Australian Competition and Consumer Commission v Allphones Retail Pty Limited
[2011] FCA 538
•20 May 2011
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Allphones Retail Pty Limited [2011] FCA 538
Citation: Australian Competition and Consumer Commission v Allphones Retail Pty Limited [2011] FCA 538 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v ALLPHONES RETAIL PTY LIMITED (ACN 008 168 090), MATTHEW DONNELLAN, IAN HARKIN and ANTHONY BAKER File number: NSD 869 of 2009 Judge: FOSTER J Date of judgment: 20 May 2011 Catchwords: TRADE PRACTICES – consumer protection – whether the Court should make consent orders in a representative action brought pursuant to s 87(1A) and s 87(1B) of the Trade Practices Act 1974 (Cth) Legislation: Federal Court of Australia Act 1976 (Cth), Pt IVA
Trade Practices Act 1974 (Cth), ss 51AC, 51AD, 87(1A) and 87(1B)Date of hearing: 28 April 2010 Date of orders: 28 April 2010 Date of publication of reasons: 20 May 2011 Place: Sydney Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 27 Counsel for the Applicant: Mr S Rushton SC Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the First, Second and Fourth Respondents: Mr DR Pritchard SC, Mr SA Goodman Solicitor for the First, Second and Fourth Respondents: DLA Phillips Fox Counsel for the Third Respondent: Mr BC Roberts Solicitor for the Third Respondent: Kelly & Co
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 869 of 2009
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: ALLPHONES RETAIL PTY LIMITED (ACN 008 168 090)
First RespondentMATTHEW DONNELLAN
Second RespondentIAN HARKIN
Third RespondentANTHONY BAKER
Fourth Respondent
JUDGE:
FOSTER J
DATE OF ORDER:
28 APRIL 2010
WHERE MADE:
SYDNEY
BY CONSENT, THE COURT ORDERS THAT:
1.Pursuant to s 87(1A) of the Trade Practices Act 1974 (Cth), the first, second and fourth respondents compensate the persons on whose behalf the application is made by paying to the applicant the sum of $3,000,000.
2.The first, second and fourth respondents pay the applicant’s costs of and incidental to this proceeding as taxed or agreed.
THE COURT ORDERS THAT:
3.The Notices of Motion filed by the applicant herein on 16 December 2009 and on 4 February 2010 and the application by the applicant herein that this proceeding be heard separately from and after proceedings NSD 408 of 2008, NSD 1567 of 2008 and WAD 45 of 2009 all be dismissed.
4.The Notice of Motion filed by the first, second and fourth respondents on 20 October 2009 and the Notice of Motion filed by the third respondent on 30 October 2009 both be dismissed.
5.The applicant disburse the sum of $3,000,000, and any interest accrued thereon from 26 March 2010 until the date of payment, in accordance with the methodology set out at paragraphs 8–22 of the affidavit of Timothy David Lear sworn on 15 April 2010 and filed herein.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court’s website.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
GENERAL DIVISION
NSD 869 of 2009
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: ALLPHONES RETAIL PTY LIMITED (ACN 008 168 090)
First RespondentMATTHEW DONNELLAN
Second RespondentIAN HARKIN
Third RespondentANTHONY BAKER
Fourth Respondent
JUDGE:
FOSTER J
DATE:
20 MAY 2011
PLACE:
SYDNEY
REASONS FOR JUDGMENT
On 28 April 2010, by consent, I made orders giving effect to the settlement of this proceeding. The proceeding had been instituted and maintained by the Australian Competition and Consumer Commission (the ACCC) pursuant to s 87(1A) and s 87(1B) of the Trade Practices Act 1974 (Cth) (the TPA). Pursuant to those sections, the ACCC sought an order that the respondents, Allphones Retail Pty Limited (Allphones) and certain individuals who either were or had been executives of Allphones, compensate a large number of Allphones franchisees (the represented franchisees) for conduct which the ACCC alleged had been undertaken by those persons in breach of s 51AC of the TPA.
These Reasons which I now publish constitute my reasons for making the orders which I made on 28 April 2010.
BACKGROUND
This proceeding was one of four sets of proceedings which I fixed for final hearing commencing on 23 March 2010. The hearing of this proceeding was, at that time, programmed to take place in the early part of that fixture which was expected to be of six to eight weeks’ duration.
The parties opened their cases on 23, 24 and 25 March 2010. Although various documents were referred to in those openings, no documents, affidavits or witness statements were tendered or admitted into evidence during those openings.
On 29 March 2010, I was informed that the parties in this proceeding and in proceeding NSD 408 of 2008 (the ACCC, Allphones, Matthew Donnellan, Ian Harkin and Anthony Baker) had settled those two sets of proceedings and that the parties in proceeding NSD 1567 of 2008 (the ACCC and Allphones) were hopeful of resolving that proceeding save for a Notice of Motion filed by the ACCC against Allphones for contempt of Court. This Motion was in the docket of another judge of the Court.
Proceeding NSD 408 of 2008 and the present proceeding were closely connected. Many of the allegations made in proceeding NSD 408 of 2008 were repeated in the Statement of Claim filed in this proceeding. The essential difference between the two sets of proceedings was that, in proceeding NSD 408 of 2008, declaratory and injunctive relief were sought whereas in the present proceeding the claim was for compensation.
Ultimately, proceeding NSD 1567 of 2008 was also settled on a final basis with the exception of the contempt Motion to which I referred at [5] above.
OUTLINE OF THE CASE
The core allegations in the present proceeding were that, by a systematic series of actions (the detail of which I need not now go into), engaged in over some years, Allphones bullied its franchisees, engaged in unfair tactics and applied unfair pressure to its franchisees designed to secure commercial advantage for itself. One of the complaints at the heart of the ACCC’s case was that Allphones had failed to account to its franchisees and had kept for itself rebates, bonuses, concessions, discounts and other incentives which it had obtained from various suppliers of telecommunications services and equipment in breach of its contractual arrangements with its franchisees. I shall refer to these items as suppliers’ incentives. The ACCC alleged that the conduct of Allphones over the period with which the case was concerned constituted unconscionable conduct within the meaning of s 51AC of the TPA.
As I have already mentioned at [4] above, no evidence was tendered at the hearing before me before the proceeding was settled. Further, none of the respondents consented to a statement of agreed facts for the purpose of my consideration of the settlement which the parties ultimately reached.
A very large number of affidavits was filed on behalf of each side in the proceeding and it is fair to say that, on the respondents’ side of things, very earnest efforts were made in that material to dispute some of the allegations of fact made by the ACCC, to put a different complexion on some of the facts which were not truly in contest and, most importantly of all, to attempt to clarify and explain the way in which suppliers’ incentives had been earned by Allphones over the relevant period and dealt with by it in that period.
It is neither sensible nor appropriate for me to traverse the enormous detail of the allegations made by the ACCC and the answers offered by the respondents in the proceeding. I am not in the position to make any findings of fact and, as I have already mentioned, no facts have been agreed.
THE SETTLEMENT
Against the above background, I was asked to make orders by consent pursuant to which the respondents would pay to the ACCC an amount of $3,000,000 and also consent to paying the ACCC’s costs.
Initially, I indicated to the parties that I would require evidence as to the precise disbursement of the $3,000,000 which the respondents had agreed to pay. I informed the parties that I would not consider making the orders which they sought in the absence of a precise understanding as to which entities or individuals were to receive a share of that sum and the precise amount that each individual would receive. I informed the ACCC that I required the parties to explain to me the basis upon which particular payments would be calculated. The ACCC responded to my requests reasonably, appropriately and promptly.
The ACCC read and relied upon two affidavits of Timothy David Lear, an officer of the ACCC, in support of the application made by the parties that I should make the consent orders which they sought. Those affidavits were sworn and filed on 6 April 2010 and 15 April 2010 respectively.
Some of the material set out in those affidavits and referred to in those affidavits is confidential and I will endeavour to respect that confidentiality when discussing the material.
By his affidavits, Mr Lear established the following facts and matters:
(a)In late 2008 and early 2009, the ACCC wrote to all past and present Allphones franchisees of which it was aware informing them that the ACCC had under consideration bringing a proceeding pursuant to s 87(1B) of the TPA and seeking expressions of interest from those parties who might be interested in being represented by the ACCC should it decide to commence such a proceeding. In early 2009, the ACCC also convened several meetings with interested past and present franchisees with a view to ascertaining whether sufficient of them were interested in authorising the ACCC to bring such a proceeding.
(b)Ultimately, the ACCC informed interested franchisees that it had decided to commence a representative action on behalf of consenting franchisees pursuant to s 87(1A) and s 87(1B) of the TPA. Interested parties were invited to provide an appropriate form of consent to the ACCC for that purpose. In the consent documentation, the ACCC required the consenting franchisees to authorise it, at its absolute discretion, to conduct and, if necessary, settle the proposed proceeding. In the consent, the consenting franchisee also authorised the ACCC to decide how any settlement funds might be distributed.
(c)The best evidence which the ACCC had to hand as at March 2010 which allowed it to estimate the likely quantum of the suppliers’ incentives allegedly withheld by Allphones was the estimate contained in an expert report obtained by the ACCC for the purpose of this proceeding. According to that report, the amount that should have been paid to all Allphones franchisees from July 2004 to November 2009 was $14,500,000 (approx).
(d)The Allphones respondents contested the accuracy of this figure and suggested that it was inflated because appropriate credits and other benefits which they argued should have been brought to account against that amount had not been accounted for.
(e)The ACCC did not represent all Allphones franchisees in this proceeding. Therefore, those who were represented in this proceeding would not be entitled to the full amount of $14,500,000 but an amount which was less than that figure.
(f)The figures would only ever be estimates, given the state of the evidence at the time the proceeding was settled.
(g)Doing the best that anyone could with the information to hand, the range of figures referable to the losses suffered by the represented franchisees was between $2,400,000 plus interest and $3,900,000 plus interest. These figures were very crude estimates.
(h)Having considered the matter carefully and consulted with its expert, the ACCC proposed to use the number of connections made by the represented franchisees in each month between July 2005 and November 2009 for which each represented franchisee was an Allphones franchisee as a proxy for performance and to distribute 97.9% of the $3,000,000 settlement by reference to that proxy. The ACCC had advanced the notion that the fairest way of quantifying each franchisee’s entitlement was by reference to performance and that the fairest way of assessing performance was by reference to the number of connections made in the relevant period.
(i)In his second affidavit, Mr Lear explained in some detail how the ultimate apportionment of the settlement sum was to be effected. I will not describe that process in any more detail than I have done at subpar [h] above.
(j)A detailed spreadsheet showing the identity of each represented franchisee and the amount which each of them would receive was furnished to me as part of the evidence tendered by Mr Lear.
(k)After the settlement deal was struck with the Allphones’ respondents, the ACCC made a presentation to interested represented franchisees explaining the essential terms of the settlement which it had struck with the Allphones’ respondents and also explaining the method by which that sum would be distributed.
Hoy Mobile Pty Ltd (In Liquidation) was excluded from the settlement in circumstances addressed by Mr Lear in his affidavit.
Notwithstanding that it had the power to settle the proceeding on such terms as it thought fit and to make a distribution of the settlement sum in such manner as it thought fit, the ACCC went to considerable lengths to explain the basis upon which it had decided to accept the settlement sum and the basis and process by which the settlement sum would be distributed.
THE APPROVAL PROCESS
The present proceeding was not brought pursuant to Pt IVA—Representative proceedings of the Federal Court of Australia Act 1976 (Cth) (the Federal Court Act). The sole source of the ACCC’s power to bring and conduct the proceeding was s 87(1B) of the TPA.
Section 87(1A) and s 87(1B) of the TPA provided as follows:
(1A)Subject to subsection (1AA) but without limiting the generality of section 80 or 87AAA, the Court may:
(a)on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of Part IVA, IVB, V or VC, or a provision of the Australian Consumer Law; or
(b)on the application of the Commission in accordance with subsection (1B) on behalf of one or more persons who have suffered, or who are likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of Part IV (other than section 45D or 45E), IVA, IVB, V or VC, or a provision of the Australian Consumer Law; or
(ba)on the application of the Director of Public Prosecutions in accordance with subsection (1BA) on behalf of one or more persons who have suffered, or who are likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of section 44ZZRF or 44ZZRG;
make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2)) if the Court considers that the order or orders concerned will:
(c)compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage; or
(d)prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person.
…
(1B)The Commission may make an application under paragraph (1A)(b) on behalf of one or more persons identified in the application who:
(a)have suffered, or are likely to suffer, loss or damage by conduct of another person that was engaged in in contravention of Part IV (other than section 45D or 45E), IVA, IVB, V or VC, or a provision of the Australian Consumer Law; and
(b)have, before the application is made, consented in writing to the making of the application.
The specific approval of the Court to a settlement of a proceeding instituted by the ACCC pursuant to those sections is not required. However, in a very real and practical sense, the ultimate control and supervision of the outcome of such a proceeding rests with the Court if, as one would expect would usually be the case, the ACCC wishes to invoke the Court’s jurisdiction to make an order for compensation pursuant to those sections. On a settlement, in my view, having regard to the expression “… such order or orders as the Court thinks appropriate” in s 87(1A) of the TPA, there is ample scope for the Court to bring to bear considerations similar to those which might obtain had the proceeding been brought pursuant to Pt IVA of the Federal Court Act. The notion of appropriateness in s 87(1A) calls to mind the concepts of “fair and reasonable”. They are the concepts which have found favour with the Court when deciding whether to approve a settlement for the purposes of Pt IVA of the Federal Court Act.
In submissions made in support of the consent orders sought by the parties, the ACCC submitted that the approval of the Court was not required to a settlement of a s 87(1B) proceeding. The ACCC advanced a number of contentions which, in its view, distinguished a s 87(1B) proceeding from a representative proceeding pursuant to Pt IVA of the Federal Court Act. The distinctions between the two processes to which the ACCC referred are valid distinctions. However, for the reason which I have already mentioned, in the end, when asked to make orders by consent, the Court will take such steps as it considers appropriate in cases of this type to satisfy itself that the amount to be paid by way of compensation pursuant to the consent orders is reasonable and is being dealt with appropriately.
In the present case, I was comfortably satisfied that the orders sought were appropriate. I reached that level of satisfaction for the following reasons:
(a)The ACCC, acting responsibly, had formed the view that the settlement was appropriate and had agreed to it in principle.
(b)The amount of the settlement was a substantial sum. It was within the range of the ACCC’s best estimate of the likely compensation to be paid had the case gone to trial and been finally determined in its favour.
(c)The settlement brought to an end very hard fought litigation and avoided the obvious risks and delays associated with litigation. The present proceeding and its related matters were difficult, costly and complex pieces of litigation. They required considerable expenditure on the part of those involved in legal costs, time and effort. The outcome of such litigation could never be predicted with certainty.
(d)Notwithstanding its control over the settlement process, the ACCC made every endeavour to fully inform the represented franchisees of the basis of the settlement and the basis upon which the settlement sum would be distributed. No-one attended Court to oppose the making of the orders sought.
I was satisfied that the represented franchises had suffered loss because the Allphones respondents were prepared to pay $3,000,000 plus costs in order to resolve the litigation. Contained within that simple fact is an admission that, to some extent (albeit undisclosed), the represented franchisees had suffered loss at the hands of Allphones as alleged by the ACCC.
In addition, before making the orders sought by consent, the Court must be satisfied that there have, in fact, been contraventions of the TPA. I reached an appropriate level of satisfaction in respect of that matter from the circumstance that the Allphones respondents consented to a large number of declarations and injunctions in respect of the alleged contraventions in proceeding NSD 408 of 2008. Those contraventions overlap very substantially with those alleged in the present case.
These circumstances were sufficient to engage the jurisdiction of the Court.
CONCLUSION
For all of these reasons, I was prepared to make the orders which I made on 28 April 2010.
I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster. Associate:
Dated: 20 May 2011
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