Trade Practices Commisssion v Malleys Ltd

[1979] FCA 70

Trade Practices - R e s a l e p r i c e r n a l n t e n a n c e - A d m l s s l o n

of breach by c l c f e r d a n t - A s s e s s ~ n e r i t o f pccunlary pena l ty

TRADE PR.\CTICES C O > D I I S S I O N v. MALLEYS L T N I T E D

LOCI<IIART J.

F R I D A Y 13 J U L Y 1979

IN THE FEDERAL COURT OF .iUSTILILIA

NEW SOUTH WALES DISTRICT REGISTRY I No. G 51 of 1978

GENERAL DJVISIOX

IN THE bL\TTER OF the Trade Practices Act 1974

BETWEEN: TRADE PlbICTICES COMbITSSION

Plalntif f

!

- AND: MALI.EYS LIMITED

I

!

Defendant

ORDER

JUDGE bfAKING ORDER: LOCKHhRT J.

1

DATE OF ORDER:	FRIDAY 13 JULY 1979
WHERE MADE:	SYDNEY I

UPON THIZ DEFEND.4ST by ~ t s counsel, undertaking to the court

zhat it will not by ltself its servants or agents engage

in the practlce of resale prlce maintenance in relatron

to "h'hirlpool" appliances in contravention of the Trade

Practices Act 1974,

i

THE COURT ORDERS THAT:

1. The defendant pay to the Commonwealth of Australia by way of penalty in respect of the admltted contraventron of che resale prrce maintenance provlslons of the Trade Practices

- Act 1974 the sum of $10,000.00.

2.

Pursuant to S. 77 of the Tradc Practices Act 1974 judgment of the Commonwealth of Australia for the sum of $10,000.00.

3.  The defendant be ordered to pay the plaintiff's costs of and incldental to these proceedings.

. .

I

IN TIIE FEDERAL COURT 017 AUSTRALIA )

,	NEW SOUTH WALES DlSTRICT REGISTRY No. G 51 of 1978
,	GENERAL DIVISION 1

IN THE MATTER of the Trade Practices Act 1974

I

I	BEThrEEN: TRADE PRACTICES CO>IEIISSION
AND :
- MALLEYS LI>llTED

Defendant

REASOSS FOR JUDGblENT

This is a claim by the plaintiff, Trade Practices

Commission ("the ~omrnission") against the defendant Malleys

Linuted ("~alle~s") for a pecuniary penalty and for an

injunction restraining Malleys from engaglng in the practice breaches.

of resale price maintenance in relation to Whirlpool

appliances, contrary to the provisions of S. 48 of the

The facts are in a narrow compass.

Malleys is a company incorporated in New South

Wales. It carries on the business of manufacturing and

supplying a large variety of goods includ~ng washing mach~nes,

dryers, refrigerators, freezers, ranges and dishwashers under

the trade or brand name of "Whirlpool". Clearly Malleys

is a tradlng corporat~on.

These goods are solnetirnes descrrbed as "white goods";

namely goods that are used in kltchens and lauddrles as

distlnct from "brown goods", such as television sets, whlch

are used in other rooms of the house. Malleys supplles

approximately 207; of the "white goods" market in Australia.

In about August 1977 Malleys was conscious of the

severe competition that existed in the "wllite goods" market for consunier goods. Due to dlscountlne, the profit marglns

of reta.~lers on Malleys' products was mml~nal. It caused

Malleys considerable concern that the major retailers mlght cease to stock Malleys' products becausc of low proflt marglns

In the interests of maintaining sufficient incentive

for retailers, Malleys' marketing manager, Hr. Dunkerley,

conceived a scheme ("the schcme") which would enable

retailers to malntaln sufflclent profit levels and at the

same tlme encourage them to actlvely and vigorously promote

the sale of Malleys' products.

The scheme which was due to commence on 1 January

1978, provlded for rctalers to sell and advertise Malleys'

products at not less than a specified prlce. Malleys would supply and involcc the retalers wlth the product at a prlce which only allowed the retailers a small mark-up.

However, if the retallcrs sold and advertised the

product at the prlce suggested by Mallcys, they wcre able to

maxirnlse thelr proylts as Malleys rewarded them wxth such

incentives as CO-operative advertlslng allowances; long-term

incantive allowances; key product display allowanccs; bulk

discount allowances and group pcrf'ormance bonuses. Of

course, if the retailers sold below the prlcc suggested by

Malleys they would eat into thelr proflt.

Malleys wrote to some buying groups and those larger

retailcrs, not being members of such groups, in Noven~ber

1977 informing them of the scheme.

Although the schcme vas duc to commence on 1

January 1978 it only operated durlng part of that month.

Its operation continued through February. On 7 March 1978 Malleys, actlng on the advlce of Mr. Fry, an admlnistratlve executive, sent telegrams to the regional sales managers of Mallcys and to varlous buying groups lnformlng them that the scheme was suspended. The scheme k-as completely wlthdrabm on 10 March 1978.

The circumstances surrounding the discovery of the admitted breach of the Act are not b-~thout slgnlflcance.

Mr. Fry gave evldence that it was hls duty to

administer control over credlt, legal and general

admlnlstration and to service admlnlstration funct~ons. He is

a man who has no legal qualifications and has ncver had any

acadenilc trainlng in relatlon to the Act. His credibility as

a witness was never challenged and I accept hlm as a wltness

of truth.

Mr. Fry gave evxdence that on 1 December 1977 he was sent a copy of the schcme. He explained that, due to pressure of work, he gave the document merely a cursory

glance and that it was not until 1 March 1978 thal he studied it carefully. Reallslng the impllcatlons, he immediately took steps to have the scheme brought to an end.

On 4 March 1978 he returmd from Perth where he had been

. . ./4

for the preceding three days and arranged a meeting with

senior executives of Malleys for 6 March 1978.

Pursuant to that meetlng, telegrams were sent to

the varlous buying gnoups and retailers stating:-

"Subject: Malleys 1978 Marlcetlng Pollcy. 1978 marketing pollcy compl~es wlth the requirements of the Trade Pracilces Act and pending recelpt or legal advlcc it 1s now suspended. Malleys 1978"

There followed letters to rcclplents of the

telegrams stating lnter alla:-

"This letter is to confirm and further specify such a prlce".

explain our telegram or 7th March...

On 20 March, Mr. Fry attended at the off~ces of the Cor~imission In Canberra, knowmg beForehand that the

Com~nlssion had been maklng enqurries as to the scheme.

Mr. Fry informed the Commlsslon that he believed

Malleys may have been in brcach of the Act by lntroduclng

the scheme. Pursuant to a not~ce issued under S. 155 of the

Act, Malleys made available to the Commisslon a considerable

amount of lnforrnatlon wh~ch, the Commisslon concedes, went

. beyond that requlred by the terms of the notlce.

Mr. Fry commenced investlgatlons to determine

whether any particular person had suffered damage by the

implementat~oll of the scheme. He ascertained that there was

no such person; that no goods were withheld from any person

or threatened to be withheld, and that no rebate had bccn

withheld. He sald that if any party had suffered i t was

Malleys ltself hav~ng cxpcrlenced substantial losses m the

months of March and April 1978.

Both Mr. Fry and Mr. Dunkerley dld not escapc the

xncident unscathed. Mr. Fry sald that he was severely reprrmanded ror his part in the affair. His excuse of pressure of work was disni~ssed as not acceptable. Mr. Dunlcerley appeared to have suffered subsequently by belng

penalrsed in staff promotions.

Although there were many other senior cxecutlves

of liialleys who were aware of the scheme, nonc appear to

have been reprimanded for them fallure to detect the

brcach of the Act. Although a somewhat curious featurc of

Mr. Fry, that he was the person most conversant with	the case, I am satisfled wrth the explanation offered by discussions wrth >ialleys' solicitors over two days at an
earller polnt of time.

In Mr. Fry's opinion, it was he, and he alone,

who was required to act upon [natters that pote~itially

involved the Act.

Mr. Dunkerley was not called to grve evldcnce,

although a video cassette of an address glven by h ~ m to

sales staff, explalnlng the worklng of the scheme, was

tendered in evidence.

Mr. Fry said that Mr. Dunkerley was a man who had

come up through the sales dcpartrnent with no tertiary

qualifrcations and certainly no legal training, although he

attended semlnars on the Act.

The Commission seeks the lmposltion of a penalty

for the breach by fiIalleys of S. 48 of the Act.

Section 76 of the Act prov~des a maximum pecuniary

penalty of $250,000.00 agalnst a corporation in respect

of a contravention of Part IV of the Act. The Colnmisslon

alleges only one serles of conduct and, thcrefore, one

of fence.

In determjn~ne the pecuniary penalty to be imposed

S. 76 requires the court to have:-

"regard to all relcvant matters including the

nature and extent of the act or orllissroll and

of any loss or damage suffered as a result of

the act or omJ.ssion, the clrcumstances in wl~ich

the act or ornisslon took place and whether the

person has previously been found by the court

in proceedings under t h ~ s	Part to have engaged
in any simllar conduct."

Mr. Beaulnont Q.C., who appeared for the respondents,

submitted that this was not an appropr~ate case for the

imposition of a substantial penalty. HIS submisslolls were

based upon flrst, the nature and extent of the default and

the clrcumstances in whlch it occurred; second, the absence

of any loss or damage to consumers or the public; and third,

the absence of prior relevant misconduct by Malleys.

As to the flrst matter, Che scheme was in operation

for a short tune only, namely part of January, February and

the early part of' March 1978. When the 5che1ne

was found to be in contravention of the 4ct, the officers

of Malleys acted swlftly to correct the situation. Thejr

actlolls arc consistent with a gcnulne rcgret for Malleysf

mlstake. It IS not dlsputed that the mistake was duc, at

I	lcast lnltially, to Mr. Dunkerley's Ignorance of' the
I

provisions of the Act.

As to the second ground advanced by Mr. Beaumont,

I accept that Mallcys dld not withhold goods from reta~lers,

that there were no threats to do so, and that there were

no allowances withheld. What I do not accept is Mr.

Beaumont's submlsslon that, because Mallcys cannot quantify the damage, as between retaller and consumer, then so far

as Malleys knows, there was no damage or loss. In my

opinion, the inability of any party to quantify the damage

under a breach of the retall price maintenance provlslons

of the Act is a consideration to,be given due weight; but

I do place some reliance upon the economic philosophies under-

lying the Act whlch prima facie suggest that the actlons of

resale price maintcnance lead to a distortion of thc market

mechanism and to economic waste.

Australian case law in this field is in its infancy.

One turns to the learnlng of the courts of other countries

with care because of obvious differences in hlstory,

philosophy, market and leg~slation. However, the following

passage from the oplnion of the Supreme Court of the United

States delivered by Mr. Justlce White in Albrecht v. Ilerald

152- 133

-

Co. 1968 390 U.S. 145/ls not wlthout relevance, albelt hls

IIonour was talklng essentially of maximum price flxlng. Hls

Honour said:-

"Maxlmum and mlnimum price fixing may have

different consequences in many s~tuations.

But schemes to fix nlaxlmum prlces, by

substituting the perhaps erroneous judgment

of a sellcr for the forces of thc co~npeiitlve

market, may severely intrude upon the abllily

of buyers to compcte and survlvc in that

marlcet. Competition, even in a slngle product,

is not cast in a slngle mold. Maximum prices

may be flxed too low for thc dealer to furnish

. . ./8

F-.---------W .-- .. -. -- --. .-. --,. - -.. . .---.-.--W-.- - 7

services essential to the value which goods

have for the consumer or to furnlsh servlces

and conveniences whlch consumcrs desxre and

for whlch they are w~lling to pay. IrIax~mum

price fixing may channel d~sti-lbutlon through

a few large or specif~cally advantaged dcalcrs

who othcrwlse would be subject Lo significant

non prlce cqmpet~tlon. Moreover, if thc actual

price charged under a maxlniuni price scheme IS

nearly always the flxed maxlrnum price, whlch

is lncrcaslngly llkely as the maxlmum prlce

approaches the actual cost of the dealer, the

scheme tends to acqulre all the attributes

of an arrangement flxlng m~nimum prlces."

Mr. Porter Q.C. submltted, on behalf of thc

Commission, that where a party seeks to rely upon a defence of "accident" the onus is upon that party to establish that it took all reasonable precautlons, yet ncvertheless the

accldent still occurred. He submltted that in the circumstance.

of thls case Malleyst precautlons were inadequate.

Undoubtcdly thcre were inadequaclcs in the system

of control and in the educational instruction given to the

marketing personnel and senior executives of Malleys in an

area so basic aseresale prlce maintenance. No evidence has

been adduced as to the improved systems, if any, and improve-

ments in the control of thc marketing department of Malleys

or other relevant department, that would provide guldance

for future conduct.

I have taken the circumstances which I have referred

to earlier into account in considering the question of penalty

and, in particular, the fo1lowlng:-

(a)

the fact that Malleys control some 207;

of the "whxte goods" ~narlcct in Australia;

and therefore the lmplementatlon of the

scheme, although for a short perlod of

t u n e , had t h c potential f o r

substantially a f f e c t l n g t h e rnarkct

i n t h e a r e a of r e t a l l p r i c e marntcnance;

( b ) I a m n o t p repared t o accep t t h a t t h e l o s s e s

which M r . F ry s a l d were l n c u r r e d by lrlalleys

i n t h e months of March and A p r l l 1978,

which he attributed t o t h e implementation

of t h e scheme, were c a u s a l l y r e l a t e d t o t h e

scheme. The s o p h x s t i c a t l o n of modern b u s l n e s s

1s f a r t oo complex t o enable me t o accep t t h a t

t h c r c q u i s l t c c a u s a l relationship has been

established; a l though I accep t t h a t Mr. Fry

genujne ly b e l i e v e d t h l s t o be so ;

( c )	The prompt a c t i o n of M r . Fry ,once he discovered
t h e b reach of t h c Act , and t h e s t e p s taken
soon t h e r e a f t e r t o b r l n g t h e schcme t o an end;
( d )	The f u l l and f r a n k disclosure made by Malleys
t o t h e Cornm~ssion i n Canberra on 20 March 1978
and i n response t o t h e S . 155 n o t l c e ;
( c )	The conduct of t h e l l t i g a t l o n , i n p a r t i c u l a r
t h e d e c ~ s i o n by bIalleys n o t t o f i l e a defcnce
I n t h e c i rcumstances ;
( f )	The undertaking o f f e r e d t o t h e Corl~rnlss~on i n

. . . / l 0

yw- -?-,V-- ". .-.-,. --.-.---- . --b.---- -- "C.. ., -T-"-..--..."

---FT-

May 1978, which 1s still offcred, not

to engage in the practlce of resale price

maintenance in relat~on to "lvhirlpool"

applicances in contravcntion of the Act;

(g)

The absence of any previous conviction of Malleys for contravention of the Act;

(h)

That, notwithstanding the good intentions on the part of Malleys, there is no evldencc

as to i~nprovcd systems and control of the

marketing department and other sections of

Malleys to provide guldance for future conduct

and to ensure that future breaches of the

Act do not occur.

In the circumstances in my oplnion an appropriate

pecunlary penalty is payment by Malleys to the Commonwealth

of the sum of $10,000.00.

As to the claim by the Commission for an injunction, S. 80 of the Act provides that the court may grant an injunction, whether or not it appcars that the defendant lntends to engage again, or to continue to engage, in conduct

of the same klnd.

Mr. Porter Q.C. submitted that the remedy of lnjunctlon

is an additional sanctlon to the imposition of a pecunlary

penalty, and that it is an lrnportant feature ofthe Act w h ~ c h

has as its corner stone the protection of the public.

He relies upon the fact that there is no

evidence as to unproved systems or controls within Malleys

that would be likely to prevent a recurrence of similar

conduct in the future, notwithstanding the proffer by Mr.

Beaumont Q.C . , on behalf of Malleys, of the undertaking

to which I have referred.

Malleys has co-operated with the Commission In !

all reasonable respects. It has expressed contrition for

!

the comrnisslon of the offence. As an undertaking in

1

appropriate terms has been proffered by Mr. Beaumont Q.C.

on behalf of Malleys, breach of which has the same

consequence as breach of an in~unction, I see no reason

for not accepting it. J

Upon the defendant, by its counsel, undertaking

to the court that it will not by itself its servants or

I

1

agents engage in the practice of resale price maintenance

in relation to "Whirlpool" appliances in contravention of

the Trade Practlces Act 1974, I make the following orders:-

1. That the defendant pay to the Commonwealth

of Australia by way of penalty in respect of	I
the admltted contravention of the resale price
maintenance provisions of the Trade Practices Act	1
1974 the sum of $10,000.00.
2. Pursuant to S. 77 of the Trade Practlces

- - - - - - - -- , . . . - - . .

. -. - - - -. - - = - . . m-- , - . ,---m-

W?" iT g.:

-	Act 1974 judgment be entered for the Trade
Practices Commlsslon on behalf of the Commonwealth of Australia for the sum of $10,000.00.
7. That the defendant be ordered to pay the
pla~ntiff's costs of and Incldental to these
proceedings.