[34 CATCHWORDS r TRADE PRACTICES - resale price maintenance - non supply of motor cycle tyres except on Condition of sale at list price - failure to educate employees, despite attempts by corporation - penalty - relevant factors. Trade Practices Act 1974 ss. 48, 76, 77, 96(3). TRADE PRACTICES COMMISSION V. ANNAND AND THOMPSON PTY.LTD. QLD. NO. G168 of 1986 SPENDER J. BRISBANE 2 APRIL 1987. FEDERAL COURT OF AUSTRALIA PAINCIPAL REGISTRY IN THE FEDERAL COURT OF AUSTRALIA ) ) QUEENSLAND DISTRICT REGISTRY ) QLD. G168 of 1986 ) GENERAL DIVISION ) BETWEEN : ~ TRADE PRACTICES COMMISSION Applicant AND: ANNAND AND THOMPSON PTY.LTD. Respondent MINUTE OF ORDER JUDGE MAKING ORDER: SPENDER J. DATE OF ORDER: 2 APRIL 1987. WHERE MADE: BRISBANE THE COURT ORDERS THAT: 1. The respondent pay to the Commonwealth of Australia a pecuniary penalty of $15,000.09 in respect of the contravention of s.48 of the Act alleged in the Statement of Claim. N Pursuant to s.77 of the Trade Practices Act 1974, judgment be entered for the applicant on behalf of the Commonwealth of Australla against the respondent for the sum of $15,000.00. 3. The respondent pay to the applicant its costs of and incidental to the application, to be taxed if not agreed. z i Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. IN THE FEDERAL COURT OF AUSTRALIA ) ) QUEENSLAND DISTRICT REGISTRY } QLD. G168 of 1986 } ) GENERAL DIVISTON BETWEEN : ~ TRADE PRACTICES COMMISSION Applicant AND: ANNAND AND THOMPSON PTY.LTD. Respondent DATE OF HEARING: 25 MARCH 1987. DATE JUDGMENT DELIVERED: 2 APRIL 1987. COUNSEL: for the applicant Mr. Forde for the respondent Mr. Hampson Q.C. with Mr. Gibson T. MACDERMOTT ASSOCIATE TO SPENDER J. IN THE FEDERAL COURT OF AUSTRALIA ) ) QUEENSLAND DISTRICT REGISTRY ) QLD. G168 of 1986 ) GENERAL DIVISION ) BETWEEN : ~ TRADE PRACTICES COMMISSION Applicant AND: ANNAND AND THOMPSON PTY.LTD. Respondent SPENDER J. BRISBANE 2 APRIL 1987. REASONS FOR JUDGMENT Section 48 of the Trade Practices Act 1974 ("the Act") provides:- "A corporation or other person shall not engage in the practice of resale price maintenance." In these proceedings, Annand and Thompson Pty. Ltd. (Annand and Thompson) admits that it engaged in conduct described in s.96(3) of the Act and, in so doing, has contravened the prohibition on resale price maintenance contained in s.48 of the Act. That a contravention of Part IV of the Act is viewed seriously is demonstrated by the maximum penalty of $250,000.00 where the contravention has been by a corporation. Section 76 r relevantly provides:- "(1) If the Court is satisfied that a person - (a) has contravened a provision of Part IV; the Court may order the person to pay to the Commonwealth such pecuniary penalty (not exceeding $50,000 in the case of a person not being a_ body corporate, or $250,000 in the case of a body corporate, in respect of each act or omission by the person to which this section applies) as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previousiy been found by the Court in proceedings under this Part to have engaged in a similar conduct." Annand and Thompson is a private company which is controlled by LNC Industries Pty.Ltd.. The greater part of the business of Annand and Thompson concerns the wholesale distribution of automotive products throughout Queensland and the Northern Rivers district of New South Wales. In particular, it Is unvolved in the wholesale distribution of motor cycle tyres, which is carried on by the company's Spare Parts Division. Annand and Thompson is a medium sized company. Its annual profit after tax is approximately $.5m, of which approximately 2.5% 18 derived from the wholesale distribution of motor cycle tyres. The facts giving rise to the present contravention of s.48, and admitted by Annand and Thompson, are as follows: At various times prior to 12 May 1986, Annand and Thompson supplied "Dunlop" motor cycle tyres to Swanson Holdings Pty.Ltd., which company trades as 'Shell Wacol'. 'Shell Wacol' sold "Dunlop" motor Cycle tyres to the public and, at all relevant times, it sold "Dunlop" motor cycle tyres at prices less than the listed price recommended by Annand and Thompson. Qn 15 May 1986. one Michael Brace, on behalf of 'Shell Wacol', attempted to place an order by telephone for a quantity of "Dunlop" motor cycle tyres. He asked to speak to one Kenneth Wieden, who has been the Sales Manager, Motor Cycle Accessories, of the business of Annand and Thompson since March 1985 and who has worked in the wholesale distribution of motor cycle tyres for approximately 12 years. In the telephone call, the following conversation occurred:- Brace: "T want to buy some motor cycle tyres, the Dunlops. Are you. still selling to me?" Wieden: "No." Brace: "Why won't you sell me these tyres?" Wieden: "We've got too many complaints about your prices." Brace: "You mean cutting the price?" Wieden: 'Yes." Brace: "Who's been complaining?" Wieden: "Tpswich and Rocklea." Brace: "If I don't discount, will you sell to me?" Wieden: "Yes," Brace: "Do you want me to sell at retail price as per the price list?" Wieden: "Yes." It is clear that Annand and Thompson refused to fill an order for "Dunlop" tyres from 'Shell Wacol', except on the condition that 'Shell Wacol' did not resell the tyres to the public at less than the list price. ~ Mr. Wieden in an affidavit says that, before having a telephone conversation with Mr. Brace, he had not formulated an intention of telling him that Annand and Thompson would not supply him with motor cycle tyres unless he sold at the recommended price. He had earlier been contacted by most metropolitan tyre retailers who had complained to him about the extent of the discounts offered on motor cycle tyres by 'Shell Wacol'. He had been told that the price at which 'Shell Wacol' was selling "Dunlop" tyres was close to or below the combined cost to the retailers of purchasing the tyres plus fitting and balancing. He says it was the level of discounting rather than the fact of discounting which was the origin of the complaints. He says that at the time of the conversation, he had only a vague awareness of the provisions of the Trade Practices Act, and was not conscious that he was acting unlawfully. As a Sales Manager, he has two salesmen under his direction. Mr. William Thompson, the Managing Director of Annand and Thompson, has been employed by that company for 35 years and has been the Managing Director for over 25 years. He says in his affidavit, (and it is accepted by the applicant Trade Practices Commission), that information circulars concerning the provisions of the Trade Practices Act have been circulated to the employees of the company since 1976. In particular, on 30 July 1985, Mr. Thompson caused to be circulated within the company a memorandum fa and a copy of the 'LNC Compliance Manual'. This comprehensive document was forwarded to managers of each of the divisions within the company. It stated in part:- "It 1s a requirement that all executives and company representatives read this manual and if there is any part of it that is not completely clear, please contact the writer and reference will be passed back to the solicitors." Notwithstanding this intended circulation and instruction, Mr. Wieden says that he does not recall being provided with the manual or being shown it. Since these events he has been provided with a manual. The company has recently circulated a memorandum dated 16 February 1987 and, after advice from the company's solicitors, Mr. Thompson caused to be circulated a further memorandum by the Administration Manager, Mr. J.R. Woodcock, dated 20 February 1987. This memorandum is of some relevance on the question of penalty. It is in these terms:- "Further to my memorandum of 16 February, despite efforts to bring the Provisions of the Trade Practices Act to the attention of Annand & Thompson personnel, it has come to my notice that there are members of staff who should be aware of the effect of the provisions but are not. It is of utmost importance that staff are made aware of and understand the Trade Practices Act, which imposes strict obligations which MUST be observed. To ensure these things (1) Each employee should be given a copy of the Trade Practices Compliance Manual and retain it for future reference. (2) Each Divisional Manager is responsible for ensuring that each .member of his staff familiarises himself with the Manual. (3) Divisional Managers must ensure that new employees familiarise themselves with' the Compliance Manual immediately they join Annand & Thompson. (4) If any member of staff has any questions about the Trade Practices Act those questions should be referred to me, and I will obtain clarification, where necessary, from the Company's solicitors." Mr. Thompson says:- "IT am aware, from many years' experience in the automotive industry, that the practice of discounting manufacturers' recommended retail price lists 15 common. It is not now, and has never been the policy of Annand & Thompson Pty. Ltd. to decline supply to retailers engaging in such practices. Mr. Wieden's conduct, the subject of these proceedings, was contrary to the company's policy, of which he should have been aware. I have endeavoured, through the company's solicitors, to assist the Commission with i1ts enquiries in relation to this matter, and believe that the initiatives referred to above will ensure, so far as it 1s possible to do so, that the incident 1s not repeated." Toohey J., in Trade Practices Commission v. Mobil Oil Australia Ltd. (1985) ATPR 40.503 at 46,027, observed:- "Clearly much depends on the deliberateness of the offender's conduct, the extent to which (the offending conduct) has been carried on and the damage caused to anyone by that conduct. At the same time one must not lose sight of the fact that sec. 76 of the Act is not directly concerned with compensation; that is the role of sec. 82. There is the wider public interest in ensuring that the provisions of the Act are observed. The seriousness of a contravention may also he measured by the degree to which 1t was initiated or acquiesced in by senior management." r There is in this case no suggestion that Annand and a Thompson has previously been found by the Court to have engaged in similar conduct. The Commission, further, has not suggested that, as a result of the contravention, any particular loss or damage has been suffered by 'Shell Wacol'. The level of possible penalties, however, indicates the seriousness with which contraventions of Part IV of the Act are viewed. Smithers J. in Trade Practices Commission v. Stihl Chain Saws (Aust.) Pty.Ltd. (1978) ATPR 40.091 at 17,895 said:- "Tt is clearly the intention of Parliament to lay down conditions for the conduct of corporate trade and commerce which will ensure that traders operate in competitive conditions and that the public has the benefits which flow therefrom. So far as resale price maintenance is concerned the object of the Act is to create conditions in which the public will benefit from traders competing with each other in respect of prices unfettered by price restraints imposed by suppliers of goods upon retailers." Each case must, of course, be viewed on its own facts and facts may be infinite in their variety. Nonetheless, one can distill from the decided cases involving contraventions of Part IV of the Trade Practices Act 1974 that the following are relevant factors on penalty:- (a) whether the conduct was deliberate or not; (b) whether damage was caused by the conduct to the public or to the retailer; (c) the size of the corporation's activity in the relevant market; (ad) the degree to which the conduct was initiated or condoned by senior management; (e) what steps were taken by the employer to educate its employees prior to the contravention; (f) the existence or otherwise of a policy by the corporation against breaches of the provisions of the Act; (g) whether the conduct was the result of a mistake on the part of an employee; {h) whether there has been similar conduct in the past; (i) whether, since the occurrence, controls over employees, particularly sales personnel, have been increased or improved to prevent a repetition of the conduct; (J) Whether the corporation has made a full and frank disclosure and co-operated with the Commission. The philosophy of the Act is plain: its object is to create conditions benefiting the public from traders competing with each other. In particular, the competition in the market is to be unfettered by price restraints imposed by suppliers on retailers of goods. The present case involves a clear contravention of the requirement of price competition unsullied by vertical restraints. Against the background of the criteria to which I have earlier referred, this case is towards the lower end of the scale of penalties. I accept that it is a "one-off" instance, which occurred despite attempts by the respondent corporation to inform its employees of the requirements of the Act. The quantum of penalties imposed in other cases can seldom be of very much direct assistance; the enquiry, rather, is to be dtrected primarily at ascertaining the facts of the contravention and then making an assessment of the seriousness of the conduct against a scale of punishment that has $250,000.00 as its maximum. = In the light of all those factors, l assess the penalty at $15,000.00. The orders that I make are:- 1. The respondent pay to the Commonwealth of Australia a pecuniary penalty of $15,000.00 in respect of the contravention of s.48 of the Act alleged in the Statement of Claim. 2. Pursuant to s.77 of the Trade Practices Act 1974, judgment be entered for the applicant on behalf of the Commonwealth of Australia against the respondent for the sum of §15,000.00. 3. The respondent pay to the applicant its costs of and incidental to the application, to be taxed if not agreed. ) certify that this an' the SS preceding pages are a true copy of the reasons for judgment herein of Hs Honour Mr Justica spender] Woe. of 24°87 Associate Dated