Essential Services Commission v Sumo Power Pty Ltd
[2024] VSC 758
•6 December 2024
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMERCIAL COURT
GENERAL LIST
S ECI 2023 05987
BETWEEN:
| ESSENTIAL SERVICES COMMISSION | Plaintiff |
| v | |
| SUMO POWER PTY LTD (ACN 601 199 151) | First Defendant |
| and | |
| SUMO GAS PTY LTD (ACN 606 951 713) | Second Defendant |
S ECI 2024 00858
BETWEEN:
| ESSENTIAL SERVICES COMMISSION | Plaintiff |
| v | |
| SUMO POWER PTY LTD (ACN 601 199 151) | First Defendant |
| and | |
| SUMO GAS PTY LTD (ACN 606 951 713) | Second Defendant |
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JUDGE: | M Osborne J |
WHERE HELD: | Melbourne |
DATE OF HEARING: | 26 November 2024 |
DATE OF JUDGMENT: | 6 December 2024 |
CASE MAY BE CITED AS: | Essential Services Commission v Sumo Power Pty Ltd & Anor |
MEDIUM NEUTRAL CITATION: | [2024] VSC 758 |
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ENERGY AND RESOURCES – Energy retailers supplying electricity and gas to retail customers – Contravention of door-to-door sales prohibitions and explicit informed consent obligations – Contravention of obligation to provide customers with ‘deemed best offer messages’ – Civil penalty provisions – Mandatory statutory considerations – The ‘French factors’ – Adverse publicity orders – Injunctions – Declarations of contraventions – Cooperation and acknowledgement of liability – Essential Services Commission Act 2001 (Vic) ss 53, 54, 54A, 54F, 54G, 54O, 54ZH, 54ZD, 77 – Electricity Industry Act 2000 (Vic) s 40EB(1) – Gas Industry Act 2001 (Vic) s 48DB(1) – Energy Retail Code cls 16(4), 57(1) – Energy Retail Code of Practice cl 5(2) - Australian Building and Construction Commissioner v Pattinson (2022) 274 CLR 450 – Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) (2016) 340 ALR 25 – Australian Energy Regulator v Origin Energy Electricity Ltd & Ors [2022] FCA 802 – Australian Energy Regulator v Energy Australia Pty Ltd [2022] FCA 644 – Australian Energy Regulator v AGL Sales Pty Ltd & Ors [2020] FCA 1623.
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APPEARANCES: | Counsel | Solicitors |
| For the Essential Services Commission | D Star KC with M Peckham | Corrs Chambers Westgarth |
| For Sumo Power Pty Ltd and Sumo Gas Pty Ltd | A McClelland KC with A Lord | Baker McKenzie |
TABLE OF CONTENTS
Introductory matters.......................................................................................................................... 1
Introduction................................................................................................................................... 1
Overview of Proceedings............................................................................................................. 2
D2D Proceeding................................................................................................................... 2
BOM Proceeding.................................................................................................................. 3
Proposed Final Orders.................................................................................................................. 4
Principles relevant to relief sought under the ESC Act.............................................................. 6
Purpose of the relevant legislation............................................................................................. 6
Contravention orders................................................................................................................... 7
Declarations................................................................................................................................... 8
Civil penalties................................................................................................................................ 8
Statutory basis and relevant provisions........................................................................... 8
Statutory basis and maximums............................................................................ 8
Multiple contraventions........................................................................................ 9
Primary objective of civil penalties................................................................................. 11
Mandatory statutory considerations.............................................................................. 11
Other established factors.................................................................................................. 12
The ‘French factors’.............................................................................................. 12
Consistency........................................................................................................... 13
Totality.. 13
Adverse publicity orders: s 54F................................................................................................ 13
Orders requiring provision of services, education, etc: s 54G.............................................. 14
Injunctions.................................................................................................................................... 15
D2D Proceeding: relevant provisions.......................................................................................... 16
D2D prohibition.......................................................................................................................... 16
D2D Conditions................................................................................................................. 16
Purpose of the D2D Conditions....................................................................................... 17
Explicit informed consent: ERC v 21 provisions.................................................................... 18
Pre-contractual requirement to obtain explicit informed consent: ERC v 21 cl 16(4) 18
Requirement to obtain explicit informed consent before transfer: ERC v 21 cl 57(1) 19
D2D Proceeding: admitted contraventions................................................................................ 20
D2D contraventions.................................................................................................................... 20
EIC contraventions...................................................................................................................... 21
D2D Proceeding: final relief.......................................................................................................... 21
Overview...................................................................................................................................... 21
Contravention orders: s 53......................................................................................................... 22
Civil penalty orders: s 54............................................................................................................ 22
Overview............................................................................................................................. 22
Statutory maximum penalty............................................................................................ 22
Factors relevant to the D2D contraventions............................................................................ 24
Nature and extent of the D2D contraventions............................................... 24
The circumstances in which the D2D contraventions took place............................... 25
The deliberateness of the contraventions....................................................................... 26
Involvement of senior management................................................................ 27
‘Double punishment’ and courses of conduct............................................................... 27
Other relevant cases.......................................................................................................... 28
Factors relevant to the EIC contraventions............................................................................. 28
Nature and extent of the EIC contraventions................................................................ 28
The circumstances in which the EIC contraventions took place................................ 29
The deliberateness of the contraventions....................................................................... 30
Involvement of senior management............................................................................... 30
Maximum penalties; ‘double punishment’ and courses of conduct.......................... 30
Other relevant cases.......................................................................................................... 31
Factors relevant to both the D2D and EIC contraventions................................................... 31
Compliance improvements.............................................................................................. 31
Whether previously engaged in conduct that constitutes a contravention of a civil penalty requirement or similar conduct........................................................................... 32
Other previous contraventions........................................................................... 32
Any loss or damage resulting from the contraventions.............................................. 32
Whether any previous compliance notice...................................................................... 33
Sumo’s size and financial standing and degree of market share............................... 33
Sumo’s size and market share............................................................................ 34
Sumo’s financial position............................................................................................................... 34
Cooperation and acknowledgement of liability............................................................ 35
The Parties’ submission on appropriate penalty.................................................................... 35
Overview............................................................................................................................. 35
D2D contraventions........................................................................................................... 36
EIC contraventions............................................................................................................ 36
Instalments......................................................................................................................... 37
Adverse publicity orders: s 54F................................................................................................ 38
Injunctions: s 54ZH..................................................................................................................... 39
Costs.............................................................................................................................................. 40
BOM Proceeding: relevant provisions........................................................................................ 40
The BOM obligations as provided by the ERC v 21 and ERCOP........................................ 40
The purpose of the BOM obligations....................................................................................... 41
BOM Proceeding: admitted contraventions............................................................................... 43
The incorrect check contraventions.......................................................................................... 43
The failure to send contraventions........................................................................................... 46
BOM Proceeding: final relief........................................................................................................ 46
Overview...................................................................................................................................... 46
Contravention orders: s 53......................................................................................................... 46
Declarations................................................................................................................................. 47
Civil penalty orders.................................................................................................................... 48
Overview............................................................................................................................. 48
Statutory maximum penalty.......................................................................................................... 48
Nature and extent of the contraventions........................................................................ 49
The incorrect check contraventions................................................................... 49
The failure to send contraventions.................................................................... 50
The circumstances in which the contraventions took place........................................ 50
Deliberateness of the contraventions.............................................................................. 53
Whether previously engaged in conduct that constitutes a contravention of a civil penalty requirement or similar conduct........................................................................... 54
Any loss or damage resulting from the contraventions.............................................. 54
The incorrect check contraventions................................................................................ 55
The failure to send contraventions.................................................................... 56
Whether any previous compliance notice...................................................................... 56
Sumo’s size and financial standing and degree of market share............................... 56
Involvement of senior management............................................................................... 56
Compliance improvements.............................................................................................. 57
Cooperation and acknowledgement of liability............................................................ 57
Other relevant cases.......................................................................................................... 58
Maximum penalties; ‘double punishment’ and courses of conduct.......................... 58
The Parties’ submission on appropriate penalty.................................................................... 58
Other relief orders............................................................................................................................ 60
Adverse publicity orders: s 54F................................................................................................ 60
Preventative order: s 54G(2)(b)................................................................................................. 60
Costs.............................................................................................................................................. 61
The Court’s approach where relief is agreed.............................................................................. 61
Conclusion......................................................................................................................................... 62
HIS HONOUR:
Introductory matters
Introduction
The plaintiff (‘Commission’) is a body corporate established under the Essential Services Commission Act 2001 (Vic) (‘ESC Act’). Its responsibilities include, among other things, responsibility under the Electricity Industry Act 2000 (Vic) (‘EI Act’) and the Gas Industry Act 2001 (Vic) (‘GI Act’) (collectively ‘the Acts’) for licensing regulated entities in the electricity industry and the gas industry respectively.
The first defendant (‘Sumo Power’) and the second defendant (‘Sumo Gas’) (collectively ‘Sumo’) are regulated entities under the EI Act and GI Act respectively and both hold licences for the retail supply of electricity and gas to customers in Victoria principally for personal household or domestic use under the Acts. They form part of a broader group of Sumo corporate entities. Sumo collectively is an energy retailer with Sumo Power supplying electricity and Sumo Gas supplying gas to retail customers.
As licensees, Sumo Power and Sumo Gas were subject to codes of practice with the relevant code being the Energy Retail Code (‘ERC’) version (v) 21 which applied in the period from 10 February 2022 to 28 February 2022 (inclusive) and the Energy Retail Code of Practice (‘ERCOP’) which applied on and from 3 March 2022.
On 13 December 2023, the Commission commenced proceeding S ECI 2023 05897 (‘D2D Proceeding’) against Sumo Power and Sumo Gas. In the proceeding, the Commission sought, among other things, contravention orders for contravention of civil penalty requirements under s 53 of the ESC Act and associated orders including orders for a pecuniary penalty.
The D2D Proceeding involved alleged contraventions by Sumo Power and Sumo Gas of provisions contained in the Acts which prohibited suppliers from calling on a domestic customer at their ordinary place of residence for the purpose of negotiating a supply and sale contract absent express consent of the customer.
On 24 February 2024, the Commission commenced proceeding S ECI 2024 00858 (‘BOM Proceeding’) in which it sought like relief against Sumo Power and Sumo Gas in relation to contraventions by Sumo Power and Sumo Gas of obligations set out in the ERC v 21 and the ERCOP which required the supplier to give customers ‘prominently displayed, helpful information’ in a bill summary or a bill change alert that enabled the customer, amongst other things, to easily identify whether they were on the retailer’s deemed best offer.
Sumo cooperated fully with the Commission and acknowledged its liability at the earliest stage in respect of the allegations made in both proceedings. It admitted the contravening conduct in its defence and sought to resolve the proceeding prior to mediation.
The Commission and Sumo (collectively ‘Parties’) prepared proposed agreed final orders (‘Proposed Final Orders’) in each proceeding, filed a statement of agreed facts and admissions (‘SAFA’) in each proceeding and filed joint submissions on liability and relief (‘Joint Submissions’).
The Parties recognise that the appropriateness of the Proposed Final Orders is a matter for the Court. In the result, the hearing before the Court took the form of a joint application by the Parties as to the appropriateness of the Proposed Final Orders.
Against that background, it is convenient that these reasons address both the D2D Proceeding and the BOM Proceeding.
Overview of Proceedings
D2D Proceeding
The D2D Proceeding concerns:
(a) door-to-door sales (‘D2D’) prohibitions under s 40EB(1) of the EI Act and s 48DB(1) of the GI Act; and
(b) explicit informed consent (‘EIC’) obligations under cls 16(4) and 57(1) of the ERC v 21.
In the D2D Proceeding, Sumo Power and Sumo Gas have each admitted to, on 5,941 occasions during the period 13 January 2022 to 12 August 2022 (‘D2D Period’), calling on a ‘domestic customer’ at the customer’s ordinary place of residence for the purpose of negotiating ‘supply and sale contracts’ for electricity and gas respectively. In each case, the conduct contravened conditions of their respective retail licences.
In addition, each of Sumo Power and Sumo Gas have admitted that they entered into the following transactions without obtaining the relevant customer’s EIC, contravening cls 16(4) or 57(1) of the ERC v 21:
(a) Sumo Power has admitted to two contraventions of each of cls 16(4) or 57(1) of the ERC v 21, in relation to customers KN (on 14 December 2021) and RO (on 10 February 2022); and
(b) Sumo Gas has admitted to a single contravention of each of cls 16(4) or 57(1) of the ERC v 21, in respect of customer KN only.
The ERC v 21 applied to each of Sumo Power and Sumo Gas, in respect of their activities in relation to (relevantly) ‘small customers’, pursuant to cl 3B(2) of the ERC v 21 from 1 July 2021 to 28 February 2022.
BOM Proceeding
The BOM Proceeding concerns breaches of obligations to provide customers with ‘deemed best offer messages’, under:
(a) the ERC v 21; and
(b) subsequently, the ERCOP, which applied to each of Sumo Power and Sumo Gas, in respect of their activities in relation to (relevantly) ‘small customers’, pursuant to cl 5(2) of the ERCOP relevantly, on and from 3 March 2022.
‘Deemed best offer messages’ are messages which provide customers with information about the retailer’s ‘deemed best offer’. During the period between 10 February 2022 and 31 August 2023, there were obligations under the ERC v 21 and ERCOP requiring Sumo to give small customers prominently displayed, helpful information in a bill in the form of a ‘bill summary’ or a ‘bill change alert’ that enables the customer to easily:
(a) identify whether they are on their retailer’s ‘deemed best offer’; and
(b) understand how to access their retailer’s ‘deemed best offer’, if they were not already on their retailer’s ‘deemed best offer’.
(collectively, ‘BOM obligations’).
The BOM Proceeding concerns two broad types of contraventions of the ERC v 21 and ERCOP:
(a) contraventions which involved Sumo conducting ‘deemed best offer checks’ erroneously, and thus sending factually incorrect ‘deemed best offer messages’ to customers as a result (‘incorrect check contraventions’); and
(b) contraventions which involved Sumo failing to send the affected customers any ‘deemed best offer messages’ at all, for the periods in question, where Sumo Power was obliged to do so every three months (in respect of its electricity customers), and Sumo Gas was obliged to do so every four months (in respect of its gas customers) (‘failure to send contraventions’).
Proposed Final Orders
The Commission and Sumo jointly seek relief as follows:
(a) in each proceeding, contravention orders under s 53(1) of the ESC Act;
(b) in the BOM Proceeding, declarations in respect of contraventions of the ERC v 21 prior to the introduction of the civil penalty regime in pt 7 of the ESC Act;
(c) in each proceeding civil penalties under ss 54(1) and 53 of the ESC Act to a total of $10 million;
(d) in each proceeding, adverse publicity orders under s 54F of the ESC Act;
(e) in the BOM Proceeding, orders for the implementation of a quality assurance system under s 54G of the ESC Act;
(f) in the D2D Proceeding, injunctions under s 54ZH of the ESC Act; and
(g) costs orders.
Separately, Sumo has given to the Commission enforceable undertakings (‘EU’) under s 54ZD of the ESC Act in both proceedings to implement, maintain and assess compliance with a compliance management system.
The proposed total penalty of $10 million is calculated as follows:
(a) $7 million in the D2D Proceeding, and $3 million in the BOM Proceeding; and
(b) $6.29 million imposed on Sumo Power, and $3.71 million imposed on Sumo Gas.
A more detailed breakdown is set out in the table below.
The Parties submit that these penalties are appropriate overall having regard to the principles relevant to the determination of pecuniary penalties including the totality principle. In light of Sumo’s current financial position, the Proposed Final Orders provide for those penalties to be paid by instalments.
Principles relevant to relief sought under the ESC Act
Purpose of the relevant legislation
The ESC Act provides in s 1 that:
The purpose of this Act is to enable the Essential Services Commission to perform the regulatory and advisory functions that are conferred on the Commission in a manner that provides incentives for dynamic, productive and allocative efficiency and promotes the long term interests of Victorian consumers.
Section 1 of the EI Act provides that ‘the main purpose’ of this Act is to regulate the electricity supply industry.
Section 10 of the EI Act provides that the objectives of the Commission under the EI Act are:
(a) to the extent that it is efficient and practicable to do so, to promote a consistent regulatory approach between the electricity industry and the gas industry; and
(b) to promote the development of full retail competition; and
(c) to promote protections for customers, including in relation to assisting customers who are facing payment difficulties.
Sections 1 and 18 of the GI Act are in substantially the same terms.
Contravention orders
Section 53(1) of the ESC Act provides that the Court may make an order, on application by the Commission, that a regulated entity has contravened a civil penalty requirement.
A ‘civil penalty requirement’, as defined in s 3 of the ESC Act, includes:
(b)a condition, including a statutory condition, of a licence (other than a condition requiring compliance with a Code of Practice) issued to a regulated entity operating in a regulated industry that the Commission is responsible for licensing under relevant legislation;
…
(d)a provision of a Code of Practice that is: (i) prescribed as a civil penalty requirement; or (ii) specified in the Code of Practice as a civil penalty requirement…
During a transitional period from 1 December 2022 through to 31 December 2025, certain clauses of the ERC v 21 are also ‘civil penalty requirements’ pursuant to s 77(2) and (3) of the ESC Act.
The making of a contravention order is a statutory gateway for other relief under pt 7 of the ESC Act. If the Court makes a contravention order, it may also then make other orders pursuant to the ESC Act including (relevantly) a civil penalty order pursuant s 54, an adverse publicity order pursuant s 54F and orders requiring provision of services, education or other matters pursuant to s 54G.
Declarations
The breaches of the ERC v 21 in the BOM Proceeding cannot be the subject of contravention orders under s 53(1) of the ESC Act (or other relief in pt 7 of the ESC Act that is consequential on the making of a contravention order) because they were not ‘civil penalty requirements’. However, the Parties jointly submit that it is appropriate for the Court to make declarations with respect to the contraventions of the ERC v 21.
The Parties submit that declarations relating to contraventions of legislation are appropriate as they ‘serve to record the Court’s disapproval of the contravening conduct, vindicate the regulator's claim that the respondent contravened the provisions, assist the regulator to carry out its duties, and deter other persons from contravening the provisions’.[1]
[1]Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union (2017) 254 FCR 68, [93]; Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2006] FCA 1730, [6]; Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53, 92 [95].
Civil penalties
Statutory basis and relevant provisions
Statutory basis and maximums
Section 54(1) of the ESC Act provides that:
If a court makes a contravention order against a person, the court may order the person to pay a civil penalty of an amount not exceeding –
(a)in the case of an energy licensee, the civil penalty amount in section 54A(1) in respect of that contravention ….
Section 54A(1) provides that for the purposes of s 54(1)(a) of the ESC Act, the civil penalty amount is, relevantly:
(a)an amount equal to 1200 penalty units or, if there is another amount provided for the contravention of that civil penalty requirement in accordance with section 54E, that other amount.
Section 77(5) of the ESC Act provides in respect of transitional civil penalty requirements in s 77(2) and (3) that if the Court makes a contravention order against a person in respect of such a requirement, the Court may order the person to pay a civil penalty under s 54(1) of an amount not exceeding an amount equal to 1200 penalty units.
The maximum penalty, while important, is ‘but one yardstick that ordinarily must be applied’ and must be treated ‘as one of a number of relevant factors’.[2] The maximum penalty ‘does not constrain the exercise of the discretion’ to fix a pecuniary penalty, beyond requiring ‘some reasonable relationship between the theoretical maximum and the final penalty imposed’.[3] This relationship may be established by reference to ‘the circumstances of the contravenor as well as by the circumstances of the conduct involved in the contravention’.[4]
[2]Australian Building and Construction Commissioner v Pattinson (2022) 274 CLR 450, 472 [53]-[54] (‘Pattinson’); Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) (2016) 340 ALR 25; [2016] FCAFC 181, [155]-[156] (‘Reckitt’).
[3]Reckitt (n 2) [154]-[155]; Pattinson (n 2) [53]-[55].
[4]Pattinson (n 2) [55]; Reckitt (n 2) [156].
In cases involving a very large number of contraventions, the maximum aggregate penalty may rise to such a number that it is no longer meaningful.[5] Where that situation applies, ‘the focus should be on the conduct and on determining a penalty to match the conduct’.[6]
[5]Reckitt (n 2) [157].
[6]Australian Energy Regulator v Origin Energy Electricity Ltd [2022] FCA 802, [42] (‘AER v Origin’); Australian Energy Regulator v Santos Direct Pty Ltd [2024] FCA 579, [71].
The fundamental question for the Court is what penalty is reasonably necessary to create an effective deterrent. Accordingly, the maximum penalty is not reserved only for the worst possible cases, but rather for where it is necessary to achieve deterrence.[7]
Multiple contraventions
[7]Pattinson (n 2) [10], [14]-[15].
There are statutory provisions in the ESC Act, and course of conduct principles more generally, designed to avoid ‘double punishment’ of a contravenor for multiple contraventions for effectively the same or similar underlying conduct.
Section 54O(1) of the ESC Act provides that if a person contravenes two or more civil penalty requirements, a proceeding for a contravention order may be commenced against the person in relation to any one or more of those civil penalty requirements. However, a person is not liable to pay more than one civil penalty in relation to the same conduct.[8]
[8]Essential Services Commission Act 2001 (Vic) (‘ESC Act’) ss 54O(1)-(2).
The Court may impose a single penalty for multiple contraventions if the contraventions are based on the same facts or form, or are part of, a series of contraventions of the same or similar nature.[9]
[9]Ibid s 54P(1).
In addition, where there is an interrelationship between the factual and legal matters of two or more contraventions, the Court will consider whether it is appropriate to group them together as a ‘course of conduct’ to ensure that a person is not punished twice for the same conduct.[10]
[10]Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249, [53] (‘Singtel Optus’); Australian Competition and Consumer Commission v Yazaki Corporation (2018) 262 FCR 243, [234] (‘Yazaki’); Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540, [82]-[85] (‘Coles’).
The course of conduct principle is a ‘tool of analysis’ which can be used to assist in determining an appropriate penalty in any given case.[11] It is applied when the number of legally distinct breaches is extremely large.[12]
[11]Yazaki (n 10) [226]; Australian Competition and Consumer Commission v Cement Australia Pty Ltd (2017) 258 FCR 312, [421]-[424]; Singtel Optus (n 10) [53].
[12]See Coles (n 10) [82]-[85], [103]; Reckitt (n 2) [139]-[145], [157]; Singtel Optus (n 10) [51]-[55].
Together, the course of conduct principle and the totality principle overlap to ensure that the penalty imposed is not disproportionate to the contravening conduct.[13]
[13]Yazaki (n 10) [236].
The application of the course of conduct principle and the totality principle does not convert multiple separate contraventions into a limited number of contraventions, nor does it constrain the available maximum penalty or otherwise displace the imposition of a significant penalty.[14] The critical question remains ensuring that the penalties imposed are of appropriate deterrent value having regard to the actual, substantive wrongdoing.[15]
[14]In relation to the course of conduct principle, see Australian Energy Regulator vSnowy Hydro [2015] FCA 58, [118]. See also Chief Executive Officer, AUSTRAC v Westpac Banking Corporation (2020) 148 ACSR 247 at 258; [2020] FCA 1538, [67] (Beach J).
[15]Reckitt (n 2) [139]-[145], [157]; Australian Securities Investments Commission v AMP Financial Planning Pty Ltd (2022) 164 ACSR 64, 86-7, 91; [2022] FCA 1115, [109]-[110], [122].
Primary objective of civil penalties
The purpose of a civil penalty is primarily protective, in promoting the public interest in compliance by deterring further contravening conduct.[16] Deterrence is both general (deterring others from engaging in similar conduct) and specific (deterring the contravener from repeating the contravention). A penalty of appropriate deterrent effect ‘must be fixed with a view to ensuring that the penalty is not such as to be regarded by [the] offender or others as an acceptable cost of doing business’[17] and must deter contraveners ‘from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention’.[18]
[16]Pattinson (n 2) [15]-[16], [43], [45].
[17]Pattinson (n 2) [17], citing Singtel Optus (n 10) [62].
[18]See Singtel Optus (n 10) [62]-[63]; Reckitt (n 2) [57], [148]-[153], [164], [176]; Pattinson (n 2) [41].
An appropriate penalty is therefore one that is fashioned by reference to the facts of the particular case before the Court, in order to arrive at a penalty that is proportionate; in the sense that it strikes a reasonable balance between deterrence and oppressive severity.[19]
[19]Pattinson (n 2) [41], [46].
Arriving at an appropriate penalty involves an ‘instinctive synthesis’ of all relevant factors.[20] This involves a weighing together of all matters relevant to achieving deterrence by a reasoned and transparent process.[21]
[20]Reckitt (n 2) [175]; Coles (n 10) [6].
[21]Australian Competition and Consumer Commission v Birubi Art Pty Ltd (in liq) (No 3) (2019) 374 ALR 776, [79].
Mandatory statutory considerations
Section 54(3) of the ESC Act provides a list of mandatory considerations to which the Court must have regard in determining civil penalty orders:
Without limiting the matters to which the court may have regard in making an order under subsection (1), the court must have regard to the following-
(a) the nature and extent of the contravention;
(b) the circumstances in which the contravention took place;
(c)whether previously the regulated entity has engaged in conduct that constitutes a contravention of a civil penalty requirement or similar conduct; or
(d)any loss or damage experienced by any other person as a result of the contravention;
(e)if the Commission served a compliance notice on the regulated entity in relation to a contravention, whether the regulated entity has complied or failed to comply with the notice.
Other established factors
The mandatory factors specified in s 54(3) of the ESC Act are non-exhaustive. Further well-established factors and principles are set out below.
The ‘French factors’
The ‘French factors’, which apply to civil penalties more generally, provide a guide as to other relevant matters that a court may take into account.[22] These factors are:
[22]Pattinson (n 2) [18] where the plurality of the High affirmed the well-known statements of French J, as his Honour then was, in Trade Practices Commission v CSR Ltd [1990] FCA 762; [1991] ATPR 41-076, [42].
(a) the nature and extent of the contravening conduct;
(b) the amount of loss or damage caused;
(c) the circumstances in which the conduct took place;
(d) the size of the contravening company;
(e) the degree of power it has, as evidenced by its market share and ease of entry into the market;
(f) the deliberateness of the contravention and the period over which it extended;
(g) whether the contravention arose out of conduct of senior management or at a lower level;
(h) whether the company has a corporate culture conducive to compliance with the Act, as evidenced by education programs and disciplinary and other corrective measures in response to an acknowledged contravention; and
(i) whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention.
Consistency
Although similar contraventions should incur similar penalties, the differing circumstances of individual cases mean that a penalty in one case cannot dictate the penalty in a later case. Comparisons with previous penalties will rarely be useful.[23] Insofar as any comparison with contravenors in other cases may be undertaken, what is sought is not numerical consistency, but the consistent application of principle.[24]
Totality
[23]Singtel Optus (n 10) [60]; Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) (2018) 260 FCR 68, [69]; NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, 295-6.
[24]McDonald v Australian Building and Construction Commissioner [2011] FCAFC 29; (2011) 202 IR 467, [23]-[25].
When imposing penalties in respect of multiple related contraventions, the Court is not bound to impose the cumulative, purely mathematical, total of those penalties. Rather, the totality principle requires the Court to make a ‘final check’ to ensure that penalties to be imposed on the wrongdoer, considered as a whole, are ‘just and appropriate’.[25]
[25]Mornington Inn v Jordan (2008) 168 FCR 383, [42]; Australian Competition and Consumer Commission v BAJV [2014] FCAFC 52, [23]; CEO of the Australian Transaction Reports and Analysis Centre v Westpac Banking Corporation (2020) 148 ACSR 247; [2020] FCA 1538, [69].
Adverse publicity orders: s 54F
Section 54F(1) of the ESC Act provides that:
If a court makes a contravention order against a regulated entity, the court may make an adverse publicity order against the regulated entity.
An ‘adverse publicity order’ is defined in s 54F(4) to mean an order that:
(a) requires a regulated entity to disclose, in the way and to the persons specified in the order, such information as is so specified, being information that the regulated entity has possession of or access to; or
(b) requires a regulated entity to publish, at the regulated entity’s expense and in the way specified in the order, an advertisement in the terms specified in, or determined in accordance with, the order.
In making an adverse publicity order, the Court may:
(a) specify the period within which the order must be complied with; and
(b) impose any other requirement that the court considers necessary or expedient to make the order effective.[26]
[26]ESC Act (n 8) s 54F(2).
The purpose of equivalent ‘adverse’ or ‘punitive’ publication provisions in other legislation is both punitive and protective.[27]
[27]See Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1, 20 [48]; Australian Securities and Investments Commission v Commonwealth Bank of Australia (No 2) [2021] FCA 966, [12]; Australian Securities and Investments Commission v Aware Financial Services Australia Ltd [2022] FCA 146, [35].
The Explanatory Memorandum to the Essential Services Commission (Compliance and Enforcement Powers) Amendment Act 2001 (Vic) notes that s 54F is modelled on s 211 of the Australian Consumer Law and Fair Trading Act 2012 (Vic) (‘ACL FTA Act’), which in its terms provides for ‘punitive’ adverse publicity orders (as opposed to ‘non-punitive’ corrective advertising orders under s 210 of the ACL FTA Act).
Orders requiring provision of services, education, etc: s 54G
If a Court makes a contravention order against a regulated entity, the Court may also make a preventative order under s 54G(2)(b), being an order for the purpose of ensuring that the regulated entity does not engage in the conduct, similar conduct or related conduct that constituted the contravention during the period of the order (which must not be longer than 3 years). This includes a compliance program order, which is an order directing the regulated entity to establish a compliance program for employees or other persons involved in the regulated entity’s business, being a program designed to ensure their awareness of the responsibilities and obligations in relation to such conduct.
In Australian Competition and Consumer Commission v Sonta Australia (1988) Pty Ltd[28] Gordon J, as her Honour was then, held that the purpose of such an order in respect of analogous legislation is:
…to ensure a company-wide awareness of responsibilities and obligations in relation to the contravening conduct or similar or related conduct: Australian Competition and Consumer Commission v Anglo Estates Pty Ltd (2005) ATPR 42-044 at [46]. There must be a nexus between the terms of the compliance program and the contravening conduct: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2007) ATPR 42-138 at [96]. The compliance program should set out the steps to be taken with sufficient clarity so that it is able to be performed. It should also be in the public interest that the respondent undertake the program: LG Electronics Australia at [14].[29]
[28][2011] FCA 1202.
[29]Ibid [36]–[38] (Gordon J).
Injunctions
Section 54ZH of the ESC Act provides that a court may grant an injunction in any terms that it considers appropriate if the court is satisfied that a person has engaged in conduct that constitutes, among other things:
(a) a contravention of a condition of a licence: s 54ZH(1), (2)(c); and
(b) a contravention of a provision of a Code of Practice: s 54ZH(1), (2)(d).
Statutory injunctions are discretionary. The court must be satisfied that an injunction would be appropriate, and would serve a useful purpose.[30]
[30]See ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248, 255, 258 (‘ICI Australia Operations v TPC’); Australian Competition and Consumer Commission v Dataline.Net.Au (in liq) (2007) 161 FCR 513, [111] (‘ACCC v Dataline’).
Section 54ZH(7) specifically provides that the power to grant an injunction restraining a person from engaging in conduct may be exercised:
(a) whether or not it appears to the court that the person intends to engage again, or to continue to engage, in conduct of a kind referred to in that subsection;
(b) whether or not the person has previously engaged in conduct of that kind; and
(c) whether or not there is an imminent danger of substantial damage to any other person if the person engages in conduct of that kind.
A power to grant statutory injunctions, in the context of a regulatory regime, is ‘remedial in that it is designed to minimise the risk of further damage to members of the public’, and not ‘limited by considerations relevant to the grant of injunctive relief in equity’.[31] The grant of an injunction may follow a declaration of contravention, without needing further justification,[32] and regardless of whether the conduct appears to have ceased.[33] In that context, the injunction serves to record the court’s disapproval of the conduct in question,[34] and act as a further deterrent.[35]
[31]Australian Securities and Investments Commission v BHF Solutions Pty Ltd (No 2) [2023] FCA 787, [96] (‘ASIC v BHF Solutions’).
[32]Australian Securities and Investments Commission v Marco (No 6) [2020] FCA 1781, [122]; Australian Securities and Investments Commission v ACN 092 879 733 Pty Ltd [2012] FCA 923, [36]-[37] (‘ASIC v ACN 902’); ASIC v BHF Solutions (n 31) [101]-[102], [143]. But see to the contrary, earlier cases such as ACCC v Dataline (n 30) [114].
[33]ASIC v ACN 902 (n 32) [36]-[37]; ASIC v BHF Solutions (n 31) [102].
[34]ASIC v BHF Solutions (n 31) [146].
[35]ICI Australia Operations v TPC (n 30) 256; ASIC v BHF Solutions (n 31) [98].
D2D Proceeding: relevant provisions
D2D prohibition
D2D Conditions
Pursuant to s 40EB(1) of the EI Act, and subject to the terms of s 40EB, Sumo Power’s electricity retail licence was subject to statutory conditions prohibiting it from, inter alia:
(a)calling on a ‘domestic customer’ at the customer’s ordinary place of residence for the purpose of negotiating a ‘supply and sale contract’ or another contract of a kind that is prescribed;[36] (‘EI Act D2D Condition’);
(b)telephoning a ‘domestic customer’ for the purpose of negotiating a ‘supply and sale contract’ or another contract of a kind that is prescribed, irrespective of whether the customer is at their ordinary place of residence at the time of the telephone call;[37] or
(c)requiring or permitting an employee or agent of the retailer to do a thing referred to in paragraph (a) or (b).[38]
[36]Electricity Industry Act 2000 (Vic) s 40EB(1)(a).
[37]Ibid s 40EB(1)(b).
[38]Ibid s 40EB(1)(c).
Sumo Gas’ gas retail licence was subject to equivalent statutory conditions pursuant to s 48DB(1) of the GI Act, and subject to the terms of s 48DB (‘GI Act D2D Condition’). The EI Act D2D Condition and the GI Act D2D Condition are collectively referred to as the ‘D2D Conditions’.
The D2D Conditions are subject to an exception[39] that Sumo[40] was not so prohibited if (relevantly) the ‘domestic customer’ had given Sumo or Sumo’s employee or agent, express consent to being contacted by a retailer at the customer’s ordinary place of residence or by telephone for the purpose of negotiating a ‘supply and sale contract’, or another contract of a kind that is prescribed (‘Consent Exception’).
[39]Ibid s 40EB(2); Gas Industry Act 2001 (Vic) s 48DB(2).
[40]Sumo Power or Sumo Gas, as applicable.
The D2D Conditions are each a ‘civil penalty requirement’ within the meaning of subsection (b) of the definition in s 3 of the ESC Act.
Purpose of the D2D Conditions
The D2D Conditions were introduced into the EI Act and the GI Act by the Energy Legislation Amendment (Energy Fairness) Act 2021 (Vic) (‘Energy Fairness Act’). They commenced on 31 December 2021.[41]
[41]Victoria, Government Gazette, No. S 717, 14 December 2021, 1; Energy Legislation Amendment (Energy Fairness) Act 2021 (Vic) s 2 (‘Energy Fairness Act’).
The Second Reading Speech for the Energy Fairness Act included the following:[42]
Today’s Energy Legislation Amendment (Energy Fairness) Bill will give effect to key reforms our Government committed to under our landmark Energy Fairness Plan. These reforms include banning harmful unsolicited sales practices…
…
The Energy Fairness Plan builds on the 2017 Independent Review into the Electricity and Gas Retail Markets in Victoria. The Review found significant issues in Victoria’s retail energy markets, and that energy deregulation and privatisation has failed to deliver the promised benefits to Victorian consumers. Our Government committed to implementing all the Review’s recommendations.
…
Firstly, the Bill will prohibit energy retailers and their agents from engaging in unsolicited high-pressure sales tactics to domestic consumers, such as door-to-door selling or cold-calling. These practices have resulted in some of the most vulnerable Victorians being signed up to unfair, expensive energy contracts that cause significant financial and emotional distress.
[42]Victoria, Parliamentary Debates, Legislative Council, 10 June 2021, 2267-2268 (the Honourable Shaun Leane MP). It is permissible to have regard to extrinsic materials in the interpretation of the Energy Fairness Act: see Interpretation of Legislation Act 1984 (Vic) s 35(b)(ii) and (iii).
Explicit informed consent: ERC v 21 provisions
Pre-contractual requirement to obtain explicit informed consent: ERC v 21 cl 16(4)
In the period between 14 December 2021 and 28 February 2022:
(a) pursuant to cl 16(4) of the ERC v 21, each of Sumo Power and Sumo Gas was required to obtain the ‘explicit informed consent’ of a ‘small customer’ for the entry by the ‘customer’ into a ‘market retail contract’ with Sumo Power or Sumo Gas (as the case may be);
(b) pursuant to cl 16(1) of the ERC v 21, the requirements in (a) applied only where either Sumo Power or Sumo Gas (as the case may be) was contacted by, or contacted, a ‘small customer’ who was seeking to purchase energy for premises.
Clause 16(4) of the ERC v 21 was a ‘civil penalty requirement’ during the transition period.[43]
[43]ESC Act (n 8) s 77(2)(a).
Requirement to obtain explicit informed consent before transfer: ERC v 21 cl 57(1)
In the period from 14 December 2021 and 28 February 2022, pursuant to cl 57(1) of the ERC v 21, each of Sumo Power and Sumo Gas was prohibited from submitting a request for a transfer under the relevant ‘Retail Market Procedures’[44] unless:
(a) it had obtained ‘explicit informed consent’ from the ‘customer’ to enter into the ‘relevant customer retail contract’; and
(b) it had a ‘customer retail contract’ in place to enable the sale of ‘energy’ to the ‘customer’ at their premises.
[44]At all relevant times the ‘Retail Market Procedures’ within the meaning of cl 3 of the ERC were: (a) in the case of electricity: (i) the Australian Energy Market Operator (‘AEMO’) Retail Electricity Market Procedures – Glossary and Framework; and (ii) relevantly to the transfer of customers, the AEMO Market Settlement and Transfer Solution Procedures – Consumer Administration and Transfer Solution Procedure Principles and Obligations; and (b) in the case of gas, the AEMO Retail Market Procedures (Victoria).
Clause 57(1) of the ERC v 21 was a ‘civil penalty requirement’ during the transition period.[45]
[45]ESC Act (n 8) s 77(2)(a).
‘Explicit informed consent’ is defined in cl 3C of the ERC v 21 as follows:
(1)Explicit informed consent to a transaction is consent given by a small customer to a retailer where:
(a)the retailer, or a person acting on behalf of the retailer, has clearly, fully and adequately disclosed in plain English all matters relevant to the consent of the customer, including each specific purpose or use of the consent; and
(b)the customer gives the consent to the transaction in accordance with subclause (2); and
(c)the customer is competent to do so; and
(d)any requirements prescribed by this Code for the purposes of this subclause have been complied with.
(2)Explicit informed consent requires the consent to be given by the small customer:
(a) in writing signed by the customer; or
(b)verbally, so long as the verbal consent is evidenced in such a way that it can be verified and made the subject of a record under clause 3D; or
(c)by electronic communication generated by the customer.
D2D Proceeding: admitted contraventions
D2D contraventions
Each of Sumo Power and Sumo Gas have admitted contravening the D2D Conditions respectively on 5,941 occasions in the D2D Period.
Sumo admits that, in respect of 5,941 ‘domestic customers’, it called on each of those ‘domestic customers’ at their ordinary place of residence, by its agent BizHero Pty Ltd (‘BizHero’), for the purpose of negotiating ‘supply and sale contracts’ for (respectively for Sumo Power and Sumo Gas) electricity and gas.
Prior to the D2D Conditions taking effect on 14 December 2021, Sumo Power and Sumo Gas conducted door-to-door sales and marketing by engaging the services of BizHero.
BizHero in turn was a party to a separate service agreement with another party pursuant to which the other party provided marketing services for BizHero’s clients on BizHero’s behalf. That party (for convenience the ‘D2D Agent/s’) also provided door-to-door marketing services on behalf of a supplier of subsidised in-home displays (‘IHD’) and other energy efficiency devices (for convenience the ‘IHD Supplier’) in connection with an energy efficiency scheme established by the Victorian Government under the Victorian Energy Efficiency Target Act 2007 (Vic) known as the ‘VEU Scheme’.
Relevantly, there were no restrictions on the D2D Agent calling on customers at their homes on behalf of the IHD Supplier for the purposes of supplying IHDs.
Sumo considered that because there was no prohibition on the D2D Agent calling on customers on behalf of the IHD Supplier, there would be no breach of the D2D Conditions if the D2D Agent called on the customer at their homes for the purpose of seeking to sell the IHD and then during the customer interaction inquire as to whether the customer was interested in switching their energy to Sumo for electricity and gas. If the customer indicated that they were interested, the D2D Agent would then seek to obtain the consent of the customer and if the consent was obtained would further progress the sales process. Sumo now accepts that its belief that such processes were compliant with the D2D Conditions was erroneous.
EIC contraventions
Sumo Power has admitted to two contraventions each of cls 16(4) and 57(1)(a) of the ERC v 21 in respect of two customers KN and RO, while Sumo Gas has admitted to committing a single contravention of each in respect of the customer KN.
During the course of two of the customer interactions by the D2D Agent, Sumo Power and Sumo Gas entered into market retail contracts without obtaining the explicit informed consent of those customers. In one of those cases, the customer was assured that all that he was signing up for was to obtain a quote. In fact, the D2D Agent used the customer’s signature to sign the customer up for contracts with Sumo Power and Sumo Gas for the supply of electricity and gas respectively.
In the second case, the D2D Agent informed the customer that he was installing free energy saving devices (draft stoppers) as a free initiative from the Victorian Government and asked the customer to sign up for the installation of the draft stoppers. In fact, without the customer’s knowledge, the D2D Agent used the customer’s signature for the purposes of the signing up the customer to a supply contract for electricity with Sumo Power.
D2D Proceeding: final relief
Overview
The Parties submit the Court should make orders that provide for a contravention order under s 53(1) of the ESC Act; civil penalties under s 54(1) of the ESC Act; adverse publicity orders under s 54F of the ESC Act; injunctions under s 54ZH of the ESC Act and a costs order.
Contravention orders: s 53
As noted above, Sumo has admitted contravening the ‘civil penalty requirements’ and accordingly the Parties submit that the Court should exercise its discretion to make contravention orders under s 53(1) of the ESC Act in the terms agreed.
Civil penalty orders: s 54
Overview
If the Court exercises its discretion to make contravention orders in respect of the contraventions specified above,[46] it may order Sumo to pay a civil penalty in respect of those contraventions.
[46]See above [76]-[84].
The Parties submit that aggregate civil penalties of $7 million (being $3.94 million to be imposed on Sumo Power and $3.06 million to be imposed on Sumo Gas) in the D2D Proceeding will meet the primary objectives of specific and general deterrence, informed by the mandatory and other relevant factors, and is within the appropriate range for the contraventions admitted by Sumo.
Statutory maximum penalty
The statutory maximum penalty is a relevant consideration. The civil penalty amount that is applicable in the D2D Proceeding for contraventions by Sumo for the purposes of s 54(1)(a) is set out in s 54A(1)(a) of the ESC Act for the D2D contraventions and s 77(5) of the ESC Act for the EIC contraventions.
In the period between 13 January 2022 and 18 July 2022 (‘Lower Penalty Period’), the maximum penalty for both a breach of the D2D conditions and the relevant provisions of the ERC v 21 was 1,200 penalty units.[47] At $181.74 per penalty unit this equates to $218,088 for a single contravention and, for the period between 1 and 18 July 2022 at $184.92 per penalty unit this equates to $221,904 for a single contravention.
[47]ESC Act (n 8) ss 54A(1)(a), 77(5).
In the period between 19 July 2022 and 12 August 2022 (‘Higher Penalty Period’), the maximum penalty for the D2D contraventions was 60,000 penalty units.[48] At $184.92 per penalty unit this equate to $11,095,200 for a single contravention.
[48]See ESC Act (n 8) ss 54A(1)(a), 54E(c); Electricity Industry (Penalty Regime) Regulations 2022 (Vic); Gas Industry (Penalty Regime) Regulations 2022 (Vic).
Most of the D2D contraventions took place within the Lower Penalty Period and 199 (approximately 3%) of the contraventions took place within the Higher Penalty Period. The increased penalties compared to those prior to that date reflect a shift in attitude to the conduct to which they relate.[49] Needless, it is accepted that the underlying contravening conduct is effectively the same as for the contraventions that occurred before and after 19 July 2022.
[49]Relevant to the D2D Proceeding, this increase in penalties comes about from regulations, and thus reflects the attitude of the Government, or the Executive.
The respective theoretical aggregate maximum penalty for each of Sumo Power and Sumo Gas for the D2D contraventions are set out in the table below.
Time period No. of D2D contraventions Penalty units Value of penalty unit[50] Maximum penalty per contravention D2D theoretical aggregate maximum 31 December 2021 – 30 June 2022 5,337[51] 1,200 $181.74 $218,088 $1,163,935,656
1 July 2022 – 18 July 2022 405 1,200 $184.92 $221,904 $89,871,120
19 July 2022 – 12 August 2022 199 60,000 $184.92 $11,095,200 $5,536,504,800 D2D total theoretical maximum $6,790,311,576 [50]In Victorian legislation, the term ‘penalty unit’ refers to the amount fixed by the Victorian Treasurer under s 5(3) of the Monetary Units Act 2004 (Vic). See Interpretation of Legislation Act 1984 (Vic) s 38; Sentencing Act 1991 (Vic) s 110.
[51]The three D2D contraventions for which the date in question is unknown are included among this number, on the basis that it attracts the lowest penalty of the various possible alternatives.
The Parties submit that the very high theoretical aggregate maximum (over $6.7 billion for each of Sumo Power and Sumo Gas) must be tempered by the principles governing the determination of an appropriate penalty necessary to achieve deterrence in this case, as well as the principles concerning ‘courses of conduct’ and ‘totality’.
The aggregate maximum penalties for the EIC contraventions are:
(a) for Sumo Power: $872,352 for four contraventions as follows:
(i) a contravention of each of cls 16(4) and 57(1)(a) of the ERC v 21 in respect of customer KN; and
(ii) a contravention of each of cls 16(4) and 57(1)(a) of the ERC v 21 in respect of customer RO; and
(b) for Sumo Gas: $436,176 for two contraventions, being a contravention of each of cls 16(4) and 57(1)(a) of the ERC v 21 in respect of customer KN.
Factors relevant to the D2D contraventions
Nature and extent of the D2D contraventions
This is a mandatory consideration under s 54(3)(a) of the ESC Act.
Following the commencement of the D2D Conditions, from 13 January 2022, Sumo Power and Sumo Gas each engaged in contraventions in respect of 5,941 customers over a period of approximately 7.5 months (until 12 August 2022). In total, there were 11,882 contraventions by the two Sumo entities in respect of the 5,941 customers (given the D2D Agents engaging in the conduct in respect of those 5,941 customers on each occasion represented each of Sumo Power and Sumo Gas).
The Parties submit that the contravening conduct is serious and comprised Sumo (by its D2D Agents) calling (by its D2D Agents) on a ‘domestic customer’ at the customer’s ordinary place of residence for the purpose of negotiating ‘supply and sale contracts’ for (respectively) electricity and gas when that was prohibited without the customer’s express consent. In most of the incidents, the customers entered into a supply and sale contract with Sumo.
The Parties submit that unsolicited sales tactics can be harmful, and door-to-door selling has been prohibited for that reason. Further, in incidents with two customers, Sumo’s door-to-door selling provided the opportunity for other wrongdoing in the form of the EIC contraventions, in relation to customers KN and RO.[52]
[52]The case study of customer KN occurred shortly before the introduction of the door-to-door prohibition, so is not included in the D2D contraventions.
The circumstances in which the D2D contraventions took place
This is a mandatory consideration under s 54(3)(b) of the ESC Act.
Sumo sought to use the fact that its agent, BizHero, had D2D Agents conducting door-to-door visits for the purpose of the VEU Scheme, to obtain consent from those customers and to conduct door-to-door selling for Sumo. The D2D contraventions were a consequence of an attempt by Sumo to continue with its program of door-to-door selling, despite the commencement of the D2D prohibitions.
It is an agreed fact that Sumo believed (albeit erroneously) that its procedures did not breach the D2D Conditions, because the initial purpose of the visit was for the purpose of the VEU Scheme, and because they contemplated additional processes for the obtaining of customer consent prior to the supply and sale contract being negotiated. The Parties point to:
(a) Sumo’s agreement with its agent BizHero, which specifically instructed BizHero not engage in any act which does or may cause Sumo to contravene the provisions of the EI Act or GI Act relating to door-to-door sales and required that any potential customers must have clearly agreed to or requested receiving a visit for the purposes of marketing of gas or electricity; and
(b) the instructions and training materials provided (and reiterated on a number of occasions) by Sumo to BizHero between December 2021 and May 2022, to the effect that BizHero was required to obtain and document customer consent, and make an appointment, prior to attending a domestic customer at their ordinary place of residence for the purpose of negotiating a supply and sale contract.
Sumo now accepts that its understanding was wrong, and that the D2D Conditions are breached even if the purpose was initially to conduct some legitimate activity (here, the VEU Scheme) in circumstances where there is also a purpose of negotiating a supply and sale contract during the door-to-door visit. For that reason, it accepts that the processes Sumo implemented for BizHero to obtain and document customer consent were not sufficient to invoke the Consent Exception.
The deliberateness of the contraventions
In Shergill v Singh (No 2),[53] Raper J said:
The concept of deliberateness within the civil penalty context is spectral: Conduct may be deliberate if done consciously, in the sense of being aware of each of the essential facts constituting the elements of the contravention without understanding them to be unlawful, or while apparently believing them to be lawful or otherwise due to an innocent mistake: Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53; 260 FCR 68 at [61]-[65]. As observed by the Full Court in Flight Centre, the precise basis of purported ‘innocence’ may give rise to the need for consideration when determining deterrence.[54]
[53][2024] FCA 261.
[54]Ibid [16].
It is well-established that, where a party is aware that its conduct may be potentially unlawful, and nonetheless chooses to ‘court the risk’ of contravention, that will be regarded as a deliberate decision, and relevant to the question of penalty.[55] However, specific deterrence is of less significance where the conduct was done believing it to be innocent and knowing that the party, now disabused of its belief, will not, or is likely not to, reoffend.[56]
[55]See Australian Securities and Investments Commission v NAB (No 2) [2023] FCA 1118, [105]-[110], citing Coles (n 10) [74]-[75]; Reckitt (n 2) [131].
[56]Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53; 260 FCR 68, [64].
Whilst Sumo did not intend to breach the law, or understand that it was doing so, its conduct was deliberate, in that it was consciously pursued. Having now been disabused of its erroneous understanding, the Parties jointly submit that Sumo is not likely to knowingly engage in the same conduct again.
Involvement of senior management
The D2D contraventions were the result of authorised D2D Agents following procedures approved by Sumo. The creation and approval of the processes that led to the D2D contraventions involved Sumo’s senior management, namely its then Managing Director and two General Managers (Legal & Regulatory and Sales & Marketing, respectively).
The Parties therefore submit that the contravening D2D conduct should thus be regarded as the result of decisions made by senior management. Sumo’s senior management was cognisant of the introduction of s 40EB of the EI Act and s 48DB of the GI Act and, in response, created or authorised standard operating procedures purporting to work around them.
Relevantly, none of the members of Sumo’s senior management responsible for the D2D conduct remain employed by Sumo. Sumo permanently stood down its Managing Director from his position on 23 February 2024. In addition, its General Manager (Legal & Regulatory) also ceased employment with Sumo on 8 April 2024 and the employment of its General Manager (Sales & Marketing) was terminated on 17 May 2024. The Parties submit that the fact that senior management responsible for the D2D contraventions have now been stood down, terminated or resigned mitigates (albeit does not remove) the need for specific deterrence.
‘Double punishment’ and courses of conduct
The Parties submit that the 5,941 D2D contraventions admitted for each for Sumo Power and Sumo Gas should be regarded as comprising a single course of conduct, for each of those entities.
Section 54P(1) of the ESC Act permits a total penalty to be imposed for all of the contraventions by each of Sumo Power and Sumo Gas respectively.
While the contravening conduct was carried out by two separate corporations; one selling electricity, and the other selling gas; the Parties submit that it was the same conduct occurring simultaneously by the same D2D Agent to the customer in the same conversation in the same door-to-door visit.
Other relevant cases
As this is the first enforcement matter for contraventions of s 40EB of the EI Act and s 48DB of the GI Act, there are no previous cases to compare with under the ESC Act.
Factors relevant to the EIC contraventions
Nature and extent of the EIC contraventions
This is a mandatory consideration under s 54(3)(a) of the ESC Act.
In the present case, the EIC contraventions comprise:
(a) for Sumo Power, two contraventions of each of cls 16(4) and 57(1)(a) of the ERC v 21 in respect of two separate customers (customer KN and customer RO); and
(b) for Sumo Gas, one contravention of cls 16(4) and 57(1)(a) of the ERC v 21 in respect of one customer (customer KN).
In each case, the contravening conduct committed the customer, without obtaining the customer’s ‘explicit informed consent’,[57] to sign up with Sumo as their energy provider, and to transfer the customer away from their existing provider.
[57]Energy Retail Code (‘ERC’) cl 3C.
In Australian Competition and Consumer Commission v EnergyAustralia Pty Ltd (‘ACCC v EnergyAustralia’),[58] Gordon J, as her Honour was then, explained the importance of explicit informed consent in the context of equivalent provisions requiring the obtaining of explicit informed consent under s 38 of the National Energy Retail Law (South Australia) and the National Energy Retail Law (ACT) (‘National Energy Retail Law’):[59]
…it is important to recognise that the requirement that energy retailers obtain the explicit informed consent of consumers to contract with them and to transfer from another retailer (or from one market retail contract to another), goes to the very core of the stability and transparency of the energy markets, when considered from the perspective of consumer. All participants in the industry must not only understand the central importance of the need to obtain the explicit informed consent of consumers but ensure that they have procedures in place which ensure that this is achieved.
[58][2015] FCA 274 (‘ACCC v EnergyAustralia’).
[59]Ibid [139]. Gordon J was determining a proceeding brought jointly by the Australian Competition and Consumer Commission and the Australian Energy Regulator, which concerned (in part) equivalent provisions requiring the obtaining of explicit informed consent under s 38 of the National Energy Retail Law (South Australia) and the National Energy Retail Law (ACT).
The circumstances in which the EIC contraventions took place
This is a mandatory consideration under s 54(3)(b) of the ESC Act.
The first incident took place on 14 December 2021 (customer KN) and the second incident was on 10 February 2022 (customer RO). Both occurred in the context of door-to-door selling on behalf of Sumo.
The first incident occurred prior to the commencement of s 40EB of the EI Act and s 48DB of the GI Act on 31 December 2021, at a time where the underlying method of selling (door-to-door selling without prior consent) was still lawful. However, the second incident occurred after the D2D Conditions were operational, prohibiting door-to-door sales without prior consent in that context.
Customer KN was a 29 year old man. He was falsely informed that he was only signing up for a later consultation. However, electricity and gas contracts between KN and Sumo were entered into without KN’s knowledge, without the intended use of KN’s signature to enter into the contracts being disclosed to KN and contrary to the D2D Agent’s oral statements that KN was only booking in a consultation with a Sumo sales agent. As a result, Sumo entered into market retail contracts with KN without his ‘explicit informed consent’ contrary to cl 16(4) of the ERC v 21.
Customer RO was an 86 year old woman. An electricity contract between RO and Sumo Power was entered into without RO’s knowledge where RO’s purported signature on that contract was not made by RO, or alternatively, contrary to the D2D Agent’s representation that RO was signing a form in relation to the installation of the draft stopper. As a result, Sumo Power entered into a market retail contract with RO without RO’s ‘explicit informed consent’ contrary to cl 16(4) of the ERC v 21.
In each incident, a D2D Agent acting on behalf of Sumo purported to enter the customer into a market retail contract without the customer having given explicit informed consent for the sales agent to do so. The Parties agree and submit that the conduct should be regarded as very serious.
The contraventions by Sumo were a consequence of the D2D Agent’s conduct. Once the contract was entered into, Sumo’s system was designed automatically to submit a request to the Australian Energy Market Operator to transfer the customer. In doing so, the system relied on the ‘consent’ purportedly given by the customer.
The deliberateness of the contraventions
In each of the two incidents, the Parties accept and submit that the contravening conduct involved deliberate deceptiveness by the D2D Agent in what was said to customer KN and customer RO. However, Sumo was not aware of the deception, and the deception was not encouraged or condoned by Sumo.
Involvement of senior management
The EIC contraventions were the result of isolated episodes involving the conduct of two D2D Agents, without any involvement of senior management.
Maximum penalties; ‘double punishment’ and courses of conduct
The EIC contraventions are different to the D2D contraventions in nature and effect and attract separate penalties. The Parties submit that EIC contraventions should be regarded as two separate courses of conduct, one each in respect of customer KN and customer RO. Although the contraventions of cls 16(4) and 57(1)(a) of the ERC v 21 are distinct, in that the former relates to the entry into contracts, and the latter relates to giving effect to those contracts, there is significant overlap in their nature and circumstances, and in the consequential harm. The Parties therefore submit that it is most appropriate to impose a single penalty for both cls 16(4) and 57(1)(a), in respect of each customer.[60]
[60]ESC Act (n 8) s 54P(1).
Further, although the contravening conduct in respect of customer KN was carried out by one corporation selling electricity, and the other selling gas, it was the same conduct occurring simultaneously by the same sales agent to the customer in the same conversation in the same door-to-door visit.
Other relevant cases
There are no previous cases concerning breach of cls 16(4) and 57(1)(a) of the ERC v 21.
The Parties have also brought to the Court’s attention ACCC v EnergyAustralia,[61] where an agreed penalty of $500,000 was imposed for breaches of equivalent provisions of the National Energy Retail Law. However, the Parties draw attention to the fact that EnergyAustralia Pty Ltd (‘EnergyAustralia’) is one of the largest energy retailers in Australia, and the conduct affected 27 customers.
[61]ACCC v EnergyAustralia (n 58).
Factors relevant to both the D2D and EIC contraventions
Compliance improvements
The Parties submit as an agreed fact that Sumo has taken, and continues to take, significant steps to improve its compliance and oversight. It has engaged a full time compliance manager position who, amongst other things, has worked to develop an obligations register and put in place a ‘compliance uplift’ program, which includes working towards international-standards aligned compliance management systems, engaging executives in compliance leadership workshops, and developing compliance ‘squads’ across the business to document compliance controls, develop and review control registers and compliance policies, and conduct a gap analysis of current processes to uplift compliance across the business.
Relevantly, in relation to D2D specifically, Sumo has ceased all non-consumer initiated sales channels in Victoria, and removed all Victorian customers from telephony marketing campaigns.
Whether previously engaged in conduct that constitutes a contravention of a civil penalty requirement or similar conduct
This is a mandatory consideration under s 54(3)(c) of the ESC Act.
Sumo has not previously been found to have engaged in conduct contravening the D2D or EIC provisions. However, the contraventions concurrently admitted by Sumo in the BOM Proceeding involve contraventions of civil penalty requirements. Accordingly, they are relevant to be considered in relation to this factor in the same way as the D2D contraventions are relevant to be considered in the BOM Proceeding.
Other previous contraventions
Sumo Power was penalised for contraventions of the Australian Consumer Law (‘ACL’) in Australian Competition and Consumer Commission v Sumo Power Pty Ltd.[62] Sumo Power was ordered to pay pecuniary penalties of $1.2 million (being the parties’ proposed agreed penalties), and ordered to pay refunds to affected customers, for making false and misleading representations to residential electricity consumers in Victoria, with respect to the price of electricity retail services, in breach of the s 29(1)(i) of the ACL. The relevant conduct occurred between 4 June 2018 and 31 December 2018. Sumo represented to potential customers in unsolicited telephone calls and written offer summaries in relation to its pay on time discount plans, that it would maintain or not materially increase the rates offered to consumers, and would provide the customer with the benefit of the particular pay on time discount off on those plans, for a period of 12 months. However, in fact it offered cheap rates to consumers to entice them to switch, when it planned to and did materially increase the rates paid by customers, such that the benefit of the pay on time discount off the quoted electricity usage charges would be and was substantially eroded or eliminated. Sumo signed up 37,027 consumers in the relevant period, and obtained $1.9 million in additional revenue from the undisclosed but planned rate increases it then imposed.
[62][2021] FCA 712.
Any loss or damage resulting from the contraventions
This is a mandatory consideration under s 54(3)(d) of the ESC Act.
Sumo’s contravening conduct in the D2D Proceeding caused no identifiable pecuniary loss to consumers. However, relevant impact on consumers is not restricted to financial loss or damage. Inconvenience to, and intrusion into the lives of, affected consumers, may be relevant.
The Parties accept as an agreed fact that the D2D contraventions caused stress and inconvenience for some of the customers visited. There was stress and inconvenience for consumers arising from communications to rectify their energy arrangements, where they did not wish to continue with Sumo, and it took a number of months (on some occasions two or three months) for some customers to transfer away from Sumo, and additional time to sort out related arrangements (such as with life support and Centrelink).
Whether any previous compliance notice
This is a mandatory statutory consideration under s 53(3)(e) of the ESC Act. This factor is not applicable. The Commission has not served a compliance notice on Sumo in relation to the contraventions in the D2D Proceeding.
Sumo’s size and financial standing and degree of market share
Sumo’s relatively small size and limited resources (by the standards of energy retailers) are relevant in determining the size of the pecuniary penalty that would operate as an effective specific deterrent.[63] As the High Court has explained in Australian Building and Construction Commissioner v Pattinson:[64]
…all other things being equal, a greater financial incentive will be necessary to persuade a well-resourced contravener to abide by the law rather than to adhere to its preferred policy than will be necessary to persuade a poorly resourced contravener that its unlawful policy preference is not sustainable.[65]
[63]Australian Securities and Investments Commission v Westpac Banking Corporation (No 3) (2018) 131 ACSR 585, [49](d).
[64]Pattinson (n 2).
[65]Ibid [60].
The Parties submit that given Sumo’s smaller size and financial position, the proposed penalty would outweigh the cost of any compliance measures necessary to incentivise Sumo to invest in compliance and ensure it would not regard the penalty as ‘the costs of doing business’.
Sumo’s size and market share
Compared to its competitors, Sumo is a small energy retailer, and not comparable to the largest retailers (AGL, Origin Energy, EnergyAustralia). There are also a number of mid-range energy retailers that are much larger than Sumo (Red Energy, Lumo Energy, Alinta Energy, Momentum Energy and others).
At the end of the first quarter of the 2023 financial year, Sumo had a market share of 1.85% (Sumo Power) and 1.8% (Sumo Gas), calculated by reference to its number of customers in Victoria (45,654 for Sumo Power and 34,190 for Sumo Gas). By the end of the third quarter of the 2024 financial year, its market share had declined for Sumo Power to 1.81% and increased for Sumo Gas to 1.91%, calculated by reference to its number of customers in Victoria (49,715 for Sumo Power and 38,243 for Sumo Gas).
(a) did not use the ‘annual usage history’ as defined[78] and incorrectly based calculations of the ‘annual total cost of current plan’ and ‘annual total cost of deemed best offer’ on annualised energy usage history based on usage during the billing period on the relevant invoice;
[78]In cl 3 of the ERC or ERCOP, whichever applied.
(b) did not use the ‘annual total cost of current plan’ and ‘annual total cost of deemed best offer’ as defined[79] and incorrectly did not apply or include any discounts, concessions or rebates; and
[79]In cl 3 of the ERC or ERCOP, whichever applied.
(c) in relation to GST, in the period 3 March 2022 to 16 June 2022:
(vii) incorrectly applied GST exclusive rates for the customer’s ‘annual total cost of current plan’ and, thereby, failed to base its calculations on the ‘annual total cost of current plan’, as defined;[80]
[80]In cl 3 of the ERC or ERCOP, whichever applied.
(viii) while (correctly) applying GST inclusive rates in relation to the ‘annual total cost of deemed best offer’,
((a) to (c) collectively, ‘Calculation Errors’).
As a result of the Calculation Errors, and the ensuing incorrect check contraventions, each of Sumo Power and Sumo Gas sent to their ‘small customers’:
(a) incorrect ‘positive deemed best offer messages’ - that is, a message that the customer was currently on Sumo’s best offer, when that was incorrect - the customer could have saved money (more than $22 per annum) by switching to another plan;
(b) incorrect ‘negative deemed best offer messages’ - a message that the customer could save money (more than $22) by switching to another plan, when that was not the case; and
(c) correct ‘negative deemed best offer message’ with an incorrect dollar amount - a message stating (correctly) that the customer could save money by switching to another plan, but where the specified amount of the potential savings was incorrect.
The failure to send contraventions
Sumo Power has admitted that, on 34,886 occasions within the period April 2022 to August 2023, in respect of 21,165 ‘small customers’, it failed to provide the ‘small customers’ in question with at least one ‘deemed best offer message’ on a bill or ‘bill summary’ within a period of three months or more, thereby contravening cl 110(1)(a) of the ERCOP.
Sumo Gas has admitted that, on 35 occasions within the period December 2022 to July 2023, in respect of 35 ‘small customers’, it failed to provide the ‘small customers’ in question with at least one ‘deemed best offer message’ on a bill or ‘bill summary’ within a period of four months or more, thereby contravening cl 110(1)(b) of the ERCOP.
BOM Proceeding: final relief
Overview
The Parties submit the Court should make the Proposed Final Orders that provide for a contravention order under s 53(1) of the ESC Act, a declaration, where a contravention order is not available, civil penalty orders under s 54(1) of the ESC Act, orders for a quality assurance program, under s 54G of the ESC Act, adverse publicity orders under s 54F of the ESC Act and a costs order.
Contravention orders: s 53
The Parties submit the contravention orders should be made in respect of the admitted contraventions of the ERCOP in the BOM Proceeding:
(a) the incorrect check contraventions (cl 109(1)) in the Later Period; and
(b) the failure to send contraventions (cl 110(1)).[81]
[81]Each of those provisions were specified in sch 1 of the ERCOP, as civil penalty requirements for the purposes of the ESC Act.
Each of cls 109(1) and 110(1) of the ERCOP were civil penalty requirements within the meaning of s 3 of the ESC Act.
Contravention orders are not available in relation to the incorrect check contraventions of the ERC v 21 (cl 70Q(1)), in the Earlier Period as these were not ‘civil penalty requirements’ within the meaning of s 3 of the ESC Act.
Declarations
However, in respect of the Earlier Period, the Parties propose that a declaration should be made in respect of Sumo’s breach of the ERC v 21, cl 70Q(1). The Commission seeks, and Sumo does not contest, the making of such declarations.
The Parties submit that the proposed declaratory relief should be made, where:
(a) The issues are real, and not hypothetical. The proposed declarations relate to conduct in contravention of the ERC v 21, compliance with which was a condition of Sumo’s licences granted under the EI Act and GI Act respectively. The contraventions of the provisions of the ERC v 21 have been identified by the Parties with precision.[82]
(b) It is in the public interest for declarations to be made. The Commission is the regulator responsible for the civil enforcement of the statutory licence conditions and the ERC v 21, and therefore has a real interest in the declarations being made.[83]
(c) Sumo Power and Sumo Gas are the proper contradictors. This remains the case notwithstanding their admissions and agreement.[84]
[82]Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378, [35] (‘ACCC v MSY’).
[83]As to the utility of declaratory relief in regulatory proceedings more generally, see Australian Securities and Investments Commission v Axis International Management Pty Ltd (2009) 178 FCR 485; [2009] FCA 852, [26]–[43]; Australian Competition and Consumer Commission v Coles Supermarkets Pty Ltd [2014] FCA 1405, [78]; Australian Energy Regulator v Pacific Hydro Clements Gap Pty Ltd [2021] FCA 733, [54]–[55].
[84]ACCC v MSY (n 82) [30], citing IMF (Australia) Ltd v Sons of Gwalia Ltd (admin apptd) (2004) 211 ALR 231, 244; [2004] FCA 1390, [47].
Civil penalty orders
Overview
The Parties submit that aggregate civil penalties of $3 million for the BOM Proceeding (being $2,350,000 to be imposed on Sumo Power, and $650,000 to be imposed on Sumo Gas) will meet the primary objectives of specific and general deterrence, informed by the mandatory and other relevant factors, and is within the appropriate range for the contraventions admitted by Sumo.[85]
[85]See above [21] for a detailed breakdown.
Statutory maximum penalty
Between 3 March 2022 and 18 July 2022, the maximum civil penalty for contraventions of cls 109(1) and 110(1) was 1,200 penalty units pursuant to ss 54(1)(a) and 54A(1)(a) of the ESC Act. In that time period, there was no other amount provided for the contraventions in accordance with s 54E of the ESC Act.
On and from 19 July 2022, another amount was provided for contraventions of cl 110(1) of the ERCOP in accordance with s 54E(d) of the ESC Act by (respectively) the Electricity Industry (Penalty Regime) Regulations 2022 (Vic) and the Gas Industry (Penalty Regime) Regulations 2022 (Vic). By those regulations, cl 110(1) of the ERCOP was prescribed as a ‘tier 2 civil penalty requirement’, with a maximum penalty not exceeding 8,000 penalty units.
The respective maximums applicable in each period are set out in the table below, having regard to the increase in value of penalty units over the period.
| Time period | Penalty units | Value of penalty unit[86] | Maximum penalty per contravention |
| 3 March 2022–30 June 2022 | 1,200 | $181.74 | $218,088 |
| 1 July 2022–18 July 2022 | 1,200 | $184.92 | $221,904 |
| 19 July 2022–30 June 2023 | 8,000 | $184.92 | $1,479,360 |
| 1 July 2023–30 August 2023 | 8,000 | $192.31 | $1,538,480 |
[86]In Victorian legislation, the term ‘penalty unit’ refers to the amount fixed by the Victorian Treasurer under s 5(3) of the Monetary Units Act 2004 (Vic). See Interpretation of Legislation Act 1984 (Vic) s 38; Sentencing Act 1991 (Vic) s 110.
The theoretical aggregate maximums of civil penalty orders in the BOM Proceeding are set out in the table below.
Time period
Maximum penalty per contravention
Sumo Power
Sumo Gas
No. of contraventions
Theoretical Maximum
No. of contraventions
Theoretical Maximum
Incorrect check contraventions
3 March 2022 – 15 July 2022
$218,088[87]
47,943
$ 10.4 billion
25,763
$5.6 billion
Failure to send contraventions
3 March 2022 – 18 July 2022
$218,088[88]
235
$51 million
Nil
N/A
19 July 2022 – 30 August 2023
$1,479,360
34,651
$51.2 billion
35
$51 million
Total:
34,886
$51.7 billion
35
$51 million
[87]This period of 18 days from 1 to 18 July 2022, where the penalty in penalty units was the same as before, but the value of a penalty unit had slightly increased, does not materially affect the outcome, and is rolled into the previous period for the sake of convenience.
[88]Ibid.
The Parties submit that, due to the large number of contraventions, the theoretical aggregate maximums are unrealistically large, and are less useful as a yardstick.
Nature and extent of the contraventions
This is a mandatory consideration under s 54(3)(a) of the ESC Act.
The incorrect check contraventions
The incorrect check contraventions in the Later Period were caused by the Calculation Errors. These were coding errors and thus systemic in nature. By reason of the Calculation Errors, over an approximately 4.5 month time period between 3 March and 15 July 2022 (when the ERCOP applied), Sumo carried out its ‘deemed best offer checks’ incorrectly on 73,706 occasions as follows:
(a) 47,943 occasions in respect of Sumo Power; and
(b) 25,763 occasions in respect of Sumo Gas.
With limited exception, this impacted almost every small customer of Sumo in the Later Period, approximately 37,302 electricity small customers, and 23,325 gas small customers.
The number of incorrect checks is larger than the number of customers affected because the Calculation Errors continued through more than one cycle of ‘deemed best offer message’ notices, so that some of the customers were affected on more than one occasion. That is particularly the case for electricity customers, where a ‘deemed best offer message’ must be included in a bill every three months.
The failure to send contraventions
The failure to send contraventions were also caused by coding errors. These contraventions were mainly by Sumo Power, which failed to send 34,886 ‘deemed best offer checks’ as required from April 2022 to August 2023. Approximately 40% of Sumo Power’s electricity small customers who were due to receive ‘deemed best offer messages’ in the six month period between July and December 2022[89] missed out on receiving two consecutive messages.
[89]All of Sumo Power’s electricity small customers were entitled to receive a ‘deemed best offer message’ every three months. The only cases in which an electricity small customer would not have been entitled to receive a ‘deemed best offer message’ within the relevant 6-month period are where they were a customer for only part of that period, being less than three months, where no ‘deemed best offer message’ had yet fallen due.
In contrast, there were only 35 failure to send ‘deemed best offer messages’ contraventions by Sumo Gas from December 2022 to July 2023.
The circumstances in which the contraventions took place
This is a mandatory consideration under s 54(3)(b) of the ESC Act.
Sumo’s business involves a high volume of customers and automated customer transactions. The contraventions of the BOM obligations occurred in circumstances where:
(a) Sumo’s processes for sending best offer messages were automated, and dependent on the effective programming and functioning of its Information Technology (‘IT’) systems;
(b) Sumo’s compliance with its relevant regulatory obligations in relation to best offer messages depended on those IT systems;
(c) the contraventions arose from errors made by Sumo’s IT staff in relation to the coding of the systems in question; and
(d) there were deficiencies in Sumo’s oversight and control of its IT systems and staff relevant to sending best offer messages.
The incorrect check contraventions resulted from the Calculation Errors which in turn were the result of errors or incorrect assumptions which were made to changes to Sumo’s software code on 10 February 2022. These coding errors arose as an unintended result of an IT project directed to reduce processing times for invoicing. They were not intended to change the best offer check methodology.
At the time, Sumo’s IT department consisted of 5 staff members employed locally and a further 6 staff members based offshore. Sumo’s IT department lacked university qualifications and information technology and had no background or experience with software coding. None of Sumo’s local IT staff had any experience or technical skills in software coding and the coding error was made by a senior developer who was a member of Sumo’s offshore IT staff.
The Calculation Errors and the resulting contraventions of the ERCOP and the ERC v 21 were not identified by Sumo’s own systems or controls but only in response to the Commission’s inquiries. When the Commission wrote to Sumo Power enclosing a request for information made under relevant conditions of Sumo Power’s electricity retail licence, the request required Sumo Power to provide information concerning Sumo’s compliance with the ERCOP including worked examples of how the deemed best offer was calculated.
In response to the request from the Commission, Sumo commenced an internal investigation during which it discovered the Calculation Errors. Shortly after it sent a letter to the Commission attaching its response to the request for information and identifying the Calculation Errors. Sumo Power and Sumo Gas each later filed breach reports in respect of the incorrect deemed best offer check contraventions as required by the Commission’s compliance and performance reportable guidelines which applied to Sumo’s conditions of its licences.
The majority of the failure to send contraventions were the result of two further IT errors which were also the result of errors made by the offshore senior developer in July 2022 (‘July 2022 process errors’).
The senior developer had become aware of the July 2022 process errors and identified and fixed those errors without communicating that fact to anyone else at Sumo.
Sumo first became aware of the July 2022 process errors when the Commission issued information gathering notices to Sumo dated 28 September 2023 which identified 37 customers in respect of whom there appeared to have been periods of 3 months or more where there had been no best offer messages sent.
When notified by the Commission, Sumo investigated the cause and extent of the issue and in the course of that investigation identified the July 2022 process errors.
Shortly after Sumo explained the causes of the July 2022 process errors to the Commission and subsequently made a further breach report in respect of the contraventions of the ERCOP.
Deficiencies in automated systems have been noted in cases brought by the Australian Energy Regulator under the National Energy Retail Law.[90]
[90]See Australian Energy Regulator v AGL Sales Pty Ltd & Ors [2020] FCA 1623 (‘AER v AGL’); Australian Energy Regulator v EnergyAustralia Pty Ltd [2022] FCA 644 (‘AER v EnergyAustralia’); AER v Origin (n 6).
In Australian Energy Regulator v AGL Sales Pty Ltd & Ors,[91] Anderson J said the case was:
… yet another recent occasion where this Court has before it a large business that has contravened statutory obligations (at least in part) by reason of (what might be described as) information technology system issues.
…
… large businesses in particular should formulate and maintain governance processes and arrangements that are adequate to ensure compliance with statutory obligations.[92]
[91]AER v AGL (n 90).
[92]Ibid [90]-[91].
In Australian Energy Regulator v Origin Energy Electricity Ltd,[93] the declared contraventions included thousands of ‘systemic’ breaches, as well as more specific declarations concerning 18 individual customers. The systemic breaches arose primarily from Origin Energy having automated various aspects of its financial hardship program. Relevantly, Moshinsky J stated that ‘this case presents an important reminder of the need to ensure that automated processes are compliant with the relevant regulatory requirements and relevant corporate policies’.[94]
[93]AER v Origin (n 6).
[94]Ibid [51].
Deliberateness of the contraventions
The Parties submit that Sumo’s contraventions were inadvertent, and not deliberate. When the code was altered to introduce the errors, it was done on the initiative of an offshore software developer, without any intention to change its substantive effect, and without any real oversight from Sumo’s General Manager - IT, or any awareness from other senior managers.
In Australian Energy Regulator v EnergyAustralia Pty Ltd,[95] Colvin J noted that the contraventions arose from a ‘failure of policy and systems’;[96] the breaches themselves were ’not deliberate, but the issues took a long time to resolve’.[97] The Parties submit that this is the case here.
[95]AER v EnergyAustralia (n 90).
[96]Ibid [11].
[97]Ibid[14].
The Commission submits, and Sumo accepts, that a highly automated business like Sumo must ensure that its processes are compliant with its legal obligations to consumers. This has recently been emphasised by the Federal Court of Australia in penalty cases concerning large energy retailers.[98] The possibility of coding errors in an automated system underlines the needs for systems and processes to check the accuracy of the communications sent by the system.[99]
[98]AER v Origin (n 6) [51]; AER v AGL (n 90)[90]-[91].
[99]ACCC v Honda Australia Pty Ltd [2023] FCA 1602, [158].
The Parties accept as an agreed fact that Sumo had inadequate oversight and quality assurance by Sumo’s senior management, in respect of work done by Sumo’s offshore IT contractors, and in relation to its compliance with the obligations on Sumo as to best offer messages. At the time, Sumo had no requirement for coding changes to be reviewed to ensure regulatory compliance. Sumo did carry out testing of the coding changes prior to deployment, but the testing did not check that the best offer message was calculated correctly (as opposed to whether a best offer message appeared) and it did not identify the relevant errors in this case.
Whether previously engaged in conduct that constitutes a contravention of a civil penalty requirement or similar conduct
This is a mandatory consideration under s 54(3)(c) of the ESC Act.
The contraventions concurrently admitted by Sumo in the D2D Proceeding involve contraventions of civil penalty requirements. Accordingly, they are relevant to be considered in relation to this factor.
Any loss or damage resulting from the contraventions
This is a mandatory consideration under s 54(3)(d) of the ESC Act.
The incorrect check contraventions
The incorrect check contraventions resulted in the sending of incorrect ‘deemed best offer messages’ to customers.
There is no evidence that consumers suffered financial loss as a result. However, the Parties accept that there is harm in the sense that the objectives of div 5 of the ERCOP which aim to enhance consumer confidence and understanding of the market, have not been achieved. Further, the Parties accept that it should be inferred some of the customers will have been cost-sensitive.
During the Earlier Period when Sumo was subject to the ERC v 21, on 4,706 occasions Sumo Power failed to carry out the deemed best offer check in accordance with the correct formula. Sumo Gas failed to carry out the deemed best offer check in accordance with the correct formula on 5,922 occasions.
During the Later Period when Sumo was subject to the ERCOP, Sumo Power failed to carry out the deemed best offer check correctly on 47,943 occasions and Sumo Gas on 25,763 occasions.
Relevantly, once the contraventions had been identified, Sumo did not inform its customers that they had received incorrect ‘deemed best offer messages’, or consider compensating any customers affected.
Around 55% of incorrect best offer messages for Sumo Power, and 34% of incorrect best offer messages for Sumo Gas incorrectly told customers they were on the best offer, when they were not. As a result these customers lost an opportunity to be notified about the opportunity to save money by switching plans if they (1) read their bill; (2) read the best offer message on it; and (3) took the steps needed to change their plan.
Around 29% of affected ‘deemed best offer messages’ for Sumo Power, and 62% of affected ‘deemed best offer messages’ for Sumo Gas were calculated using the incorrect formula but nonetheless correctly told the customer that they were on the best offer (or switching to another offer would save less than $22 per year).
Around 14% of incorrect best offer messages for Sumo Power, and 3% of incorrect best offer messages for Sumo Gas correctly told customers that they were not on the best offer, but stated an incorrect dollar amount in respect of their potential savings.[100]
[100]Sumo Power: 6,893/47,782. Sumo Gas: 803 / 25,763.
Potentially, only 1% of incorrect best offer messages for Sumo Power, and only 0.01% of incorrect best offer messages for Sumo Gas incorrectly told customers they were not on the best offer when in fact they were.[101] Five of those customers actually switched to the energy plan recommended by Sumo.
The failure to send contraventions
[101]Sumo Power: 534 / 47,782 = 1%. Sumo Gas: 3 / 25,763 = 0.01%.
Sumo customers who did not receive a best offer message lost an opportunity to be notified about an opportunity to save money in the period in question, and did not have correct information about their plan and the alternatives available. This meant that the objectives of div 5 of the ERCOP were not achieved in respect of those customers.
Affected customers missed out on one or two best offer messages, and did not receive any such messages in bills between July and December 2022. In most cases, this was in circumstances where they had received a price change notice, which included a best offer message, in July 2022.
Whether any previous compliance notice
This is a mandatory statutory consideration under s 53(3)(e) of the ESC Act. This factor is not applicable, as the Commission has not served a compliance notice on Sumo in relation to the contraventions in the BOM Proceeding.
Sumo’s size and financial standing and degree of market share
This matter has been addressed at paragraphs [140]-[146] of these reasons in the context of the D2D Proceeding.
Involvement of senior management
The contraventions that are the subject of this proceeding were the product of:
(a) errors made in Sumo’s IT systems and processes, being coding errors made by an offshore software developer, and
(b) inadequate oversight and quality assurance by Sumo’s senior management, in respect of work done by Sumo’s offshore IT contractors, and in relation to its compliance with the obligations on Sumo as to best offer messages.
Sumo’s senior management were not aware of, or involved in, the coding errors that led to the contravening conduct in this case.
In April 2024, Sumo terminated the employment of its General Manager - IT. In around August 2024 Sumo engaged a new Head of IT, who was previously a Senior IT Manager at EnergyAustralia.
Compliance improvements
Sumo has since put in place measures to ensure greater oversight, training and compliance checking of coding changes and best offer messaging. This includes implementing a review and checking process of best offer message samples for accuracy and further controls for coding changes, including but not limited to a requirement to seek approval from the General Manager - IT (and if necessary Sumo’s Head of Compliance) for coding changes, peer review of coding and better tracking of coding changes.
As noted above, Sumo has made significant changes to improve its compliance more generally.
Cooperation and acknowledgement of liability
As was the case with the D2D Proceeding, Sumo has cooperated fully with the Commission and acknowledged its liability at an early stage, including admitting the contraventions in its defence, meeting with the Commission to resolve the proceeding without the need for a formal mediation, and cooperating in the preparation of the SAFA, the Proposed Final Orders, the Joint Submissions and also the terms of the EU given to the Commission under s 54ZD of the ESC Act.
The Parties’ submissions made in relation to the D2D Proceeding, set out at paragraph [148] of these reasons, apply equally here, to the BOM Proceeding. But for Sumo’s cooperation and acknowledgment, the Commission would have sought a substantially higher penalty.
Other relevant cases
As this is the first penalty ever issued for the BOM obligations, there are no previous cases to compare with.
Maximum penalties; ‘double punishment’ and courses of conduct
The Parties submit that there are two courses of conduct: the incorrect check contraventions, and the failure to send contraventions. Section 54P(1) of the ESC Act permits a total penalty to be imposed for each type of contravention by Sumo Power and Sumo Gas respectively.
As was the case with the D2D contraventions, the contraventions in question are very large in number, so that the theoretical aggregate maximums are unhelpful.
The Parties’ submission on appropriate penalty
The Parties jointly submit that the proposed penalties are an appropriate remedy to meet the primary object of deterrence.
The total of the civil penalty orders proposed for the incorrect check contraventions in the BOM Proceeding is $1.9 million calculated as to:
(a) $1,300,000 to be imposed on Sumo Power; and
(b) $600,000 to be imposed on Sumo Gas.
These amounts are split approximately 70% to Sumo Power and 30% to Sumo Gas based on the fact that the numbers of admitted contraventions are split roughly 65% to 35%[102] and the consequences of Sumo Power’s admitted contraventions had a relatively greater impact on the customers, in that there were a greater proportion of Sumo Power customers who received incorrect ‘deemed best offer messages’ as a result, when compared to Sumo Gas (in approximately 70% of cases for Sumo Power, and approximately 37% of cases for Sumo Gas).[103]
[102]47,943 for Sumo Power and 25,763 for Sumo Gas.
[103]Sumo Power’s proportion = (26,280+534+6893) / 47,943 = 70%.
Sumo Gas’ proportion = (8,735+3+803) / 25,763 = 37%.
The total of the civil penalty orders proposed for the failure to send contraventions in the BOM Proceeding is $1.1 million of which:
(a) $1,050,000 is to be imposed on Sumo Power; and
(b) $50,000 is to be imposed on Sumo Gas.
This penalty is heavily weighted in favour of Sumo Power having regard to the fact that the number of contraventions by Sumo Gas is much lower than Sumo Power.
In considering whether those amounts are an appropriate penalty, the Parties submit that the following matters are relevant:
(a) In respect of the incorrect message contraventions, for Sumo Power, there were 47,943 incorrect best offer message contraventions, affecting some 37,302 small customers. In respect of Sumo Gas, there were 25,763 incorrect best offer message contraventions, affecting some 23,325 small customers. The contraventions continued for approximately 4.5 months and impacted almost every small customer of Sumo’s for one or two best offer message ‘cycles’.
(b) In respect of the failure to send contraventions, for Sumo Power, there were 34,886 contraventions, in respect of 21,165 customers and Sumo Gas, there were 35 contraventions, in respect of 35 customers. While the underlying conduct is substantially the same for Sumo Power and Sumo Gas, the contraventions took place over a longer time frame than the incorrect check contraventions.
(c) All of the contraventions arose from coding errors made by an offshore software developer, in circumstances where there was inadequate oversight and quality assurance by Sumo’s senior management of that work.
(d) Although there is no identifiable financial harm to consumers or financial gain by Sumo, the penalties should reflect that the BOM obligations are intended to provide customer with information to assist them to switch and save on their energy plans.
(e) The penalty should be sufficient to incentivise Sumo and other retailers to invest in the necessary IT and compliance infrastructure to avoid future contraventions; however, it is also relevant to take into account the material improvements made by Sumo to its compliance systems generally and specifically with respect to IT systems and best offer messages.
(f) Sumo’s significant cooperation and early admissions of liability (which is a material mitigating feature).
(g) Sumo’s relatively small size (by the standards of energy retailers), market share and financial position.
Other relief orders
Adverse publicity orders: s 54F
The Proposed Final Orders provide that Sumo Power and Sumo Gas will publish corrective notices in the Age and the Herald-Sun newspapers, and also on the Sumo website.[104]
[104]See above [54]-[58] for the relevant legal principles.
The notices are intended to inform the public of Sumo’s wrongdoing and the penalties imposed, including other relief granted and Sumo’s enforceable undertaking, and about the BOM obligations and other related consumer rights and remedies.
The benefits of such an order have been addressed above.[105]
[105]See above [163].
Preventative order: s 54G(2)(b)
The Proposed Final Orders provide for orders under s 54G(2)(b) for each of Sumo Power and Sumo Gas, within three months of the date of the order, to set up a quality assurance system, to conduct an independent verification of the calculations for the ‘deemed best offer checks’ within the meaning of cl 3 of the ERCOP, when issuing a deemed best offer message to a new customer, for a period of 3 years.
The Proposed Final Orders further provide that:
(a) the verification referred to above must be:
(ix)conducted by an employee other than the General Manager, Compliance; and
(x) overseen by the General Manager, Compliance; and
(b) each of Sumo Power and Sumo Gas must maintain records of the verification referred to and must make those records available to the Commission on request.
The Parties submit that there is a direct connection between the contravening conduct and the system of verification required to be implemented, and the terms of that requirement are expressed with sufficient clarity. The Parties otherwise submit that a quality assurance system is particularly warranted in light of the additional reported contraventions (not the subject of these proceedings) that Sumo has disclosed to the Commission more recently.
Costs
As was the case with the D2D Proceeding, the Parties have agreed to an order that Sumo Power and Sumo Gas pay $100,000 by way of contribution to the Commission’s costs of, and incidental to, the BOM Proceeding.
The Court’s approach where relief is agreed
The proper approach to civil regulatory orders which are sought by agreement was confirmed by the High Court in Commonwealth v Director, Fair Work Building Industry Inspectorate.[106] The High Court plurality referred to the:
…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. … [S]uch predictability 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.[107]
[106](2015) 258 CLR 482.
[107]Ibid 504 [46].
Their Honours went on to state:
… 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 and therefore impose the proposed penalty.[108]
[108]Ibid 507 [58] (emphasis in original).
The plurality also observed that a further reason for the Court to act on such submissions is that they are advanced by a specialist regulator able to offer ‘informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance’, albeit that such submissions will be considered on the merits in the ordinary way.[109]
[109]Ibid 508 [60]-[61].
It has also become the common practice of Australian courts to grant declaratory relief on the basis of agreed facts and admissions in areas of public interest.[110] It is similarly appropriate for the Court to make contravention orders on the basis of agreed facts and admissions.
[110]See ASIC v MSY (n 82) [11]-[27]; Australian Securities and Investments Commission v Commonwealth Bank of Australia [2020] FCA 790, [12]; Australian Securities and Investments Commission v Mercer Superannuation (Australia) Ltd [2024] FCA 850, [62]-[71].
Conclusion
The Court has had the benefit of the SAFA in each proceeding and the Joint Submissions. Having reviewed the SAFA in each proceeding and the Joint Submissions, the Court is satisfied as to the accuracy of the SAFA in each proceeding and that the relief proposed by the Parties jointly is an appropriate remedy and consistent with relevant principles. In reaching that conclusion the Court has had regard to the Joint Submissions and considers that the mandatory considerations required to be considered under the ESC Act have been taken appropriately into account along with such of the ‘French factors’ as are relevant.
It is important to bear in mind that the Proposed Final Orders have been sought jointly by the Commission and Sumo and that the Proposed Final Orders in each proceeding should be considered as an agreed whole in each proceeding. It is noted that the civil penalty of $7 million in the D2D Proceeding and $3 million in the BOM Proceeding represents a very substantial monetary impost in the circumstances of the financial position of Sumo Australia. This coupled with the other elements of the Proposed Final Orders, which include a contribution of $100,000 in each proceeding to the Commission’s costs, along with Sumo’s required contribution under the EU of $800,000 and an injunction in the D2D Proceeding, will have a significant and appropriate deterrent effect both to Sumo and to others.
In the circumstances, I will make the orders sought in the Proposed Final Orders in both the D2D Proceeding and the BOM Proceeding.
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