Federal Court of Australia

Secretary, Department of Health v Enviro Tech Holdings Pty Ltd [2022] FCA 865

ORDERS

THE COURT ORDERS THAT:

Pecuniary penalties

1.    Within 30 days of the date of this order, the First Respondent pay a pecuniary penalty in the sum of $80,000 to the Commonwealth of Australia pursuant to s 42Y(2) of the Therapeutic Goods Act 1989 (Cth) (TG Act) in respect of the contravention of the TG Act declared in paragraph 1 of the order of Justice Anderson in this proceeding dated 6 April 2022 (the 6 April 2022 Order).

2.    Within 30 days of the date of this order:

(a)    the Second Respondent pay a pecuniary penalty in the sum of $8,000 to the Commonwealth of Australia pursuant to s 42Y(2) of the TG Act in respect of the contravention of the TG Act declared in paragraph 2 of the 6 April 2022 Order; and

(b)    the Third Respondent pay a pecuniary penalty in the sum of $8,000 to the Commonwealth of Australia pursuant to s 42Y(2) of the TG Act in respect of the contravention of the TG Act declared in paragraph 3 of the 6 April 2022 Order.

Costs

3.    The Respondents pay the Applicant’s costs of and incidental to this proceeding, as agreed or assessed.

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

REASONS FOR JUDGMENT

HESPE J:

Introduction

1    On 6 April 2022, by consent, the Court made declarations to the effect that:

(1)    On or about 11 August 2020, the First Respondent contravened s 41MNC of the Therapeutic Goods Act 1989 (Cth) (TG Act) by importing into Australia 500,000 disposable medical face masks in circumstances where:

(a)    the face masks were medical devices within the meaning of the TG Act;

(b)    the face masks were of a kind covered by the Therapeutic Goods (Medical Devices—Face Masks and Other Articles) (COVID-19 Emergency) Exemption 2020 (Cth) (Exemption), being an exemption in force under s 41GS of the TG Act;

(c)    at all times between 22 March 2020 and 31 January 2021, the Exemption was subject to a condition in the following terms (Condition):

the relevant kinds of medical devices must only be imported, exported, manufactured or supplied by a person under a contract between the person and the Australian Government Department of Health, or another agency of the Commonwealth acting on behalf of Australian Government Department of Health, for that purpose…

(d)    the face masks were not imported under a contract between the First Respondent and the Australian Government Department of Health (Department), or another agency of the Commonwealth acting on behalf of the Department; and

(e)    the importation of the face masks breached the Condition.

(2)    On or about 11 August 2020, each of the Second and Third Respondents contravened s 42YC of the TG Act by aiding, abetting, counselling or procuring the First Respondent’s contravention of s 41MNC of the TG Act.

2    On that same date, by consent, the Court made injunctive orders pursuant to s 42YN of the TG Act and s 23 of the Federal Court of Australia Act 1976 (Cth) to the effect that the First Respondent, the Second Respondent (by herself, her servants, agents, employees and any company of which she is an officer), and the Third Respondent (by himself, his servants, agents, employees and any company of which he is an officer) be restrained from importing, exporting, supplying or manufacturing medical devices which are not included on the Australian Register of Therapeutic Goods (Register) or otherwise subject to a relevant exemption, approval or authority under the TG Act.

3    Dispute remained as to the quantification of pecuniary penalties.

Statutory Framework

4    One of the objects of the TG Act is to provide for the establishment and maintenance of a national system of controls relating to the quality, safety, efficacy and timely availability of therapeutic goods that are used in Australia: s 4(1). Section 41B of the TG Act provides:

The purpose of [Chapter 4 of the TG Act] is to ensure the safety and satisfactory performance of medical devices. It does this by:

(a)    setting out particular requirements for medical devices; and

(b)    establishing administrative processes principally aimed at ensuring those requirements are met; and

(c)    providing for enforcement through a series of offences and civil penalty provisions.

5    The TG Act imposes certain requirements in relation to the importation into and supply of “medical devices” in Australia. The expression “medical device” is defined in s 41BD of the TG Act. That section relevantly provides:

(1)    A medical device is

(ab)    any instrument, apparatus, appliance, software, implant, reagent, material or other article that is included in a class of instruments, apparatus, appliances, software, implants, reagents, materials or other articles specified under subsection (2B) …

(2)    The Secretary may, by legislative instrument, specify a particular class of instruments, apparatus, appliances, software, implants, reagents, materials or other articles for the purposes of paragraph (1)(ab).

6    The Therapeutic Goods (Medical Devices—Specified Articles) Instrument 2020 (Cth) (Instrument) came into effect on 24 April 2020. Section 5 of the Instrument specifies that:

The classes of instruments, apparatus, appliances, software, implants, reagents, materials and other articles mentioned in Schedule 1 are specified to be medical devices for the purposes of paragraph 41BD(1)(ab) of the Act.

7    Item 1 of the table in Schedule 1 to the Instrument specifies the following class of articles to be medical devices (emphasis added):

articles that are non-sterile personal protective equipment or safety apparel (including but not limited to aprons, face masks, gloves, goggles, gowns and visors) intended, by the person under whose name the articles are or are to be supplied, to be used for the prevention of the transmission of disease between persons, including where that intention may be ascertained from the articles being represented as suitable for use in surgery, or clinical, medical or other health services

8    The TG Act is contravened if a person imports a medical device which is not included in the Register maintained under the TG Act unless the device is of a kind covered by an exemption in force under s 41GS of the TG Act: s 41MIB. Section 41GS relevantly provides for the Minister to exempt specified kinds of medical devices from inclusion in the Register.

9    On 22 March 2020, the Minister made the Exemption under s 41GS of the TG Act, “in order to deal with the threat to public health caused by the COVID‑19 emergency”: Exemption, s 5. Relevantly, the Exemption exempted from inclusion in the Register medical devices that are disposable face masks, designed to be worn by individuals to prevent the transmission of organisms: Exemption s 5. The Exemption was subject to conditions, one of which was the Condition (s 6(a)):

the relevant kinds of medical devices must only be imported, exported, manufactured or supplied by a person under a contract between the person and the Australian Government Department of Health, or another agency of the Commonwealth acting on behalf of [the] Australian Government Department of Health, for that purpose…

10    Part 4-11 of the TG Act contains offences and civil penalty provisions relating to medical devices that are aimed at ensuring that (s 41BC):

(a)    the requirements for medical devices are complied with; and

(b)    the administrative processes under [Chapter 4] (particularly the inclusion of medical devices in the Register) are followed.

11    Part 4-11 of the TG Act includes offences and civil penalty provisions related to the breach of a condition of an exemption in force under s 41GS of the TG Act. Section 41MNC is the relevant civil penalty provision. It provides:

41MNC    Civil penalty for breaching a condition of an exemption

A person contravenes this section if:

(a)    the person does an act or omits to do an act in relation to a medical device; and

(b)    the device is of a kind covered by an exemption in force under section 41GS; and

(c)    the act or omission results in the breach of a condition of the exemption.

Maximum civil penalty:

(a)    for an individual—5,000 penalty units; and

(b)    for a body corporate—50,000 penalty units.

12    Section 42YC is also relevant. It provides:

42YC    Persons involved in contravening civil penalty provision

(1)    A person must not:

(a)    aid, abet, counsel or procure a contravention of a civil penalty provision; or

(b)    induce (by threats, promises or otherwise) a contravention of a civil penalty provision; or

(c)    conspire to contravene a civil penalty provision.

(2)    This Act applies to a person who contravenes subsection (1) in relation to a civil penalty provision as if the person had contravened the civil penalty provision.

13    Section 42Y confers upon the Court a power to order a person contravening a civil penalty provision to pay to the Commonwealth a pecuniary penalty. It relevantly provides:

42Y    Federal Court may order person to pay pecuniary penalty for contravening civil penalty provision

Application for order

(1)    Within 6 years of a person (the wrongdoer) contravening a civil penalty provision, the Secretary may apply on behalf of the Commonwealth to the Federal Court for an order that the wrongdoer pay the Commonwealth a pecuniary penalty.

Court may order wrongdoer to pay pecuniary penalty

(2)    If the Court is satisfied that the wrongdoer has contravened a civil penalty provision, the Court may order the wrongdoer to pay to the Commonwealth for each contravention the pecuniary penalty that the Court determines is appropriate (but not more than the maximum amount specified for the provision).

Determining amount of pecuniary penalty

(3)    In determining the pecuniary penalty, the Court must have regard to all relevant matters, including:

(a)    the nature and extent of the contravention; and

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

(c)    the circumstances in which the contravention took place; and

(d)    whether the person has previously been found by the Court in proceedings under this Act to have engaged in any similar conduct.

14    Section 42YK of the TG Act enables the Secretary of the Department (Secretary) to give a person an infringement notice if the Secretary reasonably believes that the person has contravened a civil penalty provision. The person given an infringement notice can choose to pay the amount in the notice within 28 days after the notice is given, as an alternative to having court proceedings brought against the person for the contravention: s 42YKD(1)(c). Payment of the amount is not an admission of guilt or liability: s 42YKD(1)(d). If the person chooses not to pay the amount, the Secretary may bring proceedings under s 42Y seeking an order that the person pay a pecuniary penalty. If the infringement notice relates to only one alleged contravention by the person, the amount to be stated as payable in the notice is the lesser of (s 42YKA(2)):

(a)    one-fifth of the maximum penalty that a court could impose on the person for that contravention; and

(b)    12 penalty units where the person is an individual, or 60 penalty units where the person is a body corporate.

Factual Background

15    The evidence before the Court consisted of three affidavits of Mr Garey, a lawyer employed by the Australian Government Solicitor, acting for the Secretary. Prior to the hearing on penalties, the Respondents filed written submissions which largely referred to alleged facts unsupported by evidence. At the hearing, Counsel for the Secretary indicated that the Secretary was content for the Court to accept the contents of the submissions without requiring the Respondents to put on admissible evidence, but that the Court should deal with the contents of the submissions as a matter of weight.

16    On 23 April 2020, the First Respondent was registered as an organisation with the Therapeutic Goods Administration (TGA), a part of the Department.

17    On 24 April 2020, the Third Respondent, by email, sought information from the TGA about making an application to register hand sanitiser. By email sent on 30 April 2020, the “OTC Medicines” branch of the TGA responded. The response commenced with the following:

The TGA is unable to provide you with specific regulatory advice. If you have no previous experience with registering a therapeutic good in Australia, it is highly recommended that you seek the services of an Australian regulatory affairs consultant. The TGA does not provide a list of consultants. There are several industry organisations who may be able to recommend suitable regulatory affairs consultants.

18    On or about 11 August 2020, the First Respondent imported into Australia 500,000 disposable medical face masks. At that time, the face masks were not included in the Register. The imported face masks were medical devices under the TG Act and were medical devices of a kind covered by the Exemption in force under s 41GS of the TG Act. The face masks did not comply with the condition in s 6 of the Exemption because they were not imported by the First Respondent under a contract between the First Respondent and the Department or another agency of the Commonwealth acting on behalf of the Department.

19    As the declarations made on 6 April 2022 declare, on or about 11 August 2020:

(1)    the First Respondent contravened s 41MNC of the TG Act; and

(2)    The Second and Third Respondents (being directors of the First Respondent) contravened s 42YC of the TG Act by aiding, abetting, counselling or procuring the First Respondent’s contravention of s 41MNC of the TG Act.

20    On 12 August 2020, a senior officer from the Customs Group of the Australian Border Force (Customs) sent an email to the Department referring to the First Respondent’s consignment comprising 500,000 disposable medical masks, and requesting the Department to “[p]lease assess and advise”.

21    By email dated 14 August 2020, a compliance officer from the regulatory compliance section of the TGA responded to the Customs officer, stating that the TGA had “some concerns” about the consignment and its registration history, and requested a cargo examination of the shipment.

22    On or about 15 August 2020 (some five days after the masks had arrived in Australia), the Respondents applied to have the goods registered on the Register.

23    On or about 17 August 2020, the goods were included on the Register, with the First Respondent named as sponsor. At that point, the face masks could be lawfully imported, advertised and supplied by the First Respondent.

24    On 18 August 2020, the Medical Devices Surveillance Branch (MDSB) of the TGA emailed the Respondents, seeking information around the supply of face masks. On the same day the Third Respondent responded by email stating:

1.    We currently have 500,000 medical disposable masks in Australia pending inspection and release. With TGA approval [sic].

2.    We are anticipating shortages as many of our customers such as cleaning companies ,building [sic] companies and the private sector are screaming out for them. 80% of our masks have been sold with deposits taken And [sic] our clients are about to cancel orders. This is very bad for a small business like ours and we can't wait to this is over and deliver our masks. We have at least 100k at stake here and we are 14 days behind schedule. We are losing customers on a daily basis. It is hurting us financially and emotionally every day.

3.    The only delivery we have is at Customs and waiting for release from last week. We are constantly on the phone with our agents and they advise us that they cant [sic] do anything but wait. We will not be bringing in any more medical masks in the future as I've had the most hurting and emotional experience we have encountered.

25    On 24 August 2020, a Customs officer sent to the TGA, by email, photographs of the face masks taken as a result of the physical inspection of the First Respondent’s shipment.

26    It appears that at some point prior to 25 August 2020, the face masks were released by Customs and the First Respondent proceeded to supply them.

27    On 25 August 2020, the MDSB sent an email to the Second Respondent, attaching a letter entitled “Notice requiring information/documents and samples to be provided under section 41JA and subsection 41FN(2) of the Therapeutic Goods Act 1989”. The notice required the Second Respondent to provide information and a reasonable number of face masks for laboratory investigation, as part of an urgent post-market review being undertaken by the TGA. The review was not specifically targeted at the Respondents but was undertaken in relation to all face masks on the Register because the TGA had received complaints and identified concerns about face masks. The information and samples were required to be provided by 10 September 2020.

28    On 8 September 2020, the Second Respondent provided a response which the TGA did not consider was complete.

29    On 28 October 2020, a further notice was sent by the TGA to the Second Respondent requiring the provision of information and samples.

30    On 23 December 2020, an infringement notice was given by the TGA to the First Respondent, with a due date of 25 January 2021 and specifying an amount payable of $13,320 (Infringement Notice). The Infringement Notice was given pursuant to s 42YK of the TG Act on the basis that a delegate of the Secretary reasonably believed that the First Respondent had contravened s 41MNC of the TG Act by importing 500,000 single-use surgical face masks on or about 11 August 2020 in breach of a condition of the Exemption. The Infringement Notice noted that the maximum penalty that a Court could impose on a body corporate for such a breach was $11.1 million but that if the penalty amount specified in the Infringement Notice was paid within the compliance period, the First Respondent may not be prosecuted in a court for the alleged contravention described in the Infringement Notice. The Infringement Notice stated that payment of the penalty amount was not an admission of guilt or liability.

31    The Infringement Notice penalty amount was not paid.

32    By a further letter dated 23 December 2020, entitled “Advertising and Supply of Unregistered Therapeutic Goods”, the TGA wrote to the First Respondent. In that letter, the TGA said:

(1)    The importation of 500,000 single use surgical face masks by the First Respondent in August 2020 contravened the Condition of the Exemption.

(2)    These single use surgical face masks had subsequently been included in the Register, with the First Respondent listed as the sponsor, and so could now be lawfully imported, advertised and supplied.

(3)    The First Respondent was advertising and supplying other therapeutic goods on its website, and the TGA’s records indicated that neither the First nor Second Respondent had registered a number of these products in the Register. Particular concern was expressed about certain alcohol-based hand sanitisers.

(4)    The TGA also expressed concern about representations on the First Respondent’s website in relation to sanitising services that purported to be “TGA approved”. The TGA requested that this statement be immediately removed.

33    The letter went on to state:

What you need to do

You are required to provide further information regarding the practices of your company, including:

•    If your company believes it should be exempt from the registration process, information on why this is believed to be the case

•    Details of the supply process from the initial order and how it is received, through to delivery of the end product for administration

•    Any other information that you feel may be relevant to assist us in making a decision regarding if your products should be included on the ARTG or exempt from regulation by the TGA.

You are also required to immediately cease all importation, advertising and supply of these products, together with any other unregistered or unlisted product not exempted from this requirement.

34    The TGA was satisfied that the First Respondent’s website was brought into compliance with the TG Act following receipt of this letter.

35    On 6 January 2021, the TGA sent a reminder email to the Second Respondent in relation to the 25 August 2020 information request concerning the face masks.

36    On 28 January 2021, a delegate of the TGA decided to cancel the relevant face mask entry on the Register with effect from 1 March 2021.

37    On 29 January 2021, a representative from the TGA emailed the Third Respondent setting out the information the TGA was missing in relation to the face masks, including supply/distribution numbers broken down by state and the manufacturer’s Australian Declaration of Conformity. The email stated that if the documentation was provided by close of business on 5 February 2021, the TGA would be able to assess the information prior to the effective cancellation date.

38    On 5 February 2021, the Third Respondent replied to the TGA email of 29 January 2021. The email stated:

1)    We have only sold the above said disposable masks to Melbourne and Sydney.

2)    The amounts in Sydney was [sic] only 3,000 individual masks in boxes of 50. In Melbourne we have sold 300,000 individual masks in Boxes of 50

3)    Please also be advised that we have also donated approx. 110,000 individual masks to several charities that are involve [sic] with Vulnerable Girls on the streets.

4)    Please see attached in my email coming soon the Declaration of conformity.

39    It appears that the relevant face mask entry was subsequently cancelled. No further details about the supply and distribution of face masks was before the Court.

40    On 22 September 2021, the Secretary commenced this proceeding against the Respondents in relation to the contraventions described in para [1] of these reasons, seeking declarations, injunctive relief and pecuniary penalties.

41    It appears that prior to February 2022, the Respondents did not engage legal representation in relation to this proceeding. Since the commencement of the proceeding, the Respondents have frequently failed to comply with provisions of the Federal Court Rules 2011 (Cth) and the programming orders of the Court, and failed to engage with the Secretary.

42    Having consented to an order to file and serve a Concise Response to the Secretary’s Concise Statement by 17 December 2021, the Respondents failed to do so and sought no extension. The Respondents did not respond to correspondence from the Secretary’s legal representative sent in December 2021 and January 2022 in relation to the Concise Response.

43    On 7 February 2022, the Respondents consented to orders requiring them to file a Concise Response within 2 weeks, failing which the Secretary would have leave to file an application for default judgment. On that same date, the Second and Third Respondents informed the Secretary’s legal representative that a solicitor had been instructed to act on the Respondents’ behalf.

44    On 8 March 2022, in response to a request from the Respondents’ legal representative, the Secretary agreed to allow the Respondents until close of business on 15 March 2022 to file their Concise Response, failing which the Secretary would file its application for default judgment. No Concise Response was filed or served as ordered.

45    By interlocutory application dated 16 March 2022, the Secretary made an application for default judgment against the Respondents. On 6 April 2022, at the hearing in respect of that application, the Respondents consented to the declarations and injunctive orders set out at paras [1]–[2] above. The issue of pecuniary penalty was set down for hearing on 2 June 2022.

46    By correspondence dated 12 May 2022, the Secretary informed the Respondents of the quantum of pecuniary penalty that it would be seeking and requested that the Respondents notify the Secretary by 19 May 2022 of any reason why the Respondents might contend that the penalties sought would not be appropriate. The Respondents did not respond to that correspondence.

47    In their submissions to the Court in respect of this penalty hearing, the Respondents conveyed that their experiences had been painful and had caused great damage not only to what they described as their “new business” but also to the personal lives of the Second and Third Respondents. The Court accepts that the Second and Third Respondents were confused about their obligations under the TG Act and became overwhelmed by their situation. They feel embarrassment and shame. The Court also accepts that the contraventions arose as a result of the inexperience of the Respondents rather than a deliberate attempt to circumvent the requirements of the Exemption.

Pecuniary Penalty

48    The Secretary has applied to the Court for an order that the First, Second and Third Respondents each pay a pecuniary penalty as a result of their respective contraventions of the civil penalty provisions of the TG Act. As the Court is satisfied that each of the First, Second and Third Respondents contravened a civil penalty provision, the Court is empowered under s 42Y(2) to order each of them to pay to the Commonwealth a pecuniary penalty for each contravention in an amount that the Court determines appropriate. Relevantly, the penalty amount cannot exceed the maximum penalty provided for in s 41MNC.

49    The maximum penalty for each contravention of s 41MNC is 5,000 penalty units for an individual and 50,000 for a body corporate. By reason of s 42YC, a person who aids, abets, counsels or procures a contravention of s 41MNC (being a civil penalty provision) is treated as if they themselves had contravened s 41MNC. For the purposes of a law of the Commonwealth, a “penalty unit” is defined in s 4AA of the Crimes Act 1914 (Cth). Relevantly, for contraventions occurring from 1 July 2020, a penalty unit is $222. Therefore, the maximum penalty for each contravention of s 42MNC is:

(a)    as against the First Respondent: $11.1 million; and

(b)    as against each of the Second and Third Respondents: $1.11 million.

Purpose of civil penalties

50    The purpose of a civil penalty regime is primarily, if not solely, to promote the public interest in compliance with the provisions of the Act by deterring further contraventions of the Act: Australian Building and Construction Commissioner v Pattinson (2022) 399 ALR 599; [2022] HCA 13 at [9]–[10]. In Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482; [2015] HCA 46 (the Agreed Penalties Case), French CJ, Kiefel, Bell, Nettle and Gordon JJ said (at [24]):

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 … 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.

51    Unlike criminal sentences, civil penalties are imposed primarily, if not solely, for the purpose of deterrence: Pattinson 399 ALR 599 at [15]. Deterrence in this context is not just deterrence of the repetition of the conduct by the contraveners before the Court but also general deterrence of others who might be tempted to contravene the Act. As the Full Court said in Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (2016) 340 ALR 25; [2016] FCAFC 181 at [152]:

If it costs more to obey the law than to breach it, a failure to sanction contraventions adequately de facto punishes all who do the right thing. It is therefore important that those who do comply see that those who do not are dealt with appropriately. This is, in a sense, the other side of deterrence, being a dimension of the general deterrence equation. This is not to give licence to impose a disproportionate or oppressive penalty, which cannot be done, but rather to recognise that proportionality of penalty is measured in the wider context of the demands of effective deterrence and encouraging the corresponding virtue of voluntary compliance.

52    A Court must ensure that the civil penalty it imposes strikes a reasonable balance between deterrence and oppressive severity: Pattinson 399 ALR 599 at [41]. A civil penalty should be no greater than is necessary to secure the object of deterrence. A penalty greater than is necessary to achieve this would be oppression. At the same time, a civil penalty must be fixed with a view to ensuring that the penalty is not such as to be regarded by contravener or others as an acceptable cost of doing business: Pattinson 399 ALR 599 at [17].

Relevant Matters

53    In determining a pecuniary penalty, s 42Y(3) of the TG Act requires the Court to have regard to “all relevant matters” and to four particular matters:

(a)    the nature and extent of the contravention;

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

(c)     the circumstances in which the contravention took place; and

(d)     whether the person has previously been found by the Court in proceedings under [the TG] Act to have engaged in any similar conduct.

54    Further factors which may be of assistance in determining a penalty of an appropriate deterrent value were summarised by French J (as his Honour then was) in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 at 52,152–3; [1990] FCA 762 at 45 in the following terms:

1.    The nature and extent of the contravening conduct.

2.    The amount of loss or damage caused.

3.    The circumstances in which the conduct took place.

4.    The size of the contravening company.

5.    The degree of power it has, as evidenced by its market share and ease of entry into the market.

6.    The deliberateness of the contravention and the period over which it extended.

7.    Whether the contravention arose out of the conduct of senior management or at a lower level.

8.    Whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention.

9.    Whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention.

55    The first three of these factors (which also appear in s 42Y(3)) are measures of the scope and impact of the conduct. The remaining factors pertain to the character of the contravenor: Pattinson 399 ALR 599 at [19].

56    This list of possible factors is not a rigid legal checklist. The Court’s task is to determine an appropriate penalty in the circumstances: Pattinson 399 ALR 599 at [19].

SUBMISSIONS Of the parties

57    The Secretary accepted that the conduct involved was at the lower end of offending and did not warrant a penalty even close to approaching the maximum. The Secretary sought pecuniary penalties against the First Respondent in the sum of $100,000 and against each of the Second and Third Respondents in the sum of $10,000.

58    On behalf of the Respondents, it was submitted that appropriate penalties were:

(a)    $5,000 for the First Respondent; and

(b)    $1,000 for each of the Second and Third Respondents.

Consideration

59    For the reasons that follow, I have determined that:

(a)    the First Respondent be liable to pay a pecuniary penalty in the sum of $80,000; and

(b)    each of the Second and Third Respondents be liable to pay a pecuniary penalty in the amount of $8,000.

60    The Court rejects the submissions of the Respondents in relation to the appropriate quantum of penalty for two principal reasons:

(a)    First, fixing a penalty amount at $5,000 for the First Respondent and at $1,000 for each of the Second and Third Respondents would not promote deterrence and would be manifestly inadequate to deter like conduct by others. A penalty devoid of sting or burden may not have much, if any, specific or general deterrent effect, and so it will be unlikely, or at least less likely, to achieve the specific and general deterrent effect that are the raison d’être of its imposition: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157; [2018] HCA 3 at [116].

(b)    Second, fixing a penalty at an amount less than that provided for in the Infringement Notice would run counter to the legislative scheme. Section 41MNC was inserted into the TG Act by the Therapeutic Goods Amendment (Medical Devices and Other Measures) Act 2009 (Cth). The Explanatory Memorandum which accompanied the introduction to Parliament of the Therapeutic Goods Amendment (2007 Measures No. 1) Bill 2017 (Cth) described the intention behind the introduction of the infringement notice regime as a means to provide a viable and appropriate alternative to civil penalty proceedings. An infringement notice is intended to be a lesser remedy to an alleged contravention, involving no admission of guilt. In the circumstances, fixing a penalty amount lower than the Infringement Notice would involve error: ASIC v Superannuation Warehouse Australia Pty Ltd (2015) 109 ACSR 199; [2015] FCA 1167 at [95]. I have had regard to the relativity of the Infringement Notice amount in setting the quantum of penalty in the present case.

The contravention

61    The penalty in the present case relates to a single contravention which was, as the Secretary submitted, “time limited in nature” in the sense that there were subsequent steps taken by the Respondents to have the face masks included in the Register.

62    The Secretary did not identify any particular loss or damage suffered by an individual as a result of the contravention.

63    However, the contravention occurred in August 2020, at a time of a public health emergency caused by the outbreak of COVID-19. The public health measures at the time had resulted in the imposition of restrictions and a lockdown in Melbourne. The wearing of face masks, when leaving home, became mandatory for people living in metropolitan Melbourne. There was high demand for face masks and, if they were to achieve the objective of curbing the spread of the virus, it was critical that the masks be of appropriate quality and safety. At the same time, the Department was trying to ensure adequate supplies of personal protective equipment across the country. The Exemption provided relief from requirements of the TG Act directed at providing regulatory oversight prior to importation, but only where the Department (or another agency acting on its behalf) was the contracting party. The effect of the importation of the face masks by the First Respondent without complying with the Condition was to hinder the efforts of the Department and to circumvent the checks put in place to ensure face masks were suitable for their intended use. By circumventing the requirements of the TG Act, the effect of the contravening conduct was to create a risk of harm to public health during the COVID-19 pandemic.

The contravenors

64    The contravention in this case was by persons who were inexperienced in dealing with therapeutic goods and were unfamiliar with the requirements of the TG Act. Although their acts relating to the importation of the masks were intentional, their contravention of the TG Act was not. The Respondents have not previously been found by the Court in proceedings under the TG Act to have engaged in any similar conduct.

65    Once the face masks arrived in Australia, the Respondents did take steps to have the face masks included in the Register. However, thereafter they failed to engage properly with the Department. It appears to the Court that they became overwhelmed and confused by the regulatory regime and, rather than engage with the Department, closed their eyes to their predicament. Although the Respondents did not contest the Infringement Notice, they appear instead to have chosen to ignore it. The Court was not provided with any explanation for the First Respondent’s failure to pay the Infringement Notice. The failure to pay the Infringement Notice is a matter that I have taken into account: see Superannuation Warehouse 109 ACSR 199 at [94].

66    The Court was not provided with any explanation for the Respondents’ failure to promptly engage legal representation once proceedings had commenced or to take steps to comply with the orders made in this proceeding.

67    The Court was provided with little evidence of the net income and net assets of the First Respondent. The statements in the Respondents’ submissions regarding their financial position were conflicting and difficult to understand. On the one hand, they submitted that the business had collapsed and on the other hand submitted that the First Respondent is a small business with a current turnover of $50,000 per annum. The Respondents submitted that they had suffered a financial loss of at least $70,000 as they were unable to sell the masks and the company sales were approximately $80,000. At the same time, by correspondence dated 18 August 2020, the Respondents stated that they had $100,000 “at stake”. It is unclear whether the $100,000 referred to the cost of the masks or the value of the deposits taken in advance from customers, which deposits were required to be refunded if the masks were not supplied in a timely way. The contemporaneous evidence also suggests that the First Respondent did sell at least 300,000 of the face masks, albeit these face masks were sold after the Respondents had them included in the Register (and prior to the cancellation of that registration).

68    Notwithstanding the difficulties in reconciling the statements in the Respondents’ submissions concerning their financial affairs, the Court accepts that the First Respondent’s business is modest and accepts the Respondents’ submission that they have suffered reputational damage.

Deterrence

69    A review of the history of this proceeding shows that, notwithstanding the failure of the Respondents to properly engage with the Secretary over the course of the proceeding and indeed more generally, the deterrence of principal importance in the present case is not specific deterrence. Whilst it may be accepted that the Respondents have not disclaimed undertaking further business and, as the chronology of events shows, have engaged in other conduct which has raised the concern of the regulator, the distress exhibited by the Respondents to the Court suggests that the Respondents are unlikely to seek to import medical devices or therapeutic goods in the future. Furthermore, the Respondents have consented to injunctions restraining them from engaging in similar conduct.

70    However, general deterrence is of critical importance in the present case. The Respondents’ contraventions arose from a lack of knowledge of the regulatory regime and a lack of appropriate precautionary steps to ensure compliance. It is important that the imposition of a penalty not be seen as a viable commercial alternative to taking appropriate steps to ensure compliance in relation to the importation of regulated medical devices.

71    It is the function of the Department and, in particular, the TGA to regulate goods which impact public health in order to achieve compliance. Accordingly, it is to be expected that the Department will be in a position to offer informed submissions as to the wider effects of contravention and the level of penalty necessary to achieve compliance: Agreed Penalties Case at [60] (per French CJ, Kiefel, Bell, Nettle and Gordon JJ), citing NW Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285 at 290–295; [1996] FCA 1134 at 9–21; see also Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2017) 254 FCR 68; [2017] FCAFC 113 at [172]. The plurality in the Agreed Penalties Case observed that “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”: at [61].

72    The sum of $100,000 was submitted by the Secretary to be an appropriate penalty in respect of the First Respondent. The sum appears to have had its origins in the email of 18 August 2020. As explained above at para [67], the meaning of the reference to “100K at stake” is not entirely clear.

73    The Secretary submitted that the revenue generated from the sale of the masks was likely a multiple of the $100,000 figure referred to in the email of 18 August 2020. The Secretary based this submission on a screenshot of the First Respondent’s website from 2 October 2020 which appeared to show the face masks for sale at $0.95 each. Based on this advertised sale price, the Secretary estimated that the potential revenue anticipated from the sale of the masks was in the order of $475,000. This amount of potential revenue assumes all the face masks would be sold. The Third Respondent’s email of 5 February 2021 does not support this assumption. The amount of profit or revenue generated from the sale of the masks is not known.

74    Furthermore, although the profit derived from the contravening conduct may be a factor relevant to the determination of a civil pecuniary penalty (see, eg, Viagogo AG v Australian Competition and Consumer Commission [2022] FCAFC 87 at [161]), in the particular circumstances of this case, the link between the contravening conduct and the revenue or profit generated from the sale of the face masks is more difficult to draw. Between the time of the contravening importation and the sale of the masks, the Respondents did have the masks included in the Register. As the TGA’s correspondence of 23 December 2020 stated, from the time of their inclusion in the Register the face masks could be lawfully imported, advertised and supplied. The profit or revenue generated from the sale of the face masks could not, in these circumstances, be accurately described as a benefit accruing by reason of the contravention.

Conclusion

75    The determination of the quantum of a pecuniary civil penalty is a matter of “instinctive synthesis”, involving an integrated and holistic approach to the weighing up of the relevant factors into a final result: see, eg, Reckitt Benckiser 340 ALR 25 at [44]. The pecuniary penalty needs to reflect an assessment of what be considered reasonably appropriate to protect the public interest by deterring future contraventions of the TG Act: Pattinson 399 ALR 599 at [71].

76    Having regard to the circumstances, I consider that a pecuniary penalty of $80,000 in respect of the First Respondent and $8,000 for each of the Second and Third Respondents to be appropriate. The contraventions related to a singular event that was time limited and is unlikely to have been the cause of any damage. The issue of the Infringement Notice was a recognition by the Department that this contravention was at the lower end of offending. A pecuniary penalty in this amount accords relativity to the Infringement Notice amount in a manner not inconsistent with the purpose of the legislative scheme and recognises the contravention is not trivial in its implications for the regulatory scheme. Ignorance of the requirements of the TG Act and regulations, and inexperience in dealing with the regulatory regime, are not an excuse. Those who wish to engage in business involving therapeutic goods have a responsibility to be aware of the applicable statutory scheme and to comply with the relevant regulatory requirements (Secretary, Department of Health v Oxymed Australia Pty Ltd (2021) 397 ALR 241; [2021] FCA 1518 at [251]).

77    The Secretary is entitled to its costs in this matter. The Court notes that the failure to pay the Infringement Notice issued to the First Respondent, the failure by the Respondents to engage with the Secretary in relation to the proceeding and the failure to comply with the orders of the Court to prepare the matter for hearing likely resulted in the incurrence by the Secretary of unnecessary costs.

Associate:

Dated:    27 July 2022