Australian Competition and Consumer Commission v Hugo Boss Australia Pty Ltd

[1996] FCA 799

IN THE FEDERAL COURT OF AUSTRALIA )
  )
NEW SOUTH WALES DISTRICT REGISTRY )    No.  NG 551   of  1996
  )
GENERAL DIVISION                 )

BETWEEN:AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Applicant

AND:HUGO BOSS AUSTRALIA PTY LTD

First Respondent

AARON KANAT

Second Respondent

SIMON KANAT

Third Respondent

MICHAEL PENMAN

Fourth Respondent

JONATHON KANAT

Fifth Respondent

25 JULY 1996

REASONS FOR JUDGMENT
LOCKHART J.
This is a proceeding whereby the applicant, the Australian Competition and Consumer Commission, seeks both pecuniary penalties and injunctive relief against the respondents. The pecuniary penalties are sought against the first respondent and the second respondent in respect of conduct constituting resale price maintenance as defined by s. 96(3) of the Trade Practices Act 1974 ('the Act'), and therefore in contravention of s. 48.

In their defence the respondents admit to engaging in the conduct alleged by the applicant to contravene s. 48, save as to one allegation which is made in paragraph 44 of the statement of claim, and that is an allegation concerning the actual withholding of supply from a retailer.  The respondents deny the allegation and that allegation is no longer pressed by the applicant.  The Court therefore ignores for present purposes the allegation made in paragraph 44 of the statement of claim.

I need not refer to the conduct that is the subject of admission in detail because it has been set out in a very helpful document headed 'Joint Submissions' which has been handed to the Court this morning; I will simply refer to the relevant facts and circumstances in summary form.

Fifty per cent of the first respondent is owned by Hugo Boss A.G., a German company which founded the Hugo Boss worldwide label.  The remaining 50 per cent is owned by an Australian company, in turn wholly owned and controlled by Mr Aaron Kanat, the second respondent, and his family. The second respondent was the Managing Director of the first respondent and still holds that position.  The full extent of the contravening conduct engaged in by the first respondent was with the knowledge of the second respondent and in most cases was carried out by him personally.  The conduct engaged in by the third, fourth and fifth respondents also carried the second respondent's endorsement and was in accordance with his general instructions as their employer.  The third, fourth and fifth respondents were at all relevant times executives of the first respondent and were variously involved in the contravening conduct.

The first respondent's conduct alleged to contravene the Act concerned its dealings by wholesale with retailers in respect of stock service men's suits. In the clothing industry stock service goods are those lines which are described as classic lines for which there is a steady regular demand throughout the year and which are ordered and supplied on an ongoing basis. This is in contradistinction to indented or fancy goods which are stock reflecting the fashion of a particular time and for which there may be only a short-term demand for as long as the particular fashion remains.

As part of its dealings with retailers for the supply of stock service suits, the first respondent communicated and enforced a pricing policy to the effect that retailers should not discount below the price level approved by the first respondent from time to time, which varied between the recommended retail price and 10 per cent below the recommended retail price.

The first respondent entered into agreements and offered to enter into agreements for the supply of stock service suits to retailers, being agreements one of the terms of which was, or would be, that the retailers would not sell the suits at a price less than the price specified by the first respondent. And the first respondent used in relation to stock service suits supplied or which may be supplied by it to retailers, a statement of a price that was likely to be understood by those retailers as the price below which the suits were not to be sold.

The language that I have used echoes the language of the joint submissions, which in turn echoes the language of the relevant subparagraphs of s. 96(3) of the Act. Accordingly, it is alleged by the applicant and admitted by the first respondent that the first respondent has contravened the relevant provision of Part IV of the Act. The applicant also alleges and it is admitted by each of the remaining respondents - the second to fifth respondents - that they aided and abetted and were directly or indirectly knowingly concerned in, and party to, the alleged contraventions by the first respondent. See s. 76(1) paragraphs (c) and (e) and ss. 80(1) paragraphs (c) and (e) of the Act.

The Court acts on the basis that the alleged contravening conduct which is admitted to be contravening conduct in fact contravenes the relevant provisions of the Act. The first respondent is a significant participant in the market for exclusive-label men's suits; it has a substantial turnover, the details of which are contained in confidential exhibit 1, and to which I need not further refer. There is no doubt that the contravening conduct engaged in by the first respondent is serious and involved a deliberate and systematic imposition of a pricing policy nationally, particularly in the city of Sydney, over a period of more than three years (from 1993 to the middle of February of this year).

The Court notes that it is alleged and admitted that the conduct was carried on to a large extent by the second respondent personally and by the next level of executive staff within the first respondent with the knowledge and approval of the second respondent. The Court further notes, and it is not disputed, that there was not in place at any relevant time within the first respondent prior to the commencement of these proceedings any trade practices compliance or educational programmes which would encourage compliance with the Act or provide for disciplinary measures against individuals for breaches such as those that are the subject of the admissions in this case.

However, the Court notes that the first respondent has indicated a desire now to institute, in consultation with the applicant, a trade practices compliance programme within the first respondent and to educate staff of the first respondent with respect to their obligations under the Act. The Court also notes that the first respondent has offered to provide enforceable undertakings to this effect pursuant to s. 87B of the Act.

The practice of retail price maintenance, as currently defined by the Act, has been illegal since the commencement of the Act in 1974. As from 21 January 1993, the maximum penalties which may be imposed under s. 76 were substantially increased to $2 million in the case of a corporation and to $500,000 in the case of an individual. The contraventions with which this case is concerned occurred entirely after 21 January 1993. The parties have discussed the questions of penalties and injunctive relief; the result of that discussion is embodied in the joint submissions to which I have referred.

The approach that should be taken by the Court in cases of this nature has been the subject of many decided cases, commencing with the judgment of Sheppard J. in Trade Practices Commission v Allied Mills Industries Pty Limited (No 5) (1981) 60 FLR 38. That case has been in substance followed, though to some extent varied in minor respects to fit the needs of each case, in later decisions. Most of them are conveniently collected on pages 8 and 9 of the joint submissions, so I need not refer to them further, except to say that more than one of those decisions are decisions of myself and I need not repeat what I said there.

The parties have agreed, subject to the Court's approval, on the penalties to be paid and the injunctions to be granted. In my opinion they broadly reflect the relief which the Court would otherwise have given, although the penalties may have been a little more or a little less.  The Court therefore proposes to act on the basis of the agreement between the parties.

The Court notes the undertakings to the Court by the first respondent by its counsel referred to in paragraph 1 of the short minutes of order dated today, initialled by me, and placed with the papers, and which are annexure 1 to those short minutes.  The Court makes the orders against the first respondent referred to in paragraphs A 2 to 8 of that document; the Court makes the orders against the second respondent referred to in paragraphs B 9 to 14 of that document; and the Court makes the orders against the third, fourth and fifth respondents referred to in paragraphs C 15 to 19 of the document.

I certify that this and the preceding six (6) pages are a true copy of the reasons for judgment herein of the Honourable Justice Lockhart.

AssociateDated:  25 July 1996

Counsel for the Applicant    :        C A Sweeney QC

Ms J O'Neill

Solicitors for the Applicant :        Australian Government Solicitor

Counsel for the Respondents  :        M Goldblatt

Solicitors for the Respondents:      Aroni Colman

Date of Hearing             :        25 July 1996

Date of Judgment            :        25 July 1996