Trade Practices Commission v Sony (Australia) Pty Ltd
[1990] FCA 503
•14 SEPTEMBER 1990
Re: TRADE PRACTICES COMMISSION
And: SONY (AUSTRALIA) PTY LIMITED; ALEXANDER FRANCIS PAGONIS and MICHAEL
BAXTER
No. Qld G42 of 1989
FED No. 503
Trade Practices
COURT
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
GENERAL DIVISION
Pincus J.(1)
CATCHWORDS
Trade Practices - pecuniary penalties - breach of s.48: resale price maintenance - principles in assessing penalties for corporations and individuals - injunction sought.
Trade Practices Act 1974 ss.48, 76(1)
HEARING
BRISBANE
#DATE 14:9:1990
Counsel for the applicant: Mr. P.A. Keane QC and
Mr. M.M. Stewart
Solicitors for the applicant: Australian Government Solicitor
Counsel for the first respondent: Mr. J.D. Heydon QC and
Mr. A.J.L. Bannon
Solicitors for the first Blake Dawson Waldron
respondent:
Counsel for the second Mr. P. Dutney
respondent:
Solicitors for the second Adamson Bernays Kyle and Jones
respondent
Counsel for the third Mr. C.C. Hodgekiss
respondent:
Solicitors for the third Sly and Weigall
respondent:
ORDER
1. The respondents pay the penalties set out in the following Schedule in respect of the matters alleged in the paragraphs of the Statement of Claim there mentioned.
SCHEDULE
Paragraphs Party Penalty 7 and 8 First Respondent $120,000 Second Respondent $ 12,000 Third Respondent $ 12,000 10, 11 and First Respondent $ 80,000 13 Second Respondent $ 8,000 14 First Respondent ondent $ 30,000 Second Respondent $ 3,000 16 First Respondent $ 20,000 Second Respondent $ 2,000
Judgment is entered against the first respondent in the sum of $250,000, against the second in the sum of $25,000 and against the third in the sum of $12,000, which amounts are to be paid to the District Registrar of this Court within 28 days of this date.
It is ordered that the first and second respondents pay 70% of the applicant's costs of and incidental to the proceedings, to be taxed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
JUDGE1
These reasons relate to the fixation of pecuniary penalties under s.76(1) of the Trade Practices Act 1974 for contraventions of a provision of Part IV of that Act, namely s.48, which prohibits the practice of resale price maintenance. On 31 May 1990, I made findings that certain contraventions alleged against the respondents were proved and others not proved. By prior agreement of the parties, they were afforded an opportunity to adduce evidence and make submissions on the question of penalty at a subsequent hearing.
Under s.76(1), the maximum pecuniary penalty in respect of each contravention found against the first respondent ("Sony"), a corporate body, is $250,000 and the maximum in respect of each contravention against each of the other two respondents (Pagonis and Baxter), being natural persons, is $50,000.
It has to be kept in mind that the penalties prescribed in s.76(1) apply to contraventions of each of the provisions of Part IV which is capable of being contravened: for example, engaging in "boycotts" contrary to s.45D, misusing market power contrary to s.46, and buying shares in a way which contravenes s.50. One should not proceed on the assumption that the legislature has directed its mind to the problem and determined that the sums fixed as maximum penalties are appropriate for the worst types of case likely to arise under all of these various provisions, some of which are quite different in kind and purpose from others.
It appears to me convenient briefly to review some of the reported decisions in which this Court has had to consider appropriate penalties for resale price maintenance. One preliminary observation is that it is not clear that the level of penalties has kept pace with the decline in value of money. Another is that it would seem desirable that penalties be set at such a level as to make the commission of offences against s.48 of the Act of at least doubtful commercial advantage. Here, the evidence showed that fairly vigorous attempts were made to induce compliance with recommended prices and thus suppress price competition between Sony's dealers. Sony must have believed that its likely monetary gain from doing so was such as to outweigh the risks attaching to the contravention: bad publicity, legal costs and penalties. But there is no evidence upon which one could assess what the amount of that gain was thought to be, except for a remark made by Pagonis suggesting that discounting had cost Sony in Queensland a million dollars' worth of business. Were it not for the desirability of setting penalties conforming to the level found in the authorities (and in particular in the recent decision of the Full Court in Commodore Business Machines Pty Ltd v. Trade Practices Commission (1990) ATPR 41-019), I should have been inclined to assess penalties at higher sums than have in fact been fixed. When one finds deliberate breaches of the price maintenance provisions of the Trade Practices Act committed by a subsidiary of one of the greatest manufacturers of electronic consumer goods, after years of attempts to enforce complianc e with these provisions, one can only suspect that the penalties have not been taken very seriously. Their deterrent effect has been insufficient, it appears, to counter-balance the profit apparently derived from protecting recommended prices against the effect of competition between their dealers.
In Pye Industries Sales Pty Ltd v. Trade Practices Commission (1978-1979) 2 ATPR 40-124, when the conduct complained of was directed against a small trader and was described as "quite callous" (18,326), the Full Court said:
"The circumstance that the relevant events occurred over a relatively short period of time, that they involved a relatively small quantity of trading stock, that Coin Operated was at all times in a relatively small way of business are of course matters to which regard is to be had".
There the penalty fixed by the primary Judge was $120,000, a sum which, when one takes account of the decline in the value of money, would approximate $300,000 today. The Full Court declined to interfere with the penalty imposed.
In Trade Practices Commission v. Bata Shoe Co. of Australia Pty Ltd (1980-1981) 3 ATPR 40-161, seven contraventions were found but they were grouped in such a way as to be treated as three for the purposes of assessing penalty. Although there were no previous breaches of the Act, the evidence was (42,278) that there was a very low return on invested capital and the respondent's profit in the most recent year was estimated to be about $300,000. Here the scale of the business and the profit are at a much higher level. The total penalty in Bata was $51,000, corresponding to about $110,000 in today's money. Penalties were set at around a similar level in T.P.C. v. Simpson Pope Ltd (1980-1981) 3 ATPR 40-169. Then in T.P.C. v. Kensington Hiring Co. Pty Ltd (1980-1981) 3 ATPR 40-256, the total in respect of five breaches of a similar kind was $70,000 (about $140,000 in today's money). There, attempted inducements were proved; they were generally ineffective, but the last produced a 16-month break in discounting.
Other penalties imposed for major breaches include T.P.C. v. Bamix Australia Pty Ltd (1985) 7 ATPR 40-534 where the penalty was $110,000 for the corporation (about $160,000 today) and T.P.C. v. General Corporation Japan (Aust) Pty Ltd (1989) 11 ATPR 40-922 where the penalty imposed on the corporation was $130,000.
In Commodore Business Machines Pty Ltd v. Trade Practices Commission (above), the total penalty ($195,000) was describe d by the Full Court as "at the upper end of the range". It should be noted that the total penalty was substantially less than that in Pye (above), if one translates the latter into today's money values. The Commodore case is in some respects comparable with the present. The respondent had a gross annual revenue ($134m in the year 1988), of the same order as Sony's. It may be that the result was influenced by the circumstance that, to some extent, the contravention stemmed from legal advice of an erroneous kind as to what could be done without breaching the price maintenance provisions. The figure of $195,000 was reached by the Full Court's treating three courses of conduct as amounting to one contravention for the purposes of penalty, thereby taking $55,000 from the total fixed by the primary Judge.
I have also noted that cases can be found in which penalties were fixed at a very much lower level, an example being T.P.C. v. Lois (Australia) Pty Ltd (1986) 8 ATPR 40-645, where the penalty was only $5,000. There the amounts of money involved in the dealings were quite small and the respondent impecunious.
In fixing the penalties, I have taken into account the findings made on 31 May and the evidence adduced at the hearing on liability which preceded that. There was also the evidence as to penalty, adduced at the later hearing. I do not propose to repeat or comprehensively to summarise the findings I previously made, but some discussion of them is necessary.
Six contraventions were found to have been committed by Sony, six by Pagonis and one by Baxter. Of the six, one related to Alsound and the other five to Photocontinental, the two dealers identified in my previous reasons.
The Alsound contravention, which is specifically dealt with under the heading "First Allegation" in my reasons, consisted in its having withheld supply of goods to Alsound for a proscribed reason. Withholding was not complete but lasted for a substantial period of time, depriving Alsound of a substantial quantity of goods which it would otherwise have been able to purchase and resell. Sony sought to disguise its purposes by claiming a lack of stock.
Some information about Sony's purposes in treating Alsound, with which it had dealt for quite some years, in this fashion, is to be found in statements made by Pagonis. In discussing with the representatives of Sony the withholding of stock, Pagonis said, in effect, that this was done because of price cutting by Alsound. He was asked whether cutting off supply was "just a Queensland thing ... or is this national?" Pagonis said, in effect, that because of price cutting by companies such as Alsound, in particular, he was "probably heavier handed at the moment than what the other States are ...". This implies that the particular steps taken by Pagonis were not directly dictated by his superiors, but that he had a discretion as to his mode of enforcement of recommended prices.
Sony had an opportunity to call evidence at the separate hearing on the question of penalty, and it did so. However, the evidence called was not such as to counter the inference which is open, and which I draw from the whole of the circumstances, that what Pagonis did was authorised in the fullest sense. There is no reason to find, or indeed to suspect, that he exceeded his authority. The affidavit of Mr. Tadashi Ishida, the present Managing Director of Sony, does not deal with the circumstances in which the contraventions in question occurred; that is hardly surprising, since Mr. Ishida took up his duties as Managing Director of Sony in Australia well after the contraventions occurred. Mr. Ishida has also produced brief letters from other Sony personnel denying knowledge of Pagonis' activities, but that material is not of sufficient strength to rebut the inference I have mentioned.
Pagonis said, during the conversation referred to above, that:
"We ceased supply to Alsound because we found that, we believe that, it is costing us millions of dollars' worth of business a year in that particular area by cutting the hell out of Sony's price."
There followed some discussion about the legality of what Sony was doing. Pagonis said:
"Bear in mind that if you go around waving a maintaining price flag, it obviously is not really the accepted practice and would in fact be frowned on by Government sources."
Another person remarked that it was illegal and Pagonis said:
"Obviously, we are careful about that, obviously, but we do it in respect of our own dealers."
Mr. Uldis Sirovs has given evidence, which is uncontradicted, of a substantial drop in the value of goods supplied by Sony between the year ended 30 June 1987 and that ended 30 June 1988. Mr. Sirovs attributed the drop (about 82 per cent) to non-supply, delays in supply and the like. It seems clear that Alsound was severely punished for its nonadherence to Sony's prices. The withholding of supply from August 1987 is the basis of what is identified in my previous reasons as the "First Allegation". It appears to me to be a serious and a clear breach of the Trade Practices Act.
As to Photocontinental, there were five breaches, specifically dealt with in my previous reasons as the Fourth, Fifth, Seventh, Eighth and Tenth allegations. Three of these five were allegations of inducement or attempted inducement, and two of withholding supply.
Of the five Photocontinental contraventions, the first three appear to me related to one another in such a way that it is convenient to treat them together. As to those, what happened was that on 28 October 1987 (during the same conversation that is mentioned above) Pagonis complained about lack of price maintenance on the part of Photocontinental. He announced that he proposed to cut off supply to Photocontinental until some time in the following month and conveyed a threat that future misconduct would be visited with worse punishment. There was a withholding of supply, in fact, following on that discussio n and then on 5 November Pagonis told Photocontinental that he had decided to resupply, but made statements to induce future adherence to Sony's prices.
Considering these three contraventions as a group, it must be said against Sony that Pagonis' attempts to maintain retail prices were quite blatant. On the other hand, the whole group seems to me to be of less seriousness, in all the circumstances, than the withholding of supply to Alsound, the subject of the First Allegation.
The remaining two contraventions relating to Photocontinental were of a withholding of supply from February 1988 and an inducement of May 1988. As to the former, I have accepted that Photocontinental was told by Pagonis that Sony would not supply video cameras "as we had sold Sony video cameras at cheaper prices than Sony's prices". Photocontinental complained to Baxter but got no satisfaction. The last contravention was simply another attempted inducement. I should add that it was followed by a dis about accounts, raised by Sony as an excuse to refuse supply.
It may be convenient to list some of the factors which appear to be of significance in fixing a penalty.
1. There is evidence of attempts on the part of Sony to reduce the likelihood of further breaches. This circumstance, the genuineness of the attempts not being challenged, appears to me to go significantly in Sony's favour. However, it should be noted that there was no suggestion that prior to the applicant's raising the present matters, Sony had given such particular directions as to ensure compliance with the relevant law, viz. that relating to resale price maintenance.
2. The authorities show that the magnitude of the operations in the course of which the contraventions have occurred is relevant. See for example, Bata (above), at page 42,279; T.P.C. v. ICI Australia Petrochemicals Ltd (1983) 5 ATPR 40-364, at 44,366, 44,373 and T.P.C. v. General Corporation Japan (Aust) Pty Ltd (above), at 49,977. The respondent Sony is a very substantial undertaking indeed and it is wholly owned by an enormous international company.
3. There may be room for dispute as to the extent to which confessions of guilt, or their absence, may properly be taken into account in assessing penalties in criminal cases. There is, however, ample authority in favour of treating as relevant co-operation on the part of respondents in proceedings of the kind before me. Here, there was a show of co-operation in the sense that, for example, Pagonis was made available for interview, but what he said was quite false. Further, no evidence of any utility was called to explain the circumstances in which the contraventions occurred. However, in my opinion, it is not to be taken into account against Sony that it declined to admit in Court that any contravention had occurred.
4. There were no breaches prior to those the subject of these proceedings.
5. It is my opinion that the risk of repetition of these contraventions, or similar contraventions, on the part of Sony is not high. Partly for that reason, no injunction will be granted. However, the recurrence of resale price maintenance contraventions by major (and presumably well-advised) companies, long after the enactment of the Trade Practices Act, suggests, as I have mentioned, a need for deterrence.
6. In my opinion, the contraventions were deliberate; there is no reason to think that what Pagonis did was unknown to his superiors or in any sense unauthorised. Pagonis' actions and those of Baxter were, as I infer, within the scope of the discretion permitted to executives seeking to achieve compliance with Sony's recommended prices. The case is one in which Sony has been shown to have flouted the law.The penalties against Sony, using the same means of identification, as in the previous reasons, will be as follows:
First Allegation $120,000
Fourth, Fifth and $ 80,000
Seventh Allegations
Eighth Allegation $ 30,000
Tenth Allegation $ 20,000
________
$250,000
________
There remains to be considered the question of the penalties appropriate to the individuals. Sometimes the course has been taken of making the penalties 20 percent of those ordered against the corporation, in accordance with the proportion which the maximum penalty against an individual under s.76(1) bears to the maximum penalty against a corporation.
In the circumstances of this case, that would not appear to me appropriate. Although, as I have mentioned, no evidence has been called to elucidate the circumstances in which the contraventions occurred and in particular the extent to which central management gave directions as to the details of what was to be done, I am not prepared to find against Pagonis and Baxter that they were personally responsible in any way for the formation of the strategy they were implementing; I propose then to set their penalties at one-tenth of those against Sony. For the sake of clarity, the orders will be framed in such a way as to relate the penalties to the relevant paragraphs of the Statement of Claim. The total penalty to be paid by Sony will be $250,000, that to be paid by Pagonis $25,000 and that to be paid by Baxter $12,000.
1. The respondents pay the penalties set out in the following
Schedule in respect of the matters alleged in the paragraphs of the Statement of Claim there mentioned. SCHEDULE
Paragraphs Party Penalty 7 and 8 First Respondent $120,000 Second Respondent $ 12,000 Third Respondent $ 12,000 10, 11 and First Respondent $ 80,000 13 Second Respondent $ 8,000 14 First Respondent $ 30,000 Second Respondent $ 3,000 16 First Respondent $ 20,000 Second Respondent $ 2,000
Judgment is entered against the first respondent in the sum of
$250,000, against the second in the sum of $25,000 and against the third in the sum of $12,000, which amounts are to be paid to the District Registrar of this Court within 28 days of this date.
It is ordered that the first and second respondents pay 70% of
the applicant's costs of and incidental to the proceedings, to be taxed.
0
4
0