Trade Practices Commission v Coo-On Gas Products Pty Ltd

[1985] FCA 138

Re: TRADE PRACTICES COMMISSION
And: COOK-ON GAS PRODUCTS PTY LIMITED; COOK-ON GAS PRODUCTS (S.A) PTY.
LIMITED; BARBEQUES GALORE PTY. LIMITED; THE BARBEQUE CENTRE PTY. LIMITED; JOHN
RICHARD WARREN PRICE; BARRY FREDERIC PHILLIS; MAXWELL GENE MASON and JOHN
MASON PASCOE
S.A. No. G.28 of 1984
Trade Practices
(1985) ATPR para 40 - 560

COURT

IN THE FEDERAL COURT OF AUSTRALIA
SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Fisher J.

CATCHWORDS

Trade Practices - application by Trade Practices Commission for penalty and injunction - contravention of s.45(2)(a)(ii) of the Trade Practices Act 1974 - contraventions admitted - restraining orders made by consent - question of penalty - circumstances in which contravention occurred - seriousness with which legislature views contraventions of Part 1V.

Trade Practices Act 1974 s.45 (2)(a)(ii) s.76

HEARING

ADELAIDE
#DATE: 4:4:1985

ORDER

1. The first respondent, Cook-on Gas Products Pty. Limited, the Second Respondent Cook-on Gas Products (S.A.) Pty. Limited, the Third Respondent Barbeques Galore Pty. Limited, the Fourth Respondent The Barbeque Centre Pty. Limited, the Fifth Respondent John Richard Warren Price, the Sixth Respondent Barry Frederic Phillis, the Seventh Respondent Maxwell Gene Mason and the Eighth Respondent John Mason Pascoe and each of them be restrained for a period of two (2) years from the date of this Order from making any contract or arrangement or arriving at any understanding which has or is likely to have the effect of fixing or controlling the prices for barbeque equipment contrary to the provisions of Section 45 of the Trade Practices Act 1974.

2. That the Fifth Respondent John Richard Warren Price be restrained for a period of two (2) years from the date of this Order from being in any way directly or indirectly knowingly concerned in or party to the First Respondent, Cook-on Gas Products Pty. Limited making any contract or arrangement or arriving at any understanding which has or is likely to have the effect of fixing or controlling or providing for the fixing or controlling of the prices for barbeque equipment contrary to the provisions of Section 45 of the said Act.

3. That the Sixth Respondent Barry Frederic Phillis be restrained for a period of two (2) years from the date of this Order from being in any way directly or indirectly knowingly concerned in or party to the Second Respondent Cook-on Gas Products (S.A.) Pty. Limited making any contract or arrangement or arriving at any understanding which has or is likely to have the effect of fixing or controlling or providing for the fixing or controlling of the prices for barbeque equipment contrary to the provisions of Section 45 of the said Act.

4. That the Seventh Respondent Maxwell Gene Mason be restrained for a period of two (2) years from the date of this Order from being in any way directly or indirectly concerned in or party to the Third Respondent Barbeques Galore Pty. Limited making any contract or arrangement or arriving at any understanding which has or is likely to have the effect of fixing or controlling or providing for the fixing or controlling of the prices for barbeque equipment contrary to the provisions of Section 45 of the said Act.

5. That the Eighth Respondent John Mason Pascoe be restrained for a period of two (2) years from the date of this Order from being in any way directly or indirectly knowingly concerned in or party to the Fourth Respondent The Barbeque Centre Pty. Limited making any contract or arrangement or arriving at any understanding which has or is likely to have the effect of fixing or controlling of the prices for barbeque equipment contrary to the provisions of Section 45 of the said Act.

6. That each of the respondents Cook-on Gas Products Pty. Limited, Cook-on Gas Products (S.A.) Pty. Limited, Barbeques Galore Pty. Limited, and the Barbeque Centre Pty. Ltd, pay a pecuniary penalty of $2,000 to the Commonwealth.

7. That each of the said respondents pay the amount of its pecuniary penalty to the Acting District Registrar of this Court within 2l days of this date.

8. That the respondents pay to the applicant the sum of $15,000 being its costs of these proceedings.

9. That there be liberty to speak to the Minutes of these orders.

JUDGE1

These are proceedings by the applicant Trade Practices Commission ("the Commission") against the respondents claiming against each respondent a pecuniary penalty and an injunction restraining them from contravening the provisions of s.45 of the Trade Practices Act ("the Act").

1. When the matter was called on for hearing the Commission applied for leave to discontinue its proceedings against the respondent Cook-On Gas Products (Australia) Pty. Ltd. and to amend its application and statement of claim. The remaining respondents (being the respondents presently named in the title to these proceedings) then applied to amend their defences to admit the contraventions alleged. The parties have agreed that I make orders restraining each of the remaining respondents from further contraventions and an order that they pay to the Commission the sum of $15,000 being its costs of the proceedings. I was informed at the commencement of the hearing that this amount had already been paid. The Commission then asked that I determine the appropriate penalty to be paid by each of the corporate respondents. It did not ask that I impose a penalty on those respondents who are natural persons.

2. It is appropriate that I make forthwith a finding on the pleadings that each of the remaining respondents arrived at an understanding that was likely to have had the effect of fixing or controlling the prices at or between which the respondents Barbeques Galore Pty. Limited and the Barbeque Centre Pty. Limited would sell barbeque equipment contrary to the provisions of s.45(2)(a)(ii) of the Act.

3. The relevant facts were placed before me in the form of an agreed statement and are in a narrow compass. They comprise the relevant matters which, together with an affidavit sworn by the respondent Pascoe, were the material upon which s.76 (1) of the Act requires me to determine the appropriate penalties. At the request of the parties I made an order dispensing with compliance by the Commission with the requirements of O 49 r 5 of the Rules of this Court. The relevant facts can be stated shortly.

4. The respondents Cook-On Gas Products Pty. Limited ("Cook-On") and Cook-On Gas Products (S.A.) Pty. Limited ("Cook-On (S.A.)") are wholesale suppliers of barbeque equipment in Australia and South Australia respectively. The respondents Barbeques Galore Pty. Limited ("Barbeques Galore") and The Barbeque Centre Pty. Limited ("Barbeque Centre") at the relevant time each carried on business as retail sellers of barbeque equipment in the Adelaide Metropolitan area. All of these respondents were trading corporations within the meaning of the Act. The respondent Price was at the relevant time a director of Cook-On and the respondent Phillis was a director and manager of Cook-On (S.A.). The respondent Mason was a director of each of these two companies as well as of Barbeque Galore. The respondent Pascoe was managing director of Barbeque Centre.

5. Cook-On supplied barbeque equipment to the retail traders, including Barbeques Galore. It also, as a wholesaler, distributed this equipment through agents and sub-distributors. Cook-On (S.A.) was the sub-distributor of Cook-On products in South Australia and supplied retailers including the Barbeque Centre but not Barbeques Galore. There are 7-8 specialist barbeque retailers, inclusive of Barbeques Galore and Barbeque Centre, in the Adelaide Metropolitan area and a number of mixed retail stores. Barbeques Galore at the relevant time had a retail market share of 20-25% and Barbeque Centre of 15-20%. The parties agreed that the relevant market was the retail market for barbeques in the Adelaide Metropolitan area.

6. Barbeques Galore was established as a retail outlet in Adelaide in mid 1977 and thereafter pursued a policy of "lowest price and best value" discounting, sometimes offering to "meet or beat" the prices of other retailers. In mid 1982 Barbeques Galore and the Cook-On group came "under the same corporate umbrella". Thereafter Barbeques Galore received supplies of barbeque equipment direct from Cook-On, and not through Cook-On (S.A.).

7. Throughout the latter part of 1982 retailers were generally dissatisfied with the state of the industry in Adelaide and in particular with what were perceived by them to be unfair marketing techniques. Much of this dissatisfaction was directed at Barbeques Galore which, after entering into close ties with Cook-On, advertised and sold Cook-On equipment at or near cost. I was informed during the hearing that by "cost" the parties meant the price at which retailers bought from the wholesaler Cook-On (S.A.). A number of retailers considered that Barbeques Galore had an unfair advantage as a result of its association with Cook-On and was thereby able to purchase from Cook-On at prices lower than those that they paid to Cook-On (S.A.). They felt that Barbeques Galore's action in selling at or near cost was "threatening to render the Cook-On range of products an unsaleable proposition for all but Barbeques Galore".

8. Numerous complaints were made to the respondent Phillis (as State Manager of Cook-On (S.A.)) by Adelaide retailers, including the respondent Pascoe on behalf of Barbeque Centre. As a result the respondents Mason & Price arranged to come from Sydney to Adelaide in an attempt to pacify the retailers and to deal with the poor level of margins for Cook-On products. Price agreed with Phillis that he should arrange a meeting of the major barbeque retailers, at which meeting both Mason and Price would be present. A booking was made at the Regal Park Motel for 5 January 1983 and Phillis invited Barbeque Centre, a retailer trading as Barbeque Bazaar and the retailer Harris Scarfe & Co. Ltd. to send representatives. Either Mason or Price requested Holdsworth, the manager of Barbeques Galore, to attend the meeting.

9. Prior to the meeting Phillis had prepared handwritten notes setting out various items of Cook-On equipment and a range of retail prices for each item. These were intended to be the subject of discussion and possibly the basis of an understanding as to the retail prices thereafter to be charged.

10. Those present at the meeting were Mason and Price on behalf of the Cook-On group from Sydney, Phillis as the Adelaide manager of Cook-On (S.A.), Pascoe and Nelson on behalf of Barbeque Centre, Holdsworth as manager of Barbeque Galore, and Kershaw and Callisto representing Harris Scarfe and Barbeque Bazaar respectively.

11. During the meeting there was much heated discussion concerning profit margins and the unfair advantage which the retailers' representatives believed Barbeques Galore was receiving. It was proposed that the corporate respondents agree upon a range of retail prices and that a price list be produced. Phillis then referred to the items of equipment in his handwritten notes. Each item was discussed in respect of its wholesale price, the recommended retail price and the consequent margin. In reaching agreement as to the prices, consideration was given to current costs and overheads and a reasonable return to the retailers. The agreed prices took into account previous increases in the Consumer Price Index and sales tax and were significantly higher than Barbeques Galore's prices and higher than the prices generally prevailing in the market. A range of prices was agreed for each item, which range generally provided for a difference of $20 between the price at which the item would be offered for sale and the price below which the item would not be discounted.

12. As well as reaching this understanding as to the prices to be charged, Mason assured the persons present that Barbeques Galore had always bought and would continue to buy barbeque equipment from Cook-On at the same price as that offered by Cook-On (S.A.) to other retailers in Adelaide. He invited the other retailers to contact Phillis if they or any of them were concerned that a retailer was not keeping to the range and said that Phillis would "fix it up". Finally, it was agreed that another meeting would be held in approximately six weeks' time to review the matter.

13. Shortly after the meeting Phillis prepared typed lists of the items and the agreed price range for each, and delivered a copy inter alia to Barbeques Galore and Barbeque Centre. The ticketed price for these items was then altered at the stores of those respondents to conform with the agreed price ranges and their staff were instructed to sell within this range. Holdsworth told the staff of Barbeques Galore that no discounts additional to those agreed and no gifts of accessories were to be offered to encourage a sale.

14. Schedules were placed before me as part of the statement of agreed facts indicating the prices at which invoiced sales were made by Barbeques Galore and Barbeque Centre during the month of January 1983, both before and after the meeting. There were additional sales made for cash during this period for which no records were available. The corporate respondents placed some reliance upon these schedules in their submissions as to appropriate penalties.

15. The second meeting was held at the Gateway Hotel, Adelaide on 15 March 1983. Price, Phillis, Pascoe, Holdsworth and Gillis, the manager of Barbeque Bazaar were present. A general discussion took place at this meeting, inter alia, on the prices charged by the major Adelaide retailers for Cook-On equipment since the earlier meeting. It was not suggested that any further contravening conduct occurred at this meeting.

16. In May 1983 information regarding alleged price fixing conduct engaged in by the corporate respondents was received by the Commission. Such information was received indirectly in the course of an enquiry by a person present at the meeting,which enquiry was unconnected with the subject matter of this action. It is pertinent to note that the information was not received by way of a complaint relating to the alleged price fixing arrangements.

17. Section 76 of the Act provides a maximum penalty of $250,000 for a corporation which contravenes the provisions of Part 1V of the Act. The Commission alleged only one act of contravention, albeit by a number of parties, and thus there was only one offence committed by each of the parties.

18. In determining the question of the pecuniary penalty to be imposed, s.76 of the Act requires the Court to have:
    
    

"... regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part to have engaged in any similar conduct."

1. I had the benefit of submissions on penalty from counsel for the three respondents Cook-On, Cook-On (S.A.) and Barbeques Galore and from counsel for Barbeque Centre. As earlier related, the respondent Price swore an affidavit as managing director of Barbeque Centre. Both counsel submitted that this was not an appropriate case for the imposition of substantial penalties but that penalties should be calculated at the lower end of the range of such penalties. There are a number of grounds which persuade me to accept this submission, and the Commission did not strenuously contend to the contrary. I do not however accept the contention of counsel for the three respondents that I should treat them as one offender and assess one sum which would be allocated amongst the three of them. Each was separately represented at the meeting, played a separate role and had a differing interest in the subject matter of the understanding.

2. In considering the nature of the contravention and the circumstances in which it occurred, one matter is to me readily apparent. The price fixing understanding which the parties reached has neither the flavour nor the normal characteristics of such an arrangement between competitors in the same market. Two of the four parties to the understanding did not operate in the relevant market but in the wholesale market. Of the two parties who operated in the relevant retail market, one was subjected to pressure by the wholesalers to adjust his conduct and increase prices. Furthermore the purpose of the understanding was not to increase retailers' profit at the expense of consumers. It was prompted by a need on the part of wholesalers, as well as retailers, to ensure that retailers could trade profitably.

3. In these circumstances I accept with approval the approach of Morling J. in Trade Practices Commission v Culley & Anor (1983) 5 A.T.P.R. 44-668 which is very much in point and can be adapted to the facts of this matter. At page 44-670 he had this to say:
   
   

"I am satisfied that the respondents' conduct was motivated by an understandable desire on their part to achieve a reasonable level of profitability in their businesses without causing harm to the public. They believed there was nothing wrong in what they were doing, but they were mistaken in that belief. Whilst their conduct was clearly in breach of the Act, it is difficult not to have some sympathy with retailers who seek to do no more than sell by retail at prices marginally above government-approved wholesale prices.

It is a real question whether cut-throat price competition which makes it impossible for retailers to trade economically is in the public interest in the long term, even if there are short term price advantages to the consumer."

Whilst there is no positive evidence here that the parties believed there was nothing wrong in what they were doing, this can reasonably be inferred and I adopt what was said by Morling J. as applicable to this matter. It follows that although I consider that I must impose penalties to mark the Court's disapproval of the parties' conduct, these can be at the lower end of the scale.

1. Counsel for the corporate respondents also each contended that no person suffered any loss or damage by virtue of the contravention. Certainly there is no positive evidence of loss or damage and it is accepted that the Commission did not become aware of the conduct of the parties until some four months after the first meeting. Furthermore there is agreement that the Commission did not receive such information from consumers, who are not alleged to have complained at any time. Counsel for the respondents placed much reliance upon the schedule of prices obtained during January 1983 by Barbeques Galore and Barbeque Centre from invoiced sales. Certainly these figures appear to indicate that these companies did not adhere at all times in these sales to the agreed range of prices. There were certainly more sales after 5 January 1983 at the fixed prices than before that date. However, whilst I acknowledge that to say that figures can prove anything is "the common smear of the ignorant and the unworthy" I can not accept these figures as unequivocally supporting the argument. They can to some extent support the contrary intention. It follows that I do not see any advantage in detailed analysis of the schedules. They do lend support to the contention that the understanding was prompted by a desire for retailers to achieve a reasonable measure of profit in a very competitive market rather than to increase prices and thus profits at the expense of consumers.

2. There was of course no suggestion that any of the corporate respondents have in the past contravened this or any other provision of the Act. Barbeque Centre was the party most likely to be advantaged by the understanding, as were other retailers present at the meeting but not parties to the action. The financial figures produced by Barbeque Centre certainly support the fact that neither before or after the agreement was its business particularly profitable. Moreover it fell into the category of a small family business with four employees. I see no reason in the circumstances to differentiate, in assessing their respective degrees of culpability, between the four corporate respondents.

1. I must however note the seriousness with which the legislature views contraventions of this Part of the Act, in that it has imposed a maximum penalty of $250,000. This penalty substantially exceeds the maximum amount of the fine which can be imposed on a corporation which contravenes a provision of Part V of the Act, namely $50,000. The amount of the penalty I impose must be sufficient to deter other persons, including corporations, from infringing the Act and entering into arrangements or understandings which lessen competition. I can however pay some heed to the fact that the parties have admitted the contravention, accepted restraining orders and paid the amount of agreed costs. I consider that a penalty of $2,000 is appropriate in respect of each corporate respondent.

2. The orders additional to those which I was asked to make and have made by consent are as follows:
   
   

1. That each of the respondents Cook-On Gas Products Pty. Limited, Cook-On Gas Products (S.A.) Pty. Limited, Barbeques Galore Pty. Limited, and The Barbeque Centre Pty Limited, pay a pecuniary penalty of $2,000 to the Commonwealth.

2. That each of the said respondents pay the amount of its pecuniary penalty to the Acting District Registrar of this Court within 21 days of this date.