Commerce Commission v Giltrap City Limited HC Auckland Cp88-As94

[2002] NZHC 38

IN THE HIGH COURT OF NEW ZEALAND
AUCKLAND REGISTRY CP88-AS94

BETWEEN THE COMMERCE COMMISSION
Plaintiff

AND GILTRAP CITY LIMITED
Seventh Defendant

AND ANDREW THOMAS MACKENZIE
Eighth Defendant

Hearing: 19 December 2001

Counsel: B Brown QC and P Rainsford for plaintiff
M P Reed QC / P Moreton for seventh defendant
J Billington QC for eighth defendant

Judgment: 5 February 2002

RESERVED JUDGMENT OF GLAZEBROOK J AS TO PENALTY

Solicitors:
Commerce Commission (Mr Rainsford) PO Box 2351, Wellington (plaintiff) (Counsel: B Brown)
Gellert Ivanson (Mr Ivanson) PO Box 25239, Auckland (7th defendant) (Counsel: M Reed)
Harkness & Peterson (Mr Harkness) DX SP24004, Wellington (8th defendant) (Counsel: J Billington)

Introduction

[1] In my decision of 13 September 2001 I held that on 3 June 1993 Mr MacKenzie, the then dealer principal of Giltrap City Toyota, entered into a price fixing arrangement with a number of other Toyota dealers. I also held that the arrangement was put into effect in a number of limited ways by Mr MacKenzie and another employee of Giltrap City Toyota, Mr Beechey.

[2] There was no evidence that the higher management of the Giltrap group knew of the actions of Mr MacKenzie and Mr Beechey or that they would have supported or condoned them if they had. Indeed their evidence was that they would not have. Mr MacKenzie and Mr Beechey were, however, acting within the scope of their actual or apparent authority and within the scope of their employment. This means that, as a consequence, Giltrap City Toyota was a party to the arrangement and involved in giving effect to it.

[3] The conduct described above breached s 27 of the Commerce Act 1986. It is now necessary to set the penalty for the breach. The Commerce Commission submits that a penalty in the range of $200,000 - $250,000 should be imposed on Giltrap City Toyota. This penalty is substantially higher than the penalty imposed on the other corporate defendants. On 4 December 1996 Morris J imposed penalties of $50,000 on those corporate defendants.

[4] The Commission submits that a higher penalty is appropriate because the Giltrap City Toyota case went to trial. The other defendants were entitled to penalty credit because the settlement saved expense and court time. The differential is also justified by the Commission on the basis of the difference in size and financial resources between Giltrap City Toyota and the other dealers. The Commission argues that any penalty imposed must be sufficient to provide a real deterrent. The Commission notes that it would have argued for an even higher penalty but was constrained by the fact that it had agreed to a $50,000 penalty for the other defendants. The Commission also seeks a penalty against Mr MacKenzie and submits that a range of $18,000 - $20,000 is appropriate.

[5] Giltrap City Toyota argues that, rather than a higher penalty, there should be a lower penalty imposed on it, even taking into account the penalty credit given to the other corporate defendants for the settlement. It submits that the culpability of Giltrap City Toyota was much less than that of the other defendants and suggests an appropriate penalty would be in the range of $25,000. In any event it argues that the Commission cannot argue for a penalty of the magnitude it does, as it had always maintained a policy of equal treatment between defendants.

[6] Mr MacKenzie submits that it is inappropriate for the Commission to seek a pecuniary penalty against him at all. This is because it was not the Commission’s practice in 1993 to seek pecuniary penalties against individuals. What is more, the Commission agreed as part of the settlement in this case not to seek a penalty against the other individual defendants. In any event he argues that his culpability was limited.

[7] These submissions are now examined in the context of the principles for setting penalties under the Commerce Act.

Principles

[8] The starting point for consideration of a pecuniary penalty is s 80(2) of the Commerce Act 1986. This provides as follows:

“In determining an appropriate penalty under this section, the Court shall have regard to all relevant matters, including -

(a) The nature and extent of the act or omission:

(b) The nature and extent of any loss or damage suffered by any person as a result of the act or omission:

(c) The circumstances in which the act or omission took place:

(d) Whether or not the person has previously been found by the Court in proceedings under this Part of this Act to have engaged in any similar conduct.”

[9] The list set out in s 80(2) is not exhaustive, as is clear from the opening words stating that all relevant factors must be taken into account. As to other relevant factors, several New Zealand cases, including Commerce Commission v Port Nelson Ltd (1995) 6 TCLR 406, 445-446 and Commerce Commission v Carter Holt Harvey Building Products Group Ltd (2000) 9 TCLR 636, 646, have also made reference to the list of factors identified by Spender J in TPC v Annand & Thompson Pty Ltd (1987) 9 ATPR 40-772:

“(a) whether the conduct was deliberate or not;

(b) whether damage was caused by the conduct to the public or to the retailer;

(c) the size of the corporation’s activity in the relevant market;

(d) the degree to which the conduct was initiated or condoned by senior management;

(e) what steps were taken by the employer to educate its employees prior to the contravention;

(f) the existence or otherwise of a policy by the corporation against breaches of the provisions of the Act;

(g) whether the conduct was the result of a mistake on the part of the employee;

(h) whether there has been similar conduct in the past;

(i) whether, since the occurrence, controls over employees, particularly sales personnel, have been increased or improved to prevent a repetition of the conduct;

(j) whether the corporation has made a full and frank disclosure and co-operated with the Commission.”

[10] The Full Court of the High Court in Commerce Commission v New Zealand Milk Corporation Ltd [1994] 2 NZLR 730, 737 observed that these elements can be taken as an expansion of the statutory factors but noted that the additional criteria cannot be regarded as inflexible or exhaustive and in the end each penalty must be tailored to the facts of the particular case.

[11] Giltrap City Toyota submitted that additional factors in this case were the settlement with the other defendants and the attempted settlement with Giltrap City Toyota itself. It also argued that the publicity suffered by the Giltrap group during the time the case has been running is also a factor that should be taken into account.

[12] Finally I note that reference to other cases in this context is rather for the purpose of identifying relevant general principles than for the purpose of comparing the facts of individual cases in order to derive the penalty to be imposed - see in this regard the comments of Goldberg J in ACCC v George Weston Foods Ltd (2000) ATPR 41-763, 40,991 - 40,992.

[13] To the extent relevant the factors set out above are now discussed in the context of this case.

Nature, Extent and Circumstances of the Act or Omission - s 80(2)(a)&(c)

[14] I examine s 80(2) (a) and (c) together as it is difficult to differentiate between the two in this context. The main submission of both Mr MacKenzie and Giltrap City Toyota is that Mr MacKenzie was less culpable than the other dealers. They point in particular to the fact that he did not initiate the arrangement and to the finding that it was his silence that caused him to become a party to the arrangement. Giltrap City Toyota argues in addition that its liability is technical only, stemming as it does from the actions of only two of their employees.

[15] To examine these submissions it is first necessary to set out the findings as to the exact nature of Mr MacKenzie’s involvement in the arrangement and the basis upon which Giltrap City Toyota was found to be responsible for the breaches of s 27. This is because there were a number of alternatives set out in the judgment. The penalty will be based on the primary findings as to liability and not on any secondary or alternative findings.

[16] The primary finding in relation to Mr MacKenzie’s entry into the price fixing agreement was that he had voluntarily entered into the arrangement and that he thought that it was in Giltrap City Toyota’s and his own best interests, at least as far as fleet sales were concerned - see para 55 of the liability judgment. As it was not part of the Commission’s case that the arrangement was ever implemented it was not necessary to make any findings on intention to implement the arrangement.

[17] To the extent that it is necessary for the purposes of this hearing I find that Mr MacKenzie intended to implement the arrangement, at least for fleet sales (and these were by far the most important part of Giltrap City Toyota’s business). This finding follows from the finding that he thought it was in Giltrap City Toyota’s and his own best interests to enter into the arrangement. It is also shown by the fact that Mr MacKenzie ensured that the document relating to the arrangement was put on the sales managers’ meeting agenda for the afternoon of 3 June - see para 71 of the liability judgement.

[18] The liability judgement also held that Mr MacKenzie had indicated his acquiescence in the arrangement by silence - see para 59. As indicated above, he had, however, made a positive decision to become a party to the arrangement, at least for fleet sales. Against this background Mr MacKenzie cannot conceivably have thought that his silence meant anything other than an affirmation of his participation in the arrangement. Indeed, he must positively have intended that it be taken as such.

[19] His silence also has to be seen in the context of his attendance at the two earlier May meetings where discounting and a possible accord were discussed and in the light of the preparation of the document headed “Agreement Unanimous” at the June meeting. The evidence was that the word “unanimous” was specifically added at the request of one of the other dealers in Mr MacKenzie’s presence. His silence also has to be seen in the context of the evidence that the primary target for the proposed arrangement was Giltrap City Toyota as its discounting activities caused particular concern for the other dealers.

[20] It is not possible for anyone to mistake the effect of silence in such circumstances. Silence clearly indicated assent to the arrangement and the description of it as unanimous. Given this I am unable to distinguish the MacKenzie’s conduct from that of the other dealers.

[21] I note that discussion in the liability judgment as to Mr MacKenzie being bound morally is an alternative finding, if in fact (contrary to what I have just held) he did not intend to implement the arrangement. The same applies to the discussion that follows in paras 60-62 of the liability judgment and in particular to the remarks in para 62. As indicated above any penalty set should be based on the primary findings and not on such alternative findings, although it is difficult to see why deliberately encouraging others to enter into a price fixing arrangement for your commercial advantage and that of your employer would be conduct of lesser concern, insofar as culpability in a s 27 context is concerned. Conceivably, if the others had implemented a price fixing arrangement, this could have given Giltrap City Toyota the ability not only to achieve a larger market share, but also to do so without such aggressive discounting. The public would still have been affected.

[22] Mr MacKenzie further submits he did not initiate the arrangement, and that it could well have gone ahead whether or not he and therefore Giltrap City Toyota joined. The latter is obviously speculation but the submission does not sit easily alongside the evidence that Giltrap City Toyota was a primary target of the arrangement because of its aggressive discounting.

[23] In any event the Commission did not allege that it was Mr MacKenzie who initiated the arrangement. The evidence in the liability hearing suggested that there were some dealers who were pushing hard for the arrangement and some dealers who expressed reluctance at the relevant meeting (although notably not Mr MacKenzie). It appears, however, that this evidence may not have been before the Commission at the time of the settlement negotiations. Mr Felton stated in his evidence in the liability hearing that he had not told the Commission which dealers were pushing for the arrangement because he did not want to “dob” them in - see para 19 of the liability judgment. There was no penalty differential among the other dealers and the penalty must have been set on the basis of equal culpability rather than setting a higher penalty for the initiators. The fact that Mr MacKenzie was not alleged to have initiated the arrangement therefore does not provide a basis for distinguishing Mr MacKenzie from the others either.

[24] In terms of the liability of Giltrap City Toyota, the primary finding was that Mr MacKenzie was acting within the scope of his actual authority and that liability flowed from this - see para 86 of the liability judgment. Mr Beechey was acting under instructions from Mr MacKenzie and within the scope of his employment see para 90 of the liability judgement. Again any penalty has to be based on these primary findings. In submissions much has been made of Giltrap City Toyota’s liability being technical only. This is an erroneous description. Companies can only act through human agents. Liability based on actual authority can never be seen as merely technical.

[25] The next point is that the liability judgement was careful to distinguish between the wider Giltrap group and Giltrap City Toyota itself. It was noted at a number of places in that judgment that there was no evidence that the higher management of the Giltrap group knew about the arrangement or the actions to implement it or that they would have condoned it if they had. Indeed it was their evidence that they would not have. However, it was not part of the Commission’s case that they were involved.

[26] What must be remembered is that the defendant in this case is Giltrap City Toyota and not the wider Giltrap group. Mr MacKenzie, at the relevant time, was the person at the highest level of management of Giltrap City Toyota itself. It is true that Giltrap City Toyota was part of a group of companies and that the group’s management was centralised to the extent that the managers of individual companies had little autonomy in wider policy matters. It is also true that Mr MacKenzie, as would be normal in any group structure, had less autonomy than the other individual defendants who were also owners of their companies. For completeness because Giltrap City Toyota in its submissions on penalty seems to have misunderstood the position, I note that paras 78-81 in the liability judgment are recording the submissions made, not making a finding in terms of those submissions.

[27] That Mr MacKenzie had less autonomy than the other individual dealers does not detract from the fact that Mr MacKenzie was the managing director of Giltrap City Toyota. There was a positive finding in the liability judgment that Mr Gibb (as the managing director of the wider Giltrap group) did not deal with the day-to-day management of Giltrap City Toyota. This was Mr MacKenzie’s job, as was the meeting of budgets set - see para 82 of the liability judgment. The Commission’s submission that Mr MacKenzie would not have been precluded from entering into a particular position on the discount levels that might be applied on a day-to-day basis was noted and taken into account in reaching the conclusion of actual authority to enter into the arrangement - see paras 85 and 86 of the liability judgment. The fact that Mr MacKenzie had authority to attend the dealers’ meetings and that there was apparently no supervision of his actions or limitation on his authority in relation to those meetings was also noted - see paras 83-85 of the liability judgment. As a result Giltrap City Toyota’s liability is not technical but arises from the managing director of that company acting within the scope of his actual authority. It is difficult to see how this could mean a lesser liability than that of the other dealers.

[28] I have nevertheless been asked by Giltrap City Toyota to take into account the fact that Mr MacKenzie would not have been able to implement the arrangement. He did of course manage to give effect to the arrangement in the limited ways found but it is submitted on behalf of Giltrap City Toyota that he would not have been able to go further. In particular it was submitted that he left Giltrap City Toyota very soon afterwards and was likely to have been making preparations to leave at the time of the June meeting.

[29] It is probably necessary at this point to deal with one of Giltrap City Toyota’s implied arguments. This is the argument that, because Mr MacKenzie was leaving, he entered into the arrangement without considering whether it was in Giltrap City Toyota’s best interests. This argument is rejected. There was a positive finding in the liability judgement that Mr MacKenzie did consider the arrangement to be in Giltrap City Toyota’s best interests, at least for the fleet scheme.

[30] I note too that Mr MacKenzie was chosen as one of the representatives (apparently by Toyota), to attend the meetings with Toyota to discuss the proposed fleet scheme abolition. Mr MacKenzie’s view was that the abolition would have been adverse to Giltrap City Toyota’s interest. Mr Gibb in his evidence espoused a contrary view. Despite this, it did not appear from the evidence that Mr MacKenzie had any instructions from the Giltrap group’s higher management to argue for the abolition of the scheme rather than its retention.

[31] It was submitted further that Mr Carleton, the New Car Manager, would not have allowed the arrangement to go ahead and his complicity would have been necessary. In addition the arrangement would sooner or later have come to the attention of Mr Gibb and he would have put a stop to it. As it was not part of the Commission’s case that the arrangement was ever implemented, I was not obliged to make a finding on these matters. It would be inappropriate to make any definitive findings now especially when evidence as to implementation was specifically excluded when considering liability (although it was noted that the findings would have been the same if implementation had been considered - see paras 65-66 of the liability judgment). It is even less appropriate to consider implementation matters at this stage as the Commission’s discovery application for information relating to implementation, successfully opposed by Giltrap City Toyota, was made specifically in respect of the penalty argument.

[32] I do make two observations, however. Mr Carleton gave evidence that he was told of the arrangement by Mr Beechey but that he did not pass on the information to Mr Gibb. One might have expected him to report it to Mr Gibb if he had the level of concern about the arrangement he now says that he did.

[33] In any event it must be remembered that there were a number of other dealers involved in the arrangement. Even if Mr MacKenzie had not been able to implement the arrangement, the arrangement itself could still have been implemented by the other dealers and could have had an effect on the market, to the extent that this happened. If implementation were to be considered it would be the implementation of any part of the arrangement and not just the implementation effected by a particular party. There is, therefore, no point of distinction in this regard either from the other dealers.

[34] The main reason implementation is irrelevant, however, is that implementation was never been part of the Commission’s case in respect of any of the dealers. The Commission and the other dealers put a joint memorandum before Morris J for their penalty hearing. In that memorandum they said that the price fixing arrangement was one of very short duration with little if any effect. The penalty of $50,000 which was suggested was said to take this into account but also to take into account the fact that the defendants were a group amongst many, both in relation to Toyota franchised car dealers and car dealers in general.

[35] That the arrangement was of limited duration may have been due in some measure to the Commission’s investigation starting in July with the dealers being aware of it from mid August. It may also be due in some measure to the dealers’ success in persuading Toyota to retain the fleet scheme in a modified form - see para 65 of the liability judgment. Whatever the case may be it is clear that the penalty for the other dealers gave penalty credit for the short duration and limited extent (although, given the possible reasons for the short duration, this may have been a concession the Commission was not obliged to make).

[36] In conclusion, there is nothing under this head that distinguishes the liability of Mr MacKenzie and Giltrap City Toyota from that of the other dealers.

Nature and Extent of Loss or Damage - s 80(2)(b)

[37] It is argued on behalf of the Commission that price fixing of itself is regarded as serious conduct in a competition context. Reflecting that categorisation, price fixing is prohibited. There is no requirement to prove a substantial lessening of competition. A price fixing arrangement is deemed to lessen competition substantially as, by its very nature, it weakens the natural competitiveness that one would otherwise have expected to find between the parties to it. It is open to the Commission to seek a deterrent penalty whether or not prices were affected by the price fixing arrangement.

[38] The Commission further submits that, while there is no obligation on the Commission to plead and run a case which alleges consequential market behaviour, there are cases where it could be impracticable to do so in any event. The present case may be such a case, certainly if the view of Mr Gibb in para 28 of his affidavit of 21 May 1999 is accepted as correct. The impossible task of establishing what occurred in respect of particular sales transactions was also apparent from the evidence of other witnesses such as Mr Felton and Mr Carleton.

[39] These submissions are accepted. The penalty set for the other dealers was in any event set on the basis of an arrangement of limited duration and little effect. As indicated above, it may be that this concession was a concession that the Commission did not need to make. The fact is that it did so, and in the same proceedings. The Commission accepts that it would be inappropriate now for it to argue anything different. It agrees that it is constrained by the level of penalty set for the other defendants, except in the two respects set out above in para 4 of this judgment.

Previous History of Price-Fixing - s 80(2)(d)

[40] It is accepted by the Commission that Mr MacKenzie and Giltrap have not previously been found by the Court to have engaged in any similar conduct.

Was the Conduct Deliberate?

[41] I now move on to examining the criteria set out in Annand & Thompson (supra) to the extent they do not duplicate matters already discussed and to the extent they are relevant in the context of this case.

[42] The first question therefore is whether the conduct was deliberate. The primary finding in the liability judgement, as indicated above, was that Mr MacKenzie made a positive decision to enter into the arrangement. The Commission’s submission that the conduct was deliberate is therefore accepted. Given that Mr MacKenzie was acting within the scope of his actual authority this means that it was also deliberate on the part of Giltrap City Toyota.

[43] It is not a requirement that there be an intention to breach the Act: Commerce Commission v Eli Lilly & Co (NZ) Ltd (unreported Fisher J, 30 April 1999 CL 19/98). However in the present case knowledge of the Act’s requirements may be assumed, given the evidence about Mr Gibb’s concern that employees be cognisant of those requirements.

Size of Giltrap City Toyota’s Activity

[44] The Commission submits that the size and resources of Giltrap City Toyota as well as its standing in the commercial community are factors distinguishing it from the other defendants and therefore suggesting a higher penalty as being appropriate.

[45] Deterrence is an important object when fixing penalty under s 80, although not the only one - refer Commerce Commission v Wrightson NMA Ltd (1994) 6 TCLR 279. Deterrence is not just a question of deterrence of the party that has contravened, but more importantly deterrence of the commercial community in general. If deterrence is to be achieved, it must be generally appreciated in the commercial community that the penalty will be more than petty cash to the traders concerned: Commerce Commission v Herberts Bakery Ltd [1991] 2 NZLR 726, 730 (Fisher J).

[46] Penalties must not be able to be seen as a type of licence fee and actions that breach the Act must be made commercially undesirable: Commerce Commission v BP Oil New Zealand Ltd [1992] 1 NZLR 377, 383 per Gallen J. In this regard a penalty which might be a deterrent for a small company may be of little significance to a large one: TCP v TNT Australia Pty Ltd (1995) ATPR 41-375, 40,168, per Burchett J. In addition to size and resources, questions of commercial standing are also material - see Goldberg J’s remarks in ACCC v Australian Safeway Stores Pty Ltd (1997) ATPR 41-562; 43,815 - 43,816.

[47] It is true that the judgment of the High Court in Commerce Commission v Carter Holt Harvey Building Products Group Ltd (Penalty) (2000) 9 TCLR 636, 648 deviated from these propositions. Williams J in that case commented that it was difficult to see why the actions by a large and affluent corporate should give rise to a greater penalty under the Act than if the same actions were carried out by a small indigent company if any difference in penalty resulted solely from difference in size. This appears to have been rejected by the Court of Appeal. On that issue the Court of Appeal (Richardson P, Gault and Blanchard JJ, 5 November 2001, CA 180/00 and CA 184/00, para 94) said this:

“The Court’s comment, as a matter of general principle, seems inconsistent with its recognition of the importance of deterrence. It is commonly accepted that it requires higher monetary penalties to constitute deterrence to affluent parties than to “indigent” ones.”

[48] I accept therefore that the size, commercial standing and financial resources of Giltrap City Toyota can have an effect on the penalty. I do note that normally it would be for the Commission to assist the Court on the issue of Giltrap City Toyota’s size and resources. Fisher J referred to that obligation in Commerce Commission v Herberts Bakery Ltd [1991] 2 NZLR 726 at 730. In that case the information that the defendant was a major concern came voluntarily from the defendant in response to the Judge’s own inquiry during the hearing. Because of this Fisher J was not inclined to penalise it too heavily in that respect.

[49] In this case too the evidence as to the financial and commercial standing of Giltrap City Toyota and the wider Giltrap group was placed before the Court by the defendants, although of their own volition. The Commission points out, however, that it applied for and was refused particular discovery regarding the financial resources of Giltrap City Toyota. The Commission submitted that it would therefore be inappropriate to adopt the generous approach taken by Fisher J in Herberts Bakery. This is accepted.

[50] I accept the Commission’s submissions that there was evidence in this trial of the high standing, large size and extensive financial resources of Giltrap City Toyota in contrast to the other dealers. It is true that with some of the evidence it is difficult to distinguish between Giltrap City Toyota and the wider Giltrap group. Nevertheless much was made of the size and commercial standing of Giltrap City Toyota itself. This evidence was specifically designed to suggest that Giltrap City Toyota would not have entered into the arrangement as it was benefiting from open competition while the other dealers were not.

[51] I also, however, accept Giltrap City Toyota’s submission that a differential of the magnitude the Commission seeks may not be appropriate in this case as there was no differential penalty imposed on any other dealer, even though there was evidence in the liability hearing that there was some financial disparity between those other dealers. This was not discussed at all in the joint memorandum placed before Morris J. I therefore propose to give less weight to the size and commercial standing of Giltrap City Toyota than would otherwise have been appropriate.

[52] Because I accept Giltrap City Toyota’s submission on the limiting nature of the equal penalty imposed on the other dealers, I leave open the question as to whether otherwise the financial and commercial standing of the wider Giltrap group could have been taken into account in setting the penalty in this case. On the one hand the company that has transgressed is Giltrap City Toyota with no allegation that the higher management of the wider Giltrap group were involved. On the other hand the resources of the wider Giltrap group would be at Giltrap City Toyota’s disposal, and indeed much was made of this during the liability hearing itself. I also make no comment on the method of setting any differential, apart from to note that the main purpose of setting a differential is deterrence. Achieving this object would not necessarily lead to a mathematical exercise in setting relative penalties based on the relative asset and income position of the various defendants.

Involvement of Senior Management

[53] The defendant in this case is Giltrap City Toyota. The finding set out above is that the senior management of that company, in the person of Mr Mackenzie, was involved voluntarily and deliberately in the arrangement. It is true that the evidence of Mr Gibb was that the higher management of the wider Giltrap group was not involved in any way in the arrangement and that it did not know of its existence. Indeed it was never part of the Commission’s case that the situation was otherwise.

[54] In setting the penalty for Giltrap City Toyota the attitude of the wider Giltrap group is of limited relevance as Mr MacKenzie was acting within the scope of his actual authority and he represented the senior management of Giltrap City Toyota itself.

Compliance Programme

[55] The evidence on behalf of Giltrap City Toyota was that Mr Gibb was a stickler for compliance with statutory obligations, including the Commerce Act. There was, however, limited evidence of specific compliance programmes or materials. There was a reference to seminars run in conjunction with the Motor Vehicle Dealers Institute but these appear to have been after the relevant time. However, for present purposes, it is accepted that staff were made aware of their obligations under the Commerce Act and that this could be seen as amounting to some sort of compliance programme. The Commission submits that this compliance programme was obviously ineffective and should therefore not be a mitigating factor in relation to the level of penalties imposed: ACCC v Australian Safeway Stores Pty Ltd (1997) 19 ATPR 41-562.

[56] In this context, the point should be made that the simple fact that an employee or director of the company has breached the Act does not lead to the necessary conclusion that a compliance programme is ineffective. It is possible that the offending employee is a loose cannon, and that no amount of training and education will ensure that he or she not breach the Act. In such a case, the corporate defendant should not be deprived of the mitigation it is entitled to by virtue of an otherwise useful and stringent compliance programme. Moreover, if it were the case that offences against the Act automatically proved a compliance regime ineffective, then such a regime would never operate as a mitigation to penalty, as an offence is a prerequisite.

[57] It must be asked whether in a particular case the fact that a person or persons within the corporate has offended against the Act is evidence that the compliance programme is deficient. In ACCC v Australian Safeway Stores Pty Ltd (1997) 19 ATPR 41-562 at 43,815, the rationale for concluding that the compliance regime was ineffective was that the breaches of the Act in that case were widespread and ongoing throughout the corporate. There was also no evidence that they had been questioned by employees as breaches of the Act. These factors suggested that the compliance programme was ineffective. It is a different matter, however, to say that a single breach indicates inadequacy.

[58] In the current case, the breach of the Act is apparently a one-off occurrence. It is also largely centred around a single employee, albeit high-ranking, who is no longer with the company, although there were also the actions by Mr Beechey and the inaction by Mr Carleton in not informing Mr Gibb of the arrangement. This is not sufficient to justify the conclusion that the compliance programme was ineffective.

[59] However, the evidence of that programme is such that it is clear that it was minimal at best. Compliance does not appear to have been a top priority for Giltrap City Toyota, whatever its significance may have been for Mr Gibb and the wider Giltrap group. It is on this basis, rather than the fact that there is evidence of a breach, that mitigation for having a compliance programme should be of a very limited nature.

[60] It is to be noted too that Mr Gibb did not ask for reports at to what happened at dealer meetings and these meetings could be seen as providing a danger point for possible breaches of the Commerce Act of the type found here.

Was there Full and Frank Disclosure and Co-operation?

[61] It is well settled (and accepted by Mr MacKenzie and Giltrap City Toyota) that it is proper for defendants to receive a credit towards penalty if they have cooperated with the Commission and in particular if they have settled and thus avoided the need for a trial. The fact that the other defendants settled must, therefore, be taken into account in assessing the penalty to be imposed on Mr MacKenzie and Giltrap City Toyota - see remarks of the Full Court in New Zealand Milk [1994] 2 NZLR 730, 737 and the remarks of the majority in NW Frozen Foods Pty Ltd v ACCC (1997) ATPR 41-546, at 43,500 when they said that, when corporations acknowledge contraventions, very lengthy and complex litigation is frequently avoided, freeing the courts to deal with other matters and allowing the investigating officers of the Australian equivalent of the Commission to turn to other areas of the economy that await their attention. See also in this regard ACCC v George Weston Foods Ltd (2000) ATPR 41-763, 40,986.

[62] The Commission submits that Mr MacKenzie and Giltrap City Toyota’s conduct has been the antithesis of full and frank disclosure, in contrast to the attitude of the other defendants. Mr MacKenzie and Giltrap City Toyota dispute this. They say that they have co-operated with the Commission, except to the extent that they have denied liability and taken steps in the litigation they were entitled to take.

[63] In terms of the other defendants it is true that they settled with the Commission. Certain of them also attended voluntary interviews with the Commission, and co-operated at an early stage in settlement discussions. There is no allegation that Mr MacKenzie and Giltrap City Toyota did otherwise than comply fully with any legal obligations they had to cooperate with the Commission. It appears, however, from the material I have seen that they did little more than this. Neither did they settle with the Commission, even at a late stage. This means that they are not entitled to the same credit as the other defendants.

[64] Giltrap City Toyota submits that the principles applicable in setting a discount for a guilty plea and cooperation in a criminal context should apply equally in a Commerce Act context when setting penalties. In my view cases in a criminal context are of limited value as penalties under the Commerce Act are not criminal penalties. In a Commerce Act context credit given for cooperation and settlement would generally be substantial, given the public interest in promoting settlements in this context. This is especially so as such cases are often hard to prosecute and involve what would often be complex litigation. Ensuring compliance in future is also likely to be easier with early cooperation.

[65] Giltrap City Toyota argues that any credit given to the other dealers would have been small as the settlement was not finalised until late 1996. I do not accept the submission that the other dealers would have received limited credit as they did not settle at an early enough stage. As a general rule litigation in this context is complicated. This means that any settlement negotiations are likewise likely to be complicated and time consuming. In addition this submission ignores the early settlement discussions undertaken by the other dealers and the voluntary interviews given by some at least.

[66] For completeness I do note that the fact that a defendant takes various interlocutory steps in litigation and opposes interlocutory applications of the Commission would not normally be taken into account to its detriment in a penalty context, although there would obviously be implications in costs awards. There is no reason why in this case this principle should be departed from.

Publicity

[67] Giltrap City Toyota submits that the adverse publicity it has suffered at every step of this proceeding should provide some mitigation and cites Commerce Commission v BP Oil [1992] 1 NZLR 377 at 383 for this proposition. I note also Commerce Commission v Hewlett Packard (N.Z) Ltd (unreported, High Court, Wellington, CP849-90, 5 February 1993, Ellis J). The argument is that there has already been some element of deterrence both to it and to others through this publicity. Adverse publicity cannot be a strong element but it does contribute some element of deterrence and therefore can provide some mitigation, albeit limited.

Significance of Penalty Levels Heralded by the Commission and this Court

[68] Giltrap City Toyota led evidence at the penalty hearing. Much of that evidence attempted to place before the Court what in my view were clearly the contents of “without prejudice” settlement discussions. It is true that some of the correspondence was not marked “without prejudice”, but it has to be seen as referring to material sent under cover of correspondence that was marked “without prejudice” or to discussions that were clearly “without prejudice” discussions.

[69] Even if that were not the case the Commission can hardly be seen as bound by indications given in the context of settlement negotiations where settlement did not ensue. It must also be remembered that it is the Court and not the Commission that sets penalties. The Court would not necessarily have accepted the recommendations of the Commission as to penalty. In addition the Commission appears to have made it plain that it would be seeking a different penalty if settlement did not take place, so there can be no element of unfairness in it seeking a higher penalty now.

[70] The only other element that was referred to by Giltrap City Toyota is that this Court itself could be seen as having given some kind of penalty indication. In his judgement of 5 May 1997 (unreported, High Court Auckland, CP88/94, 5 May 1997) on the strike out application by Giltrap City Toyota Robertson J said that potential penalty was not a factor weighing in favour of strike out. He said at page 5:

“[O]ne cannot ignore the fact that identical proceedings which were brought against the other defendants were dealt with consensually on the basis of a penalty of $50,000 being imposed on the corporate entities (together with costs of $1000) and no penalty on the individual operators. I acknowledge that there may have been some allowance for an acknowledgment of culpability, but that could not have had an overwhelming effect. Therefore the reality is that whatever potential may theoretically exist, upon an eventual finding of liability against the current applicants, the penalty would undoubtedly be less than $100,000.”

[71] Giltrap City Toyota also point to the fact that the same likely penalty level was referred to by Master Gambrill in her judgment of 3 September 1999 at pages 20-21 and says that the Court of Appeal in its 16 December 1997 judgment (CA114/97, 16 December 1997), overturning the decision of Robertson J of 5 May 1997, also rejected the relevance of potential penalty. This was without apparent contradiction from the Commission as to the level of penalty heralded in Robertson J’s judgment. The Court of Appeal, when commenting on the alleged difficulties with the contingent liability of a penalty faced by the Giltrap group, said as follows at page 8:

“The substance of this point did not impress the Judge in view of the penalty imposed on certain of the other defendants in terms of the settlement. Nor does the point impress us for the reasons given.”

[72] The Court of Appeal judgement made no mention of the likely penalty range, however, and could be seen as endorsing the rejection of the substance of the argument rather than necessarily agreeing with the penalty level suggested. In addition any penalty indication given by Robertson J (or indeed Master Gambrill or the Court of Appeal) was given, as is acknowledged by Giltrap City Toyota, without full knowledge of the facts. It also appears not to have taken into account anything other than credit for co-operation. In my view taking into account the fact Giltrap City Toyota did not settle would have justified a penalty at the highest end of the range suggested by Robertson J. In addition it is difficult to see that Giltrap City Toyota has relied on the indication to its detriment.

[73] I do, however, consider that the earlier indications given by the Court may provide a further reason why the penalty levels suggested by the Commission for Giltrap City Toyota are too high in the special circumstances of this case. This does not mean, however, that the Court is in any way limited to the maximum suggested by Robertson J for the reasons set out above.

Penalty for Mr MacKenzie

[74] Taking into account the findings in relation to Mr MacKenzie’s entry into the arrangement and all the other relevant factors discussed above the level of penalty suggested by the Commission for Mr MacKenzie would be entirely appropriate. There is no question as to Mr MacKenzie’s ability to pay a penalty of that magnitude. But for the two matters discussed below I would have imposed a penalty within the range suggested by the Commission.

[75] It was, however, accepted by the Commission that it would not have been the policy of the Commission in 1993 to seek penalties against individuals. Clearly any such policy would not be appropriate now given the recent amendments to the Commerce Act dealing with penalties, although it is accepted by the Commission that the amendments do not apply to Mr MacKenzie. Indeed it was the policy of the Commission, even before the recent amendments, to seek penalties against individuals in appropriate cases.

[76] In addition, the Commission discontinued against the individual defendants in this case. While Mr MacKenzie’s position is different from those other individuals in that he proceeded to trial I accept that this may not have been entirely his choice and that he may have been obliged to defend the case because Giltrap City Toyota decided to do so.

[77] In my view the combination of these factors suggest that it would not be appropriate to impose a penalty on Mr MacKenzie in the special circumstances of this case and I do not do so.

Penalty for Giltrap City Toyota

[78] It is clear that I have rejected the proposition that Giltrap City Toyota’s culpability is less than that of the other corporate defendants. This is because of the finding that the managing director of Giltrap City Toyota, Mr MacKenzie, was acting within the scope of his actual authority and the finding that he made a positive decision to enter into the arrangement. It is true that it was never part of the Commission’s case that the higher management of the wider Giltrap group was involved in any way in the arrangement. It is, however, Giltrap City Toyota that is the defendant and not the wider Giltrap group.

[79] I have accepted that a substantial penalty credit would have been appropriate for the other dealers because of the settlement. Giltrap City Toyota is not entitled to any such credit. I have also accepted the Commission’s submission that the size, standing and financial resources of Giltrap City Toyota justify a larger penalty than for the other defendants. While accepting this, in the circumstances I do have some concerns about the level of penalty suggested by the Commission. This is because no differential was made (or suggested) between the other defendants when setting penalties for those dealers, even though there appeared to be a differential between the financial resources of those defendants. This factor therefore has not been given the weight it would otherwise have been given.

[80] Apart from the settlement and the question of size, standing and financial resources, the Commission accepts that the penalty to be imposed will be constrained by the level of penalty imposed on the other defendants.

[81] Taking these factors into account (and all the other mitigating and limiting matters set out above) I impose a penalty of $150,000 on Giltrap City Toyota.

Costs

[82] At the request of the parties costs are reserved for further argument.