Trade Practices Commission v Prestige Motors Pty Ltd

TRADE PRACTICES COMMISSION v. PRESTIGE MOTORS PTY. LTD., KOTAN HOLDINGS PTY.
LTD., PARAGON INVESTMENTS PTY. LTD., BIG ROCK PTY. LTD. AND OTHERS
No. WAG20 of 1993
FED No. 874/94
Number of pages - 16
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
LEE J

CATCHWORDS

Trade Practices - Restrictive Trade Practices - Resale Price Maintenance - contraventions admitted - proceedings for pecuniary penalties - factors relevant to assessment of penalties.

Trade Practices - Restrictive Trade Practices - arrangement having or likely to have effect of substantially lessening competition - contraventions admitted - proceedings for pecuniary penalties - factors relevant to assessment of penalties.

Trade Practices - injunctions - whether injunction an appropriate form of additional relief.

Trade Practices Act 1974 Pt IV; ss 45, 48, 76, 80, sub-ss 76(1), 76(3), 96(7); paras 76(1)(d), 96(3)(b), 96(3)(f); sub-paras 45(2)(a)(ii), 45(2)(b)(ii)

Commodore Business Machines Pty. Ltd. v. TPC (1990) 92 ALR 563
TPC v. Annand and Thompson Pty. Ltd. (1987) ATPR 40-772
TPC v. Caravella (1994) ATPR 41-293
TPC v. CSR Limited (1991) ATPR 41-076
TPC v. Mobil Oil Australia Ltd. (1985) 4 FCR 296
TPC v. Stihl Chain Saws (Aust.) Pty. Ltd. (1978) ATPR 40-091

HEARING

PERTH, 8 and 9 August 1994
#DATE 18:11:1994

Counsel for the Applicant: S. Owen-Conway, QC

S. Bhojani

Solicitors for the Applicant: Australian Government Solicitor

Counsel for the First to Twenty Third Respondents: W.S.Martin QC

C.G.C. Colvin

Solicitors for the First to
Twenty Third Respondents: Clayton Utz

ORDER

THE COURT ORDERS THAT:
1. The first to eleventh respondents pay by way of pecuniary

penalty for contraventions of s.48, sub-para.45(2)(a)(ii) and sub-para.45(2)(b)(ii) of the Trade Practices Act 1974 the sums set out in the attached schedule.

2. The twelfth to twenty third respondents pay by way of

pecuniary penalty for their involvement in the said contraventions of the Trade Practices Act 1974 by the first to eleventh respondents the sums set out in the attached schedule.

3. The fourteenth respondent pay by way of pecuniary penalty

for attempting to induce a contravention of the Trade Practices Act 1974 the sum set out in the attached schedule.

4. Liberty to the parties to apply for an order as to the

payment of costs if no agreement is made between the parties.

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

JUDGE1

LEE J In this proceeding the applicant ("the TPC") seeks orders pursuant to s.76 of the Trade Practices Act 1974 ("the Act") that the respondents pay pecuniary penalties in respect of conduct engaged in by the eleven corporate respondents ("the Toyota dealers") in contravention of Pt.IV of the Act, being contraventions in which the other respondents ("the corporate officers") were knowingly concerned. The TPC also seeks injunctions against the respondents pursuant to s.80 of the Act.

At all material times the Toyota dealers carried on business as, inter alia, retailers of new Toyota motor vehicles ("Toyotas") in the State of Western Australia. The first respondent ("Prestige Motors") also carried on business as the sole distributor of Toyotas in the State. The second to eleventh respondents conducted their businesses as franchisees under franchise agreements made with Prestige Motors as franchisor. The twelfth to twenty third respondents were corporate officers of the Toyota dealers.
The Toyota dealers represented eleven of the twelve Toyota dealers carrying on business in the metropolitan area of Perth. The other metropolitan dealer, Motorways (1984) Pty. Ltd. ("Motorways") was also a franchisee of Prestige Motors.
Toyota dealers carrying on business outside the Perth metropolitan area were described as "the country Toyota dealers".
After the commencement of the proceeding, statements of agreed facts were filed in which the following matters were admitted by the respective respondents:
Prestige Motors admitted that:

a) it induced, or attempted to induce, the metropolitan Toyota dealers not to advertise Toyotas supplied by Prestige Motors for sale at a price less than that specified by Prestige Motors;

b) it used a statement of price in relation to Toyotas supplied to the metropolitan or country Toyota dealers, likely to be understood by one or more of those dealers as the price below which Toyotas were not to be advertised for sale; c) by reason of those acts it engaged in the practice of retail price maintenance under paras.96(3)(b) or 96(3)(f) of the Act in contavention of s.48 of the Act.

The twelfth respondent ("Crawford"), General Manager of Prestige Motors, admitted that he was knowingly concerned in the contravention of s.48 of the Act by Prestige Motors.
The Toyota dealers admitted that:

a) in October 1989, in contravention of sub-para.45(2)(a)(ii) of the Act, they made an arrangement to fix the maximum amount of discount to be offered by a dealer to a purchaser of a Toyota where a trade-in vehicle was not part of the purchase transaction;

b) between November 1989 and November 1990, in contravention of sub-para.45(2)(b)(ii) of the Act, they gave effect to that arrangement.

By admitting engaging in the conduct described, the Toyota dealers also admitted that the arrangement they made, and gave effect to, had the purpose, or effect, of substantially lessening competition.
Each corporate officer admitted being knowingly concerned in the contraventions of sub-paras.45(2)(a)(ii) and 45(2)(b)(ii) of the Act by the respective Toyota dealers of which they were executive officers.
The fourteenth respondent ("Shannahan") admitted that he induced, or attempted to induce, the country Toyota dealers to contravene sub-para.45(2)(a)(ii) of the Act.

RELEVANT FACTS OF THE ADMITTED CONTRAVENTIONS
Resale Price Maintenance - s.48
12. In conjunction with the distribution of Toyotas, Prestige Motors supplied to Toyota dealers lists of recommended retail prices to be paid for Toyotas by three classes of purchasers.

In May 1988 the metropolitan Toyota dealers established a committee ("the advertising committee") to arrange and pay for advertising on behalf of the metropolitan Toyota dealers. On 11 May 1988 Crawford, as General Manager of Prestige Motors, distributed a bulletin to the metropolitan and country Toyota dealers instructing the dealers that Prestige Motors "discouraged" a dealer from engaging in:

(i) advertising "$ amounts" off the recommended retail price of a Toyota; or

(ii) advertising which, although not specifying a "$ amount" off the recommended retail price, implied that a discounted price was on offer; or

(iii) advertising an offer to sell at a price below the recommended retail price without the approval of the advertising committee; or

(iv) advertising an offer to sell at a price below a price fixed under an advertising committee discount program.

The bulletin requested each Toyota dealer to confirm that the instructions set out in the bulletin were accepted and informed each dealer that failure to comply with the instructions would result in Prestige Motors withholding supply of the next model Toyota until after the release of those vehicles had been announced.
On 18 May 1988 Crawford and a representative of each dealer attended a meeting which discussed the contents of the bulletin. As a result of that meeting, and until about October 1990, most country Toyota dealers and each metropolitan Toyota dealer agreed to adhere to, or did adhere to, the instructions contained in the bulletin by presenting advertisements in the terms required by the bulletin.
By paras.96(3)(b) and (f) of the Act it is an act of resale price maintenance for a supplier of goods to induce, or attempt to induce, the person to whom the goods are supplied to refrain from selling the goods at a price less than a price specified by the supplier, or to supply to that person a statement of price likely to be understood as the price below which the goods are not to be sold. Sub-section 96(7) states that a reference in para.96(3)(b) or (f) to the selling of goods includes the advertising of those goods for sale.

Restriction of Competition - s.45
18. In about September 1989 trading conditions for retailers of motor vehicles were in recession. The fifteenth respondent ("Zito"), as Director and Secretary of the third respondent ("Paragon Investments"), submitted a proposal to Crawford as General Manager of Prestige Motors that Toyota dealers reach an accord to fix the discount on the recommended retail price to be offered by dealers on Toyotas. The purpose of the proposal was to terminate the "heavy discounting of vehicles" said to be eroding the profit margins received by dealers and to return trading in vehicle sales to a profitable level.

Crawford arranged for a representative from each of the metropolitan Toyota dealers to attend a meeting of dealers on 20 October 1989. The corporate officers and a representative of Motorways attended the meeting. Crawford informed the meeting that he had been asked by dealers to "implement a survival policy" and would leave the meeting unless the dealers had resolved by 11 a.m. to take action in the terms proposed. Crawford informed the meeting that stock levels carried by dealers were very low and that sales of commercial vehicles had never been lower. It was said that the high level of interest rates had impacted upon demand and that some dealers were having difficulty fulfilling their obligations under their franchise agreements, and termination of those franchises was threatened by the franchisor.
At that meeting the corporate officers, on behalf of the Toyota dealers, arranged that the price at which Toyotas, and accessories, would be sold by the dealers after 1 November 1989 be as follows:

" (i) 'National Fleet - exactly in line with the Toyota published National Fleet Price List (Yellow). Trade-ins and vehicle maintenance schemes by negotiation. Delivery fee $350.00.'

(ii) 'General Fleet - exactly in line with the Distributor published General Fleet Price List (Lemon). Trade-ins and vehicle maintenance schemes by negotiation. Delivery fee $600.00.'

(iii) 'Local Government - exactly in line with the Distributor published Local Government Price List (Pink). Trade-ins and vehicle maintenance schemes by negotiation. Delivery fee $350.00 where applicable.'

(iv) 'Retail Sales - because trades are usually involved and add-ons are available to improve total retained gross, there is no recommendation other than to give written quotes on the new vehicle exactly in line with the RRP list with negotiations commencing from that point. Delivery fee $600.00.'

(v) Accessories and airconditioning not to be sold at a price less than the prices shown in price lists provided by suppliers.

(vi) If permitted by Prestige Toyotas, a Toyota dealer could supply a Toyota at a lower price than the dealers had agreed upon provided that such permission would only be given if it is necessary for a Toyota dealer to offer a price on a Toyota vehicle that was competitive with the price offered by a supplier of a non Toyota vehicle.

(vii) Each Toyota dealer was to deposit $5,000 with the advertising committee and sign a "fidelity pledge" in respect of that deposit, and to pay $5,000 to the advertising committee for any breach of the trading arrangements agreed upon by the dealers."

In November 1989 the Toyota dealers agreed to vary the arrangement by providing for retail sales prices to be discounted below the recommended retail price by an amount no greater than the recommended general fleet discount shown in the general fleet price list but each dealer was to commence negotiation with a prospective purchaser by quoting a price not less than the recommended retail price.
There was no restriction on the amount to be offered for a "trade-in" or upon the price at which vehicles that had been used for the purpose of demonstration may be sold. A Toyota dealer was not to provide a customer with gifts, or inducements of value.
The Toyota dealers agreed upon other minor variations to the trading arrangements from time to time and gave effect to those arrangements until November 1990 when the TPC investigations commenced.

Attempt to Induce Restriction of Competition - s.45
24. Shannahan was Managing Director of the second respondent ("Kotan Holdings") and as at 14 November 1989 was Chairman of the Western Australian Toyota Dealer Council. On 14 November 1989, in his capacity as Chairman, he met with representatives of the country Toyota dealers at the premises of Prestige Motors in Perth, and informed the country Toyota dealers that metropolitan Toyota dealers had been asked to "adhere to a set of trading guidelines" and invited the country Toyota dealers to do the same. It was not alleged that, as a result of that meeting and Shannahan's entreaty, the country Toyota dealers made such an arrangement, or arrived at an understanding in those terms, but Shannahan admits that by his conduct he attempted to induce the country Toyota dealers to make a similar arrangement to that entered into by the metropolitan Toyota dealers and that such an arrangement, or understanding, would have contravened sub-para.45(2)(a)(ii) of the Act. Pursuant to para.76(1)(d) of the Act a penalty may be imposed for an attempt by a person to induce another to contravene a provision of Pt.IV of the Act.

Imposition of Penalties - s.76
25. Pursuant to sub-s.76(3) of the Act a person is not liable to pay more than one pecuniary penalty in respect of the same conduct. The conduct of Prestige Motors which constituted acts of resale price maintenance under paras.96(3)(b) and (f) of the Act, by inducing the Toyota dealers not to sell Toyotas at a price less than that specified by Prestige Motors and by supplying to Toyota dealers a statement of price likely to be understood by the dealers as the price below which Toyotas were not to be sold, were acts which arose out of the one course of conduct, the second act described being part and parcel of the first. Accordingly, whether or not the conduct constituted more than one contraventon of s.48 of the Act, pursuant to sub-s.76(3) only one pecuniary penalty is to be imposed in respect of that conduct and in respect of the involvement of Crawford in that conduct.

The maximum penalties that may be imposed on the Toyota dealers, and the corporate officers, in respect of the contraventions, are the penalties that may have been imposed under s.76 as it stood at the date at which the conduct was engaged in, namely, $250,000 in respect of a body corporate and $50,000 in respect of a person not a body corporate.
Pursuant to sub-s.76(1) the penalty to be imposed is that which 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 a similar conduct".
Early in the life of the Act a clear statement of the purpose of s.76 was set out by Smithers J in TPC v. Stihl Chain Saws (Aust.) Pty. Ltd. (1978) ATPR 40-091 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."

Some of the additional matters that may be relevant to the assessment of the appropriate penalty under s.76 have been referred to in cases such as TPC v. Annand and Thompson Pty. Ltd. (1987) ATPR 40-772 per Spender J at 48,394 and TPC v. CSR Limited (1991) ATPR 41-076 per French J at 52,152-52,153 but in the end the particular facts of each case must determine the appropriate penalty having regard to the object to be served by s.76, namely, to promote competitive conduct in trade or commerce by use of penalties sufficient to deter acts that would tend to be destructive of such competition. It is also necessary to have regard to the object of the provisions of the Act that have been breached, being the contravention in respect of which the penalty has to be imposed.
As Smithers J stated in TPC v. Stihl Chain Saws (Aust.) Pty. Ltd. (1978) ATPR 40-091 at 17,895-17,896:

"It is clearly the intention of Parliament to lay down conditions for the conduct of corporate trade and commerce which will ensure that traders operate in competitive conditions and that the public has the benefits which flow therefrom. So far as resale price maintenance is concerned the object of the Act is to create conditions in which the public will benefit from traders competing with each other in respect of prices unfettered by price restraints imposed by suppliers of goods upon retailers."

Section 45 of the Act has the same object as that outlined by Smithers J in the context of discussing s.48. Section 45 is designed to stimulate competition between traders by prohibiting arrangements, or understandings, which restrict, or lessen, that competition.
The fixing of a penalty does not involve an inquiry into the extent to which the contravening conduct departs from business or community standards nor does it involve an assessment of the extent to which retribution should be extracted for an affront to community values. (See: TPC v. CSR Limited (1991) ATPR 41-076 per French J at 52,152.)
Section 76 does require the Court to regard as a relevant matter the nature and extent of any loss or damage suffered as a result of the conduct but as Toohey J stated in TPC v. Mobil Oil Australia Ltd. (1985) 4 FCR 296 at 298, s.76 is not concerned with assessing or ordering compensation, being a right expressly provided for in s.82 of the Act.
The principal purpose of s.76 is to underline the seriousness of Parliament's intention that corporations engaged in trade or commerce adhere to the standards set out in the Act and to secure that adherence by providing for the exaction of penalties sufficient to deter a trader from contravening the Act and from taking the risk of being ordered to pay such a penalty.

Conduct of Respondents
35. The contraventions of the Act by Prestige Motors represented significant departures from the provisions of the Act. Prestige Motors, the sole distributor of Toyotas in the State, and the controller of Toyota dealers through franchise agreements, was in a position to exercise considerable influence, as well as leadership, in that segment of the trade.

The contravention of s.48 by Prestige Motors was not a consequence of lack of awareness of an obscure statutory provision. The provisions of s.48 of the Act, enacted to eliminate well-known practices of retail price maintenance, were given wide publicity when enacted in 1974 and whenever enforced thereafter. The terms of the Act must be matters of common knowledge in trade and commerce. The contravention by Prestige Motors was the result of a misguided belief that economic imperatives in times of recession could excuse the adoption of trading practices prohibited by the Act.

The desire of a franchisor to control conditions of trade so as to return higher levels of profit to its franchisees and enable those parties to carry out their obligations as franchisees to promote and service the product distributed by the franchisor may be understood but not excused.
The conduct engaged in by setting the price at which Toyotas supplied by Prestige Motors may be advertised for sale did not restrict the right of dealers to sell at discounted prices but was designed to inhibit the initiation of negotiation of, or bargaining for, lesser prices and erosion of profit margins.
The conduct was engaged in continuously between May 1988 and October 1990, and although the extent to which it achieved its purpose may be incapable of accurate assessment, it may be assumed that the desired effect of the conduct was achieved in some degree.
Furthermore, it set the scene for the formation of the arrangement to lessen competition between dealers put to the Toyota dealers by Prestige Motors in November 1989.
Although the conduct was an indirect, rather than direct, form of price maintenance, it was a deliberate act clearly forbidden by the Act and as such was a serious contravention which should attract a significant penalty to mark the extent to which the conduct departed from the standard set by the Act and to deter similar conduct by other parties engaged in trade or commerce. The conduct arose out of a contractual relationship between Prestige Motors as franchisor and Toyota dealers as franchisees and was unlikely to be detected unless disclosed by one of those parties.
With regard to the contraventions of s.45 of the Act the conduct of Prestige Motors, designed to maximise profits, was of a type other corporations in a like position may be tempted to employ, and the penalty must addess that risk. As stated earlier in these reasons, Prestige Motors was in a position to exercise a considerable degree of control and influence in respect of the retail marketing of Toyotas, and also being a principal dealer in Toyotas, it would have anticipated receiving, as did, in fact, receive, substantial benefit from Toyota dealers making and giving effect to an arrangement which lessened competition between them.
The deliberate nature of the course of conduct followed by Prestige Motors may be seen in the formality of the document prepared for execution by each dealer, entitled "Toyota Dealers Fidelity Pledge" to obtain a written acknowledgement from dealers that they would adhere to the arrangement. The threat of punitive action against a dealer in breach of the arrangement was not idle. On three occasions "fines" were imposed on dealers for "breaches of the accord".
The respondents admit that in giving effect to the accord their conduct was deliberate and planned and that calculation of the appropriate penalty must take that into account. However, it is submitted that the acts of the respondents were not carried out in intentional defiance of the Act.
It was submitted in mitigation of the contraventions that they were committed in ignorance of the prohibition of such conduct by the Act. In so far as the submission suggests that such ignorance carries weight in mitigation, I am unable to agree. The provisions of the Act which attack the practice of suppliers using their power and influence to attempt to maintain the level of retail prices charged by retailers of the suppliers' goods have been in place for almost twenty years. Lack of awareness by a supplier, or a retailer, of those provisions could not stand to the credit of either party.
Similarly, provisions of the Act prohibiting conduct designed to restrain trade or lessen competition have been the subject of analysis and discussion for many years and ignorance of those provisions by a party engaged in distributing or retailing motor vehicles would suggest a conscious failure to be informed about details of the Act rather than oversight of a type for which leniency may be extended. Furthermore, in respect of Prestige Motors, and most of the Toyota dealers, the conduct of the corporations involved senior executives who should be expected to be well informed in these matters.
On their face, the contraventions of ss.48 and 45 of the Act were blatant acts attracting the imposition of a sufficient penalty to deter the present respondents and other traders from engaging in like conduct in future.
However, there are some mitigating factors which should be taken into account in setting the appropriate penalty whilst, at the same time, observing the need to impose penalties which fulfil the function of adequate deterrence.
The Toyota dealers and the corporate officers have admitted contravening the Act, and being involved in those contraventions respectively, at a reasonably early point in the litigation and have refrained from exercising a right to have the TPC prove the case against them. In doing so the respondents have spared the community substantial expense.
Furthermore, subsequent to the commencement of this litigation the corporate respondents have arranged for seminars and courses to be conducted to instruct executives of the corporations in the operation of the Act. Those actions justify some confidence that similar conduct will not be repeated by the respondents.
In addition to taking into account the assistance provided by the respondents to the TPC by not contesting their liability to pay penalties under the Act, notice may be taken of the prospect that the amount of costs payable by the respondents to the TPC will still be substantial.
It was submitted on behalf of the respondents that adverse trading conditions existing in late 1989 were the cause of the proposal for, and implementation of, the trading arrangement. It was said that "survival" as opposed to greed had led to the creation of the arrangement and participation in it. The respondents submitted that giving effect to the trading arrangement was unlikely to result in a significant increase in profits for the Toyota dealers because the market in which they operated within the State was not restricted to competition between Toyota dealers but included dealers selling new vehicles that were close substitutes for Toyotas and, it was suggested, dealers in near new and used vehicles. Accepting for the moment that the market may be so defined, it does not follow that the consequence of the trading arrangement within the market would be one of little or no effect. Whether the competition for sales faced by the Toyota dealers was direct, as in the case of Motorways, or indirect, as in the case of dealers in substitutable vehicles, the Toyota dealers expected to benefit from the arrangement they had made for the conduct of their businesses with the full knowledge of the competition to be faced.
It is appropriate to conclude that the reputation of the Toyota product sold by the dealers attracted a core of customers not interested in a substitute for a Toyota and that the restriction in competition between Toyota dealers would more than compensate for any price advantage that may be delivered by entering into the arrangement to a competing dealer in a substitutable product.
The fact that the Toyota dealers were prepared to submit to the imposition of "fines" if they breached the trading arrangement suggests that the dealers understood that the arrangement would be likely to deliver substantial benefits.
The TPC and the Toyota dealers presented evidence from expert economists designed to support opposing submissions on this issue by suggesting the inferences to be drawn as to how the trading arrangement impacted upon competition in the market and to what extent the Toyota dealers benefited from giving effect to the arrangement.
The TPC contended that, according to the franchise returns of the dealers, giving effect to the arrangement increased the aggregate gross profit of the Toyota dealers by approximately $1.7m and an increase of approximately 39 per cent in gross profit per vehicle in respect of the vehicles to which the arrangement applied.
The respondent submitted that the trading arrangement applied to only 20 per cent of Toyotas sold in Western Australia and was unlikely to have had a major effect on competition.
Many factors can be relevant to improvement in gross profits received and it is not possible to reach a precise conclusion as to the benefit received by dealers from giving effect to the trading accord they made. The volume of sales and gross profit per vehicle sold may be affected by the release of new models, (likely to enhance the margin) and by the "run out" of old models (likely to increase volume of sales but at discounted prices). Profit margins on particular models of vehicles may also be affected by variable rebates or bonuses provided by the manufacturer and wholesaler in respect of those vehicles.
However, the Toyota dealers admit that they contravened sub-para.45(2)(b)(ii) of the Act and, thereby, admitted that they gave effect to an understanding that had, or was likely to have, the effect of substantially lessening competition and the inference should be drawn that in the period in which the arrangement was effected the Toyota dealers received, or were likely to receive, a commensurate benefit from such a substantial lessening of competition.
Having regard to the comprehensive spread of the arrangement over the sales of Toyotas in the metropolitan area and adherence to the arrangement for a period of a year until the TPC commenced enquiries into the existence of the arrangement, it is appropriate to conclude that the Toyota dealers did obtain the benefit of increased profit margins under the arrangement. Also some regard must be given to the tendency of such an arrangement to impact upon the conduct of competing dealers trading in substitutable products who were relieved from competing in price to the same degree, and, if they were satisfied with the market share they held, would be encouraged to improve their own profit margins.
In so far as s.76 of the Act requires the Court to have regard to any loss or damage suffered as a result of the contravention of the Act, it may be inferred that the contravening conduct distorted the market to the detriment of consumers, even though the extent of the damage caused may be beyond accurate assessment. Although the making of the trading arrangement, and giving effect to that arrangement, involved distinct and separate steps, any damage relevant to the assessment of penalty to be imposed for contravention of the Act occurred as a result of the contravention by giving effect to the trading arrangement rather than the conduct of making the arrangement and the penalty imposed should reflect that distinction.
The desire of Prestige Motors to ensure that its franchisees survived a period of recession and traded sufficiently profitably to be able to carry out service obligations to customers could not be achieved by conduct either designed to maintain retail prices, or to establish trading arrangements which substantially lessened competition in contravention of the Act.
It was submitted by the respondents that such a breach of the Act, committed for the ulterior purpose of securing improvements in profits to allow some of the dealers to remain as viable competitors in the market, did not warrant the imposition of a substantial penalty. But the strength of that submission ebbs when consideration is given to the overriding need to deter other traders from engaging in such conduct and to the ease with which such assistance to a trader may become an advantage enjoyed by parties to the arrrangement to the detriment of consumers under the cloak of concealment.
Furthermore, a substantial part of the market in which the Toyota dealers operated involved ordinary consumers for whom the purchase of a new motor vehicle was a major transaction and they were entitled to rely on the dealer with whom they dealt not being a party to restrictive and, therefore, unfair trading practice.
Exposing and prosecuting such breaches of the Act is difficult and occasions on which those breaches are revealed must be used to reinforce the importance attached by the legislature to adherence to the Act.
As stated earlier, the matters referred to in s.76 provide the primary guidelines for establishing the penalty to be applied but regard will be given also to the personal circumstances of the party on whom the penalty is to be imposed. (See: TPC v. Caravella (1994) ATPR 41-293 per Spender J at 41,930.)
It may be accepted that to some extent the formulation and presentation to the Toyota dealers of a trading arrangement by Prestige Motors resulted from a request by the dealer Paragon Investments that such action be taken. That fact is not a matter of mitigation for Prestige Motors but does distinguish the conduct of Paragon Investments from the remainder of the Toyota dealers who agreed to enter the arrangement and gave effect to it. In other respects, there are no subjective matters that would warrant differential treatment of the Toyota dealers. Although the size and strength of the business as conducted by the Toyota dealers varied from dealer to dealer, no more can be said about the personal circumstances of each Toyota dealer, relevant to the matter of penalty, than that each was a corporation engaged in trade and apparently able to meet the financial commitments of the businesses they conducted. The seventh respondent Overport Holdings ceased trading as a Toyota dealer before these proceedings were commenced but that fact alone would not warrant the imposition of a different penalty if the character of the conduct is indistinguishable from that of other dealers.
Prestige Motors was the party whose conduct was most culpable. The formulation of an arrangement between the Toyota dealers, and giving effect to it, for the purpose and with the effect of lessening competition, depended upon the participation of Prestige Motors. Through Crawford Prestige Motors applied pressure to have the arrangement entered into and effected and on several levels Prestige Motors was a principal beneficiary of the implementation of the arrangement. It may also be said that introduction of the arrangement was not a matter of economic "survival" for Prestige Motors. In respect of each infringement the conduct of Prestige Motors was high-handed and designed to overbear any uncertain or wavering dealer, although, as it transpired, most were prepared to fall in with the wishes of the franchisor and make no enquiry as to the legality of the course undertaken and to ignore the warning implicit in the refusal of Motorways to join the proposed trading accord. No one was sufficiently concerned to be properly informed on whether the proposed conduct attracted consequences under the Act.
With regard to the position of the corporate officers, it is clear that Crawford and Zito had a major role in constructing the trading arrangement and recommending it to the Toyota dealers and in causing the Toyota dealers to give effect to it. The extent and form of the involvement of Crawford and Zito in the contravening conduct of their respective corporations may be distinguished from the involvement admitted by the remaining corporate officers.
Crawford was an important contributor to the acts of Prestige Motors when it engaged in conduct which contravened the retail price maintenance and lessening of competition provisions of the Act. As General Manager of the distributor/franchisor, Crawford had a position of influence which he exercised in full at the meeting of metropolitan Toyota dealers in October 1989.
It is necessary for the penalty imposed to acknowledge the pivotal role of Crawford in these matters and to be set at a level that brings to the attention of senior executives of trading corporations the need to ensure that their corporations adhere to the Act in all respects.
Zito and the General Manager of Paragon Investments, not a respondent in these proceedings, were responsible for the acts of Paragon Investments which prompted Prestige Motors to propose the trading arrangement to the metropolitan Toyota dealers. The degree to which Zito was involved in the breach of the Act must be reflected in the attraction of a penalty higher than that imposed on other corporate officers. Zito's involvement in Paragon Investments' conduct was significant and initiated contravening conduct by others. Zito caused Paragon Investments to seek others to continue to give effect to the arrangement and sought the payment of a "fine" whenever a dealer departed from the arrangement.
Paragon Investments was not the proprietor of a struggling business at the time it put the proposal forward that dealers enter into a trading arrangement which contravened the Act.
Shannahan's attempt to induce the country Toyota dealers to contravene the Act by entering a similar trading arrangement to that formed by the Toyota dealers took place on a single occasion and occurred in an oral address to the country dealers.
It is not suggested that it had any adverse consequence and although the act was deliberate, it does not call for the imposition of a substantial penalty.
Of the remaining corporate officers, only the circumstances of the twenty third respondent ("Bowdler") may be distinguished in respect of matters relevant to penalty. Each corporate officer was a director or senior manager of a contravening dealer but although at the relevant time Bowdler was a director of the eleventh respondent Illiad Pty. Ltd. ("Illiad"), he appears to have been subject, in material respects, to the direction of the Managing Director of Illiad, Bennett. Bowdler was directed by Bennett to attend the meeting of Toyota dealers at which Crawford proposed that dealers make the trading arrangement. At that meeting Bowdler sought to refrain from committing Illiad to the arrangement and to have the proposal referred to Bennett for his decision. Bowdler was reluctant to sign the memorandum distributed by Crawford and did so only after pressure was applied openly by Crawford to obtain that result. Bowdler's involvement in giving effect to the arrangement would seem to have been of minimal nature according to the facts presented. Since 1991 Bowdler has been employed as a used car salesman and the submission has not been contested that he is not a person of substantial means. It has not been suggested that lack of means is a relevant circumstance for any of the other corporate officers.
The TPC submitted that in addition to the imposition of pecuniary penalties the circumstances of this case require a further sanction in the form of injunctive orders restraining the respondents from repeating conduct in respect of which penalties have been imposed. (See: TPC v. Mobil Oil Australia Ltd. (1985) 4 FCR 296 at 300.) It was suggested that conduct of the type engaged in by the Toyota dealers was not uncommon in the industry and, so the argument ran, injunctions would assist observance of the Act by others.
No doubt the pecuniary penalties to be imposed on an important sector of the motor trade industry will receive widespread publicity in the industry. Unless some further mischief remains unaddressed by the penalties imposed, further sanctions sought by the TPC by way of mandatory injunctions in the form of "deterrent publicity orders" carry the real risk of inflicting further penalties on the respondents in addition to penalties that have been calculated in accordance with s.76 of the Act. On the other hand, if the injunction sought does no more than restrain the respondents from engaging in, or being involved in, conduct which contravenes the Act, it would do no more than mirror the provisions of the Act but permit procedures of the Court to be used in respect of such a contravention, being procedures of a summary nature designed to deal promptly with acts of contempt. (See: Commodore Business Machines Pty. Ltd. v. TPC (1990) 92 ALR 563 at 575.)

I am not persuaded that it is appropriate to grant the injunction sought in this case. The conduct which constituted contravention of the Act was a discrete event. That conduct ceased four years ago and since then, although not promptly, the relevant dealers have participated in instruction courses on the operation of the Act and systems have been established to make all relevant officers aware of the importance and scope of the Act. Furthermore, the Toyota dealers have assisted in the publication and distribution of a compliance manual throughout the whole of the motor trade industry.
Having regard to the principles referred to and, in particular, the requirements of s.76 of the Act, the penalties to be paid to the Commonwealth by the respective respondents are those set out in the schedule. I will give the parties the opportunity to make an accord as to the payment of costs and in the absence of agreement there will be liberty to apply and make submissions as to an appropriate order.
RESPONDENT s.48 para.45(2)(a)(ii) para.45(2)(b)(ii)

PRESTIGE MOTORS $100,000 $75,000 $100,000 (First Respondent)

Contravention of Act

KOTAN HOLDINGS $10,000 $15,000 (Second Respondent)

Contravention of Act

PARAGON INVESTMENTS $25,000 $40,000 (Third Respondent)

Contravention of Act

BIG ROCK $10,000 $15,000 (Fourth Respondent)

Contravention of Act

GOSWELL $10,000 $15,000 (Fifth Respondent)

Contravention of Act

SCARBORO $10,000 $15,000 (Sixth Respondent)

Contravention of Act

OVERPORT $10,000 $15,000 (Seventh Respondent)

Contravention of Act

EBOR $10,000 $15,000 (Eighth Respondent)

Contravention of Act

CITY BEACH $10,000 $15,000 (Ninth Respondent)

Contravention of Act

YOURSY $10,000 $15,000 (Tenth Respondent)

Contravention of Act

ILLIAD $10,000 $15,000 (Eleventh Respondent)

Contravention of Act

CRAWFORD $7,500 $5,000 $7,500 (Twelfth Respondent)

Involvement in Contravention

GOLDIE

(Thirteenth Respondent) $2,000 $3,000 Involvement in Contravention

SHANNAHAN

(Fourteenth Respondent) $3,000

Attempt to induce Contravention $2,000 $3,000 Involvement in Contravention

ZITO $4,000 $5,000 (Fifteenth Respondent)

Involvement in Contravention

ROCKMAN $2,000 $3,000 (Sixteenth Respondent)

Involvement in Contravention

EVANS $2,000 $3,000 (Eighteenth Respondent)

Involvement in Contravention

McHEYZER $2,000 $3,000 (Nineteenth Respondent)

Involvement in Contravention

YOUNG $2,000 $3,000 (Twentieth Respondent)

Involvement in Contravention

EDWARDS $2,000 $3,000 (Twenty First Respondent)

Involvement in Contravention

SMITH $2,000 $3,000 (Twenty Second Respondent)

Involvement in Contravention

BOWDLER $1,000 $1,000 (Twenty Third Respondent)

Involvement in Contravention

[1994] FCA 874

18 NOVEMBER 1994

Key Legal Topics

Areas of Law

Competition Law

Legal Concepts

Restrictive Trade Practices

Resale Price Maintenance

Pecuniary Penalties

Assessment of Penalties