Trade Practices Commission v Orlane Australia Pty Ltd

[1983] FCA 144

Re: TRADE PRACTICES COMMISSION
And: ORLANE AUSTRALIA PTY. LTD.
T. No. G3 of 1982
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

TASMANIA DISTRICT REGISTRY
GENERAL DIVISION
Northrop J.

CATCHWORDS

Trade Practices - resale price maintenance - onus of proof - 'loss leader' defence - evidentiary onus - meaning of 'cost' and 'other goods' in s.98(2) Trade Practices Act 1974 - nature of 'purpose' in s.98(2) - pecuniary penalty - factors to be taken into account - injunction.

Resale Prices Act 1964 (U.K.) ss.2, 3

Trade Practices Act 1974 (Cth.) ss.4(2), 4C, 4F, 48, 76, 77, 80, 96, 98(1) 98(2), 100(1)

HEARING

MELBOURNE

#DATE 14:7:1983

ORDER

1. In June 1980 the respondent induced Richard Leslie Hutchison not to sell, at prices less than prices specified by the respondent, cosmetic products supplied to him by the respondent.

2. By the conduct referred to in paragraph 1, the respondent engaged in the practice of resale price maintenance contrary to section 48 of the Trade Practices Act 1974 ("the Act").

3. In November 1980 the respondent withheld the supply of cosmetic products to Richard Leslie Hutchison for the reason that he had sold or was likely to sell cosmetic products supplied to him by the respondent at prices less than prices specified by the respondent as the prices below which the products were not to be sold.

4. By the conduct referred to in paragraph 3, the respondent would have engaged in the practice of resale price maintenance contrary to section 48 of the Act were it not for the defence in sub-section 98(2) thereof.

5. Paragraph 96(3)(d) of the Act did not apply in relation to the conduct referred to in paragraph 3 because Richard Leslie Hutchison was a person who, within the preceding year, had sold cosmetic products obtained from the respondent at less than their cost to him -

(a) for the purpose of attracting to the establishment at which the products were sold persons likely to purchase other goods; and

(b) otherwise for the purpose of promoting his business

within the meaning of sub-section 98(2) of the Act.

6. In respect of the contravention of section 48 of the Act referred to in clause 2 hereof, the respondent pay to the Commonwealth a pecuniary penalty in the sum of $15,000.

7. Pursuant to s.77 of the Act, judgment be entered for the Trade Practices Commission on behalf of the Commonwealth against the respondent for the sum of $15,000.

8. The respondent pay three quarters of the applicant's costs to be taxed.

JUDGE1

Orlane Australia Pty. Ltd., "Orlane", is the Australian distributor of cosmetic products on behalf of Orlane of Paris. It supplies Orlane products to retailers under an agreement which includes the following terms:

'The prices shown in this form are maximum retail prices. It is an infringement of franchise to charge more. There is no obligation on the part of the retailer to charge the maximum. To calculate trade price deduct 33 l/3% from the prices charged.'

Those terms are set out on the Order Form/Price List by which a retailer orders products from Orlane. Alongside each item appearing on the order form a retail price is set out and a retailer orders products by inserting a number against each item desired to be purchased. The price charged by Orlane to the retailer is the retail price appearing against the relevant product less one third.

At all material times Richard Leslie Hutchison has been the proprietor of Kents Centre Pharmacy, 'Kents', in Launceston. Kents is a retail pharmacy. From June l977 Kents purchased products from Orlane for sale by retail. In November l980 Orlane ceased supplying Orlane products to Kents.

At all material times Orlane has been a corporation under the Trade Practices Act l974, 'the Act'. The Trade Practices Commission, 'the Commission', as applicant, brings these proceedings against Orlane, as respondent, pursuant to sections 76 and 77 of the Act seeking an order that Orlane pay to the Commonwealth a pecuniary penalty. In addition the Commission is seeking an injunction pursuant to s.80 of the Act restraining Orlane from engaging in the practice of resale price maintenance in relation to products.

The Commission alleges that Orlane, in June l980 and November l980 contravened a provision of Part lV of the Act, namely s.48.

'A corporation or other person shall not engage in the practice of resale price maintenance.'

Detailed provisions relating to resale price maintenance are contained in Part Vlll, sections 96-l00 inclusive, of the Act. Under s.96(l) and subject to Part Vlll, a corporation, called 'the supplier', engages in the practice of resale price maintenance if it does an act referred to in any of the paragraphs in sub-section (3). For present purposes, the relevant paragraphs are (b) and (d)(ii). The relevant parts of those paragraphs are set out:

'(b) the supplier (Orlane) inducing, or attempting to induce, a second person (Kents) not to sell, at a price less than a price specified by the supplier, goods supplied to the second person by the supplier ...

(d) The supplier (Orlane) withholding the supply of goods to a second person (Kents) for the reason that the second person _

(i) ...

(ii) has sold, or is likely to sell, goods supplied to him by the supplier ... at a price less than a price specified by the supplier as the price below which the goods are not to be sold;'

To understand these provisions it is necessary to remember that the word 'supplier' when used as a verb, includes, in relation to the goods, the supply by way of sale; s.4 of the Act. See also s.4C of the Act. Reference should be made also to sub-sections 96(6) and (7). Under sub-section (7), for the purposes of paragraphs 96(3)(a)-(e) inclusive, extended meanings are given to certain phrases used and these include references to the advertising of goods for sale.

In the present case, one of the alleged contraventions of s.48 is based upon the advertising of goods for sale by Kents, but under paragraph 96(7)(d) a reference to a price below which the goods are not to be sold is to be construed as including a reference to the price below which the goods are not to be advertised for sale.

In the present case, no issue arises under the provisions of sub-section (7). In the present case, the provisions of s.98 of the Act are of importance. The relevant parts of that section are set out:

'98.(l) For the purposes of paragraph 96(3)(d) ... the supplier (Orlane) shall be deemed to withhold the supply of goods to another person (Kents) if _

(a) the supplier refuses or fails to supply those goods to, or as requested by, the other person;

...

(2) Paragraph 96(3)(d) does not apply in relation to the withholding by the supplier (Orlane) of the supply of goods to another person (Kents) who ... within the preceding year, has sold goods obtained, directly or indirectly, from the supplier at less than their cost to that other person _

(a) for the purpose of attracting to the establishment at which the goods were sold persons likely to purchase other goods; or

(b) otherwise for the purpose of promoting the business of that other person.

(3) For the purposes of sub-section (2), there shall be disregarded _

(a) a genuine seasonal or clearance sale of goods that were not acquired for the purpose of being sold at that sale; or

(b) a sale of goods that took place with the consent of the supplier.'

At this stage it should be noted that the combined effect of sub-section 4(2) and s.4F of the Act assists in the making of findings of fact in relation to purpose and to conduct. In addition, s.l00 of the Act contains evidentiary provisions designed to assist an applicant in establishing a contravention of s.48 of the Act.

In the present case the Commission led evidence from Mr. Hutchison, from three of his employees, namely Mrs. Hutchison, Miss Campbell and Mrs. Rowberry, from Mr. McKinlay, the Managing Director of a department store, 'McKinlays', in Launceston which sold by retail Orlane products, and Mrs. Hassett, who at all material times was the manager in Victoria for Orlane responsible for the States of Victoria and Tasmania. No witnesses were called on behalf of Orlane. The witnesses gave evidence of conversations and events which had occurred in l980. There were a number of contradictions between the evidence given by different witnesses. The Court finds that each witness was truthful and gave evidence to the best of his or her ability. The Court finds that the memory of Miss Campbell was not good. The Court finds that the evidence of Mrs. Hassett and Mrs. Hutchison was reliable and accurate. It is not necessary to make detailed references to particular parts of the evidence of any of the other witnesses.

Counsel for Orlane contended that in proceedings for the recovery of a pecuniary penalty under s.76 of the Act, the Court should apply the criminal onus of proof. In view of a number of relevant decisions of this Court when that onus was not applied, that contention is rejected. Generally see Peter Williamson Pty. Ltd. v. Capitol Motors Ltd. (l982) 4l A.L.R. 6l3 per Franki J. at pp.6l9-20. The civil standard of proof is applied having regard to the proceedings being for a penalty and the seriousness of the allegations made against Orlane. Even if the criminal onus was applied, the same facts would have been found.

In the early part of l980, Orlane products were sold by retail in Launceston through two outlets, namely Kents and McKinlays. To assist in the sale of its products, from time to time Orlane participated in promotions of its products at retail sites. In substance, any one promotion normally extended over one week. Orlane and the retailer shared the cost of advertising the promotion at which Orlane provided a beauty consultant to attend at the retailer's store to advise and assist customers on beauty needs and skin care and on the range and use of Orlane products. Customers were requested to make appointments for consultation with the consultant. In addition, as part of the promotion, a limited range of products was advertised for sale at discount prices and complementary trial-sized products were given to customers. In addition to promotions, Orlane assisted retailers by providing them with tester units which were used by the retailer to aid sales of Orlane products.

Early in l980, Orlane appointed Mrs. Hassett its Victorian Manager to replace persons who previously had been Orlane's representatives for the distribution of Orlane products in Victoria and Tasmania. Differences had arisen between Kents and Orlane. Kents had returned a number of products to Orlane. The substance of the complaints by Kents was that Orlane's representatives had not been fulfilling their obligations and that promotions at Kents tended to follow closely after promotions at McKinlays thereby limiting the beneficial results to Kents which otherwise would flow from the promotions. Further, Orlane had not been supplying Kents with tester units. At the same time Kents' account had become out of order and was not being paid as promptly as it ought to have been paid. Further, Orlane was concerned that on occasions, other than during promotions, Kents had been advertising the sale of Orlane products at discounts from 20-25% off the retail price. Mr. McKinlay had complained to Orlane concerning these discounts. Orlane had refused to accept the products returned by Kents but had written to Kents suggesting that assistance could be given by a promotion as soon as possible and informing Kents that Mrs. Hassett would be contacting Kents to organize a promotion and Mrs. Hassett would be instructed to help resolve the existing problems between Orlane and Kents.

In June l980 Mrs. Hassett visited Launceston and had a long meeting with Mr. Hutchison. No formal agreement was reached but the Court finds that a number of arrangements were made between Mrs. Hassett, on behalf of Orlane, and Kents. Kents was to continue to sell by retail Orlane products. Kents was to return certain items of old stock to be replaced by new stock. Orlane would continue to supply Orlane products to Kents. A promotion was to be organized at Kents. Future promotions at Kents would not be timed to conflict with promotions at other stores in Launceston. Testing units would be supplied to Kents by Orlane. Apart from during promotions, Kents would not sell Orlane cosmetic products at discount prices. Special credit terms were to be allowed with respect to amounts then owed by Kents to Orlane, but future orders would be paid according to the normal terms.

Orlane and Kents adhered to the arrangements made at the June meeting for some months.

Some time after June l980, Orlane commenced to supply cosmetic products to Myer Launceston for sale by retail. Arrangements were made between Orlane and Kents for a promotion at Kents during the week 24-28 November l980. A large advertisement for that promotion was arranged to be inserted in the 'Launceston Week', a newspaper circulating in the Launceston area, published on Thursday, 20 November l980. The cost of the advertisement was shared between Orlane and Kents. The advertisement stressed that:

'Orlane's fully trained Beauty Consultant (Paula Doran) will be at Kents during the week of November 24-28 from 9.30 a.m. to discuss your beauty needs and skin care. Phone for an appointment on 3l7 777.'

Specified products were to be discounted and complementary trial-sized products were to be given to customers.

During the week commencing Monday, 17 November l980, Mr. and Mrs. Hutchison were holidaying in Queensland. About that time Orlane was conducting a promotion at Myer Launceston, even though a promotion was being planned at Kents. Miss Campbell telephoned Mr. Hassett and told him of the promotion at Myer. Mr. Hassett gave instructions to vary the advertisement which was due to appear in the 'Launceston Week' on Thursday, 20 November. Miss Campbell ordered the alteration, the order being given in all probability on Wednesday, 19 November. The advertisement, in its altered form, duly appeared in the 'Launceston Week' on 20 November. It was in the same format as the planned advertisement and in particular it made reference to the promotion by Orlane, but urged readers to 'take advantage of Kents' special Orlane offer starting TODAY to NOV. 28'. The advertisement offered 25% off the Orlane treatment range. Instead of the limited number of Orlane products to be sold at a discount during the promotion, the advertisement now offered a 25% discount off the whole range of the Orlane products when purchased from Kents.

The General Manager of Orlane, Mr. Coburn, received complaints concerning the advertisement from McKinlays and from Myer. Mr. Coburn rang Mrs. Hassett. He told her that he had received the complaints concerning the advertisement. He told her that Kents' account was out of order. He told her to close Kents' account. The Court finds as a fact that at that time Kents' account was not out of order and that the arrangements entered into in June l980 had been complied with. Subsequently, on a day in November which cannot be identified, Mrs. Hassett rang Kents and spoke to Miss Campbell. She told Miss Campbell that the promotion was cancelled, that Paula Doran would not be attending at Kents, and that Kents' account was closed. The Court finds that the words 'account was closed' meant and were understood to mean that Orlane would not in future supply Orlane goods even if ordered by Kents. Mrs. Hassett told Miss Campbell that the action was taken because of discounting by Kents and because Kents' account was out of order.

Shortly after that telephone conversation Mr. and Mrs. Hutchison returned to Launceston. Mrs. Hutchison rang Mrs. Hassett. Mrs. Rowberry listened to the conversation on a telephone extension. The conversation between Mrs. Hutchison and Mrs. Hassett was somewhat acrimonious, but in general supported the findings already made.

There is no evidence that subsequent to the telephone conversation between Mrs. Hassett and Miss Campbell, Kents requested Orlane to supply products. There is no evidence that Orlane refused to supply products on an order form filled in by Kents.

On these facts the Court finds that in June l980 Orlane induced Kents not to sell cosmetic products supplied by Orlane at prices less than the prices specified by Orlane. Those facts constitute a contravention by Orlane of s.48 of the Act; see sub-sections 96(l) and (3)(b). In fact, during the course of final submissions by counsel for the Commission, senior counsel for Orlane conceded that the Commission had established a contravention of the Act by Orlane in June l980.

By its statement of claim the Commission had alleged a contravention being:

(a) an attempt to induce;

(b) further or alternatively an inducement; and

(c) further and alternatively an agreement.

On the evidence the Court finds that by the conversations between Mrs. Hassett and Mr. Hutchison an arrangement was made whereby Orlane induced Kents not to sell at prices less than prices specified by Orlane, products supplied by Orlane to Kents. On the evidence the Court is not satisfied that there was an agreement in the requisite sense. It is true that some of the evidence suggests that the form of the conversation between Mrs. Hassett and Mr. Hutchison was that if Orlane did certain things, Kent would do or not do certain things, and vice versa. The conversation took place in circumstances where from time to time Kents had ordered products from Orlane. Each order was made by completing an order form. The order forms contained in them a reference to 'an infringement of franchise', but there is no evidence, apart from the order form, of the terms of any franchise agreement between Orlane and Kents. The order forms contained a paragraph as follows:

' SPECIAL FRANCHISE CONDITIONS

Stock will not be supplied to Agents who do not comply with franchise terms. Orlane stock may not be transferred from one retail location to another without the express written permission of the company.'

Apart from that paragraph, and the provisions already set out in these reasons, the only other general provisions set out in the order forms relate to what was comprised in the prices, the minimum amount of any order, returns, breakages and shortages. There may have been an arrangement or agreement of a franchise nature between Orlane and Kents, but there is no evidence relating to it. If there was such an arrangement or agreement there is no evidence as to how long it was to continue in operation or how, and if so by whom, it could be terminated. In this context the Court refuses to find that the conversations constituted an agreement with all the legal consequences flowing therefrom.

Subject to the application of s.98(2) of the Act, the Commission has proved that in November l980 Orlane withheld the supply of Orlane products to Kents for the reason that Kents had sold or was likely to sell those products at prices less than the prices specified by Orlane as prices below which the products were not to be sold, and that in so doing Orlane had engaged in the practice of resale price maintenance; sections 48, 96(l), (3)(d)(ii), (6) and (7), and 98(l)(a). Insofar as it may be necessary, reference is made also to sub-section l00(l). Senior counsel for Orlane, quite properly, was not concerned to contend to the contrary. Mrs. Hassett had made it clear to Kents that Orlane expected Kents to sell the Orlane products at the retail prices specified in the order forms except during a promotion. Orlane had been supplying those products to Kents. Orlane had knowledge of the advertisement appearing in the 'Launceston Week' of 20 November l980. Further, Orlane knew of similar advertising by Kents during the period of six months immediately prior to 20 November l980. Shortly after 20 November l980 Orlane closed Kents' account. By closing that account Orlane made it known to Kents that thereafter Orlane would not supply Orlane products to Kents. This amounted to a refusal or failure to supply those products to Kents; paragraph 4(2)(c)(ii). On the facts of this case it is not necessary to establish a fresh request by Kents and a refusal or failure by Orlane to satisfy that request. Further, this is not a case where Kents had requested Orlane to supply the products to another person. The allegation that Kents' account was out of order may have been a reason for closing the account, but that does not exclude there being other reasons for stopping the account. Orlane closed Kents' account for the reason already stated and that was a substantial reason for closing the account; s.4F. Accordingly, subject to the application of sub-section 98(2), Orlane has engaged in the practice of resale price maintenance contrary to s.48 of the Act.

This leads to the substantial issue raised in these proceedings, namely the exception from the prohibition imposed by s.48 of the Act of conduct entered into by a supplier of goods (Orlane) to protect its goods from being used as loss leaders. The phrase 'loss leaders' does not appear in the Act but is used as a convenient shorthand expression to describe conduct which is specified in sub-section 98(2) of the Act. Orlane raised this issue by its defence. The relevant paragraphs of the defence, adapted to conform with the terminology used in these reasons, are set out:

'8. Orlane did not supply Orlane products to Kents after about November l980 for the reason that Kents within the twelve months preceding the non-supply, sold Orlane products obtained directly from Orlane at less than their cost to Kents for the purpose of attracting to Kents Pharmacy, which was a place at which Orlane products were sold, persons likely to purchase other goods, namely other products sold or to be sold at that pharmacy.

9. Further and in the alternative to paragraph 8, Orlane says that it did not supply Orlane products to Kents after about November l980 for the reason that Kents within the twelve months preceding the non-supply sold at Kents Pharmacy which was a place where Orlane products were sold, Orlane products obtained directly from Orlane at less than their cost to Kents for the purpose of promoting the said pharmacy.'

Section 48 imposes a prohibition on the conduct therein specified. Section 96 specifies acts which constitute that prohibited conduct. In the present case, the relevant acts are those listed in sub-section 96(d)(ii), namely that Orlane has withheld the supply of Orlane products to Kents for the reason that Kents has sold or is likely to sell those products at a price less than the price specified by Orlane as a price below which the products are not to be sold. Sub-section 98(l) contains deeming provisions relating to the withholding of the supply of goods. The provisions of sub-section 98(2) perform a different purpose from those of sub-section 98(l). In broad terms, sub-section 98(2) removes from the acts listed in sub-section 96(3)(d) the acts listed in sub-section 98(2). In other words, sub-section 98(2) lists exceptions to acts which otherwise constitute the practice of resale price maintenance. Apart from the wording of sub-section 98(2), that position is made clear by the words 'subject to this Part' appearing in sub-section 96(l). Sub-section 98(3) lists acts which constitute exceptions to the exceptions listed in sub-section 98(2). In the present case sub-section 98(3) has no application. Kents was not selling the Orlane products in a seasonal or clearance sale of goods nor was it selling those products at a sale of goods which took place with the consent of Orlane; compare a sale of Orlane products at a discount with the consent of Orlane during a promotion. Accordingly, no further reference need be made to sub-section 98(3).

The exception referred to in sub-section 98(2) applies if the Orlane products sold by Kents at 25% discount were so sold by Kents 'at less than their cost' to Kents for either of the purposes listed in sub-paragraphs 98(2)(a) or (b). Leaving aside those sub-paragraphs, the issue directly raised by Orlane is the meaning to be given to the word 'cost' in sub-section 98(2). Counsel for the Commission contended that it should be construed as meaning 'price'. Counsel used the expression 'net price'. Senior counsel for Orlane contended that it should be construed as meaning the sum of the price paid for the products plus other expenses incurred by Kents in selling those products. The price paid to Orlane by Kents for the Orlane products was 66 2/3% of the maximum retail price. Kents advertised the Orlane products for sale at a price of 75% of the maximum retail price. The sale price therefore was not less than the purchase price paid by Kents. Apart from that issue of law, questions of fact and law arise concerning what expenses of sale are to be taken into account if the word 'cost' is not construed as meaning 'price' and the quantum of those expenses.

Before turning to the facts relevant to these matters, it is necessary to refer to a procedural matter. Senior counsel for Orlane contended that the exception contained in sub-section 98(2) was in the nature of a condition precedent and, having been raised by Orlane, the Commission had the onus of proving that the condition precedent had been satisfied in the sense of proving facts to establish that sub-section 98(2) did not apply. He referred to the opening words of the sub-section 'paragraph 98(3)(d) does not apply' and contended that they are inappropriate for an exception, qualification or exclusion but rather are appropriate to impose a condition precedent which if raised by the respondent as not having been satisfied, must be proved by the applicant. Applying the contention of counsel for Orlane, in this case the Commission had the evidentiary onus of proving facts which establish that Orlane did not come within sub-section 98(2). Counsel relied upon a number of authorities including Dowling v. Bowie (l952) 86 C.L.R. l36 and Bond Air Services Ltd. v. Hill (l955) 2 Q.B. 4l7.

In my opinion the principles to be applied are stated in Vines v. Djordjevitch (l955) 9l C.L.R. 5l2, in the joint judgment of Dixon C.J., McTiernan, Webb, Fullagar and Kitto JJ. at pp.5l9-20. Part of the passage, which bears a striking similiarity to a passage in the judgment of Dixon C.J. in Dowling v. Bowie, supra, at pp.l39-40, is set out:

'When an enactment is stating the grounds of some liability that it is imposing or the conditions giving rise to some right that it is creating, it is possible that in defining the elements forming the title to the right or the basis of the liability the provision may rely upon qualifications exceptions or provisos and it may employ negative as well as positive expressions. Yet it may be sufficiently clear that the whole amounts to a statement of the complete factual situation which must be found to exist before anybody obtains a right or incurs a liability under the provision. In other words it may embody the principle which the legislature seeks to apply generally. On the other hand it may be the purpose of the enactment to lay down some principle of liability which it means to apply generally and then to provide for some special grounds of excuse, justification or exculpation depending upon new or additional facts. In the same way where conditions of general application giving rise to a right are laid down, additional facts of a special nature may be made a ground for defeating or excluding the right. For such a purpose the use of a proviso is natural. But in whatever form the enactment is cast, if it expresses an exculpation, justification, excuse, ground of defeasance or exclusion which assumes the existence of the general or primary grounds from which the liability or right arises but denies the right or liability in a particular case by reason of additional or special facts, then it is evident that such an enactment supplies considerations of substance for placing the burden of proof on the party seeking to rely upon the additional or special matter : see Morgan v. Babcock & Wilcox Ltd. (l929) 43 C.L.R. l63; Pye v. Metropolitan Coal Co. Ltd. (l934) 50 C.L.R. 6l4; (l936) 55 C.L.R. l38; Darling Island Stevedoring & Lighterage Co. Ltd. v. Jacobsen (l945) 70 C.L.R. 635; Barritt v. Baker (l948) V.L.R. 49l, at p.495; Dowling v. Bowie (l952) 86 C.L.R. l36."

See also Trade Practices Commission v. Guests' Garage Pty. Ltd. (l976) 26 F.L.R. 433.

It is necessary to determine the intention of the legislature as disclosed by the relevant statutory provisions. The form of the legislation may be of assistance in determining intention but is not conclusive. Section 48 embodies the principle which the legislature intends to apply generally. Sub-sections 96(l) and (3) list acts which come within that general principle. Sub-section 98(2) lists 'special grounds of excuse, justification or exculpation depending upon new or additional facts'. In these circumstances there is much to be said for the view that a respondent, having raised by defence the matters specified in sub-section 98(2) carries the evidentiary onus. In those circumstances the respondent seeks to rely upon addditional or special facts and should carry the evidentiary onus of establishing those facts. To come within sub-section 98(2) the facts are exceptional. Those facts form part of what, in a broad sense, constitutes the practice of resale price maintenance but which, for policy reasons, the legislature considers should not be prohibited by the general provisions of s.48 and the particular provisions of sub-sections 96(l) and (3). The contention on behalf of Orlane is rejected.

In the present case, the relevant facts are not in dispute. By particulars of paragraphs 8 and 9 of its defence, Orlane stated that it would argue that the cost of Orlane products sold by Kents was the direct or incremental cost of those products to Kents or, in the alternative, was the absorbed cost of those products to Kents. By way of qualification, and as accepted at the hearing, direct costs included the purchase price of the Orlane products plus marginal costs being Bankcard charges, interest and advertising expenses referable to those products, while absorbed costs were the direct costs plus the indirect or overhead costs of the business being conducted by Kents referrable to those products. Pursuant to O.l8 sub-rule l(l) of the Federal Court Rules, the Commission admitted in favour of Orlane for the purposes of these proceedings only that Kents, within twelve months preceding the non-supply referred to in paragraphs 8 and 9 of the defence, sold Orlane products obtained directly from Orlane at less than the direct cost of those products to Kents and thus at less than the absorbed costs of those products and that the products were sold at Kents Pharmacy which was a place from which Orlane products were sold. Accordingly, for present purposes, the Court proceeds on the basis that the only issue arising on the application of the introductory paragraph of sub-section 98(2) is whether the word 'costs' is to be construed as including the marginal costs as defined. If the answer is yes, it will be necessary to consider whether the sale of the Orlane products by Kents was for either of the purposes specified in paragraphs 98(2)(a) or (b).

The concept and the principles applicable to loss leadering, the justification for the practice being made unlawful and the expenses to be taken into account for determining whether loss leadering has occurred have been much discussed in Canada and the United States of America. Counsel referred to a number of authorities and articles including Resale Price Maintenance, Edited B.S. Yamey at p.23 et seq., The Queen v. Consumers Glass Co. Ltd. (l98l) 60 Canadian Criminal Cases, 48l, Janice Bros. Inc. v. The American Distillery 570 F 2d. 848 (l977) and William Inglis and Sons Baking Co. v. I.T.T. Continental Baking Co. N.Y. Inc. 46l F.S. 4l0 (l978). The statutory provisions in those countries, however, are so different from those contained in the Australian Act that those authorities are of little assistance in determining the issue raised in these proceedings. For similar reasons, regard is not had to the numerous decisions arising from State legislation in the U.S.A. and referred to by counsel for Orlane.

Section 98(2) appears to be based upon the provisions of the Resale Prices Act l964 (U.K.). By s.2 of that Act retail price maintenance is prohibited, but an exception to that prohibition is contained in s.3. The relevant parts of s.3 are set out:

'3.-(l) It shall not be unlawful by virtue of section 2 of this Act for a supplier to withhold supplies of any goods from a dealer, ... if he has reasonable cause to believe that within the previous twelve months the dealer ... has been using as loss leaders any goods of the same or a similar description, whether obtained from that supplier or not.

(2) The reference in this section to the use of goods as loss leaders is a reference to a resale of the goods effected by the dealer, not for the purpose of making a profit on the sale of those goods, but for the purpose of attracting to the establishment at which the goods are sold customers likely to purchase other goods or otherwise for the purpose of advertising the business of the dealer:

Provided that a sale of goods shall not be treated for the purposes of this section as the use of those goods as loss leaders _

(a) where the goods are sold by the dealer at a genuine seasonal or clearance sale, not having been acquired by the dealer for the purpose of being resold as mentioned in this section; or

(b) where the goods are resold as mentioned in this section with the consent of the manufacturer of the goods ...'

In that section, for present purposes the crucial words are 'a resale ... not for the purpose of making a profit on the sale of those goods, but for' specified purposes. Apart from illustrating the concept behind the exception of loss leadering from prohibited retail price maintenance, the wording of the U.K. legislation does not assist in determining whether, in sub-section 98(2) of the Australian Act, the word 'cost' is to be construed as 'price' or is to be construed as meaning the word 'price' together with, at the least, marginal costs referrable to the relevant goods.

An analysis of the relevant parts of s.48, s.96 and in particular sub-paragraph (d)(ii) thereof and s.98 and in particular sub-sections (2) and (3) thereof, has been given. In the context of the Act and those sections, the purpose of sub-section 98(2) is to relieve a supplier of goods from the prohibition imposed by s.48 where the person to whom the goods are supplied abuses his position in the sense of making an improper use of the goods supplied. This is made clear by the effect of paragraphs 98(2)(a) and (b). In the present case, it is difficult to see how the action by Kents could adversely affect its competitor, Myer. There can be no suggestion that Kents had contravened the provisions of s.46 of the Act. In reality, it was the combined action by Myer and Orlane to conduct a promotion of Orlane products in competition with Kents which galvanized Kents into advertising Orlane products for sale at a discount of 25%. Mrs. Hassett admitted freely that Orlane gave preference to Myer because of the size of its account. One has much sympathy for Kents, but the Act is to be construed according to the words and the policy of the Act. In any event, within a year prior to November l980 Kents had sold Orlane products obtained direct from Orlane at a discount of 25% less than the maximum retail price of those products.

The Act does not contain a definition of the word 'cost'. In the Shorter Oxford Dictionary the relevant meaning is stated as 'That which must be given in order to acquire produce, or effect something; the price paid for a thing'. In the Macquarie Dictionary, it is stated as 'the price paid to acquire, produce, accomplish or maintain anything'. In the two dictionaries the word 'price' is given the following meanings respectively, 'Money, or the like, paid for something. The money (or other equivalent) for which anything is bought or sold' and 'the sum or amount of money or its equivalent for which anything is bought, sold or offered for sale'.

In some contexts, the words 'cost' and 'price' may be synonymous. Sub-section 98(2) applies with respect to persons who purchase goods for sale. Of necessity, before the sub-section has any application, the person to whom the goods have been supplied must have sold those goods, or at least some of them, and the sale must have been at a price 'less than their cost' to that person. In this context, it is difficult to see how the word 'cost' is to be construed as 'price' or 'net price'. In that context the construction to be given to the word 'price' involves its own difficulties. The extended definition given to the word 'price' by s.4(l) of the Act would not assist. Is the price the list price less any discount allowed? Are freight expenses incurred by the person to whom the goods are supplied in having the goods delivered to him to be added to the net price to arrive at the true price of the goods? If so, why limit the expenses to freight charges? By construing the word 'cost' as meaning the word 'price', the inherent difficulties are not resolved, they merely become once removed.

Counsel for the Commission contended that in reality, the word 'cost' should be construed as meaning the net acquisition cost to the person to whom the goods were supplied. In my opinion, that contention does not give sufficient weight to the context of sub-section 98(2). Under normal circumstances, it would be expected that the person to whom the goods were supplied for sale would sell those goods at such a price to the purchaser as to make a profit from that sale. Illustrations of exceptions from that normal course are set out in sub-section (3). If, instead of making a profit from the sale of the goods supplied, the person sells them at less than their cost for a purpose specified in paragraph 98(2)(a) or (b), the profit from his business may increase as a result of additional sales of other goods, but in so selling the person is abusing his position by making an improper use of the goods vis-a-vis the supplier of those goods. In the trading and commercial context to which the Act applies, practical considerations must apply. There is much to be said for the view that a respondent should be entitled to the benefit of the exception provided by paragraph 98(2) where the person to whom he has supplied goods has sold those goods at less than the sum of their net acquisition costs together with at least the marginal expenses of that person referable solely and directly to the goods sold. The contention of counsel for the Commission is rejected.

In its context in sub-section 98(2), 'costs' includes the expenses incurred by the person in acquiring the goods which subsequently are sold. It is not necessary to denote all those expenses but they include, at least, the marginal costs, as defined, for the purpose of these proceedings. Those expenses are referable directly and solely to the Orlane products sold by Kents and do not include the absorbed costs. It is not necessary to express any view on whether the absorbed costs should be included. In any particular case the answer to that question might depend upon the evidence before the Court.

The formal admission made by the Commission was that in the twelve months preceding the non-supply of the Orlane products, Kents 'sold Orlane products ... at less than the direct cost of those products to Kents'. As a result, evidence was not led at the trial concerning actual sales by Kents of Orlane products. Sales were assumed to have occurred before Orlane closed Kents' account. Those sales may have followed the advertisement which appeared in the 'Launceston Week' on 20 November l980. Those sales certainly followed earlier advertisements by Kents that Kents was offering for sale Orlane products at a discount. By reason of sub-section 96(7), references in sub-paragraph 96(d)(ii) to the selling of goods are to have the extended meaning referred to in sub-section 96(7). It is a nice question whether, in sub-section 98(2), the reference to a person who 'has sold goods' is to be construed as having the extended meaning referred to in sub-section 96(7). Counsel appeared to have assumed it did. Without deciding the question, the Court proceeds on the assumption that in fact sales did take place after 20 November l980. Thus it becomes necessary to decide whether Kents engaged in that conduct for a purpose specified in paragraph 98(2)(a) or (b).

Difficult questions arise in construing the word 'purpose'. Counsel for the Commission contended that Orlane had to establish that Mr. Hutchison sold the Orlane products for one of the specified purposes. He contended that the purpose was subjective to Mr. Hutchison and that he had as an operative subjective purpose in selling the Orlane products one of the purposes specified in sub-section 98(2). He contended that it was not sufficient to take conduct and attach an objective purpose to the person engaging in that conduct. He relied on what Deane J. said in Tillmans Butcheries Pty. Ltd. v. Australasian Meat Industry Employees' Union (l979) 42 F.L.R. 33l at pp.348-9 where his Honour was considering the construction of the word 'purpose' where it appeared in sub-section 45D(l) of the Act:

"'PURPOSE'

The 'purpose' referred to in s.45D(l) is the operative subjective purpose of those engaging in the relevant conduct in concert. In this regard, one may contrast the purpose referred to in s.45D(l) with the objective purpose of an arrangement under s.260 of the Income Tax Assessment Act l936 (Cth) (see Peate v. Federal Commissioner of Taxation ((l964) lll C.L.R. 443, at p.468).

It suffices, for present purposes, to say that, in my view, the question to be answered in determining whether conduct was engaged in for a 'purpose' mentioned in s.45D(l) of the Act is, to adopt the words of Viscount Simon L.C. in Crofter Hand Woven Harris Tweed Co. Ltd. v. Veitch (l942) A.C. 435, at pp.444-5, to be answered not by reference to whether it was appreciated that the relevant conduct might have the specified effect but by reference to the real reason or reasons for, or the real purpose or purposes of, the conduct and to what was in truth the object in the minds of the relevant persons when they engaged in the conduct in concert. In so far as the union was concerned, its purpose must, of course, be determined by reference to the purpose of those through whom it acted.'

I adopt that approach in applying the word 'purpose' in sub-section 98(2).

In raising its defence based upon sub-section 98(2), Orlane has the benefit of the provisions of paragraph 4F(b). It is sufficient that the Orlane products were sold by Kents for purposes that included one of the purposes specified in sub-paragraph 98(2)(a) or (b) and that purpose was a substantial purpose. See also Mikasa (N.S.W.) Pty. Ltd. v. Festival Stores (l972) l27 C.L.R. 6l7 per Barwick C.J. at pp.634-5 and Peter Williamson Pty. Ltd. v. Capitol Motors Ltd., supra.

On the evidence I am satisfied that Kents sold the Orlane products for each of the purposes set out in paragraphs 98(2)(a) and (b) and that each of those purposes was in the circumstances a substantial purpose. During the twelve months preceding mid-November l980, in selling Orlane products in Launceston, Kents was competing directly with McKinlays, and later with McKinlays and Myer. Promotions by Orlane formed an important aspect in attracting persons to Kents to purchase Orlane products and possibly other goods. Kents considered overlapping promotions by the competitors as detrimental to Kents' business. During the period of twelve months, Kents had advertised its business extensively and had from time to time advertised Orlane products at discounted prices. The advertisement appearing in the 'Launceston Week' on 20 November l980 was in retaliation to the Myer' promotion which would have competed with the pending Kents' promotion. By the advertisement Mr. Hutchison attempted to attract customers to Kents Pharmacy to sell Orlane products as well as other goods being offered for sale at that pharmacy. At the same time the advertisement constitutes a promotion of Kents Pharmacy in the sense of keeping that name before the public in Launceston. In evidence, Mr. Hutchison said the general advertising by Kents was for the purpose 'to get the shop more well known in the future as a general matter' and 'to get people into the shop so that they may see other things while they are there and buy them'.

On the admissions made, the sales by Kents followed advertisements including the advertisement of 20 November l980. The words 'other goods' in paragraph 98(2)(a) included at least goods other than the Orlane products which had been sold at less than their cost. Grammatically, the words include other Orlane products, but it is difficult to see what financial benefit would flow to Kents from sales of those products unless the sale price was greater than their cost to Kents. It is true that conduct by Kents for the purpose of attracting to Kents Pharmacy persons likely to purchase other goods may be a form of promoting Kents' business. For the purposes of the Act, that is recognized by the word 'otherwise' in sub-paragraph 98(2)(b), but promotion may have a wider field than in (a). It is not necessary to denote the limits of either of the purposes referred to in (a) and (b). In practical terms, however, the end purpose of a retailer must be to attract customers to purchase goods in such a way that he is able to conduct a financially viable business.

In the result, the Court finds that Orlane has established the defence raised by paragraphs 8 and 9 of its defence. It follows that the Commission has not established that in November l980, Orlane withheld the supply of Orlane products to Kents for any of the reasons listed in sub-paragraph 96(3)(d)(ii) of the Act. Accordingly, the Court does not find that in November l980 Orlane contravened a provision of Part lV of the Act, namely s.48.

JUDGE2

On 12 April 1983 the Court published its findings that in June l980 Orlane induced Richard Leslie Hutchison not to sell at prices less than prices specified by Orlane, cosmetic products supplied to him by Orlane and in so doing Orlane engaged in the practice of resale price maintenance contrary to s.48 of the Act. At the same time the Court published its findings that in November l980 Orlane withheld the supply of cosmetic products to Richard Leslie Hutchison for the reason that he had sold or was likely to sell cosmetic products supplied to him by Orlane at prices less than prices specified by Orlane as the prices below which the products were not to be sold, that by that conduct Orlane would have engaged in the practice of resale price maintenance contrary to s.48 of the Act were it not for the defences in sub-section 98(2) thereof and that paragraph 96(3)(d) of the Act did not apply in relation to the said conduct because Richard Leslie Hutchison was a person who, within the preceding year, had sold cosmetic products obtained from Orlane at less than their cost to him for the purpose of attracting to the establishment at which the products were sold persons likely to purchase other goods and otherwise for the purpose of promoting his business within the meaning of sub-section 98(2) of the Act.

On 20 June l983, the Court heard submissions relating to the orders that should be made on those findings.

By its application, the Commission is seeking the imposition of a penalty under s.76 of the Act and in addition an injunction under s.80 of the Act. The Court considers first what pecuniary penalty should be imposed upon Orlane.

In June l980 Orlane contravened a provision of Part IV of the Act. In these circumstances, under s.76 of the Act the Court may impose on Orlane such pecuniary penalty, not exceeding $250,000 'as the Court determines to be appropriate having 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'.

The facts relating to the contravention are set out in the reasons published on l2 April l983. It should be noted that the letters written by Orlane to Kents referred to therein were signed by Russell K. Coburn as General Manager of Orlane. The contents of those letters make it clear that Mrs. Hassett had full authority from Orlane to attempt to resolve the difficulties then existing between Orlane and Kents and for that purpose to make arrangements relating to the further supply of cosmetic products from Orlane to Kents.

In support of his submissions on penalty, counsel for Orlane relied upon an affidavit sworn by John Duncan Butcher. The material contained in that affidavit is of no real assistance in determining what penalty should be imposed. Mr. Butcher became a director of Orlane in l98l, long after the contravention of Part IV of the Act which had occurred in June l980. Mr. Butcher became managing director of Orlane in l982. He disclaims knowledge of the details of the conversations between Mrs. Hassett and Kents, Mrs. Hassett having refused to be interviewed by the solicitors for Orlane. It must be remembered that Mrs. Hassett gave evidence before the Court and was cross-examined at length by counsel on behalf of Orlane. Mr. Butcher suggests that Mrs. Hassett, in all probability, was acting beyond her lawful authority. That statement is contradicted by the correspondence in evidence from Orlane. The officers of Orlane who then had the necessary authority, including Mr. Coburn, have left the employ of Orlane but it appears that no attempts have been made to obtain evidence from Mr. Coburn on this matter. In all the circumstances, the only evidence relating to the facts giving rise to the contravention of Part IV of the Act by Orlane in June l980 are set out in the reasons already published. No reasonable explanation for that conduct has been put forward by Orlane. It is no answer to say that the management of Orlane has changed.

Most of the affidavit sworn by Mr. Butcher relates to the question of loss leadering. That material is not relevant to the question of penalty for the conduct in June l980. Attention was drawn to the apparent incongruity arising from the facts that if a supplier induces a person not to sell goods at prices less than those specified by the supplier, the supplier is liable to pay a penalty, but if the person to whom the goods are sold sells those goods at less than their cost for a purpose specified in s.98(2) of the Act, the supplier may withdraw the supply of goods with impunity. This apparent incongruity results from the fact that under the Act different types of conduct may each constitute resale price maintenance and in the present case the contravention proved relates to conduct referred to in paragraph 96(3)(b) of the Act and not that described in paragraph 96(3)(d)(ii) of the Act. In the present case no withdrawing occurred in June l980. On the basis of the formal admission made by Orlane, the Court is not satisfied that loss leadering was an issue in relation to the June l980 contravention. On the material before it, the Court has no regard to loss leadering in considering what penalty should be imposed on Orlane arising from the contravention of Part IV of the Act in June l980.

One inference that can be drawn from the affidavit of Mr. Butcher is that Orlane is currently aware of the requirements of the Act and attempts to keep within the letter of that law even though that may be contrary to what Orlane considers to be in the best interests of its marketing procedures. In all probability the same approach was taken by Orlane when Mr. Coburn was the General Manager. In all the circumstances, the action by Mrs. Hassett, encouraged as it was by Mr. Coburn, was to take whatever steps were necessary to attempt to control Kents, a retailer which was considered by Mr. Coburn to be troublesome.

The sale of Orlane products by Kents constituted but a small part of the business being conducted by Kents, but Kents is entitled to the protection given by the Act. There is no evidence of any loss or damage suffered by Kents or by any other person as a result of the conduct by Orlane. The policy of the Act, however, is clear, and the public are entitled to the benefit that the legislature considers to flow from the provisions of s.48 of the Act. The contravention of those provisions by Orlane was blatant. There is no evidence to suggest that Orlane previously had engaged in any similar conduct. The legislature has given the Court power to impose a very large pecuniary penalty. In all the circumstances a penalty of $l5,000 should be imposed.

Section 80 of the Act empowers the Court to grant an injunction restraining Orlane from engaging in conduct that constitutes or would constitute a contravention of a provision of Part IV of the Act. The power so conferred is discretionary. In my opinion, such an injunction should not be granted as of course once it has been found that Orlane has contravened a provision of that Part. One contravention only has been established against Orlane and as a result a pecuniary penalty has been imposed. If a similar contravention occurs in the future, the present penalty, of necessity, is to be taken into account in determining what penalty should be imposed in respect of subsequent contraventions. There is no evidence to suggest that Orlane is engaging in any other conduct in contravention of the provisions of Part IV of the Act. This is not a case where an injunction should be granted.

In all the circumstances, Orlane should pay three quarters of the Commission's costs.