Mathews, R.G.H. v Reinecker, B

[1994] FCA 56

SS , 79

JUDGMENT No. .......,..,,,,,.., ...,,,,,,,,. I

C A T C H W O R D S

TRADE PRACTICES - restrictive trade practices - contracts, arrangements or understandings to substantially lessen competition - attempt by tour booking agent to arrange a boycott of a discount tour booking agent by tour operators - attempt by tour booking agent to arrange a boycott by other tour booking agents of tour operators who dealt with discount tour operator

- pecuniary penalty and injunctive relief sought - relevant
factors in establishing appropriate pecuniary penalty -

undertakings offered in place of injunctive relief.

Trade Practices Act 1974 ss. 45(2)(a)(ii) and 76(1B)

Trade Practices Commission v Pioneer Concrete (Vie! Ptv Ltd

11985) ATPR 40-590 , - . . - , - - - - - - - - - - -

Trade Practices Commission v Culley (1983) ATPR 40-399
Trade Practices Commission v Tubemakers of Australia Ltd (1983)

ATPR 40-390	!
Trade Practices Commission v Parkfield Ouerations Ptv Limited

(1985) ATPR 40-639	I
i

Trade Practices Commission v Patterson Chenev Pro~rietarv	LinritEd
(19901 ATPR 41-059	.
Trade Practices Commission v J.J. and Y.K. Russell Ptv Limited

(1991) ATPR 41-090.

11 FEBRUARY 1994

TRADE PRACTICES COMMISSION V. RAFFAELE CARAVELLA & ANOR.

No. PG 108 of 1992

SPENDER J.
CAIRNS

IN THE FEDERAL COURT OF AUSTRALIA	1
QUEENSLAND DISTRICT REGISTRY	) No. QG 108 of 1992
GENERAL DIVISION	1

BETWEEN:  TRADE PRACTICES COMMISSION

Applicant

AND :  Raffaele CARAVELLA

First Respondent

AND :  Leiah JOHNSTON

Second Respondent

MINUTES OF ORDER

JUDGE MAKING ORDER:	Spender J.
DATE OF ORDER:	11 February 1994
WHERE MADE:	CAIRNS
THE COURT ORDERS THAT:

1.   The first respondent pay by way of pecuniary penalty

for the contravention of S. 45(2)(a)(ii) of the Trade

Practices Act 1974 the sum of $5,000.

2.   The first respondent pay one half of the costs of the applicant, to be taxed if not agreed.

3 . The second respondent pay by way of pecuniary penalty for the contravention of S. 45(2)(a)(ii) of the Trade Practices Act 1974 the sum of $500, to be paid within

four weeks of today's date.

4.   There be no order as to costs in relation to the second respondent.

NOTE:	Settlement and entry of orders is dealt with in Order
36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA	1
DUEENSLAND DISTRICT REGISTRY	) No. QG 108 of 1992
GENERAL DIVISION	1

BETWEEN:  TRADE PRACTICES COMMISSION

Applicant

AND :  Raf f aele CARAVELLA

First Respondent

AND :  Leiah JOHNSTON

Second Respondent

CORAM:	Spender J.
PLACE :	Cairns

W: 11 February 1994

REASONS FOR JUDGMENT

This is an application by the Trade Practices Commission

('the Commission') for injunctions and penalties in respect of

contraventions of s . 45 (2) (a) ( ii) of the Trade Practices Act 1974

('the Act') against the first respondent, Raffaele Caravella, and the second respondent, MS Leigh Johnston. The primary facts are not substantially in dispute although there are some factual conflicts in the evidence which require resolution.

The Commission's case centres on its allegation that

each of the respondents was involved and knowingly concerned in

a contravention of S. 45(2)(a)(ii), which relevantly provides:

" A corporation shall not -

(a) make a contract or arrangement, or arrive at an understanding, if -

. . .

(ii)  a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to

have the e f f ec t , o f s u b s t a n t i a l l y
l e s s e n i n g c o m p e t i t i o n ;

. . .

Also important is S. 76 which relevantly provides:

" I f the Cour t i s s a t i s f i e d t h a t a person -

h a s contravened a p r o v i s i o n o f Par t IV;

S . .	( a )
( e ) h a s been i n a n y way, d i r e c t l y or

i n d i r e c t l y , knowing l y concerned i n , or

p a r t y t o ,	the c o n t r a v e n t i o n by a person	o f
such	a	p r o v i s i o n ;

the Cour t may o r d e r the person	t o p a y	t o the
Commonwealth	such pecun ia ry p e n a l t y ,	i n r e s p e c t

o f each a c t o r omi s s ion by the person t o which

th is s e c t i o n a p p l i e s , a s the Cour t d e t e r n i n e s t o

be	a p p r o p r i a t e	h a v i n g	regard	t o	a l l	r e l e v a n t
m a t t e r s	i n c l u d i n g the	n a t u r e	and	extent	o f	the

a c t o r omi s s ion and o f a n y l o s s o r damage

s u f f e r e d a s a r e s u l t o f the a c t or o m i s s i o n , the

c i r cums tances i n which	the	a c t or o m i s s i o n	t o o k
p l a c e	and	whether the person	h a s p r e v i o u s l y been

found by the Court i n proceed ings under th is

P a r t t o have engaged i n a n y s i m i l a r conduc t . "

I have had regard to the matters outlined in S. 76 and

note, at this stage, that neither of the respondents has

previously been found by the Court to have engaged in conduct	similar to that revealed by the evidence and admissions in this
case. The pecuniary penalty for breach of S. 76 by an individual contained in S. 76(1B) which provides:

" The pecun ia ry p e n a l t y payable under s u b s e c t i o n

( 1 ) by a person o t h e r t h a n a b o d y c o r p o r a t e i s

n o t t o exceed $500,000 f o r each a c t or omi s s ion

t o which the s e c t i o n a p p l i e s . "

However, that amount was inserted in January 1993. At the time of the conduct the subject of this application the maximum pecuniary penalty payable by a person, other than a body corporate, was $50,000. The significant increase in pecuniary penalty, and its earlier high limit, underline the seriousness of breaches of S. 45 in the view of the legislature. However, what is an appropriate penalty in a particular case depends on all the circumstances applicable to that case.

It is for this reason that while assistance can be gained by looking to the facts and penalties imposed in other cases, at the end of the day the determination of an appropriate penalty involves looking at the objective circumstances surrounding any proved contravention, and then having regard to the subjective factors of each contravener. This makes it possible to reach a penalty which not only gives effect to the policy behind the Act and to the seriousness with which contraventions of the Act are viewed, but also to what is fair and just having regard to the subjective circumstances of each contravener.

The application also sought, in addition to the

imposition of pecuniary penalties, injunctions pursuant to S. 80

of the Act. I will touch on the question of injunctions later

in these reasons.

Mr Caravella carries on business as a tourist hostel operator under the registered business name of "Caravella's

Backpackers" ('the hostel') from premises at 149 The Esplanade,

Cairns, in the State of Queensland. The evidence, so far as it

goes, establishes that Mr Caravella is the half owner of the

hostel and also has a small share in another hostel in Cairns.

The hostel provides backpackers accommodation. The standard of	. .
accommodation is not five star, to put it mildly, but he does have an interest in the operation of the businesses and that circumstance distinguishes his position from that of the second respondent who is an employee on fixed wages. The evidence shows that her remuneration is not by way of commission, so that there was no immediate personal benefit which would have accrued to her should the conduct in which she was involved have succeeded in its anti-competitive purpose.
At the relevant time, the second respondent worked fixed hours and was earning net $428.30 per week. She is now 29 years of age. She lives in a de facto relationship. She has no previous convictions, nor has she come to the attention of the Commission on any prior occasion. She has a good work history. She has been in stable employment for a number of years, and she is in the process of paying off a house with her de facto husband, Richard Slack. There are no dependents of that
relationship. In September 1992, she was involved in an accident

in which she suffered severe injuries and this accident has had
serious personal consequences.

The circumstances of her involvement in the conduct the subject to these proceedings are highly relevant to the quantum of pecuniary penalty that the court should impose. The business in which she was employed operated as a tour booking agency business under the name "Esplanade Tours" from premises at 75 The Esplanade, Cairns.

At the time with which this application is concerned,

filr Peter Tibbs was the managing director of DiveTeach Proprietary

Limited, a corporation within the meaning of the Act, which carried on business as a tour dive instructor and operator from premises at the Tobruk pool under the name, "Peter Tibbs Scuba School".

M r Peter Boundy was the managing director of Decretum

Proprietary Limited, a corporationwithin the meaning of the Act, which carried on business at 135 Abbott Street, Cairns under the name "Cairns Dive Centre".

Wayne Ronald Inglis, until June 1992, was in partnership with Mr Alexander Chisholm, carrying on business as a tour operator at 50 Pease Street, Manunda, Cairns, under the name "Rum Runner Charters". Since 1 July 1992, Mr Inglis has been the managing director of Rum Runner Proprietary Limited, carrying on business from the address when that business had previously been carried on in partnership by Mr Inglis and Mr Chisholm.

The complainant, if one may refer to him as that, in these proceedings is Mr David Manzoni who operated two tourist hostel businesses: "Bel-Air" Hostel at 155-157 The Esplanade, Cairns, and "Trinity Village" at 53 Vassey Esplanade, Trinity Beach, Cairns, which provide, inter alia, hostel accommodation for tourists and a tour booking service for tourists wishing to book tours with tour operators operating tours in and around Cairns.

I am satisfied on the evidence that for many years prior

to May 1992, when the events the subject of these proceedings - - -
occurred, it was the established practice of tour booking agents
and tour operators carrying on business in and around Cairns that
a tour booking agent would request from a tourist wishing to book
a tour with a tour operator a deposit based on a percentage of
the advertised price of the tour, such deposit being retained by
the booking agent as a commission for the provision for the tour
booking service. The amount of the deposit requested and
retained as commission was, with few exceptions, 10 per cent of
the advertised price of the tour concerned. On those occasions
where the deposit retained as commission was not 10 per cent, it
was usually greater than 10 per cent of the advertised price.

From about 1 May 1992, Australian Ultimate Discount Proprietary Limited ('AUD'), a company which employed Mr Manzoni as business manager, commenced business as a tour booking agent at premises at Suite 7, 68 Abbott Street, Cairns. In carrying out its business as a tour booking agent AUD proposed to offer

prices, by retaining as commission a deposit of only 5 per cent	to book tours for tourists with tour operators at discount
of the advertised price of the tour concerned, rather than the usual 10 per cent.
These proposals caused a great deal of concern amongst tour booking agency businesses in the Cairns area. I am satisfied that on 6 May, Mr Caravella told Mr Manzoni of his concerns and I am satisfied, notwithstanding 1-k Caravellafs protestations, that he communicated to Mr Manzoni his intention to black list AUD. I am satisfied also that on or about 6 May the second respondent requested Mr Inglis to support The Esplanade Tours business and other tour booking agents in Cairns by refusing to accept bookings from AUD. I am satisfied that she invited Mr Inglis and Mr Tibbs to attend a meeting of tour booking agents and tour operators to be held in Magnum's International Food Hall, Cairns, on 7 May 1992. I am satisfied
that she told M r Inglis that the purpose of this meeting was to stop AUD from operating its tour booking agency business.
On 7 May 1992, there was a meeting of tour operators at Magnum's International Food Hall ('the meeting'). I accept the account of what occurred on that day given by Mr Inglis. I reject parts of the evidence of Mr Caravella as to his participation and involvement in the business of that meeting. I am satisfied that the second respondent did not attend the meeting. Approximately 30 tour booking agents and tour operators attended the meeting.
Contrary to Mr Caravella's assertions, I am satisfied that he had a significant part in the conduct of that meeting. It is admitted by Mr Caravella that he proposed an arrangement or an understanding to the representatives of tour booking agents and tour operators present at that meeting. The material elements of that arrangement or understanding were to the effect that: first, as from 7 May 1992, tour operators would not accept bookings from AUD; second, that tour operators would not book tours for tourists at prices which were discounted below the advertised price of the tour; and third, that as from 7 May 1992 tour booking agents would not make bookings with any tour operator which accepted bookings from AUD.
Subsequent to that meeting a petition was circulated by the second respondent, MS Johnston, and among the signatories to that petition, which is in evidence before me, was Mr Caravella. The statement of claim by the Commission asserted in paragraphs 42 and 43 that by engaging in the conduct referred to in enumerated paragraphs of the statement of claim, Mr Caravella and MS Johnston induced or, alternatively, attempted to induce tour booking agents and tour operators which carry on business in and around Cairns to make the arrangement or arrive at the under- standing of the kind proposed by Mr Caravella - to which I have earlier referred - in contravention of section 45(2)(a) of the Act.

M r Caravella, in answer to that claim admits that by

engaging in the conduct to which I have referred he attempted to induce tour booking agents and tour operators to make an

arrangement or arrive at an understanding in contravention of S.	45(2) (a) of the Act which conduct constitutes conduct of the kind
referred to in S. 76(l) (d) of the Act and S. 80(l) (d) of the Act.
The admission by the second respondent is more extensive, and she admits that she induced tour booking agents and tour operators to make an arrangement or arrive at an understanding to which I have referred.

I turn to the question of injunctive relief.

On 11 August 1992 the court acted on interlocutory undertakings offered on behalf of each respondent. -At the time of the trial of the application, further undertakings were offered to be binding for three years from 11 October 1993 in identical terms to those undertakings which had been offered on an interlocutory basis on 11 August 1992. I accept those undertakings, and therefore no injunction by the court is necessary.

The effect of the further undertakings offered by each respondent is as follows. First, each of them undertakes to the court that they will not give effect to any contract, arrangement, or understanding if a provision of the contract, arrangement, or understanding is to the effect that tour operators will not accept bookings from AUD.

Second, each respondent undertakes not to give effect to
any contract, arrangement, or understanding if a provision of

that contract, arrangement, or understanding is to the effect

that that booking agents will not allow discounts of commissions

earned in respect of bookings made on behalf of tourists with

tour operators carrying on business in and around Cairns.

Third, each respondent undertakes that they will not give effect to any contract, arrangement, or understanding if a provision of that contract, arrangement or understanding is to the effect that booking agents will not give any allowance or credit, such as reduced prices for accommodation, in respect of bookings made on behalf of tourists with tour operators carrying on business in and around Cairns, Queensland.

Fourth, the respondents also give undertakings not to give effect to a contract, arrangement or understanding if the effect of a provision of the contract, arrangement, or understanding is that booking agents will not make bookings on behalf of tourists with any tour operator carrying on business in Cairns who accepts bookings from AUD.

Fifth, the undertakings also extend to a contract, arrangement, or understanding the purpose or purposes of which include as a substantial purpose concerted action by tour operators or booking agents in relation to the business of AUD.

Finally, the undertakings extend to undertakings that neither of the respondents will publish or circulate any document suggesting that tour operators and booking agents agree as to the terms and conditions upon which or subject to which bookings are

to be made on behalf of tourists with tour operators.

Those undertakings, the seriousness of which has been communicated to the respondents by their legal representatives, indicate the seriousness and the nature of the provisions of the Act directed at the maintenance of competition which, in the long run, is in the interests of consumers of services such as those provided by booking agents.

Before turning to the question of penalty, it is convenient to touch briefly on the oral evidence before me. I

found Mr Manzoni to be a very unimpressive witness. If I can give just one example, he gave evidence concerning conversations he had with Mr Caravella on 6 May 1992. He claimed initially, on oath, that he had made notes of that conversation but that he could not subsequently locate those notes. Shortly after giving that sworn evidence he said that the notes that he made were "mental notes". He was wholly unimpressive and any matter or circumstance based solely on his evidence I do not accept as proved.

I have indicated earlier that I do not accept Mr Caravella's account of the extent of his involvement in the meeting. I accept the evidence of Mr Inglis, which I found truthful and reliable. Also I accept the evidence of Mr Boundy in that regard, although I acknowledge that there is a degree of bad blood between Mr Caravella and Mr Boundy, who has, since about 16 May 1992, not had his brochures displayed at Mr

Caravella's premises. Further, Mr Boundy, in my opinion, was in

error when he said that the second respondent was at the meeting. But as to the extent and nature of Mr Caravella's involvement in the meeting and in the proposals made at the meeting, which are at the core of this application, I accept the account given by Mr Inglis corroborated as it is in many respects by Mr Boundy.

I should indicate that I do accept, contrary to

Mr Caravella's evidence, that one of the matters he proposed at

the meeting was that tour operators working from hostels would not provide a benefit in the form of an extra night's free accommodation if a particular tour was booked through them. The position seems to me to be that Mr Caravella was, if not the ring leader, then a prime mover in the nature of the arrangement which was hoped to be put in place. However, subsequent to the meeting, it seems to me that the role of Ms Johnston was more of distributing the petition, getting signatures, and persuading people to take the line which had been proposed against AUD. I acknowledge that each of the respondents was concerned with the commercial realities of the increased competition in the market place caused by the entry of a discount operator into the market.

I now turn to the question of pecuniary penalties. At the trial, Mr Philip Hack, counsel for the Commission, said that the Commission was no longer contending that there was an inducement by Mr Caravella in contravention of S. 45 of the Act. The question of the pecuniary penalty in his case, therefore, is to be approached on the basis that his admitted conduct amounted to an attempt to induce. MS Johnston, on the other hand, has

admitted that her conduct constituted an inducement.

In addition to the factors specifically referred to in S. 76 one has to have regard to what, in fact, occurred at the time; what, in fact, was the damage, if any, suffered as a consequence; for how long the conduct impugning the Act was carried on; and then have regard to the personal circumstances of each of the contravener.

I accept that the ambit of the Act at the time of these matters was not well known in Cairns and that that is important for purposes of pecuniary penalty in the present proceedings. The serious consequences which can flow from contraventions of the Act should need no reinforcement or underlining. Conduct of the kind with which this application is concerned now carries a pecuniary penalty for a natural person of $500,000, and for a corporation, $10 million. The Act seriously addresses the question of competition in the market place, and persons who engage in conduct in contravention of it can expect serious penalties.

However, I accept that in this particular case, and notwithstanding the seriousness of the conduct engaged in, neither of the respondents was particularly sophisticated in terms of the legal environment within which business is to operate in general, nor were they aware in particular of the implications of the Act. Neither of them is wealthy. They are natural persons; not corporations. The scale of the business

conducted by M r Caravella is small. MS Johnston is a salaried

employee of a tour operator. I have already referred to her subjective circumstances. It seems to me of importance in her case to recognise that she is a woman of very limited financial capacity, and that what might seem to be a trivial penalty is, in her case, a real penalty.

In light of these considerations, I order that the pecuniary penalty to be paid by the second respondent be $500, to be paid within four weeks of today. The question of costs of the Commission is, of course, a real one but having regard to the second respondent's subjective circumstances, I do not make any order requiring her to pay any part of the Commission's costs.

So far as the first respondent is concerned, he was involved in business on his own behalf. In my view of the evidence, he had a prominent part to play in attempting a contravention of S. 45. His personal circumstances are different from those of the second respondent. However, like the second respondent, he is a natural person, who at the relevant time was not particularly sophisticated in his knowledge of the implications of the Act. While the evidence touching the financial capacity of the first respondent is sparse, I approach the assessment of pecuniary penalty in his case on the basis that he is not of other than moderate means.

It was submitted to me that he has been exposed to very

considerable trouble and expense concerning this matter already.

M r Caravella retained a solicitor and counsel from interstate in

However, any added cost that flows from that decision is not a	relation to the matter, as he, of course, is entitled to do.
matter which in my view should be considered in assessing the quantum of pecuniary penalty to be imposed nor the costs order that should be made against him. I also note again that I have to deal with him on the basis that the allegations sustained by the Commission is one of attempting to induce and not inducing breach of the Act.
Having regard to all of those matters, I order that Mr Caravella pay by way of pecuniary penalty for the contravention of S. 45(2) (a) (ii) of the Act the sum of $5000. I further order that he pay one half of the costs of the Commission, to be taxed if not agreed.
In relation to the quantum of pecuniary penalty, I have had regard to the facts and circumstances of a number of cases which were referred to me by Mr Walton, counsel for Mr Caravella. In particular, I refer to Trade Practices Commission v Pioneer Concrete [Vie) Ptv Ltd (1985) ATPR 40-590; Trade Practices Commission v Cullev (1983) ATPR 40-399; Trade Practices Commission v Tubemakers of Australia Ltd (1983) ATPR 40-390; Trade Practices Commission v Parkfield Ouerations Ptv Limited (1985) ATPR 40-639; Trade Practices Commission v Patterson Cheney Prourietanr Limited ( 1990) ATPR 41-059; and finally, Trade Practices Commission v J.J. and Y.K. Russell Ptv Limited (1991) ATPR 41-090.

Those cases are of assistance as to principle, but as I

have indicated already, the final determination of a pecuniary penalty has to reflect not only the objective circumstances of the conduct involved but the subjective circumstances of the actual participants or contraveners. Having regard to all of those matters, in my view, the pecuniary penalties I have set are appropriate.

I accept the undertakings offered to the court on the 11

October 1993.

I certify that this and the preceding

fifteen (15) pages are a true copy of the reasons for judgment herein of the Honourable Mr Justice Spender.

Associate M&

Date: 11 February 1994

Counsel for the applicant:	Mr P. E. Hack
instructed by:	Australian Government Solicitor

Counsel for the first respondent Mr M. Walton

instructed by:	Hickson, Lakeman & Holcombe
Solicitor for the second
respondent:	H. A. Mellick of Mellick,

Smith & Assoc.

Date of Hearing:  13 October 1993