Australian Competition and Consumer Commission v Landmark Operations Limited (t/a Seednet)
[2018] FCA 1977
•7 December 2018
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Landmark Operations Limited (t/a Seednet) [2018] FCA 1977
File number(s): VID 952 of 2018 Judge(s): O'CALLAGHAN J Date of judgment: 7 December 2018 Catchwords: CONSUMER LAW – where applicant and respondent reached agreement as to liability and applicable penalties for respondent’s breach of the Australian Consumer Law – where respondent made representations about quality and capabilities of a new agricultural product on the market – consideration of principles for penalties – court approved parties’ agreement and made orders sought Legislation: Competition and Consumer Act 2010 (Cth), Sch 2, ss 18, 29(1), 33, 224
Evidence Act 1995 (Cth), s 191
Federal Court of Australia Act 1976 (Cth), ss 21, 43
Cases cited: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540
Australian Competition and Consumer Commission v Ford Motor Company of Australia, [2018] FCA 703
Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265; (2005) 215 ALR 30
Australian Competition and Consumer Commission v Woolworths (South Australia) Pty Ltd (t/a Mac’s Liquor) [2003] FCA 530; (2003) 198 ALR 417
Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482
Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421
Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249; [2012] FCAFC 20
Date of hearing: 3 December 2018 Registry: Victoria Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 93 Counsel for the Applicant: Dr O Bigos and Dr L Hilly Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Respondent: Mr N De Young Solicitor for the Respondent: K & L Gates ORDERS
VID 952 of 2018 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
Applicant
AND: LANDMARK OPERATIONS LIMITED TRADING AS SEEDNET
Respondent
JUDGE:
O'CALLAGHAN J
DATE OF ORDER:
7 December 2018
THE COURT DECLARES THAT:
1.In the period from at least December 2014 to December 2016, the respondent, in trade or commerce:
(a)engaged in conduct which was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18(1) of the Australian Consumer Law at Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the ACL);
(b)in connection with the supply or possible supply of goods, made false or misleading representations that the goods were of a particular standard or quality and/or had particular performance characteristics, uses and/or benefits, in contravention of ss 29(1)(a) and 29(1)(g) of the ACL;
(c)engaged in conduct that was liable to mislead the public as to the nature, characteristics, and suitability for purpose of goods, in contravention of s 33 of the ACL,
by making representations in a promotional factsheet that it published and used to actively market and promote Compass variety barley (Compass) seeds that Compass:
(d)had strong straw;
(e)had improved straw strength when compared to the Commander (Commander) variety barley;
(f)had improved lodging resistance when compared to Commander; and
(g)was better suited to early sowing, higher fertility paddocks and higher nitrogen rates than Commander
(together or separately, the Lodging Representations) when the respondent was or should have been aware from updated information received by the respondent that Compass’ performance did not support the Lodging Representations.
2.In the period from at least January 2016 to December 2016, the respondent, in trade or commerce:
(a)engaged in conduct which was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18(1) of the ACL;
(b)made false or misleading representations in connection with the supply, possible supply and/or promotion of goods that the goods were of a particular standard or quality and/or had particular performance characteristics, uses and/or benefits, in contravention of ss 29(1)(a) and 29(1)(g) of the ACL;
(c)engaged in conduct that was liable to mislead the public as to the nature, characteristics, and suitability for purpose of goods, in contravention of s 33 of the ACL,
(d)by making representations in a promotional factsheet that it published that Compass had the following Grains Research & Development Corporation's National Variety Trials (NVT) ratings:
(i)“susceptible” to leaf rust disease in Queensland;
(ii)“moderately resistant” to “moderately susceptible” to leaf rust disease in New South Wales;
(iii)“moderately resistant” to leaf rust disease in Victoria (but regional differences in pathotypes were likely and therefore Compass may perform better than the rating allocated); and
(iv)“moderately resistant” to leaf rust in South Australia and Western Australia,
(together, the Leaf Rust Representations), when the respondent was or should have been aware that Compass in fact had the following revised NVT ratings:
(i)“very susceptible” to leaf rust in Queensland, New South Wales and Victoria;
(ii)ranging from “moderately resistant” to “very susceptible” to leaf rust in South Australia; and
(iii)“moderately resistant to moderately susceptible” to leaf rust in Western Australia.
THE COURT ORDERS BY CONSENT THAT:
1.The respondent pay to the Commonwealth of Australia within 30 days the sum of $1,000,000 by way of pecuniary penalty under s 224(1) of the ACL in respect of the contraventions of ss 29(1)(a), 29(1)(g) and 33 of the ACL referred to in the first and second declarations above.
2.Pursuant to s 246(2)(b) of the ACL, the respondent, at its own expense:
(a)within 90 days, implement the Consumer and Competition Compliance Program in the terms of Annexure A to this Order; and
(b)maintain and continue to implement the Consumer and Competition Compliance Program referred to in order 2(a) above for a period of three years.
3.The respondent pay to the Commonwealth of Australia within 30 days the sum of $50,000 in respect of the Applicant's costs of and incidental to the proceeding.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A TO ORDERS
Consumer and Competition Compliance Program
Appointment
(1)Within 30 days of the date of the Order of the Court, the respondent will appoint a suitably qualified compliance professional or legal practitioner with expertise in competition and consumer law (Compliance Advisor).
Compliance Policy
(2)The respondent will, within three months of the date of the Order of the Court, amend the document titled “Commitment to Compliance” at the commencement of the respondent’s “Trade Practices and Foreign Corrupt Practices Compliance Manual” in order that it be titled “Competition and Consumer Law and Foreign Corrupt Practices Compliance Policy” (Compliance Policy).
(3)The respondent will ensure that the Compliance Policy:
(a)contains a statement of commitment to compliance with the Competition and Consumer Act 2010 (Cth) (CCA), including explicitly referring to the ACL;
(b)contains an outline of how commitment to CCA compliance will be realised within the respondent’s company;
(c)contains a requirement for all staff to report any Compliance Program related issues and CCA compliance concerns to the Landmark Compliance Officer (presently being the General Counsel of Landmark, who has suitable qualifications or experience in corporate compliance to be responsible for the implementing the Compliance Program); and
(d)contains a clear statement that the respondent will take action internally against any persons who are knowingly or recklessly concerned in a contravention of the CCA and will not indemnify them in the event of any court proceedings in respect of that contravention.
Staff training
(4)The respondent will ensure that the Compliance Program provides for regular (at least once a year) training for all directors, officers, employees, representatives and agents of the respondent, whose duties could result in them being concerned with conduct that may contravene ss 18, 29 and 33 of the ACL.
(5)The respondent must ensure that the training is conducted by a suitably qualified compliance professional or legal practitioner with expertise in competition and consumer law.
(6)The respondent will ensure that the Compliance Program includes a requirement that awareness of competition and consumer compliance issues forms part of the induction of all new directors, officers, employees, representatives and agents, whose duties could result in them being concerned with conduct that may contravene ss 18, 29 and 33 of the ACL.
Complaints Handling System
(7)Within three months of the date of the Order of the Court, the respondent will make amendments to its existing “Complaints Handling and Resolution Policy” to enhance existing procedures, for recording, storing and responding to competition and consumer law related complaints (Complaints Handling System).
(8)The respondent will take reasonable steps to ensure its staff and customers are made aware of the Complaints Handling System.
Reports to Board/Senior Management
(9)Landmark will ensure that the Landmark Compliance Officer reports to the Landmark Compliance Committee on an annual basis on the continuing effectiveness of the Compliance Program.
Provision of Compliance Program documents to the ACCC
(10)The respondent will maintain a record of and store all documents relating to and constituting the Compliance Program for a period not less than 3 years.
(11)If requested by the ACCC during the period of 3 years following the date of the Order of the Court, the respondent will, at its own expense, cause to be produced and provided to the ACCC copies of all documents constituting the Compliance Program, including:
(a)the Compliance Policy;
(b)an outline of the Complaints Handling System;
(c)Staff Training materials and induction materials;
(d)copies of the reports to the Landmark Compliance Committee referred to in paragraph 9.
ACCC Recommendations
(12)The respondent will implement promptly and with due diligence any recommendations that the ACCC may make that the ACCC deems reasonably necessary to ensure that the respondent maintains and continues to implement the Compliance Program in accordance with the requirements of the Order of the Court.
REASONS FOR JUDGMENT
O’CALLAGHAN J:
Introduction
In August this year, the applicant (the ACCC) commenced proceedings by way of an originating application and concise statement against the respondent alleging that it had contravened ss 18(i), 29 (i)(a), 29(i)(g) and 33 of the Australian Consumer law (ACL), at Sch 2 to the Competition and Consumer Act2010 (Cth). It sought declaratory and injunctive relief, and orders for the payment of pecuniary penalties under s 224 of the ACL, among other things.
Although the respondent filed a concise statement in response which disputed the allegations contained in the ACCC’s concise statement, the proceeding was resolved, subject to court approval, last month.
It is now necessary for the court to consider whether to approve the terms of the settlement.
For reasons which I will explain below, the agreed penalty of AUD $1 million, together with other orders in relation to costs and a compliance program, are consistent with the public interest. Accordingly, I will make the declarations and orders sought by the parties.
The parties relied upon two documents: a statement of agreed facts and admissions and joint submissions, each dated 30 November 2018.
The facts set out below are taken from the statement of agreed facts and admissions which was, it was agreed, made for the purposes only of s 191 of the Evidence Act 1995 (Cth) and for resolving this proceeding.
If I may say so, the joint submissions, prepared by the legal representatives of the parties, were detailed, thorough and very helpful in assisting the court to be satisfied that the agreed terms of settlement are appropriate in the public interest. The ACCC, the respondent and their legal representatives are to be commended for the invaluable assistance they provided to the court, and in particular for the high standard of the agreed joint submissions. These reasons gratefully adopt, in very large part, those submissions.
The Parties
The ACCC is a statutory authority responsible for enforcing the Competition and Consumer Act 2010 (Cth) (CCA), including the ACL.
The respondent, trading as Seednet, is a business division of Landmark Operations Limited (Landmark), a company incorporated in Australia. Landmark is one of Australia's largest agribusiness companies and promotes itself as an “integral part of the Australian agricultural industry” and as the “largest distributor of both farming supplies and fertiliser in Australia and [has] a national network servicing 100,000 clients in over 400 locations”.
Landmark's parent company, Nutrien Ltd, is the world’s largest provider of crop nutrients, feed, crop protection and services and is listed on the New York Stock Exchange and the Toronto Stock Exchange.
The Seednet business division markets and distributes seed varieties to retailers and growers (farmers) across Australia.
In 2004, the University of Adelaide (the University) commenced developing the “Compass” variety of barley seed (Compass) bred from “Commander”, an earlier barley seed variety that the University had developed.
In 2013, the University entered into an exclusive licence agreement with the respondent to commercialise Compass (the Licence Agreement).
The respondent earns revenue from Compass by:
(1)retaining a portion of End Point Royalties (EPRs) that are payable by growers of Compass. EPRs are calculated on a per tonne basis of grain harvested and sold by growers, and collected at the point of sale; and
(2)charging Variety Management Fees (VMFs) to partners of the respondent who sell Compass seeds to rural suppliers, retailers or directly to farmers. VMFs are calculated on a per tonne basis and partners of the respondent build the VMFs into the seed price charged to retailers or farmers and remit the VMFs to the respondent as a royalty after the sale.
Landmark also earns revenue from selling Compass seeds directly to growers through its network of retail stores.
The Facts
The Factsheet
From September 2014, the respondent issued and published a promotional factsheet regarding Compass which was dated August 2014 and was in the form contained in Annexure A to these reasons (the Factsheet). The University provided the respondent with the content about Compass for the respondent’s use in promotional materials, including the Factsheet. The University was obliged, pursuant to the Licence Agreement, to provide content that is “true and accurate and supported by scientific data”.
The respondent:
(1)in the period from September 2014 to December 2016, published the Factsheet on its website;
(2)in the period from September 2014 to December 2016, distributed printed copies of the Factsheet to potential customers throughout Australia; and
(3)in December 2014, sent the Factsheet via email to individuals from more than 70 different organisations at more than 365 email addresses throughout Australia.
The respondent made at least 2,000 printed copies of the Factsheet for distribution to potential customers.
Lodging Representations
“Lodging” is the displacement of the stem or root of a plant from its proper vertical placement which results in the plant bending or falling over. All crops have the potential to lodge, particularly medium height and high yielding varieties such as Compass, and a number of factors influence whether lodging occurs, including environmental factors (such as rainfall and wind) and crop management factors (such as irrigation and nitrogen levels). Plants with strong straw are more resistant to lodging, and hence durable in growing conditions conducive to lodging. Severe lodging can impact upon the economic efficacy of harvesting barley, as well as the yield volume and quality of the harvested barley.
Customers were reliant, in part, upon information from the respondent about Compass, given it was a new plant variety.
The Factsheet stated that:
(1)Compass has “strong straw”;
(2)“Compass is most similar in plant architecture to Commander, but with notably improved straw strength and lodging resistance”; and
(3)“[t]he improved lodging resistance makes Compass better suited to early sowing, higher fertility paddocks and higher nitrogen rates than ‘Commander’ [another variety of barley seed marketed and distributed by the respondent]”.
(collectively, the Lodging Statements)
The respondent admits that by these statements, it represented that Compass:
(1)had strong straw;
(2)had improved straw strength when compared to Commander;
(3)had improved lodging resistance when compared to Commander; and
(4)was better suited to early sowing, higher fertility paddocks and higher nitrogen rates than Commander,
(collectively, the Lodging Representations).
From October 2014, the respondent was, or should have been, aware that Compass’ performance did not support the Lodging Representations in the Factsheet because:
(1)on 10 October 2014, the respondent sent an email to the University stating that it had “lots of reports of Compass lodging”, and that “we need to put some sort of message out to [agronomists] and growers next year in relation to medium-high production situations. Something along the lines of lower sowing rates, later sowing times, use of growth regulators”; and
(2)on 23 October 2014, the University sent an email to the respondent stating that the Factsheet should be amended to “revise the straw strength rating from ‘better than Commander’ to ‘similar to Commander’”.
After receiving the information referred to above, the respondent continued to market and promote Compass using the Factsheet until December 2016, including by email distribution to hundreds of potential customers in December 2014.
The respondent made some ad hoc efforts to communicate lodging management advice to growers. However, the respondent did not communicate this message consistently and only included this information in a formal communication to growers in Western Australia, where only a small proportion of Compass was sown.
The respondent also made a revision to the expected date of the malt accreditation decision in the Factsheet in March 2015, but did not amend the Lodging Statements referred to above. In December 2016, the respondent issued a revised Factsheet which removed the Lodging Statements and stated that “in some seasons and locations Compass can lodge more than Commander”, and that “[i]n situations where early sowing and high fertility result in high biomass Compass crops, growth regulators can be used to reduce lodging”.
The respondent admits that the Lodging Representations were false or misleading or likely or liable to mislead and deceive because, from at least October 2014, the respondent was, or should have been, aware, from the information referred to in paragraph [23] above that Compass’ performance did not support the Lodging Representations. The respondent admits that it should have corrected the Factsheet when it became aware of the information at paragraph [23].
The respondent admits that by making the Lodging Representations in the period from at least December 2014 to December 2016, it:
(1)engaged in conduct, in trade or commerce, which was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18(1) of the ACL;
(2)made false or misleading representations (being the Lodging Representations), in trade or commerce in connection with the supply, possible supply and/or promotion of goods (being the Compass variety barley seeds) that the goods were of a particular standard or quality and/or had particular performance characteristics, uses and/or benefits, in contravention of ss 29(1)(a) and (g) of the ACL; and
(3)engaged in conduct in trade or commerce that was liable to mislead the public as to the nature, characteristics, and suitability for purpose of goods (being the Compass variety barley seeds) in contravention of s 33 of the ACL.
Leaf Rust Representations
Leaf rust is a plant fungus which has the potential to destroy entire crops and spread to neighbouring crops if the infection is widespread and severe.
The respondent admits that by the information set out in the Factsheet in a table, it represented that Compass had the following Grains Research & Development Corporation's National Variety Trials (NVT) leaf rust ratings:
(1)“susceptible” to leaf rust disease in Queensland;
(2)“moderately resistant” to “moderately susceptible” to leaf rust disease in New South Wales;
(3)“moderately resistant” to leaf rust disease in Victoria (but regional differences in pathotypes were likely and therefore Compass may perform better than the rating allocated); and
(4)“moderately resistant” to leaf rust in South Australia and Western Australia,
(collectively, the Leaf Rust Representations).
The leaf rust ratings in the Factsheet were provided by the University and taken from the data which had appeared in around February 2014 on the NVT online database, a national program of comparative crop variety testing with standardised trial management, data generation, collection and dissemination.
In March 2015, the respondent was the recipient of an email from the Department of Agriculture of Western Australia informing the various industry participants that received the email that Compass was susceptible to the new strain of leaf rust.
On 18 January 2016, the National Manager of the respondent was the recipient of an email from NVT informing the various industry participants that received the email that the NVT had revised Compass’ disease resistance ratings so that Compass was rated:
(1)“very susceptible” to leaf rust in Queensland, New South Wales and Victoria;
(2)as ranging from “moderately resistant” to “very susceptible” to leaf rust in South Australia; and
(3)“moderately resistant to moderately susceptible” to leaf rust in Western Australia.
On 7 January 2016, the respondent asked the University to place some more up to date data on Compass in the Factsheet, and cited 2015 leaf rust ratings in Western Australia as an example. The University responded stating that it would work with the respondent to update the document. However, following receipt of the email with updated leaf rust information on 18 January 2016, this issue was not addressed by either the respondent or the University.
Instead, the respondent continued to market and promote Compass using the Factsheet and did not publish an amended version of the Factsheet until December 2016, when the leaf rust ratings were updated to reflect the revised NVT ratings.
The respondent admits that the Leaf Rust Representations were false or misleading or likely or liable to mislead and deceive because from January 2016, it was or should have been aware of the revised NVT ratings referred to in paragraph [33] above. The respondent admits that it should have corrected the Factsheet to reflect the revised NVT ratings when it became aware of them.
The respondent admits that by making the Leaf Rust Representations in the period from January 2016 to December 2016, it:
(1)engaged in conduct, in trade or commerce, which was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18(1) of the ACL;
(2)made false or misleading representations (being the Leaf Rust Representations), in trade or commerce, in connection with the supply, possible supply and/or promotion of goods (being the Compass variety barley seeds) that the goods were of a particular standard or quality and/or had particular performance characteristics, uses and/or benefits, in contravention of ss 29(1)(a) and (g) of the ACL; and
(3)engaged in conduct, in trade or commerce, that was liable to mislead the public as to the nature, characteristics, and suitability for purpose of goods (being the Compass variety barley seeds), in contravention of s 33 of the ACL.
Potential loss to customers
As a result of the respondent’s admitted conduct and representations referred to above, customers (primarily farmers) were given a false or misleading impression about the lodging and leaf rust resistance characteristics of the product they were purchasing and the risk levels to which their harvests were exposed in that regard. This risk included the potential for leaf rust to destroy a farmer’s entire crop if fungicide was not applied early, as well is the risk of affecting neighbouring farms.
Applicable legislation and principles
Sections 18, 29(1)(a), 29(1)(g) and 33 of the ACL
Section 18(1) of the ACL provides that a person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
Section 29(1)(a) of the ACL relevantly prohibits the making of false or misleading representations “in connection with the supply or possibly supply of goods or services … that goods are of a particular standard [or] quality…”.
Section 29(1)(g) of the ACL relevantly prohibits the making of false or misleading representations “in connection with the supply or possibly supply of goods or services … that goods or services have … particular performance characteristics … uses or benefits”.
Section 33 of the ACL provides that a person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics or suitability for their purpose of any goods. The inquiry is the same as under s 18.
The principles applicable to determining whether conduct contravenes these provisions are uncontroversial in this proceeding.
Declaratory relief
The Court has a wide discretionary power to make declarations under s 21 of the Federal Court of Australia Act 1976 (Cth).
In Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421, the High Court held that before making declarations, three requirements should be satisfied: that the question is a real one, and not hypothetical or theoretical; that the applicant has a real interest in raising it; and that there is a proper contradictor.
As the parties submitted, each of these requirements is satisfied in this case. First, the proposed declaration identifies with precision the conduct that contravened the ACL and is directed to the determination of an extant legal controversy rather than any abstract or hypothetical question.
Secondly, it is in the public interest for the ACCC to seek the declaration and for the declaration to be made. The ACCC is the regulator under the CCA and ACL and therefore has a real interest in the declaration being made.
And thirdly, the respondent is a proper contradictor because it is the subject of the declaration and had an interest in opposing the declaration.
The parties submitted, and I agree, that, in addition to these matters, the declaration sought is appropriate because it:
(1)records the court’s disapproval of the contravening conduct;
(2)will deter corporations, including the respondent, and other persons from contravening the ACL;
(3)will serve the public interest in defining and publicising the type of conduct that constitutes a contravention of the ACL;
(4)assists the ACCC in the future in carrying out the duties conferred on it by the CCA, which includes the ACL; and
(5)informs consumers of the contravening conduct.
Penalty
The public interest in parties resolving civil penalty proceedings
In Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 (FWBII), the plurality said at [46]:
[T]here is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers. As was recognised in Allied Mills and authoritatively determined in NW Frozen Foods, such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention.
At FWBII at [57] the plurality added that there is “very considerable scope” for parties in civil proceedings to agree on facts and upon consequences, including appropriate remedies and “for the court to be persuaded that it is an appropriate remedy”. At [58], their Honours said:
… Subject to the court being sufficiently persuaded of the accuracy of the parties’ agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle, and … highly desirable in practice for the court to accept the parties’ proposal ...
(Emphasis in original.)
Once the court is satisfied that it has the power to make the orders and that the orders are appropriate, it should exercise judicial restraint in scrutinising proposed settlements: see FWBII at [58]-[59].
As Mansfield J said in Australian Competition and Consumer Commission v Woolworths (South Australia) Pty Ltd (t/a Mac’s Liquor) [2003] FCA 530; (2003) 198 ALR 417, 424 at [21] “[i]t is a general principle of judicial restraint in the scrutiny of proposed settlements, particularly in the case of settlements between parties legally represented and able to understand and evaluate the desirability of agreeing to a settlement, that the court will not refuse to give effect to the terms of settlement which may be made within the court’s jurisdiction and that otherwise unobjectionable”. It follows that an agreed penalty may be adopted if the court considers it an appropriate amount even if the court might otherwise have been disposed to select some other figure.
Section 224 of the ACL
Under s 224 of the ACL, the court may, in respect of contraventions of provisions of Part 3-1 of the ACL (which relevantly includes ss 29 and 33), order the contravener to pay such pecuniary penalties in respect of “each act or omission” as the court determines to be appropriate.
Section 224(3) of the ACL provides that the maximum civil pecuniary penalty for a corporation for each act or omission that constitutes a contravention of Part 3-1 of the ACL is AUD $1.1 million.
Section 224(2) of the ACL requires the court, in determining the appropriate pecuniary penalty, to have regard to all relevant matters including:
(1)the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission;
(2)the circumstances in which the act or omission took place; and
(3)whether the person has previously been found by a court in proceedings under Chapter 4 or Part 5.2 to have engaged in similar conduct.
Deterrence
It is well established that deterrence is the primary objective for the imposition of civil penalties.
In Australian Competition and Consumer Commission v Ford Motor Company of Australia, [2018] FCA 703 at [90] Middleton J said:
As to general deterrence, the civil penalty should be assessed in this case at an amount that makes it clear to corporations in the car industry that it is not acceptable to contravene the ACL. Because so many customers deal with the car industry, it is imperative that those operating in it comply with the ACL. More generally, corporations that experience high volumes of consumer complaints about issues with products ought be encouraged to respond to those complaints in a consistent and transparent way, which expressly takes into account the ACL including the consumer guarantees.
Deterrence encompasses the need to deter repetition of the contravening conduct by the contravener (specific deterrence) and to deter others who might be tempted to engage in similar contraventions (general deterrence).
The penalty must not be such as to be regarded by that offender or others as an acceptable cost of doing business. Rather, “those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention”: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission (2012) 287 ALR 249; [2012] FCAFC 20 at [63].
In considering the extent to which the penalty achieves deterrence, it is relevant for the court to have regard to a contravener’s size and financial position. As Goldberg J observed in Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) [2005] FCA 265; (2005) 215 ALR 30, 309 at [39] “[o]bviously the sum required to achieve this object [of deterrence] will be larger where the Court is setting a penalty for a company with vast resources”. Whilst the contravener’s size and financial resources are relevant to the determination of penalty, they do not alone justify a higher penalty than might have otherwise be imposed: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540 at [92].
Other relevant factors
In addition to the mandatory factors identified in s 224(2) of the ACL, and the consideration of deterrence, other factors relevant to the assessment of a pecuniary penalty that have been identified by the Courts are as follows:
(1)the size of the contravening company;
(2)the degree of power of the contravener, as evidenced by its market share and ease entry into the market;
(3)the deliberateness of the contravention and the period over which it extended;
(4)whether the contravention arose out of the conduct of senior management or at a lower level;
(5)whether the company has a corporate culture conducive to compliance as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention;
(6)whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement in relation to the contravention;
(7)whether the contravener has engaged in similar conduct in the past;
(8)the effect on the functioning of the market and other economic effects of the contravening conduct;
(9)the financial position of the contravener; and
(10)whether the contravening conduct was systematic, deliberate or covert.
It is important, however, that lists of such factors, such as this list, are not to be regarded as a “checklist”, each element of which must be “ticked” or not, in every case. They are matters to which the court may or may not have regard as a method for determining the appropriate penalty, depending on the individual circumstances of the case.
In Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330; (2015) 327 ALR 540 Allsop CJ observed that the process of arriving at the appropriate penalty under s 224 of the ACL involves intuitive or “instinctive synthesis” of all relevant factors, and that the maximum penalty must be given due regard because it is an expression of the legislature's policy concerning the seriousness of the proscribed conduct.
Totality
Where multiple penalties are to be imposed upon a particular wrongdoer, the totality principle should also be considered. The totality principle means that the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct involved. The totality principle operates as a “final check” to ensure that the penalties to be imposed on a wrongdoer, considered as a whole, are “just and appropriate”. In determining whether the final penalties are “just and appropriate”, the correct approach is to start by ascertaining the penalty that would be appropriate for each individual contravention and then to adjust those amounts for reasons of totality.
Application of penalty factors to the conduct in this proceeding
Mandatory s 224(2) factors
Nature and extent of the act or omission, any loss or damage suffered as result of the act or omission, and the circumstances in which the act or omission took place
As the parties agree, the admitted contraventions are serious.
The Factsheet by which the respondent conveyed the false and misleading representations was distributed broadly. In the period from September 2014 to December 2016, the respondent:
(1)published the Factsheet on its website;
(2)sent the Factsheet via email to individuals from more than 70 different organisations at more than 365 email addresses throughout Australia; and
(3)distributed printed copies of the Factsheet to potential customers throughout Australia.
The respondent printed at least 2000 hardcopies of the Factsheet. It is not known how many of these were distributed to customers and potential customers.
The period of the contravening conduct was significant. The respondent was (or should have been) aware that the Lodging Representations were false or misleading from October 2014. Despite making a revision to the expected date of the malt accreditation decision in the Factsheet in March 2015, it was only in December 2016 that it corrected the Lodging Representations in a revised version of the Factsheet. With respect to the Leaf Rust Representations, the respondent was (or should have been) aware that the representations were false or misleading from January 2016, when it received revised leaf rust ratings. It was another ten months before it corrected the Factsheet in December 2016.
It is relevant that the impugned representations were conveyed in the Factsheet at a time when Compass was a new seed variety. Farmers who were assessing Compass were entitled to rely on the accuracy of the information in the Factsheet.
It is common ground that accurate information about lodging susceptibility and leaf rust resistance is relevant to farmers when assessing the suitability of a seed variety for their geographic location and individual circumstances (including their crop management practices). Customers were reliant in part upon information from the respondent about Compass, given it was a new plant variety. As a result of the contravening conduct, farmers were given a false or misleading impression about these characteristics of Compass and the risk levels to which their harvests were exposed. The risk also included the potential for leaf rust to destroy a farmer's entire crop if fungicide was not applied early, plus affect neighbouring farms. Also highly relevant to any customer’s decision whether to acquire a seed variety is the yield of the variety.
It is also common ground that customers could have potentially suffered loss as a result of the contravening conduct. For example, customers may have chosen to acquire Compass in circumstances where, absent those representations, they may have chosen to acquire another seed variety. Farmers could potentially have suffered a reduced yield and/or an increase in harvesting costs as a consequence of the lodging they experienced in their Compass barley crops in comparison to the yield and/or harvesting costs they might have experienced with the alternative seed variety. However, the parties do not have information to enable them to identify the extent to which customers may have suffered loss in this way.
The parties have agreed that 2016 was a wetter than average growing season. NVT data shows that Compass’ yield ranking fell from second of 42 barley seed varieties in 2015 to twenty-third of 40 barley seed varieties in 2016. The respondent also received reports of Compass lodging in the 2016 season. Notwithstanding Compass’ decrease in yield ranking in 2016, the potential for and the extent of loss over the contravening period is likely to be difficult to assess in light of Compass’ high yields in 2015, as well as the fact that NVT trials are conducted under standardised conditions that may not reflect commercial growing conditions. Further, in 2016 barley variety yields (including Compass) were generally high and above average and in the case of Compass, yields on a national average were approximately 1.4 tonne/ha higher in 2016 in comparison with the previous year.
Previous findings by a court in proceedings under Chapter 4 or Part 5.2
The respondent has not previously been found to have engaged in contraventions of the ACL, the CCA or its predecessor Trade Practices Act 1974 (Cth).
Other relevant factors
The size of the contravener and its financial position
The respondent operated as Seednet, which is a business division of Landmark, a company incorporated in Australia. Landmark is one of Australia's largest agribusiness companies and promotes itself as an “integral part of the Australian agricultural industry” and as the “largest distributor of both farming supplies and fertiliser in Australia and [has] a national network servicing 100,000 clients in over 400 locations”.
The Seednet business division of the respondent generated revenue in 2016 of $4,910,465 (approximately 0.2% of Landmark's total revenues). In 2016, Landmark had 1,888 employees, 12 of whom were employed in the Seednet business division.
Landmark’s parent company, Nutrien Ltd, is the world’s largest provider of crop nutrients, feed, crop protection and services and is listed on the New York Stock Exchange and the Toronto Stock Exchange.
Benefits to the contravener
During the period of the contravention, Compass was a profitable seed variety for the respondent. The respondent derived profit from Compass sales in the years 2014 to 2016 of approximately $1,522,204, comprising:
(1)Variety Management Fees of $328,808;
(2)Seednet's apportionment of End Point Royalties of $1,058,559; and
(3)Profit from the sale of Compass seeds at Landmark retail stores of $134,837.
Deliberateness of the contraventions
The contraventions resulted from a failure to correct the Factsheet when the respondent received information suggesting that the Lodging Representations were not supported by Compass’ performance and that the Leaf Rust Representations understated Compass’ susceptibility to leaf rust.
The respondent made a revision to the expected date of the malt accreditation decision in the Factsheet in March 2015 but did not correct the Lodging Representations. The respondent made some ad hoc efforts to communicate lodging management advice to growers. However, the respondent did not communicate this message consistently, and only included this information in a formal communication to growers in Western Australia, where only a small proportion of Compass was sown.
Involvement of senior management
The respondent company, Seednet, is a business division within Landmark. Senior management of Landmark did not have involvement in the contraventions. However, the National Manager of the Seednet business division had direct involvement in the admitted contraventions.
Similar conduct in the past and corporate culture of compliance
The respondent has a long history in the Australian agricultural industry and has not previously engaged in conduct similar to the admitted contraventions. It has had in place for a number of years a compliance program which it has agreed to enhance by adopting the compliance program identified in the orders accompany these reasons.
Co-operation and admission of culpability
The respondent has agreed to a resolution of the proceeding at an early stage. The respondent is entitled to credit for this co-operation. It has ultimately saved the ACCC, the court and the community the cost and burden of fully litigating the dispute. This discount for cooperation has been reflected in the agreed penalty.
Determining the appropriate penalty
The agreed penalty of $1 million is appropriate having regard to all relevant matters as required by s 224(2) of the ACL and in order to achieve the objective of deterrence. The reasons why the proposed penalty is appropriate are the reasons submitted by the parties. They are as follows.
First, a penalty of $1 million is required in the circumstances of this case to ensure that Landmark (a large company with significant financial resources) is deterred from engaging in similar conduct in the future. This penalty is also necessary to serve the purpose of general deterrence. It will send a clear message to other participants in the agribusiness industry (in which the respondent is a prominent player and market leader) that misleading marketing of agricultural products will not be tolerated.
Secondly, the proposed penalty is appropriate to deter the respondent and other potential wrongdoers from engaging in like conduct in the future. It takes account of the significant size and financial position of the respondent. Having regard to all of the circumstances of this case, the proposed penalty would not be seen as a mere disgorgement of profits or the “cost of doing business”, but would serve to secure compliance by the respondent, its parent and by other potential wrongdoers.
Thirdly, as stated above, the respondent distributed the Factsheet nationally, including on hundreds of occasions by email. The respondent was or should have been aware that the Lodging Representations were false or misleading by October 2014 and did not correct them until December 2016. In this period, each time the Factsheet conveying the Lodging Representations was accessed from the respondent’s website, emailed to customers or potential customers, or distributed in hardcopy this involved at least one separate contravening act for the purposes of s 224. Each such instance which occurred after January 2016 (when the respondent was or should have been aware that the NVT leaf rust ratings had been revised) involved an additional contravening act in relation to the Leaf Rust Representations. It follows that the notional maximum penalty to which the respondent is exposed may be in the hundreds of millions to the extent that it can be calculated, but the parties submit that such a mathematical approach is not a meaningful or helpful exercise here.
Fourthly, the respondent’s contravening conduct involves the making of the Lodging Representations and, separately, the Leaf Rust Representations. The contraventions arising from the Lodging Representations involved a significant period of contravention (two years). They also misled farmers about matters that could have affected the economic efficacy and quality of their harvests. The respondent’s period of contravention in relation to the Leaf Rust Representations was comparatively shorter (10 months). In these circumstances, the parties submitted, and I agree, that the global penalty should be apportioned equally to the contraventions arising from the Lodging Representations and those arising from the Leaf Rust Representations.
The agreed penalty is appropriate, in my view, because it reflects both the extent and nature of the contravening conduct. The agreed penalty strikes the right balance and reflects the need for deterrence and the particular circumstances of the respondent, a large and market leading agribusiness. The agreed penalty also takes account of the potential loss that the contraventions could have caused to farmers.
Compliance Program
The Court has power under s 246(2) of the ACL to order that a respondent establish and implement a training program to assist in ensuring that it avoids future contraventions of the ACL.
The respondent acknowledges that more can be done to enhance its compliance culture and has agreed to make changes to its existing compliance program by implementing the compliance program set out in the proposed order.
Costs
The Court has a general discretion to award costs under s 43 of the Federal Court of Australia Act 1976 (Cth). The respondent has agreed to pay the ACCC's costs in an amount as agreed between the parties ($50,000).
Conclusion
For all those reasons I will make the declarations and orders agreed by the parties.
I certify that the preceding ninety-three (93) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice O'Callaghan. Associate:
Dated: 7 December 2018
ANNEXURE A TO REASONS
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