Yazaki Corporation and Australian Arrow (in Liquidation) Pty Ltd v Australian Competition And Consumer Commission

[2018] HCATrans 215

[2018] HCATrans 215

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Adelaide  No A24 of 2018

B e t w e e n -

YAZAKI CORPORATION

First Applicant

AUSTRALIAN ARROW (IN LIQUIDATION) PTY LTD ACN 071 956 057

Second Applicant

and

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

Respondent

Application for special leave to appeal

GAGELER J
GORDON J
EDELMAN J

TRANSCRIPT OF PROCEEDINGS

AT CANBERRA ON FRIDAY, 19 OCTOBER 2018, AT 9.30 AM

Copyright in the High Court of Australia

MR B.W. WALKER, SC:   May it please the Court, I appear with my learned friends, MR M.I. BORSKY, QC and MS T.N. SPENCER BRUCE for the applicants.  (instructed by King & Wood Mallesons)

MR M.H. O’BRYAN, QC:   If the Court pleases, I appear with MR D.J. TYNAN and MR R.A. YEZERSKI for the respondent.  (instructed by the Australian Government Solicitor)

GAGELER J:   Mr Walker.

MR WALKER:   May it please the Court.  In relation to the first applicant we say that there is a matter fit for the grant of special leave with respect to important provisions arising from a case which, at an appropriate level of generality, is one of a kind likely to recur.  In particular we say that what I will call the turnover provisions is of particular significance bearing in mind the evident public policy behind the proper operation and for the advancement of the evident purpose in penalty provisions designed to have some real bite in the world of commerce, hence the selection in the provisions to which I am going to come, of turnover.  It leads of course to questions of definition of “turnover”, and particularly it leads to that in the context which is globally significant and thus nationally significant of what I will call corporate groups.

As to the second applicant, in relation to which there was not monetary penalty, an important issue is raised in the context of what has become and is, with respect, very likely to continue to be a most important tool of regulatory enforcement in the area of commerce, namely, a declaration of contravention, which sometimes has other consequences, as your Honours appreciate, but in any event and in itself represents a solemn judgment, creates a stigma of real significance.  That is why Parliament has provided for that as a remedy of appropriate relief in the case of contravention.

In respect to Australian Arrow, the second applicant, the declaration of contravention, we say, was made in the Full Court on the basis of a first time interpretation.  That is my assertion.  That is what our researches suggest.  It appears by, what I will call the common silence from the respondents that ‑ ‑ ‑

GORDON J:   Maybe because the provisions have not been used too often. 

MR WALKER:   Your Honour, that is my guess.

GORDON J:   I would have thought that would probably be the fact.

MR WALKER:   When one looks at the relation between making and giving effect to, and to the paradigm whereby it is a party to the arrangement, it gives effect to the arrangement, this issue has really probably not arisen all that often.  It is tempting for us to say that is because it is self‑evidently wrong what was done in the Full Court, but I am not going to put it that way.  I am going to rather say these are very important provisions.  They are not provisions which, in our submission, lend themselves to what might be called an obvious legislative adjustment.  The important provisions involving the penalising of conduct giving effect to an arrangement in the context of the possible consequences for those found to have contravened obviously makes the question of knowledge important.

Can I come back then to the turnover provisions which is the first and probably the prime question that we suggest is appropriate for special leave in relation to the first applicant.  Your Honours will see at page 226 of the application book in our paragraph 19, the five contraventions.  It is plain to demonstration, we submit, simply reading them, that what has become called a course of conduct approach needs to be considered.  On their face they invite consideration of such matters, just as they invite consideration, borrowing from concepts and language of criminal sentencing, to what might be called overall criminality questions.  One sees, for example, the distinction such as it is between items (4) and (5) and is entitled to ask are we really talking about two distinct contraventions there.  Now, those are questions raised and your Honours know how the first instance judge dealt with them.

GAGELER J:   Questions of fact and degree necessarily. 

MR WALKER:   Absolutely.  Evaluative assessment so that on an appeal without a House v The King error shown one would, with respect, not have thought that we offer in grounds 1(b) and 1(c), which you will see our argument for the first commencing on page 228 in paragraph 30 and, for the second, commencing at the top of page 230 in paragraph 35.

GAGELER J:   The House v The King error was shown, was it not, by the annual turnover point?

MR WALKER:   Your Honour, that is the point to which I want to come.  That is why annual turnover is an important point because if we succeed in showing that the Full Court was in error on that then there was no cause for there to be any appellate interference with the course of conduct approach and the fixing of the penalty at first instance.

EDELMAN J:   It really drives this application.

MR WALKER:   That is why I have introduced it as I have.

GORDON J:   In other words, if you do not succeed on 1(a), (b) and (c) fall away.

MR WALKER:   Exactly so, exactly so - that is, we would be left with a grievance.

GORDON J:   You would be left with a grievance which would not attract special leave, I suspect.

MR WALKER:   Exactly.  We would have a grievance ‑ ‑ ‑

GORDON J:   So let us focus on 1(a).

MR WALKER:   Yes, that is why I say it is the prime ground.  If I can take your Honours to page 242 which contains section 76(1A) where one sees in paragraph (b) of that subsection the three ways of calculating which will produce the relevant maximum, you see that the critical expression there is:

10% of the annual turnover of the body corporate during the period –

et cetera.  That is the body corporate which, as the opening lines of subsection (1A) make clear, is to pay the pecuniary penalty.  Over the page one sees in subsection (5) a definition for the purposes of that provision of “annual turnover”.  While one can appreciate that the definition is necessary, there would be an argument not merely by accountants otherwise with respect to turnover.

We draw to attention, as your Honours have seen in the written argument and recorded in the submissions dealt with below, that the language that in the Full Court was castigated as being an over‑literal approach, which we say is simply an ordinary colloquial approach, familiarly uses articles in order to indicate the identity of the body described by the noun that follows the article.

EDELMAN J:   I think what the Full Court meant by an “over‑literal approach” is that an approach which focused too much on the words at the expense of the background, the Dawson review and the purpose.

MR WALKER:   Your Honour, with respect, is generous in interpolating those matters into the way in which the Full Court expressed themselves in that regard.  For example, in none of the travaux do you find this particular point dealt with because by the time it got to explanatory memoranda and the like, all that was concerned to be paraphrased for the members was the opening words “leaving out anything” that followed the words “other than”.

EDELMAN J:   That may be so, but if subsection (d) in the definition is given a more literal reading, then the exception almost subsumes or completely undermines the rules, does it not?

MR WALKER:   No, no, not at all.  The exceptions are designed to ensure that the turnover is relevant to the body corporate to be penalised. 

GORDON J:   Can we test that proposition?  If you go back to (1A)(b) which you took us to which has the three cascading levels of penalty ‑ ‑ ‑

MR WALKER:   Yes, for the body corporate who is to pay the penalty.

GORDON J:   Thank you.

MR WALKER:   I am sorry, your Honour.

GORDON J:   So, (i) is $10 million, (ii) is:

the value of the benefit that the body corporate, and any body corporate related to the body corporate.

MR WALKER:   Related to it.

GORDON J:   So it starts from a premise that one does not just look at the body corporate.  One includes other body corporates that are involved, connected, directly benefitted or indirectly benefitted in order to set the upper limit.  If you then read and take annual turnover into number (iii), which is the third level of penalty ‑ ‑ ‑

MR WALKER:   Yes.

GORDON J:   ‑ ‑ ‑ then it is apparent, is it not, that there has to be a distributive reference to the body corporate in (d) to include any body corporate related to the body corporate?

MR WALKER:   No, as your Honour questioned that, that is my answer.  Could I go back ‑ ‑ ‑

GORDON J:   Well, “no” presupposes that it would then require a - in effect, sits uncomfortably with subparagraph (b)(ii).

MR WALKER:   That is what I wanted to go to now.  No, it does not.  Subparagraph (b)(ii) requires that there be attribution reasonably, and direct or indirect connection to “the act or omission”.  Now, that is the act or omission to which the section applies, that is the contravention by the body corporate who is to pay the pecuniary penalty and the act or omission is, as we know in trade or commerce, where as we know, enterprises are carried on - so these are words that one finds in these provisions.  So there is nothing in (b)(ii) which means that every body corporate related to the body corporate is necessarily included. 

GORDON J:   Well, that is not the point, though.

MR WALKER:   You have to trace the obtaining of a benefit and ‑ ‑ ‑

GORDON J:   Correct.

GAGELER J:   The benefit could easily be, could it not, Mr Walker, a financial benefit to a subsidiary obtained as a result of a restrictive ‑ ‑ ‑

MR WALKER:   Yes.

GAGELER J:   ‑ ‑ ‑ arrangement headed into by a parent.

MR WALKER:   That is evidently the purpose of subparagraph (ii), to make sure that that is countered because we are looking at, we are trying to deal with enacted terms with what might be called commercial reality. They do not always sit neatly together.  I entirely accept that the purpose of these words is to ensure a sensible, penalising approach to ensure that, as it were, the punishment fits the crime.  The crime is being committed for profit and so, among other things, that ought to be stripped away, paragraph (ii) in particular.

GAGELER J:   Mr Walker, I think we well understand your textual argument based on the definite article in paragraph (d) ‑ ‑ ‑

MR WALKER:   Yes.

GAGELER J:   Apart from textual considerations, what do you have to say in support of the construction?

MR WALKER:   The notion of supplies being made otherwise than in connection with an enterprise that the body corporate carries on becomes reduced to what, in our submission, is an ingenious but trivial, not sensible meaning, namely supplies made in connection with the giving of charity or for a hobby, et cetera.

GORDON J:   Correct.

MR WALKER:   We are talking about commercial entities and, in our submission ‑ ‑ ‑

GORDON J:   Well, that is not an unusual situation in large body corporates.  They will have an arm which is directed to providing assistance.  I mean one can think of mining companies involved in native title arrangements where they will fund something in order to – not connected with their enterprise in the sense of the enterprise call, but otherwise. 

MR WALKER:   Your Honour, I am bound to say that they would be made in connection with the enterprise ‑ ‑ ‑

GORDON J:   Well, they may be.

MR WALKER:   ‑ ‑ ‑ and probably overtly. 

GORDON J:   They may be, but they may not be.

MR WALKER:   Well, they are PR, your Honour.

GORDON J:   Well, there you go.  We will have a distinction of a discussion about that.  I mean there are ‑ ‑ ‑

MR WALKER:   No.  But, your Honour, I accept there is charity performed by some corporations that are carrying on enterprise for profit.  I accept that.  But it is, in our submission, not likely that that was the purpose of the general words that one finds in subsection (5)(d), bearing in mind the significant application that one finds in the other paragraphs of that subsection for the ‑ ‑ ‑

GORDON J:   They are sort of a cascade – I mean the first one is into company arrangements.

MR WALKER:    That is right.

GORDON J:   The second one is the input tax.

MR WALKER:    Yes.

GORDON J:   The third is not for consideration.  The fourth is what you described as charity and the fifth, territorial.  I mean, one can see a logic to the collection of the subsections.

MR WALKER:   Your Honour, the charity one or the hobby, even more oddly, is not, in our submission, one that is a commercially important matter to have been dealt with.

EDELMAN J:   Why?  What is wrong with the Full Court’s explanation of (d), that like (c) it is concerned with the new Tax System (Goods and Services Tax) Act, in other words, that it is picking up the notions of an enterprise in that Act.  

MR WALKER:   Your Honour, it may well – with respect, that is a second which explains not only the use of language - words like “enterprise”, but it can be seen evidently from paragraphs (b) and (c) that there is explicit concern to the way in which other aspects of the Commonwealth’s fisc, namely tax, looks to relations between, what I am going to call related corporations. 

That is a multifarious question for government, how do we both respect separate corporate identity and also pay regard to commercial realities either when raising tax and thereby taxing transactions, not wishing to have a perverse effect in relation to the efficiency of the enterprises conducted by more than one corporation, or conducted by one corporation through its subsidiaries. 

So, yes, in general terms, of course it springs from that, but that does not indicate that paragraph (d) is designed for what I will call - simply to exclude non‑enterprise turnover.  “Turnover” is not a word that really is apt to include what I will call the monetary equivalent of hobbyist or charitable dispositions.

Turnover is about trade, just as supply is about trade.  It is for those reasons, in our submission, that one sees that the evident purpose of (d) was to ensure that in grouping, which is what the main provision does, for the purpose of ascertaining turnover you make sure that you do not take the group more broadly than the enterprise in which the act or omission rendering the body corporate liable to pay a penalty has been committed, because that would not answer a sense of lay justice and it would not be necessary in order to make the punishment fit the crime.  So that you say that this is an act or omission ‑ ‑ ‑

GORDON J:   Is that right, in this sense, that the first level of penalty is $10 million, the second level is a level of benefit and the third only applies if you cannot assess the benefit?  It is actually trying to determine the appropriate fit given the size of the enterprise.  It has a very directed purpose.

MR WALKER:   There is no doubt about that.  It is arbitrary, and all the better for it. 

GORDON J:   Absolutely arbitrary.

MR WALKER:   Ten per cent of annual turnover if you cannot ascertain - I entirely accept what your Honour says about how that is done, but that does not tell you that it ought to include the turnover generated from supplies by a subsidiary not involved in the conduct of the enterprise in which the delinquent act or omission occurred.

GORDON J:   You would add words into the chapeau then of (5)?

MR WALKER:   No, not at all.

GORDON J:   I think you would have to, on your construction.

MR WALKER:   No, all we do, as your Honours have seen, and I would be repeating what Justice Gageler has pointed out is clear, the ordinary colloquial understanding of subsection (5) shows the expected use of important grammatical articles in the way that ‑ the Full Court recognises that is the natural reading of the words.  As Justice Gageler has pointed out, the question is should that have been an end of it?  The Full Court says no.  We submit that they have, in a penal provision, gone much further than principle rendered appropriate.

GAGELER J:   Mr Walker, we are running out of time.  Do you want to say something about the other point?

MR WALKER:   In relation to the other point, there is this matter to be said.  There is no authority except this case on the very important question of whether, in order to act in accordance with an arrangement, you need to have cognisance of it.  “Acting in accordance with” - assume that that is a phrase which perhaps stands differently from “in pursuance of” or “to enforce”. 

GORDON J:   What precise statutory language are we concerned with here?

MR WALKER:   We are concerned with the language that one finds from the definition provisions, which your Honour will see on page 236.

GORDON J:   It is really the interaction of section 4(1) “give effect to” with 45(2)(b). 

MR WALKER:   Yes, it is.  We have “give effect to” in the penal provision and then we come to what that means.  There is an inclusive definition of that.  There is also the colloquial or ordinary contextual meaning of “give effect to”.  But one finds that the focus in the Full Court was on what it means to say that to do an act or thing in pursuance of or in

accordance with or enforce or purport to enforce.  That is in relation to a provision of a contract, arrangement or understanding.

Now, to put it shortly, “in pursuance of enforcing or purporting to enforce” seems to be, as a matter of statutory language, referring to the actions of somebody cognisant of at least the material aspects of the contract, arrangement or understanding.  But “to act in accordance with” is held by the Full Court, in effect, simply to be something which is consistent with the terms of.  Of course people act consistently with the terms of other people’s contracts or arrangements all the time.

GORDON J:   Without knowing, without knowing the underlying arrangement.

MR WALKER:   Without knowing either its existence or its material terms.

GORDON J:   Does it matter that when the criminal provisions were brought in they addressed this question of knowledge and it was decided that for the more serious conduct knowledge was an essential element?

MR WALKER:   It is material but very difficult to ‑ ‑ ‑

GORDON J:   I do not seek to retrofit it but that was something ‑ ‑ ‑ 

MR WALKER:   That is all I am saying:  very difficult to take backwards into what these words meant.  The meaning of these words has not changed by reason of that later development, which shows that it is a very important matter of policy, and we urge that in support of it as a special leave point in its own right.  I note the red light.

GAGELER J:   Yes, thank you, Mr Walker.  We do not need to hear from you, Mr O’Bryan.

We are not persuaded that there is an arguable case that the Full Court proceeded on an erroneous construction of either section 76(5)(d) or section 45(2)(b) of the Trade Practices Act 1974 (Cth). Special leave to appeal is refused with costs.

MR WALKER:   May it please the Court.

AT 9.52 AM THE MATTER WAS CONCLUDED