Trade Practices Commission v Massey Ferguson (Australia) Ltd

TRADE PRACTICES COMMISSION v. MASSEY FERGUSON (AUSTRALIA) LTD (1983) 67 FLR
364
Trade Practices

COURT

FEDERAL COURT OF AUSTRALIA

GENERAL DIVISION
Smithers J.(1)

CATCHWORDS

Trade Practices - Exclusive dealing - Prosecution - No purpose of substantially lessening competition proved, - Penalty - Trade Practices Act 1974 (Cth), ss 47, 76.

HEADNOTE

In a prosecution against the respondent in respect of three items of exclusive dealing in breach of s. 47(1) of the Trade Practices Act 1974 the respondent admitted conduct likely to have the effect of substantially lessening competition in the wholesale market in Australia for agricultural tractors and/or headers. In respect of the appropriate penalty to be imposed under s. 76 it was held.

(1) The contravention proved (a) was not one where the exclusive dealing was engaged in by the respondent for the purpose or one which had the effect of substantially lessening competition; (b) but was conduct of such a nature that it was likely to have the effect of substantially lessening competition in the wholesale market throughout Australia in respect of tractors and headers.

(2) For the purposes of the criminal law there is always a distinction of substance between an offence that has actually caused particular damage and one in respect of which it is shown merely that it was likely to have caused that damage and that damage is not proved to have been so caused. Where it is shown that exclusive dealing is likely to substantially lessen competition but has not actually done so, the penalty will be normally less severe than where the exclusive dealing has effectuated such a lessening of competition or where the conduct has been engaged in for the purpose of substantially lessening competition.

(3) Having regard to - (a) the fact that the acts of the respondent were of a quality that they were likely to effectuate a substantial lessening of competition in the relevant Australian wholesale market; (b) the fact that the respondent had made efforts to correct the situation to prevent future contraventions; (c) the previous good behaviour of the respondent; (d) the financial difficulties of the respondent; (e) the fact that the personnel responsible for the breaches of the Act were no longer with the respondent or had had their situation in the company changed; (f) the greater number of the respondent's current dealers were multi-franchisees, a penalty of $40,000 was appropriate.

Trade Practices Commission v. Stihl Chain Saws (Aust.) Pty Ltd (1978) ATPR at 17,896; Hartnell v. Sharp Corporation (1975) 5 ALR 493 at 497, applied.

HEARING

1983, June 28, 29. #DATE 29:6:1983

APPLICATION.

Application seeking the imposition of a penalty pursuant to s. 76 of the Trade Practices Act 1974 upon the respondent for alleged breach of s. 47 (1).

A. Chernov Q.C. and R. Finkelstein, for the applicant.

M. E. J. Black Q.C. and P. R. Hayes, for the respondent.

Cur. adv. vult.

Solicitor for the applicant: Commonwealth Crown Solicitor.

Solicitors for the respondent: Mallesons.

T.J.G.

JUDGE1

29 June 1983

SMITHERS J. This is a proceeding by the applicant against the respondent in respect of a breach of s. 47 (1) of the Trade Practices Act 1974 (Cth) (the Act) . (at p365)

The proceedings were commenced in October 1980. The offence then alleged was that between October 1977 and February 1978 the respondent had been guilty of the practices of exclusive dealing and had engaged in the relevant conduct for the purpose and with the effect or likely effect of substantially lessening competition in the relevant market. By an amended statement of claim filed on 28 June 1983 the applicant alleges three items of conduct constituting incidents within the meaning of the phrase "the practice of exclusive dealing". By par. 6 of the amended statement of claim it is alleged that:

"The engaging by the respondent in the conduct specified in each of

pars 3, 4 and 5 being conduct of the same or a similar kind was likely to have the effect of substantially lessening competition in the wholesale market in Australia for agricultural tractors and/or headers." (at p365)

It is to be observed that no allegation is made that the three specified items of conduct had the purpose or effect of substantially lessening competition in the Australian wholesale market for tractors and agricultural headers. To the amended statement of claim the respondent has pleaded by par. 7 of its amended defence that:

"It admits that by reason of the likely effect referred to in par. 6 (of the amended statement of claim) it has, in the circumstances referred to in the statement of claim contravened s. 47 (1) of the Trade Practices Act 1974." (at p365)

Accordingly the respondent pleaded guilty in the terms of its plea. It therefore appears and the court is satisfied that the respondent has contravened a provision of Pt IV of the Act and therefore according to s. 76 of the Act the court may order the respondent to pay to the Commonwealth such pecuniary penalty not exceeding $250,000 in respect of the act constituting the contravention. It is acknowledged that the result of the pleadings and the plea is that a penalty may be imposed as for one contravention and one only. (at p365)
The conduct constituting exclusive dealing relied upon by the applicant concerns the following instances:

(a) That in September and October 1977 the respondent offered to supply agricultural tractors marketed under the name "Massey Ferguson" to "Wood's West Port Machinery" of Koo Wee Rup, Victoria on the condition that they would not or would not except to a limited extent acquire agricultural tractors directly or indirectly from a competitor of the respondent.
(b) On or about 15 February 1978 the respondent refused to supply agricultural tractors and headers marketed by it to "Central Engineers" of Temora, N.S.W. for the reason that it had acquired or had not agreed not to acquire agricultural tractors and headers directly or indirectly from a competitor of the respondent.
(c) On or about 15 February 1978 the respondent refused to supply agricultural tractors and headers marketed by it to E. Anders & Sons Pty Ltd of Freeling in S.A. for the reason that it had acquired or had not agreed not to acquire agricultural tractors and headers directly or indirectly from a competitor of the respondent. (at p366)
Having regard to the course of the pleadings it was pointed out by Mr Black that the contravention which has been proved in this case is not one involving the element that the items of exclusive dealing referred to above were engaged in by the respondent for the purpose or with the effect of substantially lessening competition. In deciding upon an appropriate penalty therefore this factor must be kept in mind. It appears to me therefore that the respondent is to be punished for three items of conduct which constituted eexclusive dealing but which constituted an offence under the Act only because it is proved that that conduct was likely to have the effect of substantially lessening competition in the wholesale market for tractors and headers throughout Australia. (at p366)
It is said by Mr Chernov that notwithstanding the foregoing the court is entitled to and should infer that the items of conduct which constituted a contravention were committed in an attempt to introduce throughout Australia a system of dealership in which the dealers dealt with one brand only, that being the respondent's brand of tractors and headers. As stated, the purpose of achieving this objective is technically a different purpose from that of effectuating a substantial lessening of competition in the market. However, from the point of view of substance I think it is difficult to draw the distinction. I feel therefore that for me to treat the three items of exclusive dealing as having been carried out as an attempt to introduce a dealership system in which dealers sold only one brand of tractors and headers would be in effect to make a finding that the purpose of the conduct in question was to have the effect of substantially lessening competition and of course of this the respondent has not been found guilty. (at p366)
Having regard to the amendment of the pleadings and the limited nature of the concession made by the respondent upon which the finding that it committed a contravention of the Act is based, I consider that I should refrain from taking into account, as something that has been proved that the conduct constituting exclusive dealing was part of an attempt to introduce one brand dealerships throughout Australia. (at p366)
Nevertheless it is clearly proved that the respondent on the three occasions mentioned engaged in acts of exclusive dealing contrary to s. 47(1), in particular it engaged in acts characterised as exclusive dealing in s. 47(2) and (3) of the Act and that that conduct was of such a nature that it was likely to have the effect of substantially lessening competition in the wholesale market throughout Australia in respect of tractors and headers. (at p366)
In general in civil matters, the law tends to treat that which is likely with the same seriousness as that which in fact occurs. Findings of fact may be made with reference to that which is probable and not only to that which is certain. Certainly it may well be, that in certain circumstances, engaging in exclusive dealing which is likely to substantially lessen competition is equally blameworthy as conduct which actually has the effect of substantially lessening competition. However, for the purposes of the criminal law, and that is an area of this case, there is always a distinction of substance between an offence that has actually caused particular damage and one in respect of which it is shown merely that it was likely to have caused that damage and that damage is not proved to have been so caused. (at p366)
Accordingly it is my view that a penalty in a case where it is shown that exclusive dealing is likely to substantially lessen competition will be normally less severe than the penalty in respect of that conduct where it is shown that it actually had effectuated such a lessening of competition. Similarly in relation to purpose it is commonplace that in relation to penalty a crime committed in circumstances where there is mens rea involving a purpose to cause particular damage arising from the offence will merit a greater penalty than the same act if illegal even where there is no such mens rea. (at p367)
There is no doubt that the acts of exclusive dealing were deliberately committed but their commission did not constitute an offence. It is only when there is added to the performance of those acts the purpose or effect referred to in s. 47(1) that an offence is committed. (at p367)
Thus the acts of exclusive dealing in themselves are for present purposes somewhat colourless. This is the result of the form of the matter as it emerges from the pleadings. They are acts to which s. 47(1) does not apply unless they give rise to the effects referred to in s. 47(10). But they were deliberate and had the likely effect of substantially lessening competition and were therefore illegal by reason of these factors and must be punished accordingly. (at p367)
As was said in Trade Practices Commission v. Stihl Chain Saws (Aust.) Pty Ltd (1978) 2 ATPR 17,882 at 17,896:

"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 operates 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." (at p367)

I have to consider that the acts of the respondent were of a quality that they were likely to effectuate a substantial lessening of competition in the Australian wholesale market in tractors and headers. The penalty should constitute a real punishment proportionate to the deliberation with which the respondent contravened the provisions of the Act. It should be sufficiently high to have a deterrent quality. It should be kept in mind that the Act operates 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 commercial standards laid down in the Act must be observed, but not be so high as to be oppressive. Nevertheless it is relevant to inquire whether efforts were made by the respondent to correct the situation to prevent any future contraventions. See Hartnell v. Sharp Corporation (1975) 5 ALR 493 at 497. In the present case this latter consideration is of some importance. It appears that in July 1979 one Adrianus Verhagen was appointed managing director of the respondent. None of the conduct of the respondent in 1977 and 1978 in relation to the acts of exclusive dealing was conduct in respect of which he had any responsibility. With respect to the Wood's dealership it was never actually lost. The Freeling dealership is now a Massey Ferguson dealer with multi franchises. There is no dealer at Temora. (at p367)
It is deposed by Mr Verhagen that upon his becoming managing director he took steps to emphasise the duties of the respondent in relation to the Trade Practices Act 1974. Of the persons who were connected with the acts of exclusive dealing referred to above, only one remains in the employ of the respondent. That person has been transferred to a position of manager of retail stores. Such transfer was initiated by the managing director. In that position he has no responsibility for appointment or termination of any dealerships. Mr Verhagen has personally explained the urgency now attached by the respondent and he himself to the observance of the provisions of the Trade Practices Act 1974 to the respondent's West Australian state manager, to Mr Brian Bates, the respondent's New South Wales state manager, and to Mr Fisher, the respondent's South Australian state manager. Mr Verhagen asserts that the attitude of each of his state managers is the same as his own, namely to ensure compliance with the provisions of the Act and that under the present administrative arrangement instituted by him no dealer may be appointed or have his appointment terminated by any person without Mr Verhagen's personal approval. (at p368)
The respondent pointed to its reputation in the matter of the observance of the law during its long history in this country, going back at least to 1929 untarnished save for an ecological incident. It referred to its current financial difficulties which are exemplified by the fact that there was recorded a trading loss of $7 million in the last year and perhaps more ominously exemplified by the fact that the labour force has had to be reduced from some 1200 men to 626, the main cause of this being the difficulties of the rural sector of the economy which have been experienced in recent years. The respondent points to the fact that the events leading to this present penalty occurred five years ago, that the personnel responsible for it in substance are no longer or have had their situations in the company changed. It points also to the fact that it is liable to the Commission as a result of these proceedings to a payment for costs in the region of $15,000 or more and in addition will have large costs of its own. (at p368)
There is no need to doubt the validity of the truth of these submissions made on behalf of the respondent. No suggestion has been made by the Trade Practices Commission that the word of Mr Verhagen cannot be taken in respect to them. It could be urged by the Trade Practices Commission quite properly that here are breaches proved, they are serious, they were committed by a large and important company which by its own deliberate conduct has placed itself in breach of the law in circumstances that it is likely that competitors were prejudiced economically. Such observations would obviously be correct. The penalty therefore must be substantial. However I am impressed by the efforts made by Mr Verhagen to ensure the observance of the law by all those under his command. I am impressed by the fact that shortly after he took over the position as managing director, the personnel responsible in the areas in which the errors of 1977 and 1978 were made have been changed and I am impressed by the tone of sincerity of his disclosures to this court and his obvious determination to ensure that errors of the kind that produced these proceedings do not occur in the future. (at p368)
Where it is apparent that those in management have genuinely recognised their fault and have displayed energy and have taken steps to rectify the situation and to ensure that there will be no repetition of that fault and there is an element in that recognition that the steps taken and the attitude expressed are something more than a mere performance of a commercial tactic, it is reasonable that the court should exercise some restraint in recognition thereof. (at p369)
I do not forget that the respondent lives and moves in the environment of big money figures, against which even the maximum of $250,000 looks particularly unimpressive. However, having regard to the foregoing and particularly to the fact that the gravamen of the offence does not relate to any purpose to reduce competition in the relevant market or any proved actual economic prejudice caused to any person arising out of that possible injury to competition, and also to the fact that since the appointment of Mr Verhagen the respondent now has the situations arising under the Trade Practices Act 1974 well under control and that the greater number of the respondent's current dealers are multi-franchisees, I have come to the conclusion that the appropriate penalty in the case is $40,000. I make the order indicating the above with costs in favour of the Commission. (at p369)

ORDER

Orders accordingly.

[1983] FCA 164

29 JUNE 1983