It also supplies what is described as ‘after-sales support services’ to consumers in Australia, and handles complaints and enquiries from consumers in Australia in respect of, among other things, iPhone and iPad devices (including all hardware and software used by those devices). It does so by responding to queries in Apple stores throughout Australia and by responding to telephone and online enquiries.

12    At a time not revealed with precision on the evidence, but prior to February 2015, some iPhone and iPad devices became inoperable, and displayed a message known as “Error 53”, which occurred in the process of attempting to update software on those devices (Error 53 software fault). Again at a time not precisely revealed by the evidence, an internal guideline document was produced by Apple Inc, curiously entitled “Haiku Article Preview”, which outlined the steps to be followed in updating or restoring an iPhone or iPad which had been affected by the Error 53 software fault. Unlike a typical haiku (the poetic form after which the article was named), this document was not difficult to decipher. It contained the comment, “[i]f the screen or other part on your iPhone or iPad was replaced somewhere else, contact Apple Support about pricing information for out-of-warranty repairs”.

13    I am informed that the Haiku Article Preview was accessible by employees of Apple Australia who may have been required to respond to consumer complaints. The document went on to suggest that it was necessary to find out if a customer had a “display module replacement” for the device, and further noted, “[i]f the display module was replaced in an unauthorized repair, the device is not eligible for warranty or out-of-warranty service”.

14    Between February 2015 and February 2016, Apple Australia’s in-store and call centre staff made various statements to consumers, identified in annexures to the Agreed Facts. It is unnecessary to recount the details of these individual communications. It suffices to note that it is agreed that by these communications, representations were made to the consumers identified in those annexures that, if a component of their iPhone had previously been repaired, serviced or replaced by someone other than Apple Australia or an Apple-authorised service provider, no Apple entity was required to, or would, provide a remedy relating to the Error 53 software fault at no cost to the consumer (Error 53 software fault representations).

15    It is a further admitted fact that the conduct of Apple Australia in making representations of this type occurred with the consent of an employee of Apple Inc, within the scope of the authority of the employee, for the purposes of s 139B(2)(b)(ii) of the Competition and Consumer Act 2010 (Cth) (CCA), with the effect that the conduct is taken for the purposes of the Australian Consumer Law (which is contained in schedule 2 to the CCA (ACL)) to have been engaged in by Apple Inc. I return below to the issue of the attribution of responsibility of the dealings within Australia to Apple Inc.

16    Apple Inc admits that the Error 53 software fault representations were false and misleading or deceptive or likely to mislead or deceive, because the mere fact that a component of a consumer’s iPhone device had been serviced, repaired or replaced by someone other than Apple Australia or an Apple-authorised service provider, did not, and could not, result in the consumer guarantees provided under Part 3-2 of the ACL ceasing to have any operation, and the right to any remedy under Part 5C of the ACL being extinguished.

17    Additionally, Apple Inc admits that in these circumstances, it engaged in misleading and deceptive conduct or conduct that was likely to mislead or deceive, in contravention of s 18 of the ACL and made false or misleading representations concerning the existence, exclusion or effect of the consumer guarantees under Part 3-2 of the ACL, and the rights and remedies available under Part 5-4 of the ACL, in contravention of s 29(1)(m) of the ACL.

18    In addition to this contravening conduct, that is, representations to consumers made by Apple Australia’s in-store and call centre staff, Apple Inc engaged in what I consider to be a different type of contravening conduct. From 21 December 2015 to 18 February 2016, Apple Inc published a webpage at the address https://support.apple.com/en-au/ht205628, entitled “If you see Error 53 or can’t update or restore your iPhone or iPad” which contained the following statement:

If the screen on your iPhone or iPad was replaced at an Apple service centre, Apple store, or Apple Authorized Service Provider, contact Apple Support. If the screen or any other part of your iPhone or iPad was replaced somewhere else, contact Apple Support about pricing information for out-of-warranty repairs.

19    As it can be seen, this communication was entirely consistent with the instructions conveyed in the Haiku Article Preview referred to above. Apple Inc admits that, by this conduct, it made an implied representation to consumers with iPhones and iPads affected by the Error 53 software fault, that if a component of their device had previously been repaired, serviced or replaced by someone other than Apple Australia or an Apple-authorised service provider, no Apple entity was required to, or would, provide a remedy relating to the Error 53 software fault at no cost to the consumer (Error 53 software fault website representation).

20    Again, Apple Inc admits that the Error 53 software fault website representation amounted to contravening conduct contrary to the statutory norm contained in ss 18 and 29(1)(m) of the ACL.

21    On and from 19 February 2016, Apple Inc made available on its service an iOS software update which disabled the software feature that had caused the Error 53 software fault and restored the operation of the affected devices. From the same date, Apple Australia commenced implementing what was described as the “Error 53 outreach program” which offered a replacement device, refund or reimbursement to all consumers in Australia affected by the Error 53 software fault (which amounted to approximately 5,000 consumers). As a result of this programme, Apple Australia has resolved the claims of consumers in Australia affected by the Error 53 software fault, who participated in the programme.

C    The Proceeding and The Compromise

22    I explained the background to this proceeding and procedural matters in Australian Competition and Consumer Commission v Apple Pty Ltd (No 3) [2018] FCA 617 at [6]-[11]. This description, however, was primarily directed at only one aspect of the case which is no longer persisted in, being the ACCC Representation case.

23    By the further amended concise statement (FACS) filed on 15 November 2017, the allegations made against both Apple Inc and Apple Australia were set out in some detail. Again it is unnecessary to set out that detail here, other than to note that the matters set out in the FACS were said to ground the relief set out in the further amended originating application, which I granted leave to file in May this year.

24    That application sought a range of relief, including: (a) declaratory relief; (b) orders for pecuniary penalties against both Apple Inc and Apple Australia; (c) orders enjoining both Apple Inc and Apple Australia, expressed in broad terms; (d) compliance programme orders under s 246(2) of the ACL; (e) publication orders under ss 246(2) and 247(1) of the ACL; and (f) costs sought against both Apple Inc and Apple Australia. None of the relief sought in the further amended originating application is now persisted in, save for a variation on part of the declaratory relief sought against Apple Inc and the prayer relating to costs insofar as it relates to Apple Inc in an agreed quantum. I was not informed during the course of submissions of the details of the agreement that has been reached relating to costs.

25    The matter first came before the Court on 21 April 2017, when directions were made concerning the conduct of the case against Apple Australia and an application was granted to serve Apple Inc ex juris. The matter came before Moshinsky J for a number of case management hearings and eventually came into my docket in November 2017. On 15 December 2017, I made extensive case management orders, including listing the matter for an initial determination of the liability questions, commencing on 12 June 2018, with an estimate of six days.

26    Following this, an advance ruling was made pursuant to s 192A of the Evidence Act 1995 (Cth) on an aspect of the evidence obtained by the ACCC through so-called ‘Joe Consumer’ enquiries. This advance ruling was the subject of my reasons in Apple Pty Ltd (No 3).

27    When the matter was called on for hearing on 12 June 2018, I was informed that the parties had reached an in-principle agreement in relation to the resolution of the controversy and I made directions for the filing of a statement of agreed facts and any joint submission. Those documents were filed on the evening of 15 June 2018. At that time, that is, after-hours on the eve of the resumption of the hearing, an agreement was apparently consummated which was in a form sufficient to place before the Court. It is not an overstatement to say that the agreement, although welcome, occurred very much at the eleventh hour.

28    Following the indication that an in-principle agreement had been reached, I adjourned the matter for the commencement of the penalty hearing today. The only evidence adduced at the hearing was the Agreed Facts (exhibit A) together with the tender of six pages of documents (exhibit B) which comprised the Haiku Article Preview of which I have made previous mention, together with a number of emails from Jacqueline Roy who, I am told, was an Apple Inc employee. Additionally, I was provided with a proposed minute of order agreed between the parties, setting out the relief (including as to penalty) which the parties jointly submit is appropriate recognising, however, that the grant of relief is in the discretion of the court.

D    The Admissions and The Norms Contravened

29    I have already set out above the admissions made by Apple Inc that it engaged in misleading and deceptive conduct, or conduct that was likely to mislead and deceive, in contravention of s 18 of the ACL, and made false and misleading representations contrary to s 29(1)(m) of the ACL.

30    As is well known, s 18(1) of the ACL provides that:

A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

31    Section 29(1)(m) relevantly prohibits the making of false or misleading representations:

in connection with the supply or possible supply of goods and services … concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy (including a guarantee under Division 1 of Part 3-2).

32    There is no need for me to set out in detail the principles that inform a consideration of whether conduct contravenes those sections. The law in this respect is very well known. It suffices to note that conduct is misleading or deceptive if it has a tendency to lead into error. What is called for is a contextual analysis which requires characterisation of the conduct in question and an objective determination as to whether the tendency to lead into error is evident. They are critical remedial provisions and have been (in a somewhat different form) a centrepiece in commercial life in this country for a period of well over 40 years. They are remedial and protective provisions which ensure that, if commerce is conducted in Australia, it be done in such a way as to avoid prohibited conduct. Put in colloquial terms, the provisions require persons, in trade and commerce, to play with a straight bat.

33    The consumer guarantees and remedies under Parts 3-2 and 5-4 of the ACL are no less important. If goods fail to comply with either of the consumer guarantees set out in ss 54 and 55 of the ACL, a consumer may be entitled to various remedies, which are to be found in Part 5-4 of the ACL. Under this Part, a consumer may have a remedy against either a supplier or a manufacturer.

34    For the purposes of the consumer guarantee regime under the ACL, it was common ground that Apple Inc is a manufacturer of iPhone and iPad devices, and that Apple Australia is a deemed manufacturer of iPhone and iPad devices and is also a supplier of the iPhone and iPad devices, which it sells directly to consumers. I made reference above to conduct which is to be attributed to Apple Inc. Section 139B(2) of the CCA relevantly provides:

Section 139B Conduct of directors, employees or agents of bodies corporate

…

(2) Any conduct engaged in on behalf of a body corporate:

(a) by a director, employee or agent of the body corporate within the scope of the actual or apparent authority of the director, employee or agent; or

(b) by any other person:

(i) at the direction of a director, employee or agent of the body corporate; or

(ii) with the consent or agreement (whether express or implied) of such a director, employee or agent;

if the giving of the direction, consent or agreement is within the scope of the actual or apparent authority of the director, employee or agent;

is taken, for the purposes of this Part or the Australian Consumer Law, to have been engaged in also by the body corporate.

35    It is with regard to the Error 53 software fault representations that this attributed conduct has relevance. It is said that the conduct occurred with the consent of an employee of Apple Inc, within the scope of the authority of the employee, with the effect that the conduct is taken for the purposes of the ACL to have been engaged in by Apple Inc. Separately, as also noted above, the Error 53 software fault website representation was made directly by Apple Inc in contravention of the norms specified above.

E    Principles Regarding Penalties and Joint Submissions

36    In Australian Competition and Consumer Commission v Pental Limited [2018] FCA 491 at [40]-[52], I set out the statutory provisions in respect of which a pecuniary penalty may be imposed and the relevant factors which inform the determination of such penalties, as follows:

Under s 224(1)(a)(ii) of the ACL, a pecuniary penalty may be imposed at the court’s discretion for any act or omission that contravenes ss 29(1)(a), 29(1)(g) or 33 of the ACL (of course, the other contravention relied upon by the ACCC, that of the norm referred to in s 18 of the ACL, does not give rise to liability for pecuniary penalties).

At times material to the determination of the pecuniary penalties in this proceeding, s 224(3) provided that for a body corporate, the maximum penalty for each contravention of ss 29(1)(a), 29(1)(g) and 33 is $1.1 million. Pursuant to s 224(4) of the ACL, if the same conduct constitutes a contravention of two or more provisions, a person is not liable to more than one pecuniary penalty in respect of that conduct.

Guidance as to the exercise of the discretion is provided by s 224(2) of the ACL, which provides that in determining the appropriate pecuniary penalty, the court must have regard to all the following matters (mandatory s 224 factors):

(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 Part 5-2 to have engaged in any similar conduct.

The mandatory s 224 factors are broad ranging. As Edelman J observed in Australian Competition and Consumer Commission v RL Adams Pty Ltd [2015] FCA 1016 at [40]:

There will be very few facts that are not included within the breadth of these matters. For instance, the “circumstances” in which the act takes place includes circumstances which precede the act as well as those which are contemporaneous to it.

Additionally, the cases have identified a number of matters which can be taken into account under s 224 of the ACL. In Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 4) [2011] FCA 761; (2011) 282 ALR 246 (Singtel Optus (No 4)) at 250-251 [11], Perram J described a number of matters which could be taken into account under a similar provision. It is important to stress that the factors identified by Perram J serve as general guidance and do not establish some sort of prescriptive list. Having said this, the factors do provide a useful checklist of matters which may have applicability depending upon the individual circumstances of the given case. The factors 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;

(5) whether the contravener has shown disposition to cooperate;

(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.

To these factors, Edelman J, in RL Adams at [42], added the following:

(1) whether the contravener made a profit from the contraventions;

(2) the extent of the profit made by the contravener; and

(3) whether the contravener engaged in the conduct with the intention to profit from it.

I will return to the mandatory s 224 factors below. I will also return to these additional, or, perhaps more accurately, more granularly expressed factors, to the extent that they seem to me to be of significance in determining the pecuniary penalties in this proceeding.

…

There was no substantial dispute between the parties as to the relevant principles to be applied. Given the recent discussion of the applicable principles in Australian Competition and Consumer Commission v Australia and New Zealand Banking Group Ltd [2016] FCA 1516; (2016) 118 ACSR 124 at 141-142 [78]-[83] (Wigney J) and by the Full Court (Dowsett, Greenwood and Wigney JJ) in Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; (2017) 271 IR 321 at 341-353 [96]-[149] (ABCC v CFMEU), there is limited utility in me setting out, except by way of brief summary, the applicable principles..

It is clear that the principal object of a pecuniary penalty is to attempt to put a price on a contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene. In this sense, both specific and general deterrence are important: see ABCC v CFMEU at 341 [98]. Given these objects, a pecuniary penalty ought be fixed with a view to ensuring that the penalty cannot be regarded by either the contravener or by others as simply an acceptable cost of doing business: see Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at 659 [66] (French CJ, Crennan, Bell and Keane JJ).

In relation to general deterrence, it is important to send a message that contraventions of the law are unacceptable: see Australian Securities and Investments Commission v Southcorp Limited (No 2) [2003] FCA 1369 (reported as Australian Securities and Investment Commission v Southcorp Ltd (2003) 130 FCR 406) at 418 [32] per Lindgren J. As to fixing the pecuniary penalty, this involves the identification and balancing of all factors relevant to the contravention, including, necessarily, the mandatory s 224 factors, and ultimately making what has been described as a “value judgment” as to what is the appropriate penalty in light of the protective and deterrent purpose of the pecuniary penalty: see ABCC v CFMEU at 342 [100].

Put generally, the factors that are relevant when fixing a pecuniary penalty relate to both the objective nature and seriousness of the contravening conduct and the particular circumstances of the contravener. As to objective seriousness of the contravention, matters for consideration include the extent to which the contravention was the result of deliberate, covert or reckless conduct (as opposed to carelessness); whether the contravening conduct was isolated or systematic; the duration of the conduct and, in circumstances where the contravener is a corporation, the seniority of the officers responsible; and the existence of systems within that corporation which are indicative of whether there was a culture of compliance.

As the mandatory s 224 factors make clear, it is also relevant to have regard to the loss or damage suffered as a result of the contravening conduct (see s 224(2)(a)). The obverse is also true: it is appropriate to look at the extent of profit, if any, which results from the contravening conduct.

This last factor, of course, not only relates to objective seriousness, but also concerns the particular circumstances of the malefactor. I have already made reference to the list of factors to which one has regard in fixing a penalty in relation to a corporate contravener, including its size, financial circumstances and related matters. Of course, in having regard to the particular financial circumstances of a corporation, the size of the corporation does not itself justify a higher penalty than might otherwise be imposed: see Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540 (ACCC v Coles) at 559-560 [89]-[92] per Allsop CJ. But the corporation’s size may be thought, logically, to be highly relevant to the question of the size of the penalty that should operate in order to properly give effect to the need for specific deterrence.

37    As to joint submissions, the applicable principles as to the making of orders by agreement were summarised by Gordon J in ACCC v Coles at 556-7 [70]-[73]:

The applicable principles are well established. First, there is a well-recognised public interest in the settlement of cases under the Act: NW Frozen Foods Pty Ltd v Australian Competition & Consumer Commission (1996) 71 FCR 285 at 291. Second, the orders proposed by agreement of the parties must be not contrary to the public interest and at least consistent with it: Australian Competition & Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 at [18].

Third, when deciding whether to make orders that are consented to by the parties, the Court must be satisfied that it has the power to make the orders proposed and that the orders are appropriate: Real Estate Institute at [17] and [20] and Australian Competition & Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [1]. Parties cannot by consent confer power to make orders that the Court otherwise lacks the power to make: Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 163.

Fourth, once the Court is satisfied that orders are within power and appropriate, it should exercise a degree of restraint when scrutinising the proposed settlement terms, particularly where both parties are legally represented and able to understand and evaluate the desirability of the settlement: Australian Competition & Consumer Commission v Woolworths (South Australia) Pty Ltd (Trading as Mac’s Liquor) [2003] FCA 530 at [21]; Australian Competition & Consumer Commission v Target Australia Pty Ltd [2001] FCA 1326 at [24]; Real Estate Institute at [20]-[21]; Australian Competition & Consumer Commission v Econovite Pty Ltd [2003] FCA 964 at [11] and [22] and Australian Competition & Consumer Commission v The Construction, Forestry, Mining and Energy Union [2007] FCA 1370 at [4].

38    In addition, for completeness, reference should be made to the High Court’s subsequent observations in Director, Fair Work Building Industry Inspectorate, where, as I have already mentioned, the High Court held that it was open for the court to receive submissions, including joint submissions, as to an appropriate penalty and made reference to the scope given to parties to agree on an appropriate remedy, but, importantly, noted the necessity for the Court to be persuaded that the agreed approach is an appropriate remedy.

F    Factors To Be Taken Into Account In Assessing Penalty

F.1    Application of the Course of Conduct Principle

39    A useful starting point is identification of the course of conduct principle which, as is evident from the extract from Pental noted above, is not an entirely separate principle from the totality principle, which requires penalties not exceed what is proper for the entire contravening conduct; see Australian Competition and Consumer Commission v Baxter Healthcare Pty Ltd [2010] FCA 929 at [22] per Mansfield J. In identifying a course of conduct, it is necessary to emphasise that this is merely a discretionary tool or analytical expedient along the way to determining an appropriate penalty. A precise allocation of the number of courses of conduct is not some sort of calculus which results in various outcomes depending upon the characterisation of the contravening conduct as falling into one or another of the identified courses of conduct: see Pental at [60].

40    Consistently with what was said in Director, Fair Work Building Industry Inspectorate, it is open to the Court to first address the appropriate range and then consider the penalty proposed by the parties. It is useful to commence by considering how the conduct of Apple Inc (in contradistinction to the conduct of Apple Australia) should properly be characterised. Mr Archibald QC, who appeared on behalf of Apple Inc and Mr Studdy SC, who appeared on behalf of the ACCC, both submitted that the conduct of Apple Inc, to the extent that the analytical tool has any usefulness, should be characterised as one course of conduct. I respectfully disagree.

41    It seems to me that there were two quite distinct types of conduct. The first is the conduct for which, through a process of statutory attribution, Apple Inc has agreed to accept responsibility. The second is the direct conduct of Apple Inc in making the Error 53 software error website representation. It seems to me that this should be regarded as two courses of conduct. Evidence as to the first type of conduct is quite specific, but there is no evidence before me as to the number of the 5000 affected consumers who obtained misleading information from accessing the website. Be that as it may, I accept the force of the contention that the common thread running through all Apple Inc’s conduct, including that which is revealed in exhibit B, was that if a device had previously been repaired, serviced or replaced by, for example, a high street repairer, Apple Australia was not going to provide assistance in rectifying the Error 53 error at no cost.

F.2    Mandatory Section 224(2) Factors

42    As noted above, guidance as to the exercise of the discretion is provided by s 224(2) of the ACL, which provides that in determining the appropriate penalty, the Court must have regard to the mandatory s 224 factors. I will deal with each of these factors in turn.

The Nature and Extent of the Act or Omission and of Any Loss or Damage Suffered as a Result of the Act or Omission

43    The starting point is the agreed fact that the admitted contraventions are serious. The Error 53 software fault representations were made on 275 occasions to consumers by employees of Apple Australia. The Error 53 software fault website representation was conveyed to an unknown number of consumers for a period of almost two months from 21 December 2015 to 18 February 2015.

44    As noted above, approximately 5000 Australian consumers experienced Error 53. Given the notorious reliance of consumers on their ability to access iPhones and iPads, there is no doubt that those affected by Error 53 would have experienced a significant vexation during the period prior to the remedial steps having had their desired effect. To the extent it is not already clear, it is important to note the consequence of Error 53 was that affected iPhones went into what is described as “recovery mode” and ceased to operate entirely. Against this background, the fact that Apple Inc was taken as having declined to provide after sales support services, without undertaking a proper consideration of the circumstances of the relevant consumers in order to ascertain whether the consumer had a right to any remedy under Part 5.4 of the ACL, is rightly described as serious.

45    No evidence has been adduced as to the question of loss or damage suffered as a result of the contravening conduct. Having said this, it takes little imagination to reach the conclusion that the vexation occasioned must have caused real (and potentially significant) disruption to the personal and business activities of numerous consumers. It would be engaging in speculation to be any more precise concerning the issue of loss and damage in circumstances where no evidence has been directed to that issue.

The Circumstances in Which the Act or Omission Took Place

46    One matter which does not feature prominently in the joint submissions, is the ubiquity of Apple products and the market position of Apple Inc and Apple Australia. One would have thought that given the size of the market in Australia, and the resources available, there would have been care taken to ensure that norms of commercial conduct operating domestically would have received close attention. Having said this, it is a mitigating factor that steps were eventually taken, notwithstanding the contravening conduct, to prevent and redress the harm to consumers from the conduct. On and from 19 February 2016, Apple Inc, as noted above, made available the update which restored the operation of devices which had been affected. It is jointly submitted that Apple Inc and Apple Australia have also compensated consumers by the Error 53 outreach programme put in place by Apple Australia. Although many of the relevant consumers were no doubt deprived of a functioning device for a period of time and may have had to pay for repairs or a replacement device, the out-of-pocket expenses associated with this were, as I understand it, reimbursed or the consumers were given a replacement device.

Whether the Person Has Been Found to Have Engaged in Any Similar Conduct

47    One of the notable aspects of this case is that the ACCC has consented to a dismissal of its claim as against Apple Australia. Although I have been told, somewhat delphically, that there is an enforceable undertaking in the process of being put in place, I have been given no details of that enforceable undertaking and, as I understand the observations made by Mr Archibald, it relates, at least in part, to matters which are not the subject of this proceeding. In 2012, Apple Australia was found to have made misleading representations to Australian consumers in its promotion of iPad devices to the effect that they were able to connect to Telstra’s 4G network (when they could not do so). The Court imposed a penalty of $2.25 million on Apple Australia. Additionally, Apple Australia earlier gave an enforceable undertaking to the ACCC in 2013, following the investigation by the ACCC into Apple Australia’s consumer guarantee policies and practices and representations made to consumers about their rights under the ACL.

48    It is not appropriate, nor do I have sufficient information, to comment on the decisions made by the regulator as to what enforcement steps are pursued and against whom. Notwithstanding these matters, I am required to focus my attention on findings in relation to Apple Inc which has not previously been found to have engaged in contraventions of the ACL, the CCA or earlier cognate statutory provisions.

F.3 Other Relevant Factors

Deliberateness of the Contraventions

49    I am unable, on the evidence, to form the view that the admitted contraventions were the subject of deliberate action by Apple Inc. The inescapable conclusion to draw from the material in the statement of facts and in exhibit B is that Apple Inc, at least so far as the website representations were concerned, did not appear to care one way or the other as to whether or not the information conveyed – insofar as it constituted representations to Australian consumers – was consistent with the important consumer protection provisions contained in the ACL. Having said that, Apple Inc is a transnational corporation and when one has a look at the Haiku Article Preview, it may be that the information proposed to be conveyed as to consumer rights was accurate insofar as this information was conveyed to persons in jurisdictions without a regime similar to the ACL.

50    Transnational commerce entails risk in that, in an organisation with the worldwide reach of Apple Inc, there are complications caused by the necessity to comply with domestic legislative regimes in all geographical areas in which the corporation does business. This is far from being an excuse, but provides at least some explanation. For present purposes, it suffices to note that there is no suggestion that the contraventions were the subject of knowingly wrongful conduct.

Involvement of Senior Management

51    Again, the evidence provides an insecure foundation for finding that senior management had involvement in the contravening conduct. Apart from the Haiku Article Preview and the other documents in exhibit B, there was no evidence adduced to assist in identifying how employees of Apple Australia were instructed to make the representations that they did, or from where within the hierarchy of Apple Inc came the instructions to make the website representation. I raised this gap in the evidentiary material at the commencement of submissions made on behalf of the ACCC, because one of the matters to which I am required to have regard is whether the evidence or information before me is adequate for me to form a view about an appropriate penalty.

52    In particular, in order to form a view of whether the penalty which the parties propose is an appropriate remedy, it is necessary for me to have regard to the circumstances revealed in the evidence. If the evidence is deficient in some material way, then the admittedly highly desirable practice of the court accepting the party’s proposal and therefore imposing the proposed penalty is unable to be undertaken. Although I have a degree of disquiet about the fact that no evidence has been adduced as to the level of management which approved the impugned conduct, it does not seem to me that this deficiency rises to the level so as to mean that the process that I have to undertake would miscarry.

Similar Conduct in the Past and Corporate Culture of Compliance

53    I have already made reference above to past conduct of Apple Australia and there is no evidence before me as to the past corporate culture of compliance of Apple Inc. The present failure to comply with relevant statutory norms in this country has already been remarked upon.

Cooperation and Admission of Culpability

54    I noted above that this proceeding was resolved only at the eleventh hour. It might be more accurate to say that it was resolved moments before midnight. Having said this, the negotiations which culminated in the final settlement have no doubt taken a good deal of time and effort. Without knowing the precise basis upon which the agreement came into being, I am sensible to the fact that there was a court-ordered mediation process, which took some time. Despite the late resolution, the saving of court time is not insignificant and it has spared the necessity for a complex liability hearing.

55    The joint submissions state that a discount for cooperation has been reflected in the agreed penalty. However, no further specificity is given. Plainly, cooperation is a relevant matter for the Court to take into account for the purposes of s 224 of the ACL. It is, properly characterised, a mitigating factor in the identification of the appropriate pecuniary penalty and it appears that that is the way it has been approached. The fact that Apple Inc has, albeit belatedly, reached agreement with the ACCC has been of assistance, and this is plainly a factor that goes to the particular circumstances of the contravener.

The Size of the Contravener and its Financial Position

56    As would be evident from the introduction, this is the issue which to my mind, creates many difficulties in this case. I referred above to the tension between the notion that: (a) the size of the corporation does not justify a higher penalty than what might otherwise be imposed; with (b) the principle that if a penalty does not impose a ‘sting’ or burden, it will be unlikely to achieve the necessary deterrent effects. I did ask senior counsel for the ACCC to indicate whether any calculation had been undertaken as to precisely how many minutes it would take Apple Inc to generate the necessary revenue to pay a $9 million penalty. The question was not a facetious one. If a penalty is not to be seen as a cost of doing business, it must visit some appreciable burden upon the malefactor.

57    It is difficult to escape the conclusion that a penalty of $9 million to a corporation such as Apple Inc might be regarded as loose change. Having said that, I am constrained by authority to have regard to the fact that the leviathan nature of Apple Inc cannot dominate the analysis and cannot justify a higher penalty than otherwise would be imposed. As to totality, it is well established that where penalties are imposed in circumstances where the Court believes that the total will be too low or too high, the Court should alter the final penalties to ensure that they are appropriate in the circumstances. Having said this, the High Court has explained that my task is to be sufficiently persuaded that the proposed penalty is an appropriate penalty (not the appropriate penalty) in all the circumstances. Once it is understood that civil penalties are not retributive, but rather are focused on deterrents and are therefore protective, a determination which, in effect, amounts to approving an agreed settlement of a civil proceeding, should not be seen as somehow odd or exceptionable: Director, Fair Work Building Industry Inspectorate at 507-8 [59].

58    In fixing an appropriate penalty, regard must also be had to the maximum penalty. That being said, as Allsop CJ observed in ACCC v Coles at 543 [6]:

The setting of the penalty is a discretionary judgment that does not involve assessing with any precision the “range” within which the conduct falls or by applying incremental deductions from the maximum penalty. Nonetheless, the maximum penalty must be given due regard because it is an expression of the legislature’s policy concerning the seriousness of the proscribed conduct. It also permits comparison between the worst possible case and the case the court is being asked to address and thus provides a yardstick...

59    Absent the singular financial position of Apple Inc, there is some force in Mr Archibald’s submission that this is far from being the worst possible case, and, given the other factors that I have described above, a penalty of $9 million would, under the current legislative regime, be regarded as a very significant penalty.

60    I agree and notwithstanding that I have considerable hesitation in accepting the joint submission that the amount of $9 million will operate at a level sufficient to deter repetition of the contravening conduct by the contravener (and hence it will sufficiently serve the interests of specific deterrence), on balance, it seems to me that it can properly be described as an appropriate penalty in all the circumstances. In doing so, I have particular regard to the fact that a declaration of contravening conduct is not an insignificant matter. It records the Court’s disapproval of the contravening conduct and does so in a way which reflects the community’s concern to ensure that similar conduct by the contravener and others be deterred.

G    A Final Observation

61    In June 2015, Commonwealth, State and Territory Consumer Affairs Ministers, through the Legislative and Governance Forum on Consumer Affairs, asked Consumer Affairs Australia and New Zealand to initiate a broad reaching review of the ACL. As part of that process, the effectiveness of the ACL penalty and enforcement provisions and the flexibility of the provisions to respond to new and emerging issues were reviewed.

62    The ACL contains a single set of enforcement powers, penalties and remedies for breaches of the consumer protection provisions. The current maximum civil pecuniary penalty, relevant to the circumstances of this case, is $1.1 million for a body corporate.

63    The ACL Review Final Report was released in April 2017 and found that the current maximum penalties available for breach of the ACL are insufficient to deter non-compliant conduct that can be highly profitable and that some entities see the penalties as a cost of doing business. In a case dissimilar on the facts, but involving a large contravener, Gordon J in ACCC v Coles considered a $10 million penalty against the respondent for unconscionable conduct in dealings with its suppliers. In doing so, Gordon J suggested that the maximum available penalty of $1.1 million under the ACL for each contravention was arguably inadequate for a company with an annual revenue in excess of $22 billion.

64    The ACL review proposed increasing maximum financial penalties available under the ACL by aligning penalties with the penalty regime under the competition provisions of the CCA. As is well known, the competition provisions of the CCA provide penalties which, among other things, provide that the amount of a penalty can be linked to a percentage of the annual turnover of the contravening body corporate.

65    One might think that this case is a paradigm example of the difficulties that can arise when a penalty regime fixes maximum penalties as to body corporates, without reference to size of the contravener.

Associate:

Dated:    18 June 2018