Trade Practices Commission v David Jones Pty Limited

[1986] FCA 698

C A T C H W O R D S

.

TRADE PRACTICES - Application by Trade Practices Commission for

penalties and injunctions - Contravention of ~.45(2)(a)(ii) and

s.45(2)(b)(ii) of the Trade Practices Act 1974 - Quantum of

penalties - Circumstances in which contravention occurred -

Seriousness with which legislature views contraventions of Part

IV. - Necessity for injunction.

TRADE PRACTICES COMMISSION Applicant

V

:TED

- First Respondent

Second Respondent

Third Respondent

Fourth Respondent

Fifth Respondent

Sixth Respondent

Seventh Respondent

Eighth Respondent

Ninth Respondent

FISHER J. ADELAIDE

8 JULY 1986.

IN THE FEDERAL COURT OF AUSTRALIA )

1

SOUTH AUSTRALIA DISTRICT REGISTRY	) No.GZ9 of 1985
f
GENERAL DIVISION	)
B E T W E E N :
TRADE PRACTICES COMMISSION

Applicant

- and

DAVID JONES (AUSTRALIA) PTY.

LIMITED

First Respondent

RUSSWAT NOMINEES PTY. LIMITED.

Second Respondent

MYER S.A. STORES LIMITED.

Third Respondent

ZELLEN PTY. LIMITED.

Fourth Respondent

BRUCE HANDEL WATT

Fifth Respondent

JOHN STANLEY WATSON

Sixth Respondent

CHRISTOPHER RUSSELL

Seventh Respondent

ROBERT JOHN WOOD

Eighth Respondent

JAMES ANTHONY CORCORAN

Ninth Respondent

t

2.

MINUTE OF ORDER

FISHER J. ORDER MAKING JUDGE

ADELAIDE	WHERE MADE
DATE OF ORDER a JULY 1986
THE COURT ORDERS:
1. That judgment be entered in favour of the applicant in respect of its claim that David Jones (Australia) Pty. Limited, Russwat Nominees Pty. Limited and Myer S.A.

Stores Limited have each contravened sub. para.

45(2)(a)(ii) and sub.para. 45(2)(b)(ii) of the Trade

Practices Act 1974 and in respect of its claim that Zellen

Pty. Ltd. contravened sub.para. 45(2)(a)(ii) of the Act.

2 . That judgment be entered in favour of the applicant in

respect of its claim that Bruce Handel Watt, John Stanley

Watson, Christopher Russell, Robert John Watt and James

Anthony Corcoran were each knowingly involved in the

contravention of sub.para.45(2) (a) (ii) of the Act.
3 .	That all other claims by the applicant against the

respondents be dismissed.

4. That the respondents David Jones (Australia) Pty. Limited, and Myer S.A. Stores Limited each pay to the Commonwealth

of Australia a pecuniary penalty of $15,000 and that

Russwat Nominees Pty. Limited and Zellen Pty. Limited each

pay to the Commonwealth a pecuniary penalty of $6,000.
5.	Watson, Christopher Russell, Robert John Watt and James

That the respondents Bruce Handel Watt, John Stanley penalty of $1,000.

6. That judgment be entered for the applicant on behalf of

the Commonwealth of Australia pursuant to S . ? ? of the

Trade Practices Act 1974 against each respondent in

respect of the amount of the pecuniary penalty each is

ordered to pay and that the amount of each pecuniary

penalty be paid to the District Registrar of this Court

within 21 days of this date.

3 .

7. That subject to order 8 hereof the following respondents

David Jones (Australia) Pty. Limited, Myer S.A. Stores

Limited, Zellen Pty. Limited and Russwat Nominees Pty. of these proceedings the same to be taxed if not agreed

and if and to the extent that Russwat Nominees Pty.

Limited fails to pay its quarter of such costs the same be

paid by the respondents John Stanley Watson and

Christopher Russell.

8. (a) That the applicant pay to the respondents Zellen Pty.

Limited, David Jones (Australia) Pty. Limited, James

Anthony Corcoran and Bruce Handel Watt their costs of the application to strike out the applicant's statement of

claim and the costs of all respondents of the additional

directions hearing consequent upon such striking out and

delivery of a fresh statement of claim.

(b) That David Jones (Australia) Pty. Limited pay the

costs of all other parties with the exception of Bruce

Handel Watt of its application to vacate the date fixed

for hearing of further submissions on penalties and costs

and the costs of the applicant of the hearing held on 17

April 1986 of such further submissions.

9 . That liberty to apply be granted to all parties in relation to the orders made in respect of costs.

Note: Settlement and entry of orders is dealt with in Order	36 of
the Federal Court Rules.

, . .

IN THE FEDERAL COURT OF AUSTRALIA )

)

SOUTH AUSTRALIA DISTRICT REGISTRY	) No.GZ9 of 1985
)

DIVISION	GENERAL	1
B E T W E E N : TRADE PRACTICES COMMISSION

Applicant

- and

DAVID JONES (AUSTRALIA) PTY.

LIMITED

First Reapondent

RUSSWAT NOMINEES PTY. LIMITED.

Second Respondent

MYER S.A. STORES LIMITED.

Third Respondent

ZELLEN PTY. LIMITED.

Fourth Respondent

ERUCE HANDEL WATT

Fifth Respondent

JOHN STANLEY WATSON

Sixth Respondent

CHRISTOPHER RUSSELL

Seventh Respondent

ROBERT JOHN WOOD

Eighth Respondent

JAMES ANTHONY CORCORAN

Ninth Respondent

2.

C m : Fisher J.

8 Julv, 1986

REASONS FOR JUDGMENT

In my reasons for judgment delivered on 8 February 1986

I found that each of the corporate respondents had contravened

sub.para.45(2)(al(ii) of the Trade Practices Act 1974 ("the

Act"), I also found that these respondents other than the

respondent Zellen Pty. Limited ("Zellen") had contravened

sub.para.45(2!(b)(ii) of the Act. Furthermore each of the

individual respondents was knowingly concerned in and a party to

the contravention by one or other of the corporate respondents of

sub.para.45(2)(a)(ii) and thus liable to a pecuniary penalty

under para.76(l)(e) of the Act. On the occasion when I delivered

my previous reasons I intentionally refrained from entering any

formal orders but stood the matter over for evidence and

submissions on the questions of penalties, injunctions and costs.

On 26 'March 1986 the matter was called on again and

affidavit evidence tendered and submissions made on behalf of the

applicant and all respondents other than David Jones (Australia)

Pty. Limited ( "David Jones") and Bruce Handel Watt ("Mr. Watt").

These last two respondents tendered their evidence and made their

submissions on 17 April 1986, on which occasion they were

separately represented.

3

Counsel for the applicant tendered an affidavit pursuant

to Order 49 Rule 5 which established the market share of the

respondents. He sought orders in relation to penalties and

injunctions against all respondents, the injunctions being in the

terms set out in his client's application to this Court. He also

sought an order that	the corporate respondents pay the costs of
the proceedings.

Each respondent filed an affidavit and the respondents

other than Russwat, Mr. Watson 'and Mr. Russell opposed the

imposition of injunctions as being unnecessary and inappropriate

in the circumstances. For the reasons which subsequently appear

I am prepared to accept this submission.

On the question of pecuniary penalties I am directed by

5.76 of the Act to determine the appropriate amount in respect of

each act or omission after having regard to all relevant matters

certain of which are specified. In respect of the corporate

respondents other than Zellen I have found two contraventions,

namely, arriving at the relevant understanding and also giving

effect to the same. The applicant sought, albeit somewhat

faintly, the imposition of a separate penalty in respect of each

contravention. However in my opinion the contraventions arise

out of virtually the same conduct and therefore one penalty is

appropriate. Sub-section 76(3) is in this respect of some

relevance in the present circumstances.

4.

The particular matters to which I am required by

sub.s.76(1) to pay regard to can be paraphrased as follows:-

(a)

the nature and extent of the contravening conduct conduct;

(b) the circumstances in which that conduct occurred;

(c) whether the person contravening has been found to have engaged in any similar conduct.

In respect of the first two of these matters I have the

benefit of the very considerable evidence in the proceedings

as well as the affidavits tendered in the two hearings subsequent

to delivery of reasons for judgment. There is no suggestion that

any of the respondents has been found to have engaged previously

in any similar conduct or to have contravened any of the

provisions of the Act.

The nature of the contravening conduct of he

respondents was very much out of the ordinary, falling as it did

into the category of conduct discussed by Morling J. in Trade

Practices Commission v Cullev and Anor C19833 A.T.P.R. 44,668 and

in	by me	v Cook-On-Gas	Products	Ptv.
Ltd. C19857 A.T.P.R. 46,506.

On page 46,510 of the latter decision I had this to say

concerning the contravention in that case, which words can fairly

be applied to the facts of this matter:

5.

"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	rel vant 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.

I n the circumstances I accept with approval the

approach of Morling J. in Trade Practices Commission v

Cullev & Anor (1983) ATPR 40-399 which is very much in

point and can be adapted to the facts of this matter.

At p.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 that 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 mpossible for retailers to

trade economically is in the public interest in the

long term, even if there are short erm price

advantages to consumers.'

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. "

% '..

'X.

6.

Notwithstanding my view that this approach can be

adopted in this matter, it remains, in my opinion, essential that

the Court's disapproval of the respondents' conduct, and of any

other business that engages in like conduct, be made very

apparent. Commercial interests must be made aware that the Act

by its complexity virtually prohibits discussion of prices

between competitors. The imposition of penalties must ensure

that persons, in all st.rata of employment and not only those in

the top management of large enterprises, appreciate this fact.

It would be very wrong if by the imposition of penalties at the

lower end of the scale the impression was gained that this

contravention was in effect merely a technical breach.

However as I have said the circumstances in this matter

were exceptional. The price-fixing understanding was concluded

between only three of the parties who compete in the same market.

Even in the Adelaide central business district two very

substantial competitors were not involved. Moreover one of the

parties to the contravention operated in the wholesale market and

thus was not in competition with the retailers. Furthermore at

least. as to Myer and David Jones they continued to compete with

each other in their pricing, notwithstanding the understanding.

It is not correct to conclude that the retailers arrived at the

understanding for the purpose of increasing their profit at the

expense of consumers. The understanding occurred on the

initiative of the respondent Zellen, albeit with some prodding

l

I 7

7.

from the retailers. Zellen was concerned that discounting by

Pirate Pete and Duna World in particular would result in a

reduction in the volume of its goods purchased by the retailers.

It was not primarily prompted by a desire on the part of the

retailers to increase their profit or to sell at the margin after the understanding.

suggested in the understanding. David Jones at least was moving

in any event towards such a margin prior to the understanding.

It was common ground that towards the end of 1983 and

early in 1984 prior to the meeting there had been "cut-throat"

discounting by certain retailers. Prices had fluctuated

violently down to quite unrealistic levels. Zellen was

concerned to eliminate or modify this discounting so as to ensure

that large retailers continued to deal in its merchandise. They would not do so unless they could sell at reasonable margins. What Corcoran on behalf of Zellen hoped to achieve was that he

could persuade the discounters to increase their prices by

informing them that the retailers had agreed to adhere to the 70%

margin. Both the retailers and Zellen hoped to achieve the same

objective, namely to stabilize prices and not necessarily to

increase profit margins. The manner in which they hoped to

achieve this objective was neither a flagrant nor a deliberate

breach of the Act but rather very careless conduct. Those

present at the meeting were at that time not aware that there was

. ..

8.

anything wrong in what they were doing and in particular that	It
was a breach of the Act.

The only detriment to consumers resulting from the

contravention which I am prepared to infer, is that they lost the

capacity to acquire from the discounters merchandise at

exceptionally low prices. There was no evidence that there was

any other loss or damage suffered as a direct result of the

contraventions. It follows that there was little, if any, profit

gained by the retailers, Zellen or the individual respondents.

As I have already mentioned no respondent has engaged in any

similar conduct in the past or in any other contravention of the

Act. Each has expressed regret and a commitment to ensure that

there is no repetition in the future of the conduct.

In assessing the seriousness of the contraventions and the quantum of an appropriate penalty I can take account of the effect particularly upon a company of the standing of Myer and David Jones of the finding that they have contravened the Act and

the attendant publicity. I also emphasize what Smithers J. said

in Trade Practices Commission v Stihl Chain Saws (Aust.) Ptv.

Ltd. C19783 ATPR 17,882 at p.17.896 that penalties "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". They must however, in my view, be sufficiently

high to have a deterrent effect.

.- -

T-- 7-

9.

I am of the opinion that an appropriate penalty in the

case of David Jones and Myer is $15,000 each. I do not see the

contraventions by Russwat and Zellen as revealing a different

level of culpability from that of the large retailers but am of

the view that to impose such a penalty on Russwat and Zellen

would be oppressive and inappropriate. I propose a penalty of

$6,000 in the case of each of these two companies. These

penalties cover the two contraventions by each of the three

corporate respondents.

Special difficulties arise in the case of Russwat which

is a company with paid capital of $2 and which operates as a

trustee with no assets of its own. Its counsel stated that any

penalty imposed on it would be paid. Counsel for the applicant

submitted that I should fix a global penalty for Russwat and the

two individual respondents who are its directors, placing the

main burden thereof on the latter two gentlemen. However I do

not consider this is a satisfactory resolution of the difficulty

that the applicant might, contrary to the assurances of Russwat's

counsel, have in collecting the amount of that company's penalty.

In my opinion I should impose separate penalties on that company

and each of the two individuals, leaving it to the applicant to

take appropriate action if the company's penalty is not paid.

However the position is different in respect of an order for

payment by Russwat of casts where any default on its part would

be prejudicial to other respondents and not the applicant and I

later consider this problem.

! , . .I I

10.

I do not propose to differentiate between the individual

respondents but do note that Mr. Wood and Mr. Watt could not hope to achieve, whether directly or indirectly, any benefit from the contraventions whereas Mr. Corcoran and the two directors of

Russwat could indirectly have benefitted. Mr. Corcoran is a

shareholder in Zellen and Mr. Watson and Mr. Russell are

beneficiaries of the trust of which Russwat is trustee. Such

facts do not persuade me in the circumstances to treat any of

them differently. I have taken into account the circumstances of

each of the individual respondents as disclosed by affidavits

filed by them. I am of the opinion that a penalty of $1,000 is

appropriate in respect of each such respondent.

The applicant sought injunctions against the respondents restraining them from engaging in the future in the contravening conduct. The respondents other than Russwat, Mr. Russell and Mr. Watson opposed the ordering of injunctions. My attention was

drawn to the approach adopted by Toohey LT. in Trade Practices

Commission v Mobil Oil Australia Ltd. (1985) 4 F.C.R. 296 when he

exercised his discretion and refused injunctions. I adopt his

approach which in my view, is equally applicable to the

circumstances of this matter. It is fair to describe the

contraventions as the consequence of an isolated incident and not

an established pattern of culpable conduct. In my opinion I can

accept the assurances of the parties that there will be no

repetition, and therefore there is little if any risk of

contraventions occuring in the future. For this reason as well

./ I

11.

as the fact no loss to consumers was established it is my view

that the public interest does not require that the parties be

enjoined.

There was much discussion as to whether the costs of the

applicant should be ordered against the corporate respondents

jointly or as to a one quarter share each. The applicant did not

seek an order for costs against the individual respondents if the

corporate respondents bore the costs jointly. It is my opinion,

for the reasons which I set out in Trade Practices Commission v

Nicholas Enterprises Ptv. Limited (1979) 28 A.L.R. 201 at p.210,

that an order against the corporate respondents jointly would be

the normal order. In the ordinary course any difficulty which

the applicant may have in collecting from Russwat its share of

the costs would fall on the corporate respondents and not on the

applicant. However because the applicant does not seek an order

for costs against the individual respondents a order against the

corporate respondents could have a prejudicial effect upon three

of these respondents. The capacity of these three respondents o

obtain contribution from Russwat might depend upon the right of

that company as trustee to an indemnity out of the assets of its

trust (See Trustee Act 1936 South Australia sub.s.35(2)). The

three corporate respondents would be entitled to be subrogated to

that right. However this right of indemnity usually only extends

to acts which a trustee is authorised to perform. If he acts

beyond power the right to indemnity does not necessarily arise,

Henry Labouchere & Others v Emily Tupper & Others 14 E.R. 670;

12.

(1857) XI Moore 198. Whether Russwat is entitled to be

indemnified in respect of costs (and also penalty) out of trust

assets is a matter between it and the beneficiaries of its trust

and not a matter for determination in these proceedings. I

propose therefore to depart from the approach which I adopted in

Nicholas and order that each corporate respondent pay one quarter the costs, thereby ensuring that the three corporate respondents

are not at risk in respect of Russwat's proportion of costs. In

this regard	I propose to depart from the order sought by the
applicant.

The directors of Russwat, namely Mr. Russell and Mr.

Watson, are parties to these proceedings. and as such liable to be

ordered to pay costs. It is appropriate, in my opinion, that

they accept liability for Russwat's proper share of the

applicant's costs to the extent that Russwat makes default.

The order which I make is that David Jones, Myer, Zellen

and Russwat each pay one quarter of the applicant's costs and

that if and to the extent that Russwat makes default in payment

of its one quarter share the same be paid by	Mr. Watson and Mr.
Russell.

Certain special orders are also necessary. TWO

respondents, Zellen and Mr. Corcoran applied successfully by

notice of motion for the applicant's statement of claim as it

then stood to be struck out. Two other respondents David Jones

.. . ' '.. '.. I,

. ..

13.

and Mr. Watt were served with the application and attended

before the court in support. It is appropriate that the applicant

pay to these respondents their costs of this application. I make

this order because it is more specific than the general order in

relation to costs which I made on this notice of motion on 2

August 1985. In addition I direct that all respondents have

their costs against the applicant of the additional directions

hearing rendered necessary by the filing of the fresh statement

of claim. In respect of these reserved costs I grant liberty to

apply if any difficulty arises in the working out of these

orders I

A need for a further order for costs arises out of David

Jones' application to vacate the date fixed for hearing of

submissions on penalty, costs and injunctions. This application

was unsuccessful and David Jones must pay the costs of the

applicant, and the other respondents excluding Mr. Watt of this

application. Furthermore David Jones must pay the costs of the

applicant of the hearing on 17 April 1986 but I made no order in

respect of the costs of other respondents who attended on

that

day. In each instance the costs ordered must be taxed if not

agreed.

14.

Each of the penalties imposed must be paid to the

District Registrar of this Court within 21 days of this date.

The orders of the Court are as follows:

1. That judgment be entered in favour of the applicant in

respect of its claim that David Jones (Australia) Pty.

Limited, Russwat Nominees Pty. Limited and Myer S.A.

Stores Limited have each ontravened sub.para.

45(2)(a)(ii) and sub.para. 45(2)(b)(ii) of the Trade

Practices Act 1974 and in respect of its claim that

Zellen Pty. Ltd. contravened sub.para. 45(2)(a)(ii) of the Act.

2 . That judgment be entered in favour of the applicant in

respect of its claim that Bruce Handel Watt, John

Stanley Watson, Christopher Russell, Robert John Watt

and James Anthony Corcoran were each knowingly involved

in the contravention of sub.para.45(2)(a)(ii) of the

Act.

3 . That all other claims by the applicant against he

respondents be dismissed.

4.	That the r spondents David Jones (Australia) Pty.
Limited, and Myer S.A. Stores Limited each pay to the Commonwealth of Australia a pecuniary penalty of $15,000 and that Russwat Nominees Pty. Limited and Zellen Pty. Limited each pay to the Commonwealth a pecuniary penalty

of $6,000.

15.

That the respondents Bruce Handel Watt, John Stanley

Watson, Christopher Russell, Robert John Watt and James

Anthony Corcoran each pay to the Commonwealth a

pecuniary penalty of $1,000.

That judgment be entered for the applicant on behalf of

the Commonwealth of Australia pursuant to 6 . 7 7 of the

Trade Practices Act 1974 against each respondent in

respect of the amount of the pecuniary penalty each is ordered to pay and that the amount of each pecuniary penalty be paid to the District Registrar of this Court

within 21 days of this date.

That subject to order 8 hereof the following respondents

David Jones (Australia) Pty. Limited, Myer S.A. Stores

Limited, Zellen Pty. Limited and Russwat Nominees Pty.

Limited each pay to the applicant one quarter of its

costs of these proceedings the same to be taxed if not

agreed and if and to the extent that Russwat Nominees

Pty. Limited fails to pay its quarter of such costs the

same be paid by the respondents	John Stanley Watson and
Christopher Russell.

(a) That the applicant pay to the respondents Zellen

Pty. Limited, David Jones (Australia) Pty. Limited,

James Anthony Corcoran and Bruce Handel Watt their costs

of the application to strike out the applicant's

statement of claim and the costs of all respondents of the additional directions hearing consequent upon such striking out and delivery of a fresh statement of claim.

..

. . - ,.. . . . ,

16.

(b) That David Jones (Australia) Pty. Limited pay the

costs of all other parties with the exception of Bruce

Handel Watt of its application to vacate the date fixed

for hearing of further submissions on penalties and

costs and the costs of the applicant of the hearing held

on 17 April 1986 of such further submissions.

9. That liberty to apply be granted to all parties in

relation to the orders made in respect of costs.

I certify that this and

the/rpreceding pages are

a true copy of the Reasons

for Judgment of Mr Justice

Fisher.

Associate

Dated: 8 July 1986. U