Trade Practices Commission v The Heating Centre Pty Ltd
[1985] FCA 146
•18 APRIL 1985
Re: TRADE PRACTICES COMMISSION
And: THE HEATING CENTRE PTY. LIMITED and BRIAN BUTTERFIELD
No. G165 of 1983
Trade Practices (Restrictive)
(1985) ATPR para 40 - 563
COURT
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES REGISTRY
GENERAL DIVISION
Beaumont J.
CATCHWORDS
Trade Practices (Restrictive) - Resale price maintenance - penalty - factors to be taken into account.
HEARING
SYDNEY
#DATE 18:4:1985
ORDER
I note the undertakings to the Court given on behalf of the respondents and contained in the appendix to these reasons.
Order that the first respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $15,000.00 in respect of the matters alleged against it in paras.6-10 of the statement of claim.
Order that the first respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $l5,000.00 in respect of the matters alleged against it in paras.l4-l8 of the statement of claim.
Order that the first respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $10,000.00 in respect of the matters alleged against it in paras.22-25 of the statement of claim.
Order that pursuant to s.77 of the Trade Practices Act, 1974 judgment be entered for the applicant on behalf of the Commonwealth of Australia against the first respondent for the sum of $40,000.00.
Order that the second respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $1,250.00 in respect of his involvement in the matters alleged in paras.6-l0 of the statement of claim.
Order that the second respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $1,250.00 in respect of his involvement in the matters alleged in paras.14-18 of the statement of claim.
Order that the second respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $1,000.00 in respect of his involvement in the matters alleged in paras.22-25 of the statement of claim.
Order that pursuant to s.77 of the Trade Practices Act, 1974 judgment be entered for the applicant on behalf of the Commonwealth of Australia against the second respondent for the sum of $3,500.00.
Order that the respondents pay one-half of the applicant's costs.
JUDGE1
(ON PENALTY)
In a judgment given on 19 December 1984, it was declared that the first respondent had engaged in the practice of resale price maintenance in respect of the Kent Tile Fire in contravention of s.48 of the Trade Practices Act, 1974 ("the Act") in the respects alleged in paras.6-10, 14-18 and 22-25 respectively of the statement of claim; it was further declared that the second respondent had aided and abetted and was knowingly concerned in these contraventions (see s.75B of the Act). The questions of penalties to be paid by the respondents to the Commonwealth and of costs were adjourned. The parties have now adduced evidence and made submissions on these questions.
The 14 contraventions of s.48 established in the proceedings involved dealings with three retailers. The contraventions are to be regarded in the context of the following remarks made in the earlier judgment (at pp.18-19):
"Although I have made a separate finding on the point here and elsewhere because the statement of claim alleges distinct contraventions, the circumstance that the conduct relied on in some cases is the same will, in accordance with the course of authority on the question, be taken into account on penalty. At any rate, for the purpose of fixing a pecuniary penalty, the respondents' conduct, when viewed as a whole, may be seen as the engagement in the proscribed practice of resale price maintenance during the period in question rather than a series of isolated contraventions."
See Trade Practices Commission v. Mobil Oil Australia Limited (1985) ATPR 40-503; cf. Ducret v. Colourshot Pty. Limited (1981) 35 ALR 503 at pp 507-8.
The general approach to be adopted on penalty in the present type of case was explained by Toohey, J. in Mobil, supra (at p.46,027):
"The seriousness with which the legislature views a contravention of Pt.IV of the Act may be found in the maximum penalty of $250,000 in the case of a body corporate. The penalty should be such as to deter not only the particular offender but others who may be disposed to engage in prohibited conduct of a similar kind. The range of penalties imposed in cases of resale price maintenance may be gauged from the schedule prepared by counsel for the applicant. This shows penalties as low as $3,000 (Trade Practices Commission v. Gorenje Pacific Pty. Ltd. (1983) ATPR 40-430) and as high as $120,000 (Trade Practices Commission v. Pye Industries Sales Pty. Ltd. (1978) ATPR 40-089). Clearly much depends on the deliberateness of the offender's conduct, the extent to which resale price maintenance has been carried on and the damage caused to anyone by that conduct. At the same time one must not lose sight of the fact that sec. 76 of the Act is not directly concerned with compensation; that is the role of sec. 82. There is the wider public interest in ensuring that the provisions of the Act are observed.
The seriousness of a contravention may also be measured by the degree to which it was initiated or acquiesced in by senior management."
In the present case, the conduct complained of was instigated by the second respondent as managing director of the first respondent. He also owns the whole or at least virtually the whole of the share capital of the first respondent.
The contraventions established are, in my view, serious: the conduct was part of a deliberate campaign embarked upon by the second respondent in a market situation which gave him reason to believe that the Kent Tile Fire was a successful product which could survive without any need to discount its recommended retail price.
The extent of the respondents' campaign, as reflected in the documentary evidence, for instance, the dealer newsletter dated 1 March 1982 (see the earlier reasons for judgment at p.12) indicates that the respondents' policy of eliminating the practice of discounting was intended to apply to the whole of the first respondent's dealer network. On the other hand, it is common ground that the offending conduct is not continuing (see the earlier reasons for judgment at p.2).
There are obvious difficulties in attempting to quantify the extent of the damage suffered by third parties in the present case. It is reasonable to infer that where supply was actually refused, as in the case of Mr. Lindsay and Burning Log Fireplace Specialists Pty. Limited, some financial loss was suffered: Mr. Lindsay was forced to treat with another retail outlet to acquire products at prices in excess of the wholesale going rate (see the earlier reasons at p.14); in both cases, it is likely that potential retail sales were lost because of the respondents' refusal to supply. But the position of ultimate consumers is inevitably obscure. It is impossible to do more than to speculate as to their position in terms of comparing retail prices actually paid by them with the prices they would have paid if the respondents had not engaged in resale price maintenance.
In this connection, some reference should be made to the size of the first respondent's operations and its relative position in the relevant market - that of slow combustion heaters. In the period now in question, the financial year ended 30 June 1982, the first respondent sold a total number of 4,300 slow combustion heaters of which Kent Tile Fires comprised 2,800 units. In that period, the first respondent sold the following numbers of slow combustion heaters to the retailers in respect of which contraventions of s.48 have been made out:
Mr. Lindsay - nil.
Burning Log Fireplace Specialists Pty. Limited - approximately 120 heaters, the majority of which were Kent Tile Fires.
Golden Decors Pty. Limited - 24 heaters, the majority of which were Kent Tile Fires.
In the financial year ended 30 June 1982, the total value of sales of slow combustion heaters made by the first respondent was $2,560,800.00. Of this amount, sales made to Burning Log Fireplace Specialists Pty. Limited and to Golden Decors Pty. Limited totalled $65,000.00 and $13,000.00 respectively. The second respondent estimates that, in this period, the first respondent enjoyed l5 per cent of the wholesale market for slow combustion or solid fuel heaters. On the other hand, as was said in the earlier reasons for judgment, the Kent Tile Fire was a most successful product and was, apparently, the market leader.
Reference should next be made to a number of matters which the respondents ask to be taken into account on the question of penalty. In the first place, they point to the considerable expense (some $60,000.00) already incurred in the defence of these proceedings. They also refer to the detrimental effect on the conduct of the business of the first respondent suffered as a result of the time committed to these proceedings by Messrs. Butterfield. I propose to take both these matters into account when fixing penalties.
Then the first respondent says that regard should be had to its financial position in assessing any penalty. At the respondents' request, the details of the first respondent's financial affairs have been kept confidential but it will suffice for present purposes to say that the first respondnt has a comfortable surplus of assets over liabilities. It is trading profitably and, subject to the usual seasonal downturn in the summer months, there is no reason to expect that it will not continue to generate reasonable trading profits. On the other hand, the first respondent is owned and controlled by the second respondent whose financial position, now worsened by a divorce settlement, is such that he is unable to inject further funds into the first respondent. On the whole, in terms of its capacity to pay a substantial penalty, it would be fair to treat the first respondent's business as at least a moderately successful one and to assume that it is financially capable of funding a penalty in the order of $40,000.00, given say 30 days to pay or borrow that amount.
The respondents also submit that the Court should take into account in their favour the fact that, at the commencement of the hearing, the respondents proferred an undertaking to the Court that they would not engage in the practice of resale price maintenance (see the earlier reasons p.2). That undertaking has since been put into the form appended to these reasons. I propose to take this matter into account although it must be viewed in the context of the earlier aggressive behaviour of the second respondent and the adverse findings I have made as to his credit.
In all the circumstances, I consider that an appropriate penalty to be paid by the first respondent is the sum of $40,000.00. To reflect the relative gravity of the contraventions, I propose to apportion the penalty as follows: as to the dealings with Mr. Lindsay and Burning Log Fireplace Specialists Pty. Limited a penalty in the sum of $l5,000.00 in each case; as to the dealings with Golden Decors Pty. Limited a penalty in the sum of $l0,000.00.
As to the second respondent, I propose to take into account in his favour the amount of the penalties ordered to be paid by the first respondent. At the same time, since he alone was responsible for the contraventions charged, he must bear some penalty himself. In the circumstances, I consider that a penalty of $3,500.00 is proper. I would propose to apportion the penalty as follows: as to the dealings with Mr. Lindsay and Burning Log Fireplace Specialists Pty. Limited a penalty in the sum of $1,250.00 in each case; as to the dealings with Golden Decors Pty. Limited a penalty in the sum of $1,000.00.
I should add that in his affidavit sworn 4 March 1985 and read on the issue of penalty, I rejected evidence from the second respondent to the effect that the present litigation contributed to the breakdown of his marriage. In my view, the sentence in question (see para.16 of the affidavit) was bad in form as stating a conclusion but, in any event, it is, in my view, an irrelevant consideration so far as concerns penalty in proceedings of the present kind.
Costs were reserved for further argument. The position is that the applicant has succeeded in three out of the five counts it has charged against the respondents. In all the circumstances, I think that a fair apportionment of costs would be achieved if I were to order that the respondents pay one-half of the applicant's costs.
In addition to orders 1 and 2 made herein on 19 December 1984, I make the following orders:
1. I note the undertakings to the Court given on behalf of the respondents and contained in the appendix to these reasons.
2. Order that the first respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $15,000.00 in respect of the matters alleged against it in paras.6-10 of the statement of claim.
3. Order that the first respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $15,000.00 in respect of the matters alleged against it in paras.14-18 of the statement of claim.
4. Order that the first respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $10,000.00 in respect of the matters alleged against it in paras.22-25 of the statement of claim.
5. Order that pursuant to s.77 of the Trade Practices Act, 1974 judgment be entered for the applicant on behalf of the Commonwealth of Australia against the first respondent for the sum of $40,000.00.
6. Order that the second respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $1,250.00 in respect of his involvement in the matters alleged in paras.6-10 of the statement of claim.
7. Order that the second respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $1,250.00 in respect of his involvement in the matters alleged in paras.14-18 of the statement of claim.
8. Order that the second respondent pay to the Commonwealth of Australia within 30 days a pecuniary penalty of $1,000.00 in respect of his involvement in the matters alleged in paras.22-25 of the statement of claim.
9. Order that pursuant to s.77 of the Trade Practices Act, 1974 judgment be entered for the applicant on behalf of the Commonwealth of Australia against the second respondent for the sum of $3,500.00.
10. Order that the respondents pay one-half of the applicant's costs.
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