Federal Court of Australia

Australian Competition and Consumer Commission v Lactalis Australia Pty Ltd (No 2) [2023] FCA 839

ORDERS

THE COURT ORDERS THAT:

1.    Pursuant to s 76 of the Competition and Consumer Act 2010 (Cth) the respondent pay to the Commonwealth of Australia:

(a)    a pecuniary penalty of $50,000 for the respondent’s contravention of s 12 of the Competition and Consumer (Industry Codes—Dairy) Regulations 2019 (Cth) (the Dairy Code);

(b)    a pecuniary penalty of $150,000 for the respondent’s nine contraventions of s 13 of the Dairy Code;

(c)    a pecuniary penalty of $750,000 for the respondent’s 384 contraventions of s 17 of the Dairy Code.

2.    There be no order as to costs.

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

REASONS FOR JUDGMENT

DERRINGTON J:

Introduction

1    By a decision delivered on 16 September 2022 in Australian Competition and Consumer Commission v Lactalis Australia Pty Ltd [2022] FCA 1087 (ACCC v Lactalis), this Court concluded that Lactalis Australia Pty Ltd (Lactalis) had contravened certain provisions of the Competition and Consumer (Industry Codes—Dairy) Regulations 2019 (Cth) (the Dairy Code) and made declarations in relation to those contraventions. Other contraventions alleged by the Australian Competition and Consumer Commission (ACCC) were found not to have been established. Following that determination, directions were made for the filing of submissions in relation to the appropriate penalty, if any, to be imposed by the Court. A hearing in relation to the question of penalty occurred on 16 March 2023 and these reasons deal with that issue.

Background

2    The background to the contraventions that were found to have occurred is set out in ACCC v Lactalis. It does not bear repeating, except insofar as it is necessary to give context to the consideration of each of those contraventions for the purposes of assessing the appropriate penalties. It is, however, relevant to observe, generally, that the contraventions in question related to the content of Milk Supply Agreements (MSAs), which Lactalis was required to, but did not, publicise at a particular time. More specifically, the contraventions that were found to have occurred can be summarised as follows:

(a)    by failing to publish its 2020/21 financial year standard form MSAs on its website at or before the publication deadline of 2pm on 1 June 2020, Lactalis contravened s 12(2) of the Dairy Code (Non-Publication Contravention);

(b)    from 17 June 2020, by publishing on its website standard form MSAs that contained clauses that, in combination, had the effect of permitting Lactalis to unilaterally terminate in circumstances that did not involve a material breach by a farmer, Lactalis contravened s 13 of the Dairy Code (Termination Clause / Publication Contraventions); and

(c)    from 1 January 2020 to 14 January 2021, by entering into MSAs containing the clauses referred to in (b), which permitted unilateral termination in circumstances that did not involve a material breach by a farmer, Lactalis contravened s 17 of the Dairy Code (Termination Clause / Contract Entry Contraventions).

3    As is immediately apparent, the contraventions in (b) and (c) are closely linked. Indeed, they might be considered to be inextricably linked, insofar as the Dairy Code effectively required a milk processor, such as Lactalis, to enter into those MSAs that it published. That appears to be because the published MSAs were the standard form agreements that the processor signalled that it was prepared to enter into if a farmer wished it to do so.

The power to impose a civil penalty

4    The Court’s power to impose a civil penalty in relation to contraventions of the Dairy Code arises under s 76(1)(a)(iv) of the Competition and Consumer Act 2010 (Cth) (CCA), which provides that, if the Court is satisfied that a person has contravened a civil penalty provision of an industry code, it may order the person to pay such pecuniary penalty in respect of each act or omission by the person to which s 76 applies as it determines to be “appropriate” having regard to all “relevant matters”. The relevant matters are identified as including:

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

(b)    the circumstances in which the act or omission took place; and

(c)    whether the person has previously been found by the Court in proceedings under Part VI or Part XIB of the CCA to have engaged in any similar conduct.

Principles relating to the imposition of civil penalties

5    It is convenient at this point to consider the principles relating to the imposition of civil penalties, especially in light of the decision of the High Court in Australian Building and Construction Commissioner v Pattinson (2022) 399 ALR 599 (Pattinson). That said, only a brief overview is required in this case because the parties were generally in agreement as to those principles. The differences between them concerned only the degree of emphasis to be attributed to particular considerations.

Deterrence as an overarching objective

6    It is now well established, following Pattinson, that the primary purpose of civil penalties is deterrence, both specific and general: Pattinson at 603 [10], 604 – 605 [15] – [19] per Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ. See also Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482, 506 [55] per French CJ, Kiefel, Bell, Nettle and Gordon JJ, quoting Trade Practices Commission v CSR Ltd [1991] ATPR ¶41-076, 52,152 per French J (TPC v CSR). Recently, in Australian Securities and Investments Commission v Dixon Advisory & Superannuation Services Ltd [2022] FCA 1105 (ASIC v Dixon Advisory), after referring to these cases, McEvoy J explained at paragraph [32] that:

Obviously enough specific deterrence is for the purpose of deterring repetition of the contravening conduct by the contravener and general deterrence is for the purpose of deterring others who might be tempted to engage in similar contraventions: the Agreed Penalties Case at 506 [55] and 523-524 [110]; Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640 … at 659 [65] (French CJ, Crennan, Bell and Keane JJ). Penalties will be imposed to promote the public interest in compliance: the Agreed Penalties Case at 506 [55], referring to TPC v CSR at 52 [152]. The penalty imposed should be no greater than necessary to achieve this objective: Pattinson at 603 [10], 610 [40]; Australian Securities Commission v Donovan (1998) 28 ACSR 583 at 608 (Cooper J).

7    However, in seeking to ensure compliance, the penalty imposed should not be so great as to be oppressive, nor should it be so low as to be regarded by the contravener as “an acceptable cost of doing business”: Pattinson at 605 [17], 610 – 611 [40] – [41], quoting Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249, 265 [62] per Keane CJ, Finn and Gilmour JJ (Singtel Optus v ACCC); Australian Building and Construction Commission v Construction, Forestry, Mining and Energy Union (2018) 262 CLR 157, 195 – 196 [116] per Keane, Nettle and Gordon JJ; Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640, 659 [66] per French CJ, Crennan, Bell and Keane JJ; ASIC v Dixon Advisory [33]. Any penalty should be “proportionate” and “appropriate” so as to strike a balance between oppressive severity and deterrence in the particular circumstances of the case: Pattinson at 610 – 611 [40] – [41], 612 [46]; ASIC v Dixon Advisory [33].

The legislated maximum penalty

8    Relevant to the assessment of an appropriate penalty, calculated to deter any future breach, is the maximum penalty prescribed by the legislature for a contravention of the statutory provision in question. On this issue, the parties to the present case made particular reference to the decision of the Full Court in Australian Competition and Consumer Commission v Employsure Pty Ltd (2023) 407 ALR 302, 312 – 314 [42] – [53] (ACCC v Employsure), which concerned the alleged inadequacy of a pecuniary penalty imposed at first instance. The Court observed at 312 [44], by reference to the judgment of the plurality in Markarian v The Queen (2005) 228 CLR 357, 372 [31], that a primary consideration in determining an appropriate penalty is the maximum that the legislature has indicated might be applied to the relevant contravention. That is because the maximum is an indicator of the legislature’s perception of the seriousness of the worst form of contravention of a provision, and it invites a comparison between the worst possible case and the case before the Court. In addition, it provides an important yardstick, or factor, to be taken and balanced with all of the other relevant factors in the assessment process, such that there must usually be some “reasonable relationship between the theoretical maximum and the final penalty imposed”: Pattinson at 603 [10], 614 [53], [55], quoting Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (2016) 340 ALR 25, 63 [156] per Jagot, Yates and Bromwich JJ (ACCC v Reckitt Benckiser).

9    Nevertheless, it must be kept in mind that the maximum penalty is not reserved for only the most serious of contraventions. In Pattison, the plurality held at 613 [49] – [51]:

49    The Full Court erred in treating the statutory maximum as implicitly requiring that contraventions be graded on a scale of increasing seriousness, with the maximum to be reserved exclusively for the worst category of contravening conduct. Nothing in the text of s 546, or its broader context, requires that the maximum constrain the statutory discretion in this way.

50    This Court’s reasoning in the Agreed Penalties Case is distinctly inconsistent with the notion that the maximum penalty may only be imposed in respect of contravening conduct of the most serious kind. Considerations of deterrence, and the protection of the public interest, justify the imposition of the maximum penalty where it is apparent that no lesser penalty will be an effective deterrent against further contraventions of a like kind. Where a contravention is an example of adherence to a strategy of choosing to pay a penalty in preference to obeying the law, the court may reasonably fix a penalty at the maximum set by statute with a view to making continued adherence to that strategy in the ongoing conduct of the contravenor’s affairs as unattractive as it is open to the court reasonably to do.

51     In regarding the statutory maximum penalty as having a role in a civil penalty context as some kind of graduated scale by which contraventions are to be categorised in order of seriousness and corresponding penalty, the Full Court attempted to transplant a concept of retributive justice, the origins of which are to be found in the criminal law, into a civil penalty regime in which retribution has no role to play. This “yardstick” understanding of the maximum penalty, with its focus on the objective seriousness or gravity of a contravention, is reminiscent of retributive notions of “just deserts” and the adage that the punishment should fit the crime.

10    Later, their Honours observed at 614 [55]:

The second point is that the maximum penalty does not constrain the exercise of the discretion under s 546 (or its analogues in other Commonwealth legislation), beyond requiring “some reasonable relationship between the theoretical maximum and the final penalty imposed”. This relationship of “reasonableness” may be established by reference to the circumstances of the contravenor as well as by the circumstances of the conduct involved in the contravention. That is so because either set of circumstances may have a bearing upon the extent of the need for deterrence in the penalty to be imposed. And these categories of circumstances may overlap.

11    Accordingly, the task of applying the principle of deterrence requires that the assessment of the appropriate penalty focuses attention on both the contravenor and the specific contraventions in issue. It is inappropriate to limit the scope of that dual focus by purporting to consider the circumstances and characteristics of the contravenor only to the extent that they can be said to bear upon the seriousness of the contravening conduct: Pattinson at 615 [59].

Course of conduct and totality principle

12    There will necessarily be some tension in applying the principles set out above in relation to the relevance of the maximum penalty to cases where there are multiple contraventions of a particular provision, this being a common scenario in actions brought by regulators. In such circumstances, the Full Court in ACCC v Employsure at 313 [47] quoted with apparent approval a passage from the primary judgment in that case where, in the context of numerous individual contraventions, it was accepted that there was “no sensible aggregate maximum penalty”. That being so, the “course of conduct” principle provided a more useful analytical tool through which to assess the proportionality of any penalty. See also Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540, 558 [82] per Allsop CJ.

13    This “course of conduct” principle has its origins in criminal law, but has been examined and applied on numerous occasions in the context of civil penalties. In Construction, Forestry, Mining and Energy Union v Cahill (2010) 269 ALR 1 (CFMEU v Cahill), Middleton and Gordon JJ explained the principle as follows at 12 [39] (the emphasis appearing in the original):

The principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is “the same criminality” and that is necessarily a factually specific enquiry.

14    In other words, whilst it might ordinarily be expected that separate contraventions arising out of separate acts should attract separate penalties, where those separate acts are inextricably interrelated, scope exists for the Court to view those acts collectively as a single “course of conduct” in respect of which an aggregate penalty might be imposed: Australian Competition and Consumer Commission v Yazaki Corporation (2018) 262 FCR 243, 296 [234] per Allsop CJ, Middleton and Robertson JJ (ACCC v Yazaki). The application of this “tool of analysis” does not have the result that multiple contraventions become one contravention; rather, the multiple contraventions are simply treated as attracting one penalty: ACCC v Yazaki at 294 – 295 [227] – [229], discussing Construction, Forestry, Mining and Energy Union v Williams (2009) 262 ALR 417, 428 [31] per Moore, Middleton and Gordon JJ. Pecuniary penalties can appropriately be consolidated in this way so as to avoid double punishment, notwithstanding the fact that, as emphasised in Pattinson, the overarching purpose of imposing such penalties is deterrence, not punishment: Australian Securities and Investments Commission v Westpac Banking Corporation [2019] FCA 2147 [267] per Wigney J (ASIC v Westpac).

15    The appropriate use of the principle was explained by Beach J in his customarily precise manner in Australian Competition and Consumer Commission v Hillside (Australia New Media) Pty Ltd (No 2) [2016] FCA 698 at paragraph [25], where his Honour said:

[T]he “course of conduct” principle does not have paramountcy in the process of assessing an appropriate penalty. It cannot of itself operate as a de facto limit on the penalty to be imposed for contraventions of the ACL. Further, its application and utility must be tailored to the circumstances. In some cases, the contravening conduct may involve many acts of contravention that affect a very large number of consumers and a large monetary value of commerce, but the conduct might be characterised as involving a single course of conduct. Contrastingly, in other cases, there may be a small number of contraventions, affecting few consumers and having small commercial significance, but the conduct might be characterised as involving several separate courses of conduct. It might be anomalous to apply the concept to the former scenario, yet be precluded from applying it to the latter scenario.

16    Whether the “course of conduct” principle should be applied in a particular case is a factual question to be answered by the Court having regard to all of the relevant circumstances: Australian Competition and Consumer Commission v Jetstar Airways Pty Limited (No 2) [2017] FCA 205 [20] – [21] per Foster J.

17    It has been recognised that the “course of conduct” principle has some overlap with the “totality” principle, which also originates in the criminal sentencing context, in that the aim of the latter is, similarly, to avoid the imposition of a penalty that is disproportionate to the offending conduct: ACCC v Yazaki at 296 [236]. However, the two principles should not be conflated. The “totality” principle is not concerned with avoiding double punishment; it “requires the Court to make a ‘final check’ of the penalties to be imposed on a wrongdoer, considered as a whole, to ensure that the total penalty does not exceed what is proper for the entire contravening conduct”: ACCC v Employsure at 314 [52]. See also Mornington Inn Pty Ltd v Jordan (2008) 168 FCR 383, 397 [42] – [43] per Stone and Buchanan JJ; ASIC v Westpac [269] – [272]. The purpose of this exercise is to ensure that the penalty is “just and appropriate” for the whole of the contravening conduct: Australian Competition and Consumer Commission v Telstra Corporation Ltd (2010) 188 FCR 238, 277 [229] – [230] per Middleton J. See also Australian Competition and Consumer Commission v EnergyAustralia Pty Ltd (2014) 234 FCR 343, 358 [102] per Middleton J (ACCC v EnergyAustralia).

Lack of intent

18    Whilst remaining cognisant of the overarching objective of deterrence, it may be necessary when considering the position of the contravenor to determine whether their contraventions were intentional or accidental, or arose from carelessness or recklessness. This point assumed some significance in the present case, as Lactalis claimed that its contraventions were merely the result of it adopting a reasonable, albeit erroneous, interpretation of the Dairy Code. It was said to follow that no penalty, or perhaps a lower penalty, might be appropriate. It referred, in support of that contention, to the observations of Gordon J in CEEEIPPAS Union of Australia v Telstra Corporation Ltd (2007) 168 IR 368, 373, where her Honour stated at paragraph [18] that:

Where the unlawful conduct arises out of an arguable but erroneous construction of a relevant term, and the subsequent breach cannot be characterised as demonstrating a flagrant or wilful disregard for the [industrial] agreement, th[e] legislative purpose [of general and specific deterrence] is not furthered by imposition of a penalty.

19    Similar comments were made by Bromberg J in Australian Building and Construction Commissioner v Powell (No 2) [2019] FCA 972. At paragraph [35] of that judgment, his Honour quoted several cases for the “well settled” proposition that “an honest and reasonable belief may be a relevant mitigating or ameliorating factor in determining whether or not a penalty is to be imposed and, if so, the extent of the penalty imposed”. His Honour proceeded, at paragraph [36], to explain that “[a] contravention based on a mistaken belief of the law is mitigatory principally because that circumstance is likely to either diminish or negate the need for specific and/or general deterrence”.

20    It is important, however, not to attempt to abstract from these authorities any general principle to the effect that a contravenor’s reasonable misunderstanding of its liability position in circumstances that give rise to a civil penalty should constitute a sufficient excuse, or that the conduct in question should necessarily attract only a light penalty. As recognised by the Full Court in Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) (2018) 260 FCR 68, 85 – 86 [63], any mitigatory effect ultimately attributed to such a misunderstanding will reflect a “factual evaluative conclusion”, necessarily drawn in the specific circumstances of the individual case. Their Honours proceeded at 86 [64], along similar lines, to note that there is no inflexible rule as to the manner in which a contravenor’s bona fide belief in the “innocence” of its conduct might operate as an ameliorating consideration. Whilst the need for specific deterrence may be lessened in this scenario, in that the contravenor will now have been disabused of its mistaken belief, this represents no more than a factor to be taken into account in the broader multi-factorial decisional process. There is certainly no basis to suggest that, wherever a party has acted honestly but mistakenly, no penalty should be imposed.

Other matters

21    Section 224 of the Australian Consumer Law (being Sch 2 to the CCA) is cast in terms relatively similar to s 76 of the CCA. Importantly, both of those provisions require a pecuniary penalty to be imposed having regard to “all relevant matters”, and essentially the same “relevant matters” appear in the text of the provisions (as set out above in relation to s 76). In addition, several further factors have been identified in the case law as having potential significance under both provisions to the determination of an appropriate penalty. They were listed by Perram J at first instance in Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 4) (2011) 282 ALR 246, 250 – 251 [11], and referred to without disapproval by the Full Court on appeal: Singtel Optus v ACCC at 258 [37]. More recently, they were set out by Edelman J in Australian Competition and Consumer Commission v Woolworths Limited [2016] FCA 44 [124] as follows:

(1)     the size of the contravening company;

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

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

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

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

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

(7)     the financial position of the contravener; and

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

22    After setting out a similar list, drawn from the judgment of French J in TPC v CSR at 52,152 – 52,153, the plurality in Pattinson cautioned at 605 [19] that:

It is important … not to regard the list of possible relevant considerations as a “rigid catalogue of matters for attention” as if it were a legal checklist. The court’s task remains to determine what is an “appropriate” penalty in the circumstances of the particular case.

23    It was not suggested by Lactalis that any of the factors listed above might not appropriately be taken into account where relevant in the present circumstances. Both parties made submissions as to the effect that these factors might have on the appropriate penalty in this case. The content of each factor is considered below.

The evaluation process

24    It is presently settled by authority that the task of determining an appropriate penalty is one of “multifactorial decision-making, where the result is arrived at by a process of ‘instinctive synthesis’”: ACCC v Reckitt Benckiser at 37 – 38 [44]. This task involves the identification, weighing and balancing of all relevant factors, as opposed to any sequential, mathematical exercise by which additions or subtractions are applied to a predetermined range of penalties: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2017) 254 FCR 68, 88 – 89 [100] per Dowsett, Greenwood and Wigney JJ; Wong v The Queen (2001) 207 CLR 584, 611 – 612 [74] – [76] per Gaudron, Gummow and Hayne JJ. That being so, it is obvious that the methodology for determining a penalty in no way equates to an exact science, even if it does require some logical and rational basis.

25    Whilst all of that may be accepted, and there was no argument about it in this case, the foregoing does not preclude the Court from adopting a process of reasoning that involves the addressing of each relevant factor or circumstance, as identified above, in a free-standing manner. Indeed, it is desirable to understand the nature, scope and relevance of each individual factor before those factors are united in a singular decisional analysis within which the appropriate penalty is finally determined.

Application to the circumstances of the present case

26    Having set out what appear to be relatively uncontroversial principles, it is now appropriate to turn to their application in the present circumstances.

27    The ACCC submitted that, weighing the relevant factors and taking into account the circumstances of the contravenor and the contraventions, the penalties imposed on Lactalis should be:

(a)    in relation to the Non-Publication Contravention, a penalty of $63,000 for a single contravention, which is the maximum amount;

(b)    in relation to the Termination Clause / Publication Contraventions, a penalty of $250,000 for nine contraventions which were said to comprise a course of conduct; and

(c)    in relation to the Termination Clause / Contract Entry Contraventions, a penalty of $1,000,000 for 384 contraventions which were said to comprise another separate course of conduct.

28    The total amount of the penalties for the three types of contravention would then be $1,313,000.

29    By contrast, Lactalis submitted that the total amount of the penalties should be $215,000, comprising:

(a)    $15,000 for the single Non-Publication Contravention;

(b)    $50,000 for the course of conduct made up of the Termination Clause / Publication Contraventions; and

(c)    $150,000 for the course of conduct made up of the Termination Clause / Contract Entry Contraventions.

The maximum penalty

30    The ACCC’s written submissions helpfully calculated the maximum penalties that could be imposed for the several contraventions.

31    Pursuant to s 76(1A) of the CCA, the maximum pecuniary penalty for a body corporate in respect of each act or omission constituting a contravention of a civil penalty provision of an industry code is the amount set out in that civil penalty provision of the industry code. Here, the relevant maximum penalty prescribed by the applicable civil penalty provisions of the Dairy Code was, in each case, 300 penalty units.

32    Prior to 1 July 2020, the value of one penalty unit was $210. From that date until the conclusion of the conduct relevant to this case, the value of one penalty unit was increased to $222. Accordingly, for each of Lactalis’ contraventions committed prior to 1 July 2020, the maximum penalty that can be imposed is $63,000. For each contravention occurring after that date, the maximum is $66,600.

33    In relation to the Non-Publication Contravention, Lactalis failed to comply with s 12(2) of the Dairy Code, in that it failed to publish on its website from 2pm on 1 June 2020 one or more standard form MSAs into which it was prepared to enter. As discussed in ACCC v Lactalis, this contravention related to all of Lactalis’ MSAs, since Lactalis did not publish any on its website by the relevant deadline. Instead, it made them available through a process by which persons (including farmers) could fill out a form on its website and then receive a copy of a standard MSA by email. The ACCC submitted that the conduct was properly to be viewed as one contravention of s 12(2), rather than a series of contraventions for each of Lactalis’ MSAs. There was no demur to that submission, and it is appropriate to proceed accordingly. Therefore, there was only one contravention that occurred prior to 1 July 2020, such that the corresponding maximum penalty is $63,000.

34    The Termination Clause / Publication Contraventions concerned the nine instances in which Lactalis published on its website standard form MSAs that, if entered into, would not comply with the Dairy Code. This conduct amounted to a contravention of s 13. The nine boilerplate MSAs in question each contained certain clauses that, when taken together, permitted Lactalis to terminate the agreement unilaterally if the farmer engaged in “public denigration of processors, key customers or other stakeholders”, even if that did not amount to a “material breach” of the MSAs. Pursuant to s 34(2) – (3) of the Dairy Code, an MSA could only permit a processor to terminate unilaterally in circumstances where there had been a material breach by the farmer. Of the nine MSAs published on Lactalis’ website, it seemed to be accepted that seven were published prior to 1 July 2020 whilst two were published afterwards. On that basis, the maximum penalty that can be imposed in relation to the Termination Clause / Publication Contraventions is $574,200.

35    The third set of contraventions, being the Termination Clause / Contract Entry Contraventions, was related to the second. Lactalis’ publication of the nine boilerplate MSAs led to its entry into 384 MSAs that contained the clauses prohibited by s 34(2) – (3). Its entry into each of those MSAs constituted a breach of s 17, which provided that a processor must not enter into an MSA that did not comply with the Dairy Code. Of the 384 MSAs, 170 were entered into prior to 1 July 2020 and 214 were entered into subsequently. If the maximum penalty was imposed for each individual contravention, the total penalty would be $24,962,400.

36    Quite properly, the ACCC submitted that each of the Termination Clause / Publication Contraventions and the Termination Clause / Contract Entry Contraventions should not be the subject of an individual penalty at the maximum level, as this would result in an excessive outcome. It submitted that, although “the total maximum available penalty is one factor to be considered, the appropriate penalty is best assessed by reference to other relevant factors”: ACCC v Reckitt Benckiser at 63 – 64 [157]; Australian Competition and Consumer Commission v STA Travel Pty Ltd [2020] FCA 723 [33] – [35] per O’Bryan J.

Course of conduct

37    Necessarily, the conclusion reached in respect of the maximum penalty directs attention to the principle relating to “course of conduct” offending. In the present case, the imposition of a single penalty in relation to a course of contravening conduct is appropriate because a number of the individual contraventions are inextricably interrelated to one another: ACCC v Yazaki at 296 [234], quoting CFMEU v Cahill at 12 [39].

38    It was not seriously suggested that the Non-Publication Contravention was inextricably linked to, or interrelated with, the other contraventions and it can be put to one side for the present purposes.

39    It was, however, accepted by both parties that the Termination Clause / Publication Contraventions and the Termination Clause / Contract Entry Contraventions each constituted a separate course of conduct, and it is appropriate to proceed on that basis.

40    The publication by Lactalis of the non-compliant MSAs occurred at around the same time and in the same manner. There is little difficulty in conceptualising the relevant events as one act of publication of the standard form MSAs that Lactalis intended farmers to enter into. Each of the relevant MSAs was in a similar form, in that they all included the same clause structure affording Lactalis a unilateral right of termination, able to be exercised in circumstances not involving a material breach by a farmer, contrary to s 34(2) – (3) of the Dairy Code.

41    Similarly, Lactalis engaged in a single course of conduct when entering into the 384 MSAs. That conduct, again, occurred at around the same time, as one element of Lactalis’ business arrangements for the following year, and all of the contracts contained the same problematic clause structure purporting to confer a unilateral right of termination for an immaterial breach.

42    Notwithstanding the apparent agreement of the parties that the Termination Clause / Publication Contraventions and the Termination Clause / Contract Entry Contraventions constituted separate courses of conduct, there was some question as to whether the publication of, and the entry into, the MSAs were better understood together as a single course of conduct. This question arose, essentially, from the structure of s 12 of the Dairy Code. It can be taken from that provision that a processor bound by the Dairy Code (such as Lactalis) must only publish those standard form MSAs into which it is prepared to enter for the next financial year. It would seem to follow that, if a processor publishes its MSAs and thereafter contracts with a farmer for the supply of milk during the next financial year, it will almost necessarily be contracting on the terms of an MSA that it has published (subject to possible negotiation and amendment). In this way, there is a significant interrelationship between the publication of a standard form MSA and the processor’s subsequent entry into an MSA, and a commensurate interrelationship between the prohibition on the publication of a non-compliant MSA under s 13 and the prohibition on the entry into a non-compliant MSA under s 17.

43    The ACCC submitted that the Termination Clause / Publication Contraventions and the Termination Clause / Contract Entry Contraventions should not be treated as component parts of the same course of conduct because ss 13 and 17 of the Dairy Code serve legally distinct purposes. In broad terms, that might well be so. However, at least some part of the purpose of each section would appear to be to prevent processors and farmers from entering into MSAs that contain clauses that are proscribed by other provisions of the Dairy Code. On the other hand, the publication prohibition in s 13 probably has a further distinct purpose, in that it allows the farmers an opportunity to critically evaluate the range of standard form MSAs that are available to them from different processors, without the concern that any of those MSAs is not compliant with the Dairy Code.

44    Ultimately, there is sufficient justification to proceed upon the basis that the Termination Clause / Publication Contraventions and the Termination Clause / Contract Entry Contraventions are to be treated as separate courses of conduct, and this is particularly so since Lactalis did not suggest to the contrary. Therefore, the consideration of the appropriate penalty should be approached on the understanding that, although there may have been multiple transactions involving both types of contravention together, the two should not be considered constituent parts of a single course of contravening conduct.

Size and financial position of Lactalis

45    The size and financial position of a contravenor are permissible considerations, especially given the objective of specific deterrence: “[w]hat would deter a small company might have little effect on a very large one”: NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, 293 per Burchett and Kiefel JJ, quoting Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR ¶41,375, 40,168 per Burchett J.

46    Here, Lactalis is one of Australia’s largest dairy processing companies and a significant participant in the Australian dairy industry. In 2020, it purchased approximately 950 million litres of milk (being approximately 11% of Australia’s total raw milk production) and contracted with over 400 farmers across all of Australia’s major dairy farming regions. It is a substantial employer, directly employing over 2,500 people across Australia.

47    It also has substantial revenues. In 2020 and 2021, it earned revenue of approximately $1.917 billion and $1.914 billion, respectively. The value of its assets as at 31 December 2021 totalled $1.315 billion, and its liabilities were $603 million.

48    However, its profits in 2020 and 2021 were approximately $32,766,000 and $44,342,000, respectively. In that sense, whilst its revenues were high, so were its expenses. In particular, its costs included approximately $1 billion spent on acquiring milk from farmers.

49    The ACCC submitted that gross revenue was an appropriate metric in relation to the question of the size of any appropriate penalty and sought support for that proposition from the decision of O’Bryan J in Australian Competition and Consumer Commission v Uber B.V. [2022] FCA 1466 (ACCC v Uber). There, at paragraph [115], his Honour said:

115     The financial metrics of the respondent also provide a useful benchmark when considering the amount of penalty to be imposed for each contravening act or omission. In particular, it can be helpful to compare the amount of penalty to be imposed for each contravening act or omission with the financial return earned by the respondent in respect of each act or omission, whether measured in terms of revenue or net income. Such a comparison assists the Court in assessing whether the penalty may be regarded by the respondent as a cost of doing business as opposed to a deterrent against future contraventions.

50    Later, at paragraph [129], his Honour compared the amount of the intended penalty with the gross revenue from fares received by Uber in connection with the contravening conduct.

51    Whilst that may have been appropriate in the circumstances before O’Bryan J, it does not appear to be so in this case. In ACCC v Uber, it was accepted by his Honour (at paragraph [113]) that a considerable portion of the gross profit received by the Australian entities in the Uber Group was paid to related companies overseas by way of a “service fee”. There is no suggestion of profit shifting or transfer pricing in this case, where Lactalis’ revenues are only offset by expenses that one might ordinarily expect to be incurred by a domestic dairy processor.

52    Here, in considering the extent to which the penalty will impact Lactalis given its size, the appropriate metric is annual profit. The penalty will necessarily reduce the company’s profit and the extent to which it does so is the relevant consideration. It is a measure of the extent to which the penalty will have any “sting”.

53    The penalty suggested by the ACCC would equal approximately 4% of Lactalis’ profit in 2020, being the year in which the majority of the contraventions took place. On any view, that is a substantial portion of the company’s profit and would no doubt be felt by the company’s members. It was suggested in Lactalis’ written submissions that this would be the equivalent of imposing on the Commonwealth Bank a penalty of around $400,000,000, the implicit suggestion being that the penalty would be out of all proportion to the nature of the contraventions. Whilst that comparison might initially be effective to cause concern about the size of the ACCC’s suggested penalty, on closer scrutiny, it cannot be regarded as a valid point of reference. Whether, in any particular case, a penalty of that size should be imposed upon one of the major banks in this country would depend upon the nature of the contraventions committed and all other relevant circumstances. It may well be that a penalty of that quantum could be justified. That, however, is irrelevant to the present discussion. As has been observed previously in this Court, “differences in the facts and circumstances which underlie different cases mean that there is usually little to be gained by comparing the penalties imposed in other litigation”: Australian Securities and Investments Commission v Westpac Banking Corporation (2022) 407 ALR 1, 27 [140] per Beach J. That point can only be made more forcefully where the suggested comparator is entirely hypothetical.

54    Nevertheless, the annual profit is the appropriate focus in this case, and it is relevant to observe that the penalty sought by the ACCC reflects a not insignificant proportion of that profit. That observation provides one indication that the suggested penalty of $1,313,000 could be at the higher end of the appropriate range.

55    The ACCC also submitted that consideration should be given to the size of the Lactalis Group, which holds itself out as the world’s “largest global food group”, with a recorded revenue of €22 billion in the 2021 financial year. However, no justification was given as to why the financial impact on the revenue of the group as a whole, or a comparison between the group’s revenue and the penalty suggested, should be taken into account. Such matters have little apparent bearing on the question of how much Lactalis should be penalised for its contraventions of the Dairy Code. There was no suggestion that any other company in the Lactalis Group was involved in the contraventions, or that the contraventions were somehow the product of some policy or practice of that group. Relevantly, in ACCC v Uber, O’Bryan J accepted (at paragraph [111]) that, because the conduct in question in that case occurred in Australia, it was more appropriate to have regard to the size and financial position of the Australian business of the Uber Group, notwithstanding the fact that this was only a “comparatively smaller” part of a much larger business being conducted on a global scale.

56    The ACCC further contended that Lactalis’ size should be taken into account on the basis that the Dairy Code was introduced to alleviate what was said to be power imbalances in the industry, and that Lactalis was a particular beneficiary of those imbalances. With respect, that submission assumes too much. There was no evidence to the effect that Lactalis derived any such benefit and, even if it had, that would not be a reason, in and of itself, to impose a greater penalty. There is nothing in the text or context of the Dairy Code to suggest that it should be applied more harshly against larger processors, or against any processor that had the benefit of the pre-Code regulatory landscape.

The nature and extent of the contravening conduct

57    In relation to the nature and extent of the contravening conduct, the ACCC made a number of general submissions, seemingly applicable to all three types of contravention that were found to have been established in ACCC v Lactalis, before advancing more specific submissions in relation to each of those three types of contravention. These reasons will approach this factor in the same manner.

The nature and extent of the contraventions generally

58    At the outset, the ACCC submitted that 394 was a significant number of contraventions. That can be accepted, though it should also be acknowledged that all but one of the contraventions had a common basis; that is, the inclusion of the prohibited content in the MSAs that Lactalis made available to farmers.

59    It then submitted that one of the circumstances relevant to the assessment of the quantum of the penalty for the contraventions in this case was that:

… this is the first proceeding brought for contraventions of the Dairy Code (which commenced operation on 1 January 2020). The relevant circumstances in this case therefore include that the Court is being asked to impose the first court-ordered penalties for contraventions of the Dairy Code, where such contraventions are by one of the largest participants in the Australian dairy industry and one of the key beneficiaries of the power imbalance which the Dairy Code sought to eliminate.

60    It is appropriate, in the context of that submission, to have regard to the nature of the Dairy Code and the purpose that it was intended to achieve. To a degree, that was addressed in ACCC v Lactalis and there is no need to repeat what was said in that decision. However, a significant component of the ACCC’s case was that the Commonwealth perceived that, in the pre-Code unregulated market, processors held the balance of bargaining power and negotiated with farmers from a position of strength. The government’s regulation of the otherwise free market was thus intended to shift the balance in the farmers’ favour and to their economic benefit. The regulatory regime set up by the Code reshapes the operation of the market in particular ways, including, specifically, in the area of pre-contractual dealings and the scope of permissible contractual rights. It is worthy of remark that the obligations imposed by the Code are strict, not requiring any element of intent, and are absolute, in that they demand adherence rather than “best endeavours” or “best efforts” to meet identified goals. Further, the legislature has prescribed a maximum penalty of 300 penalty units for any contravention of the Code by a processor which, self-evidently, is significant and indicates that the intervention in the market is to be taken seriously. The consideration as to what might be an appropriate penalty in any particular case brought for contravention of the Dairy Code must be undertaken in this light.

61    However, it is important to emphasise, again, that any alleged benefit that Lactalis may or may not have received from its participation in the dairy market prior to the Dairy Code coming into effect is irrelevant to the determination of an appropriate penalty in this case. Even if it is assumed, for the sake of argument (and without any particular evidence in this case to support the point), that Lactalis has historically leveraged power imbalances in the milk supply industry to derive a commercial advantage in its dealings with farmers, it cannot be said to have done anything more than take advantage of the market conditions that then prevailed in accordance with the laws that existed at the time. There is no apparent reason for it to be penalised now for its having done so. The suggestion that pre-Code circumstances and behaviours should be taken into account for the purposes of determining an appropriate penalty under the Code carries with it some insinuation that harm should be inflicted for a fact done before there was a law that forbade it. That is inconsistent with the manner in which a just legal system operates.

62    Also irrelevant to the determination of the appropriate penalty is the fact that this case might represent the first occasion on which penalties are imposed under the Code. No authority was advanced in support of the notion that the first entity to be penalised under an industry code (or any other legislation for that matter) should be treated more harshly than those who follow, and there is no apparent reason why that should be so. It would be contrary to fundamental principles of the Rule of Law were it to be otherwise. The ACCC’s invitation to make an example of Lactalis merely because it is the first subject of complaint under the Dairy Code should vehemently be rejected.

63    The ACCC further submitted that the seriousness of the contraventions was reinforced by “the significance of Lactalis’ MSAs to the dairy farmers”. This submission appeared to have two limbs. First, it was said that the farmers in question entered into the MSAs with Lactalis on an exclusive basis. Secondly, it was said that the contracts were of a considerable value, for which proposition the ACCC cited the quantum of the payments that Lactalis made to farmers under the MSAs. These limbs were drawn together in the ultimate conclusion that:

The importance of each MSA to each farmer and the significant value of each MSA … are factors relevant to the nature, extent and circumstances of the contraventions as they demonstrate that the integrity of the content of each MSA and the process by which it is to be entered into must be protected. That is the role of the Dairy Code and that is the reason that contraventions of that code must be appropriately penalised.

64    Lactalis accepted that the MSAs were important to farmers, but pointed out that the contraventions in this case involved aspects of the MSAs that were, when considered in isolation, of somewhat diminished importance. Specifically, it was said that there was no evidence that either the offending combination of clauses that led to the Termination Clause / Publication Contraventions and the Termination Clause / Contract Entry Contraventions, or the error in the manner that the MSAs were published that led to the Non-Publication Contravention, was significant to dairy farmers.

65    In a sense, both sides were right on this point. In the context of a civil penalty proceeding arising in a contractual setting, the need for deterrence will plainly be amplified when the relevant contravention involves an important part of an agreement that is critical to the business of the contracting party that it affects. By the same token, the need for deterrence will be diminished if the contravention involves a minor part of a contract that is of relatively little value to the parties. The present case falls in between those extremes: the MSAs are undoubtedly of considerable importance to farmers, but the contraventions concern aspects of those MSAs (and the circumstances in which they came into existence) that are perhaps less than fundamental. These observations can be taken into account in the determination of the appropriate penalty.

Non-Publication Contravention

66    There was only one Non-Publication Contravention, being that the MSAs that Lactalis was prepared to enter into for the ensuing financial year were not published on its website at the prescribed time and date. Such a contravention occurs only at the time specified by the Code and the offending conduct does not continue thereafter. Moreover, the impact on farmers of the omission to publish the MSAs at the required time and date was ameliorated to some extent by Lactalis, which, after being contacted by the ACCC, immediately published the MSAs in accordance with the Code. That occurred from 17 June 2020.

67    The ACCC submitted that the failure to publish the MSAs affected every farmer who was potentially interested in supplying to Lactalis for the relevant financial year and, in that sense, the implications of the contravention were “likely widespread”. However, this somewhat overstates the consequences of the contravention. Lactalis did not altogether fail to publish the MSAs as at the deadline of 1 June 2020. Rather, it merely failed to publish the MSAs on its website. They were still available to any person who sought them, even if those persons were required to provide an email address in order to gain access. If any farmer went to Lactalis’ website seeking to peruse the MSAs, they would be able to obtain copies in a very short period of time. In this sense, the purpose of the requirement imposed by the Dairy Code to publish on the website was substantially fulfilled.

68    Additionally, Lactalis had sent by email to each farmer with which they had an existing contract copies of the MSAs that they were required to publish. In Lactalis’ experience, this was the most efficient means by which to bring information to the attention of those persons. Further, its experience was that farmers generally made direct contact with the company in relation to MSAs, such that they could obtain an actual milk price for their particular farm based on herd type and location.

69    All of this tends to minimise any detrimental consequences that might otherwise have followed from the Non-Publication Contravention and it is not irrelevant to note that there was no evidence that any farmer was unable to obtain a copy of Lactalis’ MSAs or was unwilling to acquire them in the manner that Lactalis required in the period from 1 June 2020 to 17 June 2020.

70    That having been said, it should not be overlooked that the process of contracting between farmers and processors is an integral part of the industry, which the Dairy Code intends to regulate, and care must be taken to ensure that contraventions of the provisions of the Code relating to that process are treated with appropriate earnestness. It is not open to processors to contract in any manner that they see fit. As the ACCC rightly pointed out in this case, all processors have to make their MSAs available in some way, or else the MSAs would never be entered into, and so the fact that Lactalis ultimately did make its MSAs available to farmers by means not prescribed by the Code cannot be treated as wholly exculpatory. The Code requires uniformity of conduct amongst processors, and Lactalis failed to conform.

Termination Clause / Publication Contraventions

71    There were nine Termination Clause / Publication Contraventions, in that nine non-compliant standard form MSAs were published, each containing clauses that entitled Lactalis to terminate unilaterally for an immaterial breach. The ACCC accepted that the publication of the nine MSAs should be treated as a single course of conduct and that rightly appreciates that totalling the maximum penalties for all nine contraventions would suggest too oppressive a result.

72    In the assessment of the appropriate penalty, it is important to keep in perspective the actual contraventions. The MSAs at the centre of this case permissibly entitled Lactalis to terminate for material breaches, including material breaches of the clause prohibiting public denigration of processors, key customers or other stakeholders. That, of course, assumes that any such public denigration could amount to a material breach, this being a point that has not been (and need not be) decided. Proceeding on this basis, it can be observed that the contraventions followed specifically from the fact that the relevant provisions of the MSAs were sufficiently broad as to also permit Lactalis to terminate for an immaterial breach of the public denigration clause. In other words, the deficiency in the MSAs was not that they imposed an obligation on farmers not to engage in public denigration of Lactalis and others, but that Lactalis could terminate the MSAs for a breach of the public denigration clause that was less than material.

73    The Dairy Code places an obvious and significant emphasis on the contractual rights of farmers and processors inter se and the manner in which those rights come into effect. The inclusion of a prohibited clause in an agreement strikes at the Code’s essential objective, to tilt the previously unregulated market more in favour of farmers. In this sense, the ACCC correctly submitted that consideration of the nature of the contraventions must take into account the fact that the MSAs are offered to farmers across the country and it is unlikely that individual farmers are able to negotiate their terms, particularly in regional areas. Although the negotiation of individual terms is permitted, it can be accepted that, in practice, the MSAs offered by processors become “contracts of adhesion” and farmers have to either accept or reject them. For this reason, it is the processors that control the content of the MSAs and it must be expected that they will take care to ensure that their terms comply with the Code’s requirements.

74    On the other hand, it can also be accepted that, in the present case, the inclusion of the terms that were ultimately found to contravene the Dairy Code was not intentional and occurred essentially as a result of a particular term having a scope of operation more extensive than it ought to have. It was not impermissible for Lactalis to include in the MSAs a term that penalised farmers to some extent for engaging in public denigration of it, its key customers, or other stakeholders in the industry. It would also appear that the clauses in question were never relied upon to terminate an MSA (or, indeed, to any lesser extent), even though one occasion arose where the possibility of their use was considered.

75    There is no evidence of any harm actually being suffered by any farmer as a result of the inclusion of the offending clauses in the MSAs that were published. No farmer has come forward alleging that they did not asperse Lactalis or other industry participants because they were concerned that their MSA would be terminated. Indeed, there was no evidence from even one farmer that they noticed or were concerned about the public denigration clause or the consequences of breaching it. However, as was indicated in ACCC v Lactalis at paragraph [149], one cannot rule out the possibility that the existence of the clause had a chilling effect on the farmers who were subject to it, such that they did not speak up when they otherwise might have done so.

76    Whilst it appears that the public denigration clause was subsequently removed from Lactalis’ MSAs from November 2020, the contracts that were entered into around the middle of that year remained on foot until the middle of the following year.

77    In the foregoing circumstances it can be seen that, whilst the nature and extent of the contraventions arising from Lactalis’ publication of MSAs with the offending clauses was far from insignificant, it probably cannot be regarded as egregious or in any way contumelious. The inclusion of the offending clauses occurred as a result of an oversight, and the public denigration clause with which the ACCC took issue was never relied upon. Again, in a broad sense, the nature and extent of the contraventions here tended to diminish rather than elevate the seriousness of the contraventions.

Termination Clause / Contract Entry Contraventions

78    There were 384 Termination Clause / Contract Entry Contraventions, being one contravention for each occasion that Lactalis entered into an MSA with the offending combination of clauses. Quite properly, the ACCC recognised that these contraventions should be treated as a single course of conduct, given that they all arose out of the one corporate activity of contracting with farmers for the 2021 financial year. In this way, there was some common foundation to these contraventions and the Termination Clause / Publication Contraventions, and the parties each treated their submissions as to the nature and extent of the contravening conduct as applying to both. The reasons set out above in respect of the Termination Clause / Publication Contraventions can therefore be taken to extend to the Termination Clause / Contract Entry Contraventions.

ACCC-imposed penalties

79    Lactalis submitted that the Court should take into account the administrative penalties that have been imposed by the ACCC under the Dairy Code. It was submitted that the ACCC-imposed penalties, which related to various matters, including processors’ failures to publish MSAs on an appropriate website on the required date or for a significant period of time, requirements that farmers fill in their details before MSAs would be delivered, and MSAs that did not comply with the Dairy Code in certain respects, were substantially lower than the penalties sought by the ACCC on this hearing.

80    However, those penalties have been imposed in circumstances where the processor has accepted the amount proposed by the ACCC in an infringement notice and, as such, do not have any significant relevance to the case at hand. Importantly, pursuant to s 51ACG of the CCA, the acceptance of an infringement notice by the person to whom it is given does not constitute an admission or a finding of a contravention of the relevant industry code. In the present case, penalties are sought to be imposed as a result of findings that there have actually been contraventions of provisions of the Dairy Code. Further, as the ACCC submitted, any infringement notice that it issues can only relate to a suspected single contravention of a civil penalty provision. The ACCC-imposed penalties are therefore an unreliable comparator for the present purposes. Additionally, as the amount of the penalty that may be imposed by the ACCC under an infringement notice is fixed at 50 penalty units, with no discretion for the amount to be increased or decreased, any penalties imposed under that regime cannot properly be regarded as analogous to those imposed by this Court in accordance with the required multifactorial approach.

Role of management

81    The material established that, within Lactalis, it was a Mr Houlihan who was responsible for the drafting of the public denigration clause and its inclusion in the MSAs. It was also his decision to make the MSAs available via email, rather than publishing them on Lactalis’ website. Mr Houlihan held the senior leadership position of General Manager Supply Chain and he was a member of Lactalis’ Australian executive committee.

82    It follows that the contraventions did not occur as a result of errors by lower level employees who did not have authority to undertake the conduct in question, or who may have acted recklessly. Rather, the conduct was undertaken by a senior executive figure, such that it could be said, undoubtedly, to have been the company’s intended conduct. However, as has been mentioned previously, there is nothing to suggest that the conduct was done with any awareness that it would contravene the Dairy Code or with any intention to somehow circumvent the Code’s apparent operation. It can be accepted that Mr Houlihan did not intend to cause Lactalis to breach the Code and there was no mala fides in his actions. On the contrary, it appears that he actively intended to comply with the Code but, as the findings made in ACCC v Lactalis illustrate, he was in error as to the steps that he was required to take in order to ensure that compliance. It is relevant to note that he has acknowledged his responsibility for the contraventions, and that he acted as quickly as he could to make amends where that was possible. He has also expressed contrition on behalf of Lactalis for the errors. That expression of penitence by a senior executive of the company is far from insignificant in the present context.

83    It might be added, as was submitted by Lactalis, that the involvement of Mr Houlihan in the drafting of MSAs and in the attempts to comply with the requirements of the Dairy Code reveals that Lactalis has had due regard to its obligations in relation to the Code. It has placed the responsibility for its compliance with the Code in the hands of a senior executive. Certain errors have been made, but these were not caused by any failure on Lactalis’ part to devote the appropriate resources to the task of ensuring compliance.

84    Overall, and in the context of Mr Houlihan’s expressions of contrition, the fact that the contraventions occurred as a result of his conduct renders them less serious than they perhaps might otherwise have been if, for instance, compliance with the Dairy Code was carelessly left as the responsibility of inexperienced junior employees.

Deliberateness of the contraventions

85    It was not suggested by the ACCC that Lactalis’ breaches of the Dairy Code were deliberate. The lack of any culpable intention is a significant factor to weigh up in determining the appropriate penalty.

86    In relation to the Non-Publication Contravention, it can be accepted that Lactalis acted in accordance with its own, ultimately mistaken, interpretation of s 12 of the Dairy Code, and that it believed that the arrangement by which it sent the MSAs to farmers satisfied the requirements of that section. It can also be accepted that its interpretation of s 12 was not unreasonable, in that it was at least conceivably open to an ordinary lay reader.

87    The ACCC submitted that this conclusion was at odds with certain observations in ACCC v Lactalis, at paragraphs [36] and [55], to the effect that Lactalis could “in no sense” be said to have published the MSAs on its website in accordance with the “clear language” of s 12(2) of the Dairy Code. However, there is no strict inconsistency between, on the one hand, this Court finding the Non-Publication Contravention to be as stark as those observations indicate and, on the other, it acknowledging that it might be at least somewhat reasonable for a layperson, years prior and without the benefit of legal submissions, not to understand the relevant conduct to be a contravention at all. That having been said, it may go slightly too far to characterise the matter in the terms that Lactalis did in submitting that it had merely adopted a “reasonably available interpretation of a new Code expressed in open-textured language”.

88    The ACCC also submitted that the effect of the conclusion as to the reasonableness of Lactalis’ mistake must be diminished because it had published on its website guidance as to what the publication requirement in s 12 demanded of a processor. It also said that it had written to processors, drawing their attention to that guidance and advising them that it would be conducting compliance checks. The consequence, so the ACCC submitted, was that Lactalis’ breach, whilst unintentional, was not inadvertent and was, perhaps, careless.

89    The import of the ACCC’s submissions is a little difficult to discern. The fact that the ACCC had, prior to Lactalis’ contravening conduct, indicated that it would be undertaking compliance checks would seem to strengthen the conclusion that Lactalis had formed an opinion that it was complying with s 12. It is most unlikely that Lactalis would instead, after having been contacted by the ACCC, proceed on the assumption that its method of making the MSAs available to farmers would for some reason be passed over by the ACCC, such that there was no need to attempt to ensure compliance.

90    In addition, the guidance provided by the ACCC in relation to the publication of MSAs largely repeated the obligation already set out in s 12 of the Dairy Code, to the effect that a processor was required to publish the agreements on its website, without any comprehensive explication of what exactly that meant. The guidance suggested that, in order to comply with s 12, the MSAs could not be behind a portal or other barrier, though that is not necessarily correct. It also asserted that links to standard form MSAs must be “prominent and clearly visible on the front page of the processor’s website”. Insofar as this assertion purported to state a requirement appearing in, or necessarily arising by inference from, s 12 it is clearly incorrect. It would be open to any intelligent reader to conclude that the guidance material advocated for something of a “belt and braces” approach, and tended in that way to promote a position that was stricter than the words of the underlying instrument would themselves demand. That being so, it is possible that the reader would resort to their own interpretation of the Dairy Code. In these circumstances, Lactalis’ breach should not be regarded as more egregious merely on account of the fact that its actions were not in perfect accord with the ACCC’s assertions about the scope of s 12.

91    The time is possibly fast approaching for courts to begin working upon the understanding that public guidance documents published by regulators, whether they be State or Federal, are notorious for overstatement and overreach. Historically, this so-called “guidance” has tended to advance policy positions in relation to the scope of the laws under consideration, rather than seeking to explain them in a digestible form that is accurate and faithful to the underlying material. Almost invariably, regulatory “guidance” exaggerates the breadth of the laws with which it deals, purporting to extend those laws beyond the limits that the responsible parliaments have set. Whilst this might well be entirely unintentional, it is potentially on its way to becoming ubiquitous, and those who operate day-to-day in regulated sectors of the wider market might arguably be entitled, in light of this trend, to submit that no adverse inference should be drawn against them in the determination of an appropriate civil penalty merely because they have declined to act strictly in accordance with a regulator’s proselytising. Ultimately, however, this point only arose tangentially in this case, and so there is no need to reach any final conclusion on it.

92    On the other hand, if a regulator in a civil penalty proceeding wishes to submit that a contravenor ought to be more severely punished because they failed to comply with regulatory guidance, then it should be incumbent on that regulator to demonstrate that the guidance in question was in fact a known source of reliable information about the operation of the laws in question, freely available to the contravenor at the relevant time.

93    The ACCC submitted, further, that Lactalis intended to include in the MSAs the public denigration clause drafted by Mr Houlihan and that this clause was designed to protect its reputation and to promote its own interests. This protection was sought to be heightened by including the public denigration clause within the ambit of the “material breach” provisions of the MSAs, thereby affording Lactalis an entitlement to terminate for any contravention, no matter how slight, as was explained in ACCC v Lactalis. Whilst these circumstances were advanced in order to demonstrate the increased culpability of Lactalis’ conduct, their relevance was not entirely clear. Although the preparation and drafting of the MSAs was deliberate, there is nothing to suggest that there existed any intention to introduce provisions that were known or even suspected to contravene any provision of the Dairy Code. Moreover, there is nothing in the Code that prohibits the inclusion of clauses in MSAs that penalise farmers who damage a processor’s (or any other person’s) reputation. Given the ability of people today to spread defamatory or derogatory material to wide audiences through social media and the like, there are very good reasons why an entity in the position of Lactalis would seek to protect its reputation and that of its staff or others associated with it. Although there are valid countervailing considerations that might favour allowing farmers to speak publicly about the grievances that they may have, the short point is that Lactalis’ decision to limit publicity adverse to it and others was a legitimate commercial choice, which it was entitled to make.

94    As mentioned, the Termination Clause / Publication Contraventions and the Termination Clause / Contract Entry Contraventions arose from the drafting of the MSAs in such a way as to cause a breach of the public denigration clause that was not “material” in the sense described in ACCC v Lactalis at paragraphs [131] – [140] to afford Lactalis an entitlement to terminate. It is that effect, rather than the nature of the individual clauses from the combination of which the right to terminate arose, that is the concern of the Dairy Code.

95    The ACCC refuted this conclusion in its written submissions in reply, noting that the public denigration clause itself purported to extend a right to terminate supply (and therefore, in effect, the MSA), including in circumstances where there had been no material breach. Relevantly, the clause was worded so as to reserve to Lactalis the right to “suspend or terminate supply where in the opinion of Lactalis, the supplier has engaged in public denigration of processors, key customers, or other stakeholders”. It was contended by the ACCC that this right, which was not conditioned by any requirement of seriousness or materiality, undermined Lactalis’ assertion that it had not intended to include any clause in the MSAs that would permit unilateral termination for an immaterial breach.

96    There is a critical difficulty with this contention, which in fact came to be acknowledged later in the ACCC’s written submissions in reply, as follows:

The case that the ACCC commenced and ran at trial … concerned the combined effect of clause 6 of the Handbook (i.e., the public denigration clause) and clause 10.1 of Schedule 6 to the MSAs (headed “Termination Rights”). The ACCC’s case … was that the combination of these two clauses rendered MSAs non-compliant with ss 34(2) and 34(3) of the Dairy Code, and thereby in contravention of s 17 of the Dairy Code. However, the Court was not asked to and did not consider or determine whether the public denigration clause on its own breached the Dairy Code.

97    Because the lawfulness of the public denigration clause was not separately challenged at the liability stage of these proceedings, the ACCC cannot properly be heard to say, now, that the clause permitted unilateral termination for an immaterial breach. It matters not that it makes that contention only for the purpose of rebutting Lactalis’ submission that it never intended to permit termination for an immaterial breach. The fact remains that Lactalis has not had any opportunity to respond to the contention, which is equivalent to a further allegation that it has contravened the Dairy Code.

98    On the other hand, the ACCC was correct to point out that, just because the public denigration clause was only challenged in combination with another clause, such a circumstance “does not lead to the conclusion that the clause on its own is lawful”. The appropriate observation to make is that, the clause not having been challenged directly, it cannot be held at this point in the proceedings to have an effect that would render it either lawful or unlawful.

99    It is not open to conclude, on the evidence as it stands, that Mr Houlihan intended the MSAs to operate in such a way as to contravene s 34 of the Dairy Code. Whilst the impermissible manner in which Lactalis’ contracts came to be drafted afforded it a commercial advantage, to the farmers’ notional (but ultimately unproven) detriment, that does not weigh heavily in the assessment in the circumstances. It would appear that Lactalis sought to protect its legitimate business and commercial interests and, in doing so, neglected to ensure that the effect produced by the interaction of multiple clauses was compliant with the Code.

Benefits from, and loss or damage caused by, the contraventions, including effects on competition

100    The ACCC properly acknowledged that it was unable to identify any specific quantifiable loss or damage caused by the contraventions, nor could it point to any specific quantifiable benefits obtained by Lactalis.

101    Despite the occurrence of the Non-Publication Contravention, the objective of s 12 of the Dairy Code was largely achieved by the publication method adopted by Lactalis. Any farmer who wished to peruse copies of its MSAs was able to receive them at or around the time that publication was required by the Code. There was no indication that farmers were unable to engage in the contracting process competitively and in the manner intended by the Code.

102    In addition, there was no evidence that Lactalis terminated any MSA on account of a breach of the public denigration clause, material or otherwise.

103    The ACCC submitted that, even though there was an absence of quantifiable harm resulting from the contraventions, it did not follow that no harm or loss was suffered. It submitted that, when considering the mandatory requirement in s 76(1) of the CCA, that the Court take into account “any loss or damage suffered as a result of the act or omission”, the concept of loss or damage should not be given a narrow meaning. That is quite possibly correct, and s 4K of the CCA provides that a reference to “loss or damage” in the statute includes a reference to “injury”. The submission is also supported by the observations of O’Bryan J in ACCC v Uber at paragraph [15], where his Honour, when discussing the cognate provisions in the Australian Consumer Law, observed that “injury” can include personal injury and mental stress and such matters can be taken into account when determining a penalty for contravention. See also Australian Competition and Consumer Commission v Google LLC (No 4) [2022] FCA 942 per Thawley J.

104    However, in ACCC v Uber, whilst accepting that different types of harm may be difficult to quantify but must nevertheless be taken into account, O’Bryan J correctly observed (at paragraph [33]) that this does not negative the conclusion that:

… the nature and extent of actual or potential harm caused by the contravening conduct is a central consideration in the assessment of penalty. It is not appropriate to impose severe penalties under the Australian Consumer Law in respect of contravening conduct that has no potential to cause harm (of some kind) to Australians.

105    His Honour went on to reject the suggestion in the ACCC’s submissions in that case to the effect that, simply because the contraventions in question had occurred, there must have been some “non-quantifiable harm” to consumers. His Honour made the following relevant comments at paragraph [34] (the contraventions in that case concerning certain misrepresentations):

[T]he ACCC submitted that “there is a non-quantifiable harm if large corporations make widespread misrepresentations on a large scale for lengthy periods of time in circumstances where they were aware or should have been aware that the messaging was incorrect or inaccurate”. It is not entirely clear what the ACCC meant by that submission. The fact that a misrepresentation is made does not, of itself, establish harm to Australians. It can be accepted, though, that widespread misrepresentations in trade or commerce have the potential to distort consumer or business choices, harming competition and efficient markets and potentially harming consumers. In each case, though, the Court is required to assess the nature and extent of harm that will or may be caused by the contravening conduct. That can be done even if the quantification of the harm is difficult and requires broad or rough estimation. In my view, the recurrent theme in the ACCC’s submissions, that the Court does not need to be concerned whether harm to Australians was likely to be caused by the contravening conduct, is wrong in principle.

106    That approach should apply in this case as well.

107    Here, the ACCC submitted that the Court should take into account the following alleged types of loss or damage:

69.     By neglecting its obligations under the Dairy Code, Lactalis engaged in conduct which favoured the interests of large processors over smaller (and in most cases, family run) dairy farms.

70.     The ACCC refers to the material set out at [51] to [53] above in relation to the exclusivity of most MSAs and the range of values of those MSAs. The impact of contraventions that go to the integrity of such important and valuable documents must be considered a harm in and of themselves. These are not trivial matters.

108    It also submitted that, even though there was no quantifiable harm, the fact that a processor has undermined the measures in the Dairy Code that are designed to address market failures must mean that “there is nonetheless harm to the competitive process in an unbalanced market”.

109    However, no evidence was adduced to demonstrate either, at the micro level, that the contraventions had harmed individual farmers or, at the macro level, that the contraventions had distorted behaviour in the market and, in that way, impaired competition or market efficiency. It was also not shown with any particular precision that Lactalis’ conduct favoured the interests of large processors over farmers of any size, or that it detrimentally impacted the integrity of MSAs.

110    As Lactalis pointed out, in the absence of such evidence, the ACCC’s submissions seemed to reduce to the proposition that, because there was contravening conduct, there must have been harm. Treating this vague notion of “harm”, which can neither be proved nor disproved to have resulted from the contraventions, as relevant to the determination of an appropriate penalty would seem to be at odds with the reasoning of O’Bryan J in ACCC v Uber set out above. The ACCC’s submissions should accordingly be rejected, and the lack of evidence by which to quantify loss or damage in this case should be regarded as a mitigating factor: ACCC v EnergyAustralia at 351 [42].

111    Along somewhat similar lines, the ACCC submitted that O’Bryan J’s reasons in ACCC v Uber supported the proposition that the “risk of potential harm” is a relevant aspect of the loss or damage that the Court must consider. It is true that his Honour did refer to the concept of “potential harm” at paragraph [33] of his judgment, as extracted above, and such harm has been accepted to be relevant to the question of pecuniary penalties in other authorities: see, eg, Australian Competition and Consumer Commission v Sony Interactive Entertainment Network Europe Ltd (2020) 381 ALR 531, 550 [84] per Steward J. However, it is not apparent that the concept is to be understood from O’Bryan J’s reasons, or from the wider case law, to encompass harm that is merely speculative. As the term itself suggests, some apparent “potential” for “harm” must be demonstrated; it must be established, on the evidence, or at the very least as a matter of clear inference, that there is some identifiable type of loss or damage, of a particular scale and severity, that would ordinarily be expected to result, or has resulted (albeit in a manner that renders it unquantifiable), from the contravention.

112    It may be, for instance, that the contravening conduct was not carried through to completion, such that no real harm resulted, but some potential harm could nevertheless be demonstrated by showing that the conduct in question would ordinarily be expected to produce certain damaging consequences. Potential harm could also be shown in a similar way where the contravening conduct was carried through to completion but, by happenstance only, caused no real harm. See, generally, ACCC v Rural Press Ltd (2001) ATPR ¶41-833, 43,296 [46] per Mansfield J; Australian Competition and Consumer Commission v Cromford Pty Ltd (1998) ATPR ¶41-618, 40,764 – 40,765 per Lockhart J.

113    In the present case, the ACCC did not put on the evidence necessary to prove the existence of potential harm. The fact that such harm must be identified loosely by inference, if it can be discerned at all, weighs strongly against any finding that Lactalis’ contraventions have caused loss or damage that has increased the need for deterrence.

114    It is relevant to note again, in connection with the Non-Publication Contravention, that there was no substantial hindrance to the ability of farmers to compare the terms on which Lactalis was prepared to contract with them to other terms in the market. The ACCC’s contention that the contravention caused harm to the competitive process is not made out.

115    Specifically in relation to the Termination Clause / Publication Contraventions, the ACCC pointed out that it would be rare for such contraventions to produce significant quantifiable loss or damage, and yet a sizeable maximum penalty of 300 penalty units was prescribed. If this submission was meant to suggest that the legislature must have intended for a substantial penalty to be imposed in the absence of discernible loss or damage, it should be rejected. It is a basic proposition that, all else being equal, the size of the penalty should be at least somewhat proportionate to the harm that it has caused. The quantum of the prescribed maximum penalty has no bearing on that relationship. Indeed, it is not at all difficult to imagine in this instance that the maximum penalty of 300 penalty units might be well suited to the “rare” case of which the ACCC speaks; namely, where a publication contravention does lead to some tangible loss or damage (depending, of course, on the other factors at play), whilst having no application to the vast majority of contraventions. There would be nothing peculiar about that result, and there is no indication that the drafters of the Dairy Code intended anything different.

116    The ACCC also submitted that the Termination Clause / Contract Entry Contraventions had serious consequences, despite the absence of quantifiable loss and damage. Specifically, it was said that farmers’ operations might be damaged by the sudden termination of an MSA by Lactalis. That alleged damage would include wasted produce and the possibility of harm to animals. Ultimately, this submission was rendered somewhat sterile by the accepted fact that Lactalis did not attempt to terminate any MSA as a result of a farmer engaging in public denigration of it, its customers, or other stakeholders.

117    However, the ACCC also submitted that the public denigration clause might have a chilling effect on a farmer’s willingness to raise a legitimate concern about Lactalis, or the farmer’s ability to conduct their business in their best interests. Whilst the risk of that chilling effect no doubt existed, there was nothing to show that it actually materialised, and it is therefore essentially impossible to quantify the actual or potential harm. Moreover, the clause did not impede farmers’ liberty to take their concerns directly to Lactalis, or to the regulator for that matter. It must also be kept in mind that the existence of a clause in the MSAs that obliged a farmer not to engage in public denigration of Lactalis, its customers and other stakeholders would not itself offend against the Dairy Code. It was Lactalis’ ability to terminate the MSAs as a result of an immaterial breach of the public denigration clause in this case that gave rise to the contravention. The clause could be included in an MSA, with a less severe consequence attaching to any breach of it that was not material, and no issue of non-compliance with the Dairy Code would arise.

118    It follows that it was Lactalis’ entitlement to terminate for a non-material breach that was the offending characteristic of the contractual arrangement, such that the counterfactual to be considered for the purpose of assessing loss and damage is that in which an MSA still contained a clause obliging farmers not to engage in public denigration, but afforded no right to terminate for a non-material breach of that clause. Comparing that counterfactual to the reality at present, it is potentially open to suppose that the inclusion of the entitlement to terminate for an immaterial breach gave rise to some adverse sequelae. However, such consequences of the contravention are entirely theoretical. If they had actually crystallised, it would have been possible to identify when and how they did so. No details of this kind were put before the Court.

119    Ultimately, whilst it might be assumed that the manner in which Lactalis drafted its MSAs was directed to its best interests and that, in acting as it did, it contravened s 34 of the Dairy Code, such that some level of deterrence is required, it is very difficult to identify any consequential harm or damage in the circumstances.

120    Overall, the consideration of benefits, loss and damage in this case does not suggest any more pressing need for general or specific deterrence. To the contrary, that consideration leads to the conclusion that it would be appropriate to mitigate any penalties that would otherwise be imposed for the contraventions in this case.

Cooperation and contrition

121    The ACCC submitted that Lactalis displayed a lack of cooperation and contrition by contesting the allegations made against it. Though there is some force in that, it does not necessarily provide the full picture.

122    First, in a broad sense, Lactalis was obligated to oppose the allegations made against it by the ACCC so as to defend itself against those allegations that the ACCC ultimately failed to make out. Those allegations raised significant issues, and Lactalis has been shown to have been right to resist them.

123    Secondly, it cannot be said that, in the context of this litigation, Lactalis has acted improperly in the course of its opposing the allegations made by the ACCC. While not admitting those allegations, it has cooperated by agreeing to the factual substratum of the matter, which has saved the ACCC the time, effort and expense of establishing those facts by putting on large amounts of evidence. Its submissions in the course of the hearings have been appropriate, reasonable and open.

124    Thirdly, as the ACCC repeatedly reminded the Court, these proceedings were the first commenced in relation to alleged contraventions of the Dairy Code. That being so and, on any view, the Code being a less than perfectly drafted instrument, it is not difficult to imagine that Lactalis may have entertained real doubts as to whether its conduct amounted to a contravention. No adverse inference can be drawn from its insistence on a full and proper determination of its rights and obligations as they arose from the relevant provisions.

125    Fourthly, there is force in Lactalis’ submission that it showed contrition, or at least respect, for the Code’s operation by ceasing to engage in the offending conduct once the ACCC’s allegations were brought to its attention. Although it had its own view about the Code’s operation, it was prepared to alter its conduct immediately to comply with the ACCC’s asserted understanding of the relevant requirements, and that occurred prior to any proceedings being commenced.

126    Whilst there is no scope for a reduction to the penalty to be given for any acknowledgement of guilt, the circumstances suggest that Lactalis was at least prepared to defer to the ACCC’s asserted position regardless of its own view as to what the Dairy Code required. No increase in the penalty should be contemplated on account of Lactalis having contesting the ACCC’s case, including its construction of the Code.

Compliance culture

127    The fact that the contraventions occurred does not, in and of itself, bespeak a culture of non-compliance within Lactalis. Indeed, its willingness to act in accordance with the ACCC’s assertions as to the manner in which the Dairy Code operated tends to suggest the contrary. In relation to the specific contraventions, it is not irrelevant to note that the person whose obligation it was to ensure compliance, Mr Houlihan, was part of the company’s senior management, which can be taken to indicate the importance that Lactalis attributed to compliance. Moreover, the contraventions in this case were largely technical and arose out of an interpretation of the Code that was not altogether unreasonable. That having been said, it was open to Lactalis to provide evidence of the formal or informal practices by which it attempted to comply with the requirements of the Code and it failed to do so.

128    The ACCC raised for consideration Lactalis’ alleged poor record keeping, which it said should be taken into account in the determination of the appropriate penalty. An oblique submission was made to the effect that Lactalis had failed to comply with the record-keeping obligations imposed by s 55 the Dairy Code, even though no allegation of such a contravention had been made. Whilst the evidence did suggest that Lactalis’ record-keeping processes might be wanting in some respects, it is not appropriate to make any finding as to its compliance with this additional requirement of the Code in the absence of a clearly stated allegation of non-compliance from the ACCC to which Lactalis has had some opportunity to respond. It might also be said that the allegation of a failure to maintain complete records did not relate to Lactalis’ current conduct but to its past activities. In that respect, Lactalis relied upon the affidavit evidence of a Ms Bayles, who identified that it had adopted a compliance program in late 2022, which included a training program designed to keep staff aware of the Dairy Code’s requirements. Though the adoption of such a regime is appropriate, it is unclear why it took so long for it to be put in place.

Similar past conduct

129    The ACCC accepted that neither Lactalis nor its predecessor, Parmalat, has previously contravened the Dairy Code. It has not been suggested that Lactalis previously engaged in any conduct of a similar kind.

Synthesis of the several factors

130    The foregoing discussion suggests that the process of synthesising the various factors of relevance to this particular case must lead to the imposition of a penalty that, whilst capable of amounting to an effective deterrent, is nevertheless calculated to give appropriate credit to the lack of any serious consequences flowing from the breaches, the absence of any intention to contravene the Dairy Code, and the company’s apparent willingness to take its legal obligations seriously.

131    On the other hand, it is necessary for the penalty to be of an appropriate quantum to act as a specific deterrent to Lactalis, being an entity of substantial means, and as a general deterrent to others in the market. Lactalis is a company possessed of assets worth hundreds of millions of dollars. At the time of the contraventions, it enjoyed annual profits of between $33 million and $44 million. For the penalty to have any financial consequence for the company and its shareholders — that is, for it to be “felt” by them — it must necessarily be of some magnitude.

132    Lactalis submitted that the available evidence suggests that it is unlikely to be tempted to engage in any further contraventions of the Dairy Code, given that the breaches the subject of these proceedings were not intentional and it has since put in place compliance programs that are designed to ensure compliance in the future. Whilst these matters can be acknowledged, the fact remains that it did contravene the Dairy Code on a number of occasions and in several ways and, though its asserted intention to avoid future contraventions deserves respect, it is the possibility of the imposition of a further significant penalty for any future breach that will truly catalyse the company’s focus on compliance and cause that focus to be maintained. This is, perhaps, part of the “sting” of the penalty: its imposition will act as an ongoing reminder to the company to remain vigilant in ensuring that it, and its employees and officers, meet the requirements of the Dairy Code.

133    Further, the penalty ought to be of such size as to have a general deterrent effect. Whatever the philosophical or political merits of the Dairy Code, these being matters on which I make no comment, it is an instrument that has at its heart the according of benefits to one group, farmers, to the detriment of another group, processors. The government has chosen to shift the balance of the market in favour of farmers, and has made it clear that those who fail to comply with the obligations underpinning that shift should face consequences of some severity. Where the offender is, as in this case, a large corporation, and there exist other large corporations in the industry, it is necessary that the penalty be of a size sufficient to deter those well-resourced market players from undermining the benefit that the government has endeavoured to bestow upon the favoured group. For any penalty imposed upon Lactalis to have a general deterrent effect, it must be large enough for it to be noticed as a real financial detriment to which other processors who contravene the Dairy Code, whether unintentionally or otherwise, will potentially be susceptible.

134    As mentioned previously, the ACCC submitted that the penalty in this case should be more substantial because it will be the first imposed under the Dairy Code. To add further to the reasons already expressed on this issue, in order to give proper effect to the Rule of Law in this country, it is vital that the law be applied even-handedly as between subjects, regardless of whether they are the first to contravene a penalty provision or the last. A respondent’s rank on the list of contravenors over time is irrelevant to the quantum of the penalty that it should face. To the extent that the ACCC’s submission can be understood to suggest anything to the contrary, it ought properly to be rejected.

Termination Clause / Contract Entry Contraventions

135    There were 384 occasions on which Lactalis entered into an MSA that contained the impermissible combination of terms permitting it to terminate the agreement unilaterally for an immaterial breach by the farmer. Of the three types of contraventions the subject of this case, the Termination Clause / Contract Entry Contraventions might be regarded as the most serious, given that they had the consequence that farmers became contractually bound to agreements containing terms with an effect that the legislature had sought specifically to exclude from the milk supply market.

136    As mentioned previously, if the maximum penalty was imposed for each contravention, the total would be $24,962,400. The ACCC has quite properly submitted that such a penalty would be inappropriate. In its submission, a penalty of $1 million should be imposed, equating to approximately $2,600 for each individual contravention.

137    The ACCC went on to submit, in support of this figure, that the MSAs “had a mean value of nearly $1.2 million” to Lactalis. The precise relevance of this submission to the amount of the penalty was initially somewhat unclear, and it was apparently taken by Lactalis to be a contention that, because the amount of $2,600 per contract was already relatively small as compared to the value of each contract, a penalty of any less an amount might be regarded as a mere “cost of doing business”. If that is assumed to be an available characterisation of the ACCC’s submission, then it might fairly be said that the comparison between value-per-contract and penalty-per-contract risked being too simplistic. It was not entirely apparent that focussing on the “mean value” of an MSA afforded a particularly clear indication of the extent to which a penalty would have any sting. As Lactalis pointed out, consideration of the mean value of an MSA (that is, the mean gross revenue derived from the MSA) does not reveal the benefit that it would stand to gain from the contract in the same way that, perhaps, consideration of the profit from each MSA might.

138    The ACCC subsequently clarified, however, that its reference to the mean value of the MSAs was intended to demonstrate that the MSAs were “not trivial”, but were instead “of significant economic value” and “went to the heart of [Lactalis’] (and the dairy farmer’s operations)”, such that “their integrity ought to be protected”. A submission in these terms has already been addressed above. As explained previously, whilst it is beyond doubt that the MSAs were of great consequence to farmers, the contraventions in this case concerned aspects of the MSAs that were of relatively limited significance to the overall arrangements between Lactalis and dairy farmers in the relevant years. The importance of the contracts and the unimportance of the aspects of them in issue in these proceedings are factors pointing in opposing directions. When taken together, the impression that they convey is relatively neutral.

139    The ACCC also submitted that a penalty of $2,600 was about one-quarter of the penalty that might be imposed under an infringement notice, which is used to address minor contraventions. Whilst that comparison has some meaning, it must not be forgotten that such notices may only deal with a single contravention and are not apt to apply to multiple offences.

140    In light of the above considerations, and paying attention to the requirement that a penalty must have a deterrent effect, an appropriate penalty for these contraventions should be $750,000. This will suffice to deter processors who might otherwise fail to ensure that the terms of their MSAs comply with the Dairy Code, regardless of whether they are larger or smaller than, or the same size as, Lactalis. In reaching this figure, I have undertaken the final check of taking into account the total of the penalties that are imposed in relation to both these contraventions alone and all of the contraventions together, including, in particular, the closely related Termination Clause / Public Contraventions addressed below.

Termination Clause / Publication Contravention

141    These contraventions concerned the publication by Lactalis of MSAs that contained the clauses impermissibly entitling it to terminate for a breach that was not material. There can be little doubt that, whilst these contraventions occurred in relation to nine different MSAs, the origin of the breaches was the same mistaken understanding of how the relevant clauses of the MSAs operated in combination, and the conformity of their ultimate effect to the requirements of the Dairy Code.

142    The ACCC submitted that a penalty of $250,000 should be imposed for these breaches, having regard to the direct involvement of senior management in the drafting of the MSAs, the size of Lactalis, as well as the nature of the provision. Conversely, Lactalis submitted that the circumstances of the contravention warranted the imposition of a penalty of $50,000.

143    To give some context, the imposition of a penalty of $250,000 would equate to $27,700 per contravention and that might be compared to the total amount of the maximum penalties for all nine contraventions, which is $574,200. If the penalty was $50,000, that would equate to about $5,550 per contravention.

144    For the reasons given above, these contraventions are, on one view, of a lesser significance than the Termination Clause / Contract Entry Contraventions, even though the publication of an MSA will usually lead to the processor entering into that MSA if requested to do so by a farmer. On the other hand, given that the offering of Code-compliant MSAs to farmers is fundamental, or at least highly relevant, to the Code’s essential objective of affording farmers access to a fair and competitive market, the contraventions might still be seen as reasonably serious. That legislative purpose, and the need to deter those who might otherwise undermine it, should be accorded appropriate weight in the imposition of any penalty.

145    Synthesising these considerations in the known circumstances, a penalty of $150,000 in total for the nine contraventions is appropriate. That equates to about $16,700 per contravention. Again, this conclusion has been reached having regard to the suitability of the amount in the context of all nine contraventions and the total of all of the penalties imposed in these proceedings.

Non-Publication Contravention

146    This contravention concerned Lactalis’ failure to publish on its website its standard form MSAs as at 1 June 2020. While that omission constituted a breach of s 12 of the Dairy Code, it was transitory in effect and the actual means provided by Lactalis for farmers to access its MSAs most likely resulted in those farmers receiving them in a timely manner. The breaches were therefore technical in nature, and were clearly not intended. They caused no discernible harm to the farmers, or any benefits to Lactalis. The erroneous manner in which the MSAs were published was quickly remedied once the non-compliance was identified. Nevertheless, the Dairy Code establishes a regime by which processors are to publish their MSAs to farmers in a particular manner and at a particular date and time. Again, a substantial maximum penalty is set for non-compliance.

147    The ACCC submitted that, in order to deter Lactalis and other similarly sized organisations from breaching s 12 of the Dairy Code, a penalty greater than the maximum of $63,000 would have to be imposed. However, as the maximum could not be exceeded in this way, it contended that the maximum was the only appropriate penalty to be imposed. As identified on behalf of Lactalis, that submission would seem to suggest that the ACCC is of the view that the legislature has imposed an inadequate penalty for a contravention of s 12. That proposition should not be accepted. Although the maximum penalty is not reserved for only the worst contravention, it provides an important yardstick by which to determine the level of deterrence required in individual cases. It is not the Court’s place to question whether the need for deterrence is more pressing than Parliament has determined it to be, such that the prescribed maximum penalty is to be treated as the only appropriate penalty.

148    Again, the Court must take note that, in its attempt to tilt the market in favour of farmers, the legislature has required processors to make the content of their MSAs available at a particular date and time. It is apparent that the purpose of the requirement is to allow farmers to freely compare the various standard form MSAs offered by competing processors so as to be in a position to choose that which best suits their interests. Lactalis failed to comply with the requirement and, whilst that was unintentional and apparently the result of it having acted on a not unreasonable understanding of the provision, the fact of that failure cannot be ignored altogether. The penalty that follows, which will serve as a deterrent to any future lapse by Lactalis or other processors, should be $50,000.

149    Again, that figure has been arrived at after a review of the total penalties being imposed on Lactalis in these proceedings.

Conclusion in relation to penalties

150    In summary, the penalties that are imposed on Lactalis are as follows:

(a)    in relation to the Non-Publication Contravention, which was a breach of s 12 of the Dairy Code, the penalty is $50,000;

(b)    in relation to the nine Termination Clause / Publication Contraventions, which were contraventions of s 13 of the Dairy Code, the penalty is $150,000; and

(c)    in relation to the 384 Termination Clause / Contract Entry Contraventions, which were contraventions of s 17 of the Dairy Code, the penalty is $750,000.

151    The total of these penalties is $950,000, which equates to approximately 2.9% of Lactalis’ profit in the 2020 financial year. Whilst this perhaps approaches a penalty of some severity, it does not quite reach that level. It will nevertheless work to ensure that Lactalis and other processors are properly deterred from neglecting to ensure their future compliance with the Dairy Code.

Other relief sought by the ACCC

152    By its originating application, the ACCC sought further relief in relation to Lactalis’ contraventions in the nature of a disclosure or adverse publicity order and a compliance order. At the penalty hearing, the latter of these was not pursued, presumably because Lactalis had already taken substantial steps to ensure its future compliance with the requirements of the Dairy Code.

The disclosure order

153    In its written submissions, the ACCC included a set of draft orders by which it was proposed that Lactalis must:

(a)     notify the suppliers with whom it entered into an MSA during the Relevant Period that it has been ordered to pay a pecuniary penalty for breaches of the Dairy Code (in the form of Annexure B to the Proposed Orders); and

(b)     cause an advertisement to be published in The Weekly Times, stating that it has been ordered to pay a pecuniary penalty for breaches of the Dairy Code (in the form of Annexure C to the Proposed Orders).

154    The power to make such orders arises under s 86D of the CCA, which permits the Court to make an adverse publicity order in circumstances where the respondent is required to pay a pecuniary penalty under s 76. It was also contended by the ACCC that the Court can make such orders pursuant to its power to grant injunctions under s 80: BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452, 465 [36] per Gray, Goldberg and Weinberg JJ.

155    The ACCC submitted that an adverse publicity order should be made to “increase transparency around Lactalis’ contraventions, and to provide clarity to farmers about their rights under the Dairy Code”. It further submitted that the direct notification of farmers should occur by mail or email.

156    There can be no dispute as to the principles on which a court should act when determining whether to impose an obligation to undertake corrective advertising. They were referred to by Gordon J in Australian Competition and Consumer Commission v Sontax Australia (1988) Pty Ltd [2011] FCA 1202 where, at paragraphs [40] – [41], her Honour said:

[40]    Corrective advertising is to be used protectively and not by way of punishment: Hospitals Contribution Fund of Australia Ltd v Switzerland Australia Health Fund Pty Ltd (1987) 78 ALR 483 at 492. Its purposes include:

1.     to raise public awareness for consumers and competitors as to the type of conduct that may contravene the Act, and as to the outcome of particular litigation: Target Australia at 43,382;

2.     to alert consumers to the fact of the contravening conduct and inform them that they may have some remedy;

3.     to aid in the enforcement of a primary order and prevent repetition of the conduct: Luxottica Retail Australia Pty Ltd v Specsavers Pty Ltd (No 2) [2010] FCA 644 at [9].

The purposes are not cumulative.

[41]     However, there must be a nexus between the corrective advertising and the conduct that constituted the breach: Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1 at [54]. Therefore, in deciding whether to make an order for corrective advertising Courts will seek to ensure that it is not disproportionate to the contravening conduct and will take into account the time which has elapsed since the offending conduct: Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) 18 IPR 270 at 282.

157    Lactalis submitted that there existed no justifiable rationale for the making of an adverse publicity order in the circumstances of the present case. Its primary point was that there was no need to raise public awareness of the type of conduct that contravened the Dairy Code because such awareness has already been raised. There is some force in that submission. The ACCC has already publicised, to a significant extent, both its bringing the action against Lactalis and its success in relation to the contraventions the subject of the decision in ACCC v Lactalis. It issued a media release in the wake of that decision, which was obviously seen by a number of media outlets. The evidence showed that several media outlets published articles about both the ACCC bringing the proceedings and its success. It is not irrelevant to note that the media stories appeared in numerous newspapers and in online publications that are likely to be of interest to farmers. They included Farm Weekly, Stock & Land, The Standard, The Weekly Times, Queensland Country Life, Farm Online National, as well as The Australian, which is in national circulation. The coverage of this Court’s conclusion, that Lactalis had breached the Dairy Code, was wide. It can be inferred that many milk producing farmers became aware of it.

158    Even if it is accepted, as the ACCC submitted, that many farmers have limited access to the internet, it is most unlikely that other forms of communication failed altogether to bring to their attention the outcome of the prior liability hearing. Publications from industry associations and word of mouth between people living in rural areas may have sufficed for that purpose.

159    Given this existing coverage of the proceedings and the finding of Lactalis’ contraventions which was promoted by the ACCC for the apparent purpose of informing those for whom the Dairy Code provides protection, it is less likely that a further adverse publicity order would furnish farmers with any new and valuable information.

160    Lactalis also submitted that it can readily be inferred that the ACCC will issue a further media release following the handing down of this judgment. Again, there is undoubted force in that. Commonwealth Government regulators are, notoriously, exceptionally quick to issue press releases in relation to their success in proceedings that they have instituted. There is no reason to think that, in this case, the ACCC will not issue such a press release or that it will not receive wide media publicity.

161    In the circumstances of this matter, there is no need to advise farmers of their potential entitlement to some remedy in relation to Lactalis’ breaches, as no such relief is available to them (or, at the very least, none was identified by the ACCC). Whatever rights they may have had in relation to the MSAs that they entered into in 2020 would be of little value at this point, given that those agreements have long ago expired.

162    It should also be accepted that an adverse publicity order would not assist in enforcing the primary orders, being the imposition of civil penalties. In addition, the contravening conduct in question was transitory, and effectively ceased soon after the ACCC alerted Lactalis to what it considered, at that time, were breaches of the Dairy Code. The cessation of any possible contravening conduct has been ongoing, and there is no suggestion that, in the three years since 2020, Lactalis has breached the requirements of the Dairy Code. Indeed, the mere fact that the contraventions the subject of these proceedings occurred about three years ago supports the conclusion that an adverse publicity order would not have the required utility at this point in time.

163    In these circumstances, the making of an adverse publicity order would amount to a further penalisation of Lactalis by exposing it to reputational damage and the risk of resulting losses. It follows that no such order should be made.

164    In light of that conclusion, there is strictly no need to consider Lactalis’ submissions that the form of the statement that the ACCC contended should be issued as part of the adverse publicity order was too wide or inaccurate. Had it been necessary to consider that issue, however, I would have accepted Lactalis’ submissions in that respect. Even allowing for the fact that the statement would have been sent to persons who were unlikely to have been legally qualified, and that condensing the Court’s conclusions into a single digestible page is a difficult task, the proposed statement contained too many infelicities. Where a court is moved to make an adverse publicity order, it ought to ensure that any statement or other publication produced for the purpose of meeting that order is in a form that fairly explains the Court’s conclusions. In the present case, it was not too much to expect that the statement proposed by the ACCC, whilst identifying the fact of the imposition of a penalty or the granting of other relief, would also provide some details of the circumstances in which the contraventions occurred, including a reference to any major exculpatory matters. The letter to farmers that the ACCC proffered omitted any reference to the important point that it is unlikely that any farmer was adversely affected by Lactalis’ failure to publish its MSAs on its website. Similarly, it failed to mention that, although the MSAs impermissibly allowed Lactalis to terminate for breaches that were not material, no farmer suffered any detriment as a result because the clauses were never acted upon by Lactalis.

165    Further, it might be added that any statement issued as part of an adverse publicity order should be accurate to the extent that it purports to identify the state of the law. In the proposed letter to farmers, the ACCC has included a statement to the effect that the drafting of the public denigration clause was poor and too wide. That was not the case. The invalidating error concerned the scope of cl 10.1 of Schedule 6 of the relevant MSAs and the definition of “Material Breach” in cl 1.1 of that schedule, which incorporated the public denigration clause from a separate Handbook. It was only when, by the combined effect of those clauses, Lactalis was afforded an entitlement to terminate for an immaterial breach of the public denigration clause that the contravening effect emerged.

166    Finally, as a general observation, regulators should not seek to require respondents who are made subject to adverse publicity orders to include in the resulting publications the regulators’ own assertions about government law making or policy. In the letter to farmers proposed by the ACCC in this case, it was stated that:

The Dairy Code was introduced to address systemic power imbalances between dairy processors and farmers and to improve visibility and transparency over milk supply agreements. This decision highlights that processors must not undermine the protections now provided under the Dairy Code.

167    The first sentence may be true. Given the admissible extraneous material surrounding the Dairy Code, the Court is required to accept it to be so. However, that does not mean that Lactalis, as a processor, should be compelled to either promote this policy statement or purport to adopt it.

168    It follows that the draft statement advanced by the ACCC is not one that Lactalis should be required to send to farmers, even if the Court was minded to make an adverse publicity order.

Costs

169    On the question of costs, the ACCC quite fairly submitted that, given the determinations made in ACCC v Lactalis, the appropriate result should be that there be no order as to costs. Lactalis agreed. In those circumstances, there will be no order as to costs.

Associate:    

Dated:    25 July 2023