JUDGMENT No. ble, LB5B, CATCHWORODS TRADE PRACTICES - Application by Trade Practices Commission for penalties and injunctions ~- Contravention of 5.45(2)(a)(ii) and 5.45(2)(b)(ii) of the Trade Practices Act 1974 - Quantum of penalties - Circumstances in which contravention occurred - Seriousness with which legislature views contraventions of Part IV. - Necessity for injunction. TRADE PRACTICES ACT 1974 56.45(2)(a)(ii), 5.45(2)(b)(ii), 5.76. TRADE PRACTICES COMMISSTON Applicant DAVID JONES (AUSTRALIA) PTY. LIMITED First Respondent RUSSWAT NOMINEES PTY. LIMITED Second Respondent MYER S.A. STORES LIMITED Third Respondent ZELLEN PTY. LIMITED Fourth Respondent BRUCE HANDEL WATT Fifth Respondent JOHN STANLEY WATSON Sixth Respondent CHRISTOPHER RUSSELL Seventh Respondent ROBERT JOHN WOOD Eighth Respondent JAMES ANTHONY CORCORAN Ninth Respondent ISHER J. " ADELAIDE FEDERAL COURT B JULY 1986. OF AUSTRALIA 18 JUL 2093 LIBRARY IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION ) ) ) No.G29 of 1985 ) ) BETWEEN: TRADE PRACTICES COMMISSION Applicant - and DAVID JONES (AUSTRALIA) PTY. LIMITED First Respondent RUSSWAT NOMINEES PITY. LIMITED. Second Respondent MYER 5.A, STORES LIMITED. Third Respondent ZELLEN PTY. LIMITED. Fourth Respondent BRUCE HANDEL WATT Fifth Respondent JOHN STANLEY WATSON Sixth Respondent CHRISTOPHER RUSSELL Seventh Respondent ROBERT JOHN WOOD Eighth Respondent JAMES ANTHONY CORCORAN Ninth Respondent noe 2. MINUTE OF ORDER JUDGE MAKING ORDER : FISHER J. WHERE MADE 3 ADELAIDE DATE OF ORDER : 8 JULY 1986 THE COURT ORDERS: That judgment be entered in favour of the applicant in respect of its claim that David Jones (Australia) Pty. Limited, Russwat Nominees Pty. Limited and Myer S.A. Stores Limited have each contravened sub.para. 45(2)(a)(ii} and sub.para. 45(2)(b){ii) of the Trade Practices Act 1974 and in respect of its claim that Zellen Pty. Ltd. contravened sub.para. 45(2)(a)(ii) of the Act. That judgment be entered in favour of the applicant in respect of its claim that Bruce Handel Watt, John Stanley Watson, Christopher Russell, Robert John Watt and James Anthony Corcoran were each knowingly involved in the contravention of sub.para.45(2)(a)(ii) of the Act. That all other claims by the applicant against the respondents be dismissed. That the respondents David Jones (Australia) Pty. Limited, and Myer S.A. Stores Limited each pay to the Commonwealth of Australia a pecuniary penalty of $15,000 and that Russwat Nominees Pty. Limited and Zellen Pty. Limited each pay to the Commonwealth a pecuniary penalty of §6,000. That the respondents Bruce Handel Watt, John Stanley Watson, Christopher Russell, Robert John Watt and James Anthony Corcoran each pay to the Commonwealth a pecuniary penalty of 61,000. That judgment be entered for the applicant on behalf of the Commonwealth of Australia pursuant to 5.77 of the Trade Practices Act 1974 against each respondent in respect of the amount of the pecuniary penalty each is ordered to pay and that the amount of each pecuniary penalty be paid to the District Registrar of this Court within 21 days of this date. 3. That subject to order 8 hereof the following respondents David Jones (Australia) Pty. Limited, Myer S.A. Stores Limited, Zellen Pty. Limited and Russwat Nominees Pty. Limited each pay to the applicant one quarter of its costs of these proceedings the same to be taxed if not agreed and if and to the extent that Russwat Nominees Pty. Limited fails to pay its quarter of such costs the same be paid by the respondents John Stanley Watson and Christopher Russell. (a) That the applicant pay to the respondents Zellen Pty. Limited, David Jones (Australia) Pty. Limited, James Anthony Corcoran and Bruce Handel Watt their costs of the application to strike out the applicant's statement of claim and the costs of all respondents of the additional directions hearing consequent upon such striking out and delivery of a fresh statement of claim. (b) That David Jones (Australia) Pty. Limited pay the costs of all other parties with the exception of Bruce Handel Watt of its application to vacate the date fixed for hearing of further submissions on penalties and costs and the costs of the applicant of the hearing held on 17 April 1986 of such further submissions. That liberty to apply be granted to all parties in relation to the orders made in respect of costs. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. TI IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION ) ) ) No.G29 of 1985 ) ) BETWEEN: ZRADE PRACTICES COMMISSION Applicant - and DAVID JONES (AUSTRALIA) PTY. LIMITED First Respondent RUSSWAT NOMINEES PTY. LIMITED. Second Respondent MYER S.A. STORES LIMITED. Third Respondent ZELLEN PTY. LIMITED. Fourth Respondent BRUCE HANDEL WATT Fifth Respondent JOHN STANLEY WATSON Sixth Respondent CHRISTOPHER RUSSELL Seventh Respondent ROBERT JOHN WOOD Eighth Respondent JAMES ANTHONY CORCORAN Ninth Respondent CORAM: Fisher J. 8 duly, 1986 REASONS FOR JUDGMENT In my reasons for judgment delivered on 8 February 1986 I found that each of the corporate respondents had contravened sub.para.45(2)(a)(ii) of the Trade Practices Act 1974 ("the Act"). I also found that these respondents other than the respondent Zellen Pty. Limited ("Zellen") had contravened sub.para.45(2)(b)(ii) of the Act. Furthermore each of the individual respondents was knowingly concerned in and a party to the contravention by one or other of the corporate respondents of sub.para.45(2)(a)(ii) and thus liable toa pecuniary penalty under para.76(1)(e) of the Act. On the occasion when I delivered my previous reasons I intentionally refrained from entering any formal orders but stood the matter over for evidence and submissions on the questions of penalties, injunctions and costs. On 26 'March 1986 the matter was called on again and affidavit evidence tendered and submissions made on behalf of the applicant and all respondents other than David Jones (Australia) Pty. Limited ("David Jones") and Bruce Handel Watt ("Mr. Watt"). These last two respondents tendered their evidence and made their submissions on 17 April 1986, on which occasion they were separately represented. Counsel for the applicant tendered an affidavit pursuant to Order 49 Rule 5 which established the market share of the respondents. He sought orders in relation to penalties and injunctions against all respondents, the injunctions being in the terms set out in his client's application to this Court. He also sought an order that the corporate respondents pay the costs of the proceedings. Each respondent filed an affidavit and the respondents other than Russwat, Mr. Watson -and Mr. Russell opposed the imposition of injunctions as being unnecessary and inappropriate in the circumstances. For the reasons which subsequently appear I am prepared to accept this submission. On the question of pecuniary penalties I am directed by s.76 of the Act to determine the appropriate amount in respect of each act or omission after having regard to all relevant matters certain of which are specified. In respect of the corporate respondents other than Zellen I have found two contraventions, namely, arriving at the relevant understanding and also giving effect to the same. The applicant sought, albeit somewhat faintly, the imposition of a separate penalty in respect of each contravention. However in my opinion the contraventions arise out of virtually the same conduct and therefore one penalty is appropriate. Sub-section 76(3) is in this respect of some relevance in the present circumstances. The particular matters to which I am required by sub.5.76(1) to pay regard to can be paraphrased as follows:- (a) the nature and extent of the contravening conduct and the loss or damage suffered as a result of that conduct; (b) the circumstances in which that conduct occurred; (c) whether the person contravening has been found to have engaged in any similar conduct. In respect of the first two of these matters I have the benefit of the very considerable evidence in the proceedings as well as the affidavits tendered in the two hearings subsequent to delivery of reasons for judgment. There is no suggestion that any of the respondents has been found to have engaged previously in any similar conduct or to have contravened any of the provisions of the Act. The nature of the contravening conduct of the respondents was very much out of the ordinary, falling as it did into the category of conduct discussed by Morling J. in Trade Practices Commission v Culley and Anor (198314 A.T.P.R. 44,668 and by me in Trade Practices Commission v Cook-On-Gas Products Pty. Ltd. £19851 A.T.P.R. 46,506. On page 46,510 of the latter decision I had this to say concerning the contravention in that case, which words can fairly be applied to the facts of this matter: 5. "In considering the nature of the contravention and the circumstances in which it occurred, one matter is to me readily apparent. The price fixing understanding which the parties reached has neither the flavour nor the normal characteristics of such an arrangement between competitors in the same market. Two of the four parties to the understanding did not operate in the relevant market but in the wholesale market. Of the two parties who operated in the relevant retail market, one was subjected to pressure by the wholesalers to adjust his conduct and increase prices. Furthermore the purpose of the understanding was not to increase retailers' profit at the expense of consumers. It was prompted by a need on the part of wholesalers, as well as retailers, to ensure that retailers could trade profitably. In the circumstances I accept with approval the approach of Morling J. in Trade Practices Commission v Culley & Anor (1983) ATPR 40-399 which is very much in point and can be adapted to the facts of this matter. At p.44,670 he had this to say: 'I am satisfied that the respondents' conduct was motivated by an understandable desire on their part to achieve a reasonable level of profitability in their businesses without causing harm to the public. They believed that there was nothing wrong in what they were doing, but they were mistaken in that belief. Whilst their conduct was clearly in breach of the Act, it is difficult not to have some sympathy with retailers who seek to do no more than sell by retail at prices marginally above government-approved wholesale prices. It is a yeal question whether cut-throat price competition which makes it impossible for retailers to trade economically is in the public interest in the long term, even if there are short term price advantages to consumers. ' Whilst there is no positive evidence here that the parties believed there was nothing wrong in what they were doing, this can reasonably be inferred and I adopt what was said by Morling J. as applicable to this matter. It follows that although I consider that I must impose penalties to mark the Court's disapproval of the parties' conduct, these can be at the lower end of the scale." Notwithstanding my view that this approach can be adopted in this matter, it remains, in my opinion, essential that the Court's disapproval of the respondents' conduct, and of any other business that engages in like conduct, be made very apparent. Commercial interests must be made aware that the Act by its complexity virtually prohibits discussion of prices between competitors. The imposition of penalties must ensure that persons, in all strata of employment and not only those in the top management of large enterprises, appreciate this fact. It would be very wrong if by the imposition of penalties at the lower end of the scale the impression was gained that this contravention was in effect merely a technical breach. However as I have said the circumstances in this matter were exceptional. The price-fixing understanding was concluded between only three of the parties who compete in the same market. Even in the Adelaide central business district two very substantial competitors were not involved. Moreover one of the parties to the contravention operated in the wholesale market and thus was not in competition with the retailers. Furthermore at least as to Myer and David Jones they continued to compete with @ach other in their pricing, notwithstanding the understanding. It is not correct to conclude that the retailers arrived at the understanding for the purpose of increasing their profit at the expense of consumers. The understanding occurred on the initiative of the respondent Zellen, albeit with some prodding 7. from the retailers. Zellen was concerned that discounting by Pirate Pete and Duna World in particular would result in a reduction in the volume of its goods purchased by the retailers. It was not primarily prompted by a desire on the part of the retailers to increase their profit or to sell at the margin suggested in the understanding. David Jones at least was moving in any event towards such a margin prior to the understanding. There was also no evidence of strict adherence to the margin after the understanding. It was common ground that towards the end of 1983 and early in 1984 prior to the meeting there had been "cut-throat" discounting by certain retailers. Prices had fluctuated violently down to quite unrealistic levels. Zellen was concerned to eliminate or modify this discounting s0 as to ensure that large retailers continued to deal in its merchandise. They would not do so unless they could sell at reasonable margins. What Corcoran on behalf of Zellen hoped to achieve was that he could persuade the discounters to increase their prices by informing them that the retailers had agreed to adhere to the 70% margin. Both the retailers and Zellen hoped to achieve the same objective, namely to stabilize prices and not necessarily to increase profit margins. The manner in which they hoped to achieve this objective was neither a flagrant nor a deliberate breach of the Act but rather very careless conduct. Those present at the meeting were at that time not aware that there was oT 8. anything wrong in what they were doing and in particular that it was a breach of the Act. The only detriment to consumers resulting from the contravention which I am prepared to infer, is that they lost the capacity to acquire from the discounters merchandise at exceptionally low prices. There was no evidence that there was any other loss or damage suffered as a direct result of the contraventions. It follows that there was little, if any, profit gained by the retailers, Zellen or the individual respondents. As I have already mentioned no respondent has engaged in any similar conduct in the past or in any other contravention of the Act. Each has expressed regret and a commitment to ensure that there is no repetition in the future of the conduct. In assessing the seriousness of the contraventions and the quantum of an appropriate penalty I can take account of the effect particularly upon a company of the standing of Myer and David Jones of the finding that they have contravened the Act and the attendant publicity. I also emphasize what Smithers J. said in Trade Practices Commission v Stihl Chain Saws (Aust.) Pty. Ltd. £19783 ATPR 17,882 at p.17,896 that penalties "should reflect the will of Parliament that the commercial standards laid down in the Act must be observed, but not be so high as to be oppressive". They must however, in my view, be sufficiently high to have a deterrent effect. 9. I am of the opinion that an appropriate penalty in the case of David Jones and Myer is $15,000 each. I do not see the contraventions by Russwat and Zellen as revealing a different level of culpability from that of the large retailers but am of the view that to impose such a penalty on Russwat and Zellen would be oppressive and inappropriate. I propose a penalty of $6,000 in the case of each of these two companies. These penalties cover the two contraventions by each of the three corporate respondents. Special difficulties arise in the case of Russwat which is a company with paid capital of $2 and which operates as a trustee with no assets of its own. Its counsel stated that any penalty imposed on it would be paid. Counsel for the applicant submitted that I should fix a global penalty for Russwat and the two individual respondents who are its directors, placing the main burden thereof on the latter two gentlemen. However I do not consider this is a satisfactory resolution of the difficulty that the applicant might, contrary to the assurances of Russwat's counsel, have in collecting the amount of that company's penalty. In my opinion I should impose separate penalties on that company and each of the two individuals, leaving it to the applicant to take appropriate action if the company's penalty is not paid. However the position is different in respect of an order for payment by Russwat of costs where any default on its part would be prejudicial to other respondents and not the applicant and I later consider this problem. 10. I do not propose to differentiate between the individual respondents but do note that Mr. Wood and Mr. Watt could not hope to achieve, whether directly or indirectly, any benefit from the contraventions whereas Mr. Corcoran and the two directors of Russwat could indirectly have benefitted. Mr. Corcoran is a shareholder in Zellen and Mr. Watson and Mr. Russell are beneficiaries of the trust of which Russwat is trustee. Such facts do not persuade me in the circumstances to treat any of them differently. I have taken into account the circumstances of each of the individual respondents as disclosed by affidavits filed by them. Iam of the opinion that a penalty of $1,000 is appropriate in respect of each such respondent. The applicant sought injunctions against the respondents restraining them from engaging in the future in the contravening conduct. The respondents other than Russwat, Mr. Russell and Mr. Watson opposed the ordering of injunctions. My attention was drawn to the approach adopted by Toohey J. in Trade Practices Commission v Mobil Oil Australia Ltd. (1985) 4 F.C.R. 296 when he exercised his discretion and refused injunctions. I adopt his approach which in my view, is equally applicable to the circumstances of this matter. It is fair to describe the contraventions as the consequence of an isolated incident and not an established pattern of culpable conduct. In my opinion I can accept the assurances of the parties that there will be no repetition, and therefore there is little if any risk of contraventions occuring in the future. For this reason as well il. as the fact no ioss to consumers was established it is my view that the public interest does not require that the parties be enjoined. There was much discussion as to whether the costs of the applicant should be ordered against the corporate respondents jointly or as to a one quarter share each. The applicant did not seek an order for costs against the individual respondents if the corporate respondents bore the costs jointly. It is my opinion, for the reasons which I set out in Trade Practices Commission v Nicholas Enterprises Pty. Limited (1979) 28 A.L.R. 201 at p.210, that an order against the corporate respondents jointly would be the normal order. In the ordinary course any difficulty which the applicant may have in collecting from Russwat its share of the costs would fall on the corporate respondents and not on the applicant. However because the applicant does not seek an order for costs against the individual respondents an order against the corporate respondents could have a prejudicial effect upon three of these respondents. The capacity of these three respondents to obtain contribution from Russwat might depend upon the right of that company as trustee to an indemnity out of the assets of its trust (See Trustee Act 1936 South Australia sub.s.35(2)). The three corporate respondents would be entitled to be subrogated to that right. However this right of indemnity usually only extends to acts which a trustee is authorised to perform. If he acts beyond power the right to indemnity does not necessarily arise, Henry Labouchere & Others v Emily Tupper & Others 14 E.R. 670; 12. (1857) XI Moore 198. Whether Russwat is entitled to be indemnified in respect of costs (and also penalty) out of trust assets is a matter between it and the beneficiaries of its trust and not a matter for determination in these proceedings. I propose therefore to depart from the approach which I adopted in Nicholas and order that each corporate respondent pay one quarter the costs, thereby ensuring that the three corporate respondents are not at risk in respect of Russwat's proportion of costs. In this regard I propose to depart from the order sought by the applicant. The directors of Russwat, namely Mr. Russell and Mr. Watson, are parties to these proceedings and as such liable to be ordered to pay costs. It is appropriate, in my opinion, that they accept liability for Russwat's proper share of the applicant's costs to the extent that Russwat makes default. The order which I make is that David Jones, Myer, Zellen and Russwat each pay one quarter of the applicant's costs and that if and to the extent that Russwat makes default in payment of its one quarter share the same be paid by Mr. Watson and Mr. Russell. Certain special orders are also necessary. Two vespondents, Zellen and Mr. Corcoran applied successfully by notice of motion for the applicant's statement of claim as it then stood to be struck out. Two other respondents David Jones vas 13. and Mr. Watt were served with the application and attended before the court in support. It is appropriate that the applicant pay to these respondents their costs of this application. I make this order because it is more specific than the general order in relation to costs which I made on this notice of motion on 2 August 1985. In addition I direct that all respondents have their costs against the applicant of the additional directions hearing rendered necessary by the filing of the fresh statement of claim. In respect of these reserved costs I grant liberty to apply if any difficulty arises in the working out of these orders. A need for a further order for costs arises out of David Jones' application to vacate the date fixed for hearing of submissions on penalty, costs and injunctions. This application was unsuccessful and David Jones must pay the costs of the applicant, and the other respondents excluding Mr. Watt of this application. Furthermore David Jones must pay the costs of the applicant of the hearing on 17 April 1986 but I made no order in respect of the costs of other respondents who attended on that day. In each instance the costs ordered must be taxed if not agreed. District 14. Each of the penalties imposed must be paid to the Registrar of this Court within 21 days of this date. The orders of the Court are as follows: That judgment be entered in favour of the applicant in respect of its claim that David Jones (Australia) Pty. Limited, Russwat Nominees Pty. Limited and Myer S.A. Stores Limited have each contravened sub.para. 45(2)(a)(ii) and sub.para. 45(2)(b)(ii) of the Trade Practices Act 1974 and in respect of its claim that Zelien Pty. Ltd. contravened sub.para. 45(2)(a)(ii) of the Act. That judgment be entered in favour of the applicant in respect of its claim that Bruce Handel Watt, John Stanley Watson, Christopher Russell, Robert John Watt and James Anthony Corcoran were each knowingly involved in the contravention of sub.para.45(2)(a)(ii) of the Act. That all other claims by the applicant against the respondents be dismissed. That the respondents David Jones (Australia) Pty. Limited, and Myer S.A. Stores Limited each pay to the Commonwealth of Australia a pecuniary penalty of $15,000 and that Russwat Nominees Pty. Limited and Zellen Pty. Limited each pay to the Commonwealth a pecuniary penalty of $6,000. a 15. That the respondents Bruce Handel Watt, John Stanley Watson, Christopher Russell, Robert John Watt and James Anthony Corcoran each pay to the Commonwealth a pecuniary penalty of $1,000. That judgment be entered for the applicant on behalf of the Commonwealth of Australia pursuant to 5.77 of the Tyade Practices Act 1974 against each respondent in respect of the amount of the pecuniary penalty each is ordered to pay and that the amount of each pecuniary penalty be paid to the District Registrar of this Court within 21 days of this date. That subject to order 8 hereof the following respondents David Jones (Australia) Pty. Limited, Myer S.A. Stores Limited, Zellen Pty. Limited and Russwat Nominees Pty. Limited each pay to the applicant one quarter of its costs of these proceedings the same to be taxed if not agreed and if and to the extent that Russwat Nominees Pty. Limited fails to pay its quarter of such costs the same be paid by the respondents John Stanley Watson and Christopher Russell. (a) That the applicant pay to the respondents Zellen Pty. Limited, David Jones (Australia) Pty. Limited, James Anthony Corcoran and Bruce Handel Watt their costs of the application to strike out the applicant's statement of claim and the costs of all respondents of the additional directions hearing consequent upon such striking out and delivery of a fresh statement of claim. Due 16. (b) That David Jones (Australia) Pty. Limited pay the costs of all other parties with the exception of Bruce Handel Watt of its application to vacate the date fixed for hearing of further submissions on penalties and costs and the costs of the applicant of the hearing held on 17 April 1986 of such further submissions. 9. That liberty to apply be granted to all parties in relation to the orders made in respect of costs. I certify that this and the /S preceding pages are a true copy of the Reasons for Judgment of Mr Justice Fisher. Associate Wd oy 5G— Dated: 8 July 1986.