Sest, I.R. v Copperart P/L

[1989] FCA 239

SEST v COPPERART PTY LTD AND ORS
Number of pages - 9
Trade practices - false or misleading advertising
(1989) ATPR 40-945

COURT

IN THE FEDERAL COURT OF AUSTRALIA

KEELY J

CATCHWORDS

Trade practices -false or misleading advertising -Trade Practices Act 1974, ss 53(e); 79(1)(a), (d).

HEARING

Hearing date unavailable. #DATE 9:5:1989 #ADD 8:1:1997

Counsel for prosecutor: Mr T. Ginnane

Solicitors for prosecutor: DPP (Cwlth)

Counsel for defendants: Mr M. Derham

Solicitors for defendants: Baker and McKenzie

ORDER

Defendants convicted on each charge.

JUDGE1

KEELY J 1. In July 1988 nine informations were laid by Ivan Richard Sest, who was at that time an officer of the Trade Practices Commission ("the Commission") against the defendants; three informations are against Copperart Pty. Ltd. ("Copperart"), which, at the time of the offences, was named Second Mountain Gate Nominees Pty. Ltd.; two against Laddeton Nominees Pty. Ltd. ("Laddeton") and four against Aart Van Roest. Four informations -two against each corporation -alleged that it had committed offences against sec. 79(1)(a) of the Trade Practices Act 1974 ("the Act") in that, in contravention of sec. 53(e) of the Act, it did in trade or commerce, in connection with the supply of goods make representations with respect to the price of the goods which were false; another information, against Copperart, alleged that the representation was misleading. The informations against Mr Van Roest alleged that he had committed offences against sec. 79(1)(d) of the act in that he was directly knowingly concerned in two of the contraventions by Copperart and in two of the contraventions by Laddeton.

1. These matters, which have been heard together by consent, came on for hearing before the Court on 11 April 1989. Mr Timothy Ginnane, of counsel, appeared for the prosecutor and Mr Mark Derham, of counsel, for the defendants. The defendants, through their counsel, entered pleas of guilty to each charge, and then, by consent, an order was made that 34 informations against the defendants be with drawn with no order as to costs. After Mr Ginnane had referred the Court to various documents tendered in evidence, the further hearing of the nine informations was adjourned, by consent, until 19 April 1989 to enable affidavits to be filed and served, pursuant to O. 49 r. 5 of the Federal Court Rules.

2. The prosecutor filed affidavits by himself and by Russell John Curnow, who was employed as general manger, retail, with Copperart from December 1985 until January 1987, which period included the dates of the offences. The defendants filed an affidavit by Aart Van Roest, made on his own behalf as to his four offences and on behalf of Copperart and Laddeton as to the three and two offences by them, respectively. He is now -but was not at the time of the offences -a director of each of those companies and was authorised by them to make the affidavit. Each deponent was crossÐexamined at some length and two witnesses gave short oral evidence on behalf of the prosecution. I agree with Mr Derham's comment in final address that "a good deal of the material that has been in issue between the parties is ... essentially not relevant to a consideration of the penalty". Where it has been necessary to resolve a conflict of evidence, evidence adverse to a defendant has only been accepted where I have been satisfied beyond reasonable doubt.

3. The defendant Laddeton carried on business as a whollyÐowned subsidiary of Copperart and at the time of the commission of the offences owned a substantial number of stores throughout Australia. Copperart imported from various countries decorative and functional products, including goods which are mainly brass or copper. At the time of the commission of these offences it carried on business through a large number of stores, Australia wide, which were operated either by Copperart or by franchisees. Under crossÐexamination mr van Roest said that Copperart has a turnover of about $40Ð$50 million each year and currently employs between 500 and 600 people. In earlier evidence Mr Van Roest, when asked whether Copperart "turns over many millions of dollars" had answered "several millions, that is correct, yes". That answer was untrue and in my opinion was intended by him to mislead the Court.

4. As to his credibility as a witness, it is convenient to make three other comments at this stage. One is that I also reject as untrue his evidence that Mr Sest and another officer of the Commission came to visit him at the Bayswater office in late March or early April 1987; I accept the evidence of Mr Sest that no such meeting took place. The second is that he gave unsatisfactory evidence as to the way in which he had ascertained that the prices at which goods, similar to those of Copperart, were selling at the stores he visited as part of his research. The third is that he was less than candid on other matters. His evidence as to his understanding of the meaning of the words "recommended retail price" was quite unsatisfactory. In the course of lengthy crossÐexamination, he accepted that he could not determine what was the recommended retail price of similar goods in competitors' stores and that the difference between the recommended retail price and the price at which goods were sold in stores is "a very big difference".

5. The offences arose out of three sales campaigns, carried out in the months of August, September and October, respectively, of 1986. Those three sales campaigns have been referred to in the hearing as the "Save a Bundle Sale", the "50% Off Sale" and the "No Nonsense Half Price Sale" respectively. The campaigns included television advertising in Victoria and New South Wales and price labels or tickets attached to goods in stores in Croydon (Victoria) and Eastwood (New South Wales).

6. Some brief details relating to the offences should be set out before dealing with the submissions as to penalty. I deal first with the four informations relating to the "Save a Bundle Sale". Informations Nos. VG 270 and 272 of 1988 relate to Copperart's television advertisement in Melbourne on 25 August 1986 and to Mr Van Roest being directly knowingly involved in that contravention by Copperart. Evidence was given of the contents of the television advertisements. It included the words "get ready for big savings at Copperart's ÔSave a Bundle' Sale ... You're guaranteed big dollar savings on every item" (emphasis added). That statement was false. The goods the subject of the savings claimed in the television advertisements were various vases and a decanter.

7. The charge in No. VG 280 relates to the false representation made by Laddeton in the Croydon store in Victoria and the information in No. VG 282 relates to Mr Van Roest's being directly knowingly concerned in that contravention. The goods displayed for sale in the Croydon store were a Diane planter, a planter and a towel rack. The price labels on those items claimed that the prices represented a saving of $1, $2 and $10 respectively. Those claims were false.

8. The information against Copperart in No. VG 287 of 1988, related to a misleading representation in a television advertisement, shown on TCN Channel 9 Sydney on 11 September 1986. The particulars included the following: "... (g). The representation contained the following statement: ÔALL OTHER PRODUCTS IN STORE HALF RECOMMENDED RETAIL PRICE'. ... (i). The representation was misleading in that ... the price of other products was not half the recommended retail price ... in the case of Ð Helicopter ... African Violet ... Fuchsia ... Candle Holder ... Vase 10" ... Unicorn ... Door Knocker ... Cigarette Holder/Ashtray ... Toy -Boys Fishing ... Fire Tools ... Toy -Halloween ... Table -two tier ..."

9. On the evidence the representation was misleading. In addition, I reject the suggestion that it was the intention of Copperart, or of Mr Van Roest, in the representation that products were for sale at "half recommended retail price", to convey to potential purchasers that the half price meant half the retail price at which those particular items were being sold in competitors' stores. The only other meaning that could have been attributed by Copperart or by Mr Van Roest to the words "half recommended retail price" was that suggested by him under crossÐexamination. He appeared to suggest in his evidence, which was both unsatisfactory and unconvincing, that the expression "half recommended retail price" referred to the recommended retail price set by the manufacturers in countries such as China, India, Korea and Taiwan during the course of negotiations as to purchase price. I am prepared to assume that some overseas manufactures, in negotiating a price for the sale of goods to Copperart, stated the prices at which the particular items were selling in other countries; however, on his evidence I do not accept that Mr Van Roest that those prices were the recommended retail prices for Copperart stores in Australia.

10. Information Nos. VG 289 and 293 of 1988 are against Copperart and Mr Van Roest respectively, and relate to a false representation in a television advertisement, shown on GTV Channel 9 Melbourne on a day between 5 and 18 October 1986, for a sale called the "No Nonsense Half Price Sale". The particulars in No. VG 289 of 1986 included the following: "(c) The representation was false in that ... the said goods were not ... reduced in price by the amount represented in the case of the following goods: ToyÐPiano with Man ... Eagle ..."

11. The words used included "Copperart, the only gift store in Australia where everything in stock is marked down to genuine no nonsense half price value ... EVERYTHING" (emphasis added). On the evidence the representation as to the two prices was false. The charge in No VG 293 of 1988 is that Mr Van Roest was directly knowingly concerned in the contravention the subject of the information No VG 289 of 1988.

12. Information No VG 303 of 1988 related to a false representation in a Copperart store in Eastwood, New South Wales, owned by Laddeton. The particulars included the following: "(b) The representation consisted of exhibition in the store window signs, posters, shelf signs and also price tickets attached to goods at the store on the 28th day of October 1986 which stated: (i). ÔALL our prices 50% off regular prices' (ii). Ô50% off' (iii). Ô50% off regular prices'
    

(c). The representation was false in that ... the price at which the goods had been previously offered for sale ... was not reduced ... in the case of the following goods: ... Description ... Rocking Horse ... Brass Eagle ... Chair Brass Finish ... Helicopter ... Candle Holder"

1. On the evidence the representation as to prices was false.

1. The information in No. VG 307 of 1988 related to the offence by Mr Van Roest in being directly knowingly concerned in the contravention the subject of No VG 303 of the 1988. In his final address Mr Derham said that it was not disputed that Mr Van Roest was directly knowingly involved in all of the contraventions to which he has pleaded guilty.

2. I accept Mr Derham's submission that, in determining the appropriate penalty in dealing with matters Nos. VG 280 and 282 of 17. the Court must confine its consideration to the false representation made in the Croydon store and that in matters Nos 303 and 307 of 1988 it is similarly confined to the Eastwood store. There is no evidence of false representations made in any of the other stores throughout Australia. As tot he television advertising I accept his submission that the Court must only consider the three occasions -25 August 1986, 11 September 1986 and a date in the period 18. October 1986.

3. Mr Derham submitted that, although each defendant admitted "that what they were saying and doing was false", a question arises as to whether they "should have ... so clearly appreciated that [it] was false". In another part of his address in mitigation of penalty, he sought to persuade the Court that the defendants did not intend to make a false or misleading representation. He asked, rhetorically, "is this a straight plain lie" -seeking to contrast it with what he called the "straight plain lie" in Hartnell v. Sharp Corporations of Australia Pty. Ltd. (1975) ATPR 40-003; 5 ALR. 493. On the evidence Mr Derham's question must be answered "Yes". It may be added that Mr Van Roest accepted that the advertisements of "savings" on the "recommended retail price" were designed to induce potential customers to believe they would be "getting a good deal" because the prices were less than the recommended retail price; the evidence shows that the companies spent large amounts of money in their endeavour to mislead potential customers into believing that they were being offered such savings. I find on the evidence that each defendant was aware of the falsity of the representation in each case.

4. Mr Derham also submitted that the statements were the "usual sort of puffery which [customers become] accustomed to hearing on television and seeing". I am not prepared to accept that the majority of the potential consumers would have regarded the advertisements as "puffery". In any event, whatever might have been said in the past as to "puffery", the Act has laid down standards which are to be observed, under penalty of exposure to heavy penalties. As far back as 1975 Smithers and Evatt JJ.., in Hartnell (supra at ATPR p. 17, 21. ALR. p. 500), referred to the standard of commercial morality which is required by reason of the terms of the Act. The defendants were well aware of the existence of the Act and of their obligations as to advertising; Mr Van Roest said "I have read the pink volume on many occasions".

5. On the question of penalty, both counsel cited the decision of the Australian Industrial Court in Hartnell (supra), as well as other cases relating to penalties under the Act. In that case Smithers J., with whose reasons for judgment Evatt J. agreed, made the following observations (at ATPR p. 17,110; ALR. p. 497), which have been quoted in a number of decisions of this Court: "To fix a penalty a number of matters have to be considered. First, the importance of untrue statements and the departure from standards, secondly, the degree of wilfulness or carelessness in the making of these statements; thirdly the degree that the statement departs from the truth; fourthly the degree that the statement has been disseminated.
   

Next, what efforts have been made to correct the situation; finally we have to look at it in the context of the Act and to consider the deterrent effect of any penalty that we must impose".

1. In Trade Practices Commission v Stihl Chain Saws (Aust.) Pty. Ltd. 24. ATPR 40Ð091 at p. 17,896 Smithers J., in fixing a penalty under Pt IV of the Act, said: "The penalty should constitute a real punishment proportionate to the deliberation with which the defendant contravened the provisions of the Act. It should be sufficiently high to have a deterrent quality, and it should be kept in mind that the Act operated in a commercial environment where deterrence of those minded to contravene its provisions is not likely to be achieved by penalties which are not realistic. It should reflect the will of Parliament that the commercial standards laid down in the Act must be observed, but not be so high as to be oppressive".

1. The passsage was quoted by the Full Court (Smithers, J.B. Sweeney and Northrop JJ.) in Pye Industries Sales Pty. Ltd. v Trade Practices Commission (1979) ATPR 40-124 (at p. 18,325) and by Franki J. in Temperley v Playground Supplies Pty. Ltd. (1980) ATPR 40-164 (at p. 26., as being equally relevant to the question of fixing a fine for an offence under Pt V of the Act. I respectively agree with and adopt that passage, and emphasise, for present purposes, the references to "deliberation" and to "deterrence".

2. In my opinion each of the nine contraventions is a serious one and must incur a substantial fine; it is appropriate that those imposed on Laddeton be much less than those on Copperart. I am satisfied that Copperart's representations would, on Mr Van Roest's evidence, have been viewed my many thousands of persons. There is no evidence as to the number of persons who entered the stores at Croydon and Eastwood respectively on the day of each offence but, for the purposes of fixing the fines on Laddeton, I assume in its favour that the number of such persons would be a smaller proportion of the number of persons who viewed each of the television advertisements.

3. As to the fines to be imposed upon Mr Van Roest, he accepted in his evidence that he was "the driving force" on the sales side, including the advertising of the products; in his affidavit he stated "that the final pricing of the products was, subject to maintaining the margins set by the Board of Directors, left to my discretion". Mr Derham, in final address, accepted that Mr Van Roest's "final approval was necessary for these advertisements to go ahead as they were" but pointed out that others were involved who have not been charged with offences. He refrained from submitting that any of the defendants lacked the means to pay the fines.

4. The maximum fine for each of the offences by Copperart and by Laddeton is $100,000 and for each of the offences committed by Mr Van Roest it is $20,000. It is noted that each of those amounts is double the amount of the maximum which was applicable a few months before the offences were committed in 1986; doubtless the Parliament, in doubling the amounts in nominal terms, intended to make it clear that the maximum fines prescribed were no longer adequate, having regard to the effect of inflation and other relevant factors. The maximum fine is, of course, reserved for the worst type of case in respect of which that fine could be imposed.

5. In mitigation of penalty I have taken into account the fact that there is no evidence that any of the defendants has previously contravened the Act. In addition to the matters previously referred to, I have also considered certain other matters, advanced on behalf of the defendants, which, stated briefly, were: (1). that there was on substratum of facts which, in a sense, gave rise to the four informations Nos. VG 270, 272, 280 and 282 of 1988. in that they all related to the "Save a Bundle Sale", two as to the television advertisement on 25 August 1986 two as to the price labels or tickets on goods in the Croydon store on or about 26. August 1986;
   

(2). that the informations only relate to a small number of items out of a "great many other products on sale";

(3). that the price list of 28 July 1986 is not the subject of the charge;

(4). that it is not relevant, save as to the intent of the company or Mr Van Roest, to consider how the higher price was ascertained;

(5). that margins were cut and that the prices advertised represented real savings to the customers -although not as great as those conveyed by the advertisements;

(6). that there was no evidence of any complaints by customers;

(7). that the "Save a Bundle Sale" yielded no profit to Copperart, notwithstanding the evidence of increased turnover;

(8). that "in the wider picture, the representations are not so untrue in the underlying message as to constitute some gross falsity".

1. Mr Derham also submitted that the defendants have all taken the proceedings seriously and gone to considerable expense to put material before the Court and said that accordingly the proceedings have already had a deterrent effect. In my opinion the defendants can gain little assistance from that matter; they should have treated the Act seriously and refrained from committing the offences.

1. Mr Derham accepted that he could not ask the Court to treat the television advertisements as having occurred on an isolated occasion or as being a "oneÐoff mistake" or aberration. He also accepted that there is a conflict of evidence as to whether there were "efforts to correct the situation"; on that question I accept Mr Curnow's evidence and reject that of Mr Van Roest.

2. I also reject Mr Van Roest's affidavit evidence that it was his belief: "that the consumer knew that Copperart was a discount store and that a reference to half recommended retail price would be taken to be a reference to half the price at which most other retailers regularly offered the goods for sale ... I now see that it is at least ambiguous".

3. As noted earlier in these reasons, there were three sales campaigns, conducted respectively in August 1986, September 1986 and October 1986, which campaigns had different names. On the evidence I am not able to uphold Mr Derham's submission that all nine informations had "the same or common substrata of facts" and that the penalties should reflect that fact. I have also considered the provisions of sec. 79(2) of the Act and have concluded that they do not apply because, in respect of each defendant, the contraventions did not occur "at or about the same time".

4. After forming a provisional opinion as to the amount of each fine, I considered whether the total amount of the fines for each defendant was appropriate, having regard to its or his conduct as a whole, and applied the principle that the total amount of the proposed fines in respect of each defendant must not be "so high as to be oppressive" (Stihl Chain Saws at p. 17,896); as a result those provisional amounts were reduced. I am satisfied that in each case the amount of the fine opposed is not oppressive having regard to the evidence. In my opinion, having regard to the factors referred to in Hartnell (supra at ATPR p. 17,110; ALR. p. 500) and in Stihl Chain Saws (supra at p. 36., they are the appropriate fines in the light of the facts disclosed by the material before the Court, including the evidence of Mr Van Roest.

5. I have fixed fines for Mr Van Roest which are 20% of those fixed for Copperart, bearing in mind that the maximum fine for him is 20% of that for Copperart. The remaining two fines are figures somewhat higher than 20% of those fixed for, but are fully justified, in my opinion, having regard to the evidence as to his role.

6. I convict Copperart on each charge and impose the following fines: In respect of VG 270 of 1988 the sum of $30,000;
   

In respect of VG 287 of 1988 the sum of $20,000; and In respect of VG 289 of 1988 the sum of $25,000, making a total of $75,000 and I also order Copperart to pay the costs of the prosecutor in each matter.

1. I convict on each charge and impose the following fines: In respect of VG 280 of 1988 the sum of $6,500; and

In respect of VG 303 of 1988 the sum of $8,500, making a total of $15,000 and I also order to pay the costs of the prosecutor in each matter.

1. I convict Aart Van Roest on each charge and impose the following fines: In respect of VG 272 of 1988 the sum of $6,000;

In respect of VG 293 of 1988 the sum of $5,000; In respect of VG 282 of 1988 the sum of $1,500; and In respect of VG 307 of 1988 the sum of $2,000, making a total of $14,500 and I also order Aart Van Roest to pay the costs of the prosecutor in each matter.

1. In accordance with O. 35 r. 5 of the Federal Courts Rules I order that in each case the defendant pay each fine to the Registrar of the Court within 21 days.