Consideration regarding penalty
53 For the reasons I now explain, I am satisfied that imposition of a pecuniary penalty of $220,000 is appropriate in the circumstances of the case.
54 First, having regard to the nature and extent of the contravening conduct I consider Agrison's contravening acts and omissions constitute serious contraventions of ss 29(1)(j) and (m).
55 Agrison made the Warranty Representation, Service Network Representation and the Parts Representation to consumers in the context that it represented itself as an industry leader which offered high quality and reliable Tractors for sale. Its statements conveyed false or misleading representations to consumers that:
(a) in the event a Tractor was defective, it would provide a replacement part for all defective parts at no cost to the customer, for a period of five years following purchase;
(b) it had a national service network and therefore customers requiring after-sales service or repair staff could access them throughout Australia; and
(c) a customer would be able to obtain all necessary parts for Tractors within a reasonable time if and when required.
That was far from the truth.
56 The SOAFA says nothing about the state of mind of Agrison or Mr Yokus, but it is implausible that that the misleading features of Agrison's promotional material were inadvertent or innocent. For example, it must have been obvious to Mr Yokus that Agrison did not have a national service network such that customers requiring after-sales service or repair staff could access them throughout Australia.
57 While it cannot be known for certain, it is appropriate to infer that at least some proportion of the customers relied upon one or more of those representation in purchasing an expensive Tractor. The high number of complaints to the ACCC speaks to the number of consumers who may have been subject to one or more of those misleading representations, and the fact that some consumers are likely to have relied on them can be seen in the agreed facts pertaining the Particular Consumers. It is relevant that some of Agrison's customers were unable to use their Tractors for extended periods of time due to defects that Agrison failed to rectify in a timely manner, or because the required spare parts were unavailable.
58 The seriousness of the contravening conduct can also be seen in the fact that it occurred at the senior management level, and that Agrison did not have a corporate culture of compliance with the requirements of the ACL. Mr Yokus was the sole director during the relevant period and all employees reported to him. He was responsible for all aspects of the business, including authorising orders for spare parts and Warranty claims. Notwithstanding the Warranty Representation, Service Network Representation and Parts Representation made by Agrison, it did not keep records of Tractor sales, Warranty claims, defects notified, repair requests, customer complaints or spare parts in stock. It did not provide any training to its staff in relation to its obligations under the ACL or how to deal with Warranty claims. Nor did it have any written procedures or policies in place to provide guidance to employees in respect of those matters.
59 Second, turning to consider the loss or damage suffered as a result of the contravening conduct, it is impossible to know the extent of the losses suffered. But the evidence is that Agrison's Tractor customers are largely hobby farmers who paid between $18,000 and $60,000 for each Tractor, and the inability of some purchasers to use their Tractors for long periods of time is likely to have caused them loss. The likelihood that Agrison's customers suffered losses can also be seen in the agreed facts set out in the SOAFA which show that the four Particular Consumers suffered losses totalling $63,947.50. Three of those consumers incurred costs because they were forced to obtain parts and repair defects in their Tractors after Agrison failed do so, and two of them suffered loss by selling their Tractors for less than they paid for them. The Tractor purchased by the fourth of those consumers suffered from major faults, and the consumer sought to return the Tractor and obtain a refund from Agrison, without success.
60 Third, it must be firmly kept in mind that the raison d'être for imposing a pecuniary penalty is deterrence, directed both to discouraging repetition of the contravening conduct by the contravener (specific deterrence) and discouraging others who might be tempted to engage in similar conduct (general deterrence).
61 In relation to specific deterrence Agrison is essentially a family company with a sole director and 10 employees. It operates from a single location in Victoria. It has suffered a substantial decline in both revenue and profit over the relevant period and estimates its FY21 net profit after tax at $80,395. Given its size and modest profitability I am satisfied that a penalty of $220,000 is likely to deter Agrison from a repetition of similar conduct. Such a penalty is nearly 17% of Agrison's net profit after tax for the entirety of its business, not just the Tractor Business, for the relevant period, and almost three times its FY21 net profit after tax. The ACCC accepts that Agrison's financial position and its modest profitability means that it does not have the capacity to pay both the penalty and compensation orders immediately. In my view a penalty of $220,000 carries a sufficient sting or burden that Agrison is unlikely to see as an acceptable cost of doing business.
62 In relation to the requirement for general deterrence, it could be argued that a penalty of $220,000 is unlikely to operate as deterrent to other larger agricultural equipment suppliers in the market. But two things should be noted in this context:
(a) first, it is appropriate to infer that other agricultural equipment suppliers would understand that a penalty of that magnitude takes into account Agrison's small size and modest profitability. They are likely to understand that larger and financially stronger contraveners are likely to incur a more substantial penalty; and
(b) second, regard must be had to proportionality "because of a balance in the reaching of an 'appropriate' penalty between an 'insistence' on deterrence and an 'insistence' on not imposing more than is reasonably necessary (NW Frozen Foods) as part of the reasonable and lawful exercise of judicial power (cf Banerji) in respect of a contravention before the court and in furtherance of the object of deterrence of contraventions of like kind:" Pattinson v Australian Building and Construction Commissioner [2020] FCAFC 177; 384 ALR 75 at [111] (Allsop CJ, White and Wigney JJ, with whom Besanko and Bromwich JJ agreed).
63 Fourth, turning to consider the maximum penalty, the relevant period spans a change in the statutory maximum penalty. Pursuant to s 224 of the ACL a different maximum penalty applied in each period, as follows:
(a) before 1 September 2018 the maximum penalty was $1.1 million per contravention (the First Penalty Period): s 224(3) as it applied up to that date; and
(b) from 1 September 2018 the maximum penalty is $10 million per contravention (or three times the value of the benefit obtained from the contravening conduct, or if the benefit cannot be ascertained, 10% of the annual turnover of the corporation) (the Second Penalty Period): s 224(3A) which came into effect from 1 September 2018.
64 It is not possible to identify the precise number of contraventions in the present case. The representations were made in a range of promotional materials through a variety of channels over a period of more than three years. Each occasion on which a representation was made to a consumer may be treated as a separate contravention for the purposes of s 29. Although the precise number of contraventions that occurred cannot be ascertained, this is the type of case where arithmetical calculation of the theoretical maximum (by multiplying the number of contraventions by the prescribed maximum) would be a somewhat arid exercise and would not be meaningful or helpful in providing a yardstick for the Court.
65 As the parties submit, having regard to the course of conduct principle it is appropriate to analyse the contravening conduct as three interrelated courses of conduct, comprising the Warranty Representation, Service Network Representation and Parts Representation. Doing so takes into account the significantly overlapping nature of the contraventions which relate to the same products and the same representations over time, but to different persons. But even when the contravening conduct is analysed as three courses of conduct rather than multiple individual contraventions, the maximum penalty would, in total, be many times more than Agrison's net profit after tax throughout the relevant period.
66 In my view there is no realistic prospect that Agrison has the financial capacity to pay a penalty in the millions of dollars. Application of the theoretical maximum penalty would vastly exceed what is required to achieve deterrence, and in my view it would result in a penalty so high as to be oppressive: see Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd [1978] FCA 104; ATPR 40-091 at 17,896 (Smithers J) cited with approval in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; 71 FCR 285 at 293 (Burchett and Kiefel JJ (as her Honour then was)). While careful attention to the maximum penalty will almost always be required, where, as here, the theoretical maximum rises to such a level, care must be taken to ensure that it is not applied mechanically, instead of it being treated as one of a number of relevant factors, albeit an important one: see Markarian v The Queen [2005] HCA 25; 228 CLR 357 at [31] (Gleeson CJ, Gummow, Hayne and Callinan JJ); Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 at [156]-[157] (Jagot, Yates and Bromwich JJ); see also Australian Building and Construction Commissioner v Construction Forestry Mining and Energy Union [2017] FCAFC 113; 254 FCR 68 (ABCC v CFMEU) at [143]-[146] (Dowsett, Greenwood and Wigney JJ).
67 In the present case a more suitable yardstick against which to determine the appropriate penalty is the $1.32 million derived by Agrison in net profit after tax during the relevant period. Using that as a yardstick, a penalty of $220,000, which comprises nearly 17% of Agrison's net profit after tax for the entirety of its business, not just the Tractor Business, for the relevant period, and is almost three times its FY21 net profit after tax, is sufficient to provide specific and general deterrence, and deterrence is the fundamental objective of the civil penalty regime.
68 Fifth, the fact that the ACCC, the specialist regulator, has agreed with Agrison to propose a $220,000 penalty to the Court must be given some weight. Where, as here, the Court is persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the agreed penalty jointly proposed is an appropriate remedy in all the circumstances, it is highly desirable in practice for the Court to accept the parties' proposal and therefore impose the proposed penalty: Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 at [58] (French CJ, Kiefel, Bell, Nettle and Gordon JJ); Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission [2021] FCAFC 49; 151 ACSR 407 at [124]-[129] (Wigney, Beach and O'Bryan JJ).
69 No single factor is decisive in my determination as to the appropriate penalty. Instead, "[t]he fixing of a penalty involves the identification and balancing of all the factors relevant to the contravention[s] and the circumstances of the defendant, and making a value judgment as to what is the appropriate penalty in light of the protective and deterrent purpose of a pecuniary penalty": ABCC v CFMEU at [100] as affirmed in Pattinson at [114]. I consider a penalty of $220,000, representing $100,000 in respect of the Warranty Representation and $60,000 in respect of each of the Service Network and Parts Representations is appropriate, as the parties submitted. Standing back and having regard to the totality principle as a final check, I am satisfied that such a penalty is just and appropriate for the totality of the contravening conduct.