FEDERAL COURT OF AUSTRALIA Australian Competition and Consumer Commission v Tooltechnic Systems (Aust) Pty Ltd [2007] FCA 432 AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v TOOLTECHNIC SYSTEMS (AUST) PTY LTD (ACN 090 458 576) QUD 30 OF 2007 KIEFEL J 21 MARCH 2007 BRISBANE IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY QUD 30 OF 2007 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: TOOLTECHNIC SYSTEMS (AUST) PTY LTD (ACN 090 458 576) Respondent JUDGE: KIEFEL J DATE OF ORDER: 21 MARCH 2007 WHERE MADE: BRISBANE THE COURT NOTES THAT: 1. The respondent has given an undertaking to the applicant pursuant to section 87B of the Trade Practices Act 1974 (Cth) in the terms of annexure A. 2. The respondent's managing director, Holger Schulz, has given an undertaking to the applicant pursuant to section 87B of the Trade Practices Act 1974 (Cth) in the terms of annexure B. THE COURT DECLARES THAT: 3. The respondent engaged in the practice of resale price maintenance in contravention of section 48 of the Trade Practices Act 1974 (Cth) in or about November or December 2001 by attempting to induce Haltipi Pty Ltd trading as Power Tool Services (Power Tool Services) not to sell power tools supplied by the respondent and known by the brand 'Festo' or 'Festool' (Festool Products) at a price less than that specified by the respondent in its annual price list. 4. The respondent engaged in the practice of resale price maintenance in contravention of section 48 of the Trade Practices Act 1974 (Cth) in or about May 2002 by attempting to induce Power Tool Services not to sell Festool Products at a price less than that specified by the respondent in its annual price list. 5. The respondent engaged in the practice of resale price maintenance in contravention of section 48 of the Trade Practices Act 1974 (Cth) in or about May 2002 by attempting to induce Tradetools Direct Pty Ltd not to sell Festool Products at a price less than that specified by the respondent in its annual price list. THE COURT ORDERS THAT: 6. Pursuant to section 76 of the Trade Practices Act 1974 (Cth), the respondent pay to the Commonwealth of Australia a pecuniary penalty of $125,000 within 28 days of the date of this order. THE COURT ORDERS BY CONSENT THAT: 7. Pursuant to section 80 of the Trade Practices Act 1974 (Cth), the respondent be restrained, for a period of 3 years from the date of this order from, by itself, its servants, agents or otherwise howsoever, in its wholesale supply or potential supply of Festool Products to retailers of Festool Products (Festool Retailers), making statements to Festool Retailers or prospective Festool Retailers to the effect that: (a) they cannot sell Festool Products at a price less than that specified by the respondent or on behalf of the respondent; (b) they cannot sell Festool Products at a price less than the 'recommended trade price' specified from time to time in the respondent's annual price list; (c) they are not permitted to discount Festool Products; (d) they will or may be treated less favourably by the respondent if they sell Festool Products at a price less than that specified by the respondent or on behalf of the respondent; or (e) they will or may lose some or all of their wholesale discount if they sell Festool Products at a price less than that specified by the respondent or on behalf of the respondent. 8. The respondent pay the applicant's costs of and incidental to the proceeding fixed in the amount of $25,000 within 28 days of the date of this order. Note: 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 QUD 30 OF 2007 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: TOOLTECHNIC SYSTEMS (AUST) PTY LTD (ACN 090 458 576) Respondent JUDGE: KIEFEL J DATE: 21 MARCH 2007 PLACE: BRISBANE REASONS FOR JUDGMENT 1 The respondent, Tooltechnic, carried on the business in Australia of an importer and wholesale supplier of power tools or systems under the brand name 'Festool' or 'Festo' since January 2000. Its managing director was Mr Holger Schulz. Its Queensland area manager, until the end of 2001, was Mr Bruce Ottway, and for most of 2002 Mr Oktay Yavuzer. They reported to Mr Schulz by weekly reports and personally at sales meetings held three or four times a year. Area managers were primarily involved in sales and visited retailers to that end. 2 During sales meetings with area managers, in the course of 2002, Mr Schulz made statements to the effect that if they received complaints that a Festool retailer was not selling Festool products at the recommended trade price listed by Tooltechnic they were to obtain evidence that that was the case and then discuss the issue with the retailer: (a) advising them that a complaint had been made that they were not selling Festool products at the recommended trade price; (b) advising them that it was in their commercial interest to sell Festool products on features and benefits and not by discounting the product; and (c) taking them through their agreement, advising them that there was no need to be selling Festool products to customers at less than the recommended trade prices. 3 Three contraventions were alleged by the applicant, the Australian Competition and Consumer Commission ('ACCC'), and were admitted by Tooltechnic. In summary: (a) in or about November or December 2001, Ottway spoke to a director of Power Tool Services (Mr Newcombe) and said words to the effect that all Festool retailers must now sell Festool products to consumers at the recommended trade price set out in the annual price list circulated by Tooltechnic; (b) in or about May 2002 Mr Yavuzer told Mr Newcombe that he had received complaints about Power Tool Services discounting products and said that, 'You know you're not allowed to discount'; (c) in or about May 2002, Mr Yavuzer spoke to a director of Trade Tools Direct (Mr Ford) and (i) complained that Trade Tools Direct had reduced their selling price below the recommended trade price set out in Tooltechnic's annual price list in respect of two products; (ii) inquired why Trade Tools Direct had priced those items at less than the recommended trade price; (iii) said that it was possible that Trade Tools Direct wholesale discount structure may have to be altered so as to induce Trade Tools Direct to increase their prices for Festool products to back up in line with other dealers; (iv) said words to the effect that, 'Trade Tools Direct may lose 2 per cent of their wholesale discount, which would be paid back later as a long-term incentive'; (v) said that Trade Tools Direct seemed to set pricing trends in Queensland and that if Trade Tools Direct lowered their prices, then everyone else's would go down accordingly. 4 It is admitted that Tooltechnic engaged in the practice of resale price maintenance, in contravention of s 48 of the Trade Practices Act (1974) (Cth) ('the Act') , by engaging in acts referred to in s 96(3)(b) on three separate occasions. The Court has been provided with a statement of agreed facts and the parties have proposed orders upon which they are agreed, but as to which the court must exercise its discretion. They involve the Court noting the undertakings given by Tooltechnic and a Mr Schulz under s 87(b) of the Act. This course seems appropriate in order to explain why orders in those terms were not otherwise made. They also involve declarations as to the contraventions which have taken place, and injunctions restraining similar such contraventions for a period of three years. Costs are agreed to be paid by Tooltechnic in the sum of $25 000. 5 The terms of the injunctions are clear enough and do not extend beyond what is necessary. The declarations, however, appear to go beyond the gist of the contravention as referred to in the decision in Rural Press Limited v Australian Competition and Consumer Commission (2003) 216 CLR 53. I have discussed this with counsel for the ACCC. It is my view that the declaration should identify the conclusion of the Court as to the contravention. Whilst it is clearly insufficient that it merely states the fact that there has been a contravention, it is not necessary, in my view, to set out the factual foundation for the Court's conclusion. 6 The ACCC's submitted that it was necessary to set out the occasion on which the contraventions occurred as well as the exchange in conversations from which the contravention could be inferred. In my view, that approach overlooks the nature and purpose of the declaration. The nature of a declaration is to state the legal outcome, in this case the contravention which has occurred. The public interest, which is necessary for the making of such a declaration, requires that there be an understanding of what has been done which amounts to a contravention. Here it is simply that Tooltechnic attempted to induce retailers to restrict their prices to the list which Tooltechnic had published. 7 I turn then to the question of the pecuniary penalty which ought to be imposed upon Tooltechnic with respect to the contraventions. Section 76 of the Act requires certain factors to be taken into account. In the present case, the contraventions on the part of the area managers were deliberate. The legislation regards such contraventions as illegal, without requiring any effect to be shown. A feature of this case is that, at least so far as concerns the second and third contraventions, the officers of the retail companies did not accept the assertions that they were not entitled to set the price. Indeed, Mr Ford of Trade Tools Direct advised Mr Yavuzer that Tooltechnic's attempt to enforce a pricing code was, in his view, illegal. It is unfortunate that Mr Yavuzer persisted in attempting to induce Mr Ford's company to maintain the price listed. 8 A feature of central importance in cases such as this involves the degree of supervision and information given to personnel such as area managers, and the extent to which the culture of the company may have contributed to the contraventions. It is conceded that the statements of the area managers went beyond what they had been told to do by Mr Schulz in the sales meetings earlier referred to. However, his statements may have conveyed a wrong message to the area managers about the outcome desired and the process by which it was to be achieved. This would have been reinforced by the annual agreement with retailers, referred to as the P4P Agreement, which contained as a principle 'no compromises'. This agreement, and the presentation made by Mr Schulz to the area managers concerning it, did not contain any statements to the effect that retailers should not sell Festool products below the retail trade price. However, the area managers were not advised or reminded that retailers were free to do so, and were not limited to selling to a specified price. Mr Schulz did not advise them that they could not threaten any adverse consequences if they discovered that retailers were selling below that price. 9 Tooltechnic had some training towards trade practices compliance in place when the agreement was first introduced. It appears, however, that it comprised only a lawyer attending a meeting and speaking to staff. It acknowledges that it was not a comprehensive trade practices corporate compliance program. Clearly it was not, since the managing director was not conscious of the effect of the matters he left unsaid or which needed clarification. In any event, Tooltechnic concedes that the level of training and supervision was such that it may have contributed to an environment in which the contraventions occurred, but that this was not its or Mr Schulz's intention. The ACCC does not contend to the contrary. There is no evidence of any other contravening conduct by Tooltechnic prior to, or subsequent to, these contraventions. 10 It is proposed that a penalty in the sum of $150 000 would be appropriate, but that this should be discounted to $125 000 on account of Tooltechnic's co-operation. The statement of agreed facts contains details of Tooltechnic's revenue and shows that it has the capacity to pay the proposed penalty. The contraventions are not said to have had an effect upon consumers or competition. This may in part be attributable to the knowledge on the part of the retailers spoken to that the conduct was known to be prohibited. In any event, the ACCC does not appear to contend that Tooltechnic operated in a particularly price-sensitive part of the market. It operated in the 'high end' of the power tool market; a market directed particularly at trade users. It is agreed that there is a lesser degree of competition for trade customers than from other less expensive brands. 11 I have also been provided with some cases which provide some guidance with respect to penalties which might be regarded as comparable to a case such as this, at least in a general way. I refer, in particular, to Australian Competition and Consumer Commission v Humax Proprietary Limited [2005] FCA 706 and Australian Competition and Consumer Commission v Dermalogica Proprietary Limited (2005) 215 ALR 482. Tooltechnic has cooperated with the ACCC since the beginning of its investigation and made available information at its request. The cooperation has limited the extent of these proceedings, and resulted in a significant saving of costs. It has given an undertaking with respect to the institution of a comprehensive compliance program which, I am told, has already commenced. The sum of $150 000 is, in my view, within the range of an appropriate penalty. 12 It is also appropriate to reduce that sum to $125 000, in view of the level of cooperation which Tooltechnic has provided. There will be an order with respect to pecuniary penalty accordingly. There will be orders otherwise in accordance with the minutes of consent, save for the declarations which will be in these terms: 'That the respondent engaged in the practice of resale price maintenance in contravention of s 48 of the Trade Practice Act 1974 (Cth) in or about November or December 2001 and May 2002 by attempting to induce Power Tools Services and Trade Tools Direct not to sell Power Tools supplied by the respondent under the brand name 'Festo' or 'Festool', at a price less than that specified by the respondent in its annual price list.' I certify that the preceding twelve (12) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel . Associate: Dated: 21 March 2007 Counsel for the Applicant: Mr M Brady Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Respondent: Mr D Shirrets Solicitor for the Respondent: Minter Ellison Date of Hearing: 21 March 2006 Date of Judgment: 21 March 2006