Australian Competition and Consumer Commission v Auspine Limited

The orders sought require a compliance program in respect of all parts of the TPA which will include, for example, Pt IV and other parts which have no connection whatsoever with the alleged conduct giving rise to the case or controversy in the Court. In my view it is not appropriate to make orders which require a compliance program which relates to conduct other than the alleged contravening conduct as characterised by the Court.' The comments of Merkel J (at 203) were referred to in Foster. The Full Court did not say anything to suggest that they did not agree with his observations. 31 French J considered the same issue in REIWA. His Honour said (at 88): 'The question whether there is a sufficient nexus between the order sought and the contravention alleged involves an evaluative judgment. At one level the orders sought may be so remote from the contravention alleged that the question is readily resolved as one of power. Thus an injunction directing implementation of a compliance program covering all of the provisions of Pt V in answer to an alleged contravention of Pt IV of the Act might well be thought so remote from the contravention as to be beyond the purpose of s 80 and thus beyond its power. A fortiori such an order might be thought inappropriate even if strictly within power. I respectfully agree with his Honour in relation to that aspect of his approach in the Z-Tek case. A contravention of a basic prohibition of competition law may be indicative of lack of awareness of the requirements of that law generally. To enter into a blatant price fixing arrangement with a competitor might well fall within that category. In such a case an order for a compliance program providing for development of awareness of the provision contravened and related areas of competition law may be seen as appropriately connected to the contravention and designed to prevent the diversion of public resources to further enforcement action whether in relation to the contravention grounding the claim or contraventions in the same general area. What is "a sufficient nexus" between the conduct the subject of the injunction and the conduct alleged or found to constitute a contravention of a provision of the Act is a matter of judgment. In ACCC v Z-TekMerkel J accepted that the making of orders or the acceptance of undertakings to implement a trade practices compliance program are within the power conferred upon the court by s 80 of the Trade Practices Act.

In that case his Honour considered ordering a compliance program with respect to Pt V generally but declined to do so on the basis of the disparate nature of the provisions of Pt V which were as far removed from the contravention complained of as Pt V is from the provisions of Pt IV. In the event this was a question of judgment of the sufficiency of the nexus between the compliance program ordered and the particular contravention. I do not take his Honour's approach to preclude the possibility of a compliance program which covers the provisions of Pt IV generally.' 32 I respectfully agree with those observations. 33 Before leaving this point, I should mention s 86C of the Act which was introduced in 2001. It relevantly provides: '(1) The Court may, on application by the Commission, make one or more of the orders mentioned in subsection (2) in relation to a person who has engaged in contravening conduct.

(2) The orders that the Court may make in relation to the person are:

(b) a probation order for a period of no longer than 3 years; and

(c) an order requiring the person to disclose, in the way and to the persons specified in the order, such information as is so specified, being information that the person has possession of or access to; and

(d) an order requiring the person to publish, at the person's expense and in the way specified in the order, an advertisement in the terms specified in, or determined in accordance with, the order.

(3) This section does not limit the Court's powers under any other provision of this Act.

(a) contravenes Part IV, IVA, IVB, V or VC or section 75AU or 75AYA; or

(b) constitutes an involvement in a contravention of any of those provisions.

probation order, in relation to a person who has engaged in contravening conduct, means an order that is made by the Court for the purpose of ensuring that the person does not engage in the contravening conduct, similar conduct or related conduct during the period of the order, and includes:

(a) an order directing the person to establish a compliance program for employees or other persons involved in the person's business, being a program designed to ensure their awareness of the responsibilities and obligations in relation to the contravening conduct, similar conduct or related conduct; and

(b) an order directing the person to establish an education and training program for employees or other persons involved in the person's business, being a program designed to ensure their awareness of the responsibilities and obligations in relation to the contravening conduct, similar conduct or related conduct; and

(c) an order directing the person to revise the internal operations of the person's business which lead to the person engaging in the contravening conduct.' 34 This section is not directly relevant in this case because it is only engaged on a finding that a person has engaged in contravening conduct (s 86C(1)) and that is not the case here. I note that the type of 'probation order' which may be made under the section may only relate to the 'contravening conduct, similar conduct or related conduct' so the section itself requires a nexus between the contravening conduct and the order or undertaking. I did not hear submissions on whether s 86C bears upon the interpretation of s 80 and I will say nothing on that topic. I will proceed by having regard to the principles developed in the context of s 80 of the Act. 35 Fifthly, a question which has arisen in the cases, and which arises in this case, is the Court's power to make an order or accept an undertaking requiring an external audit of a compliance programme or, alternatively, the appropriateness of so doing. It seems that such an order may not be made under s 86C: BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452 (Gray, Goldberg and Weinberg JJ) at 468 [51]. It is important to have a clear understanding of what is meant by an external audit of a compliance programme. In my opinion, an order or undertaking which leaves the definition of the major obligations undertaken by a respondent to a third party or which makes the question of whether there has been a breach turn on the assessment or opinion of a third party is beyond power, or at the very least inappropriate. A court should not grant an injunction leaving the scope of the injunction to be determined by a third party and should not accept an undertaking to similar effect. Such an injunction or undertaking would not be in clear and unambiguous terms and it would involve an impermissible delegation of the Court's power to formulate the terms of the order and to determine the question of breach. None of this is to say that an order or undertaking might not include a provision for an external audit providing the major obligations are defined and it is clear that the question of breach is for the court to determine, having regard to the facts and the terms of the order or undertaking. 36 I turn now to consider the particular undertakings proffered in this case. 37 The first undertaking which is proffered by the corporate respondents is in the following terms: 'Each of Auspine Limited, Geo J Bone & Sons Pty Ltd and JAG Timber Products Pty Ltd, for a period of 5 years, whether by its directors, servants or agents or otherwise howsoever, undertakes to the Court to refrain from:

(a) making or attempting to make any contract or arrangement, or arriving at or attempting to arrive at any understanding, with a competitor or competitors containing a provision or provisions that:-

(i) any or all of them would no longer provide estimating services without charge but would pass on to the customer any charges incurred at cost;

(ii) any or all of them would procure or attempt to procure or induce other competitors to make an arrangement or arrangements, alternatively to arrive at an understanding or understandings, containing a provision to the same effect, but including such other competitors or some of them, as the provision set out in subparagraph (i) above; or

(iii) any or all of them would charge customers for estimating services at a particular price or particular prices or in accordance with or by reference to a particular mechanism, process or procedure by which the price or prices of estimating services to be charged by all or any of them would be fixed or controlled.

(b) giving effect to any such contract, arrangement or understanding with a competitor or competitors containing a provision or provisions that:-

(i) any or all of them would no longer provide estimating services without charge but would pass on to the customer any charges incurred at cost;

(ii) any or all of them would procure or attempt to procure or induce other competitors to make an arrangement or arrangements, alternatively to arrive at an understanding or understandings, containing a provision to the same effect, but including such other competitors or some of them, as the provision set out in subparagraph (i) above; or

(iii) any or all of them would charge customers for estimating services at a particular price or particular prices or in accordance with or by reference to a particular mechanism, process or procedure by which the price or prices of estimating services to be charged by all or any of them would be fixed or controlled.' 38 This is an undertaking which restrains conduct which would be a contravention of the Act and, as it is within the power of the Court to grant an injunction in similar terms, it is within the power of the Court to accept the undertaking. I have the power to accept the first undertaking and I think that it would be appropriate to do so. The undertaking has been proffered as part of a negotiated settlement of what is a complex dispute. Unless there was good reason not to do so, and there is no such reason here, then, providing the adoption of the settlement is within power, I should give effect to the settlement reached between the parties. All the corporate respondents were legally represented as was the Commission and I see no reason why it would not be appropriate to accept the first undertaking: N W Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 per Burchett and Kiefel JJ at 291; REIWA per French J at 87 [20]-[21]. 39 The second undertaking is proffered by the three individual respondents and is in the following terms: 'Each of Mr Frank McDonald, Mr Andrew Bone and Mr Gary Daniel, for a period of 5 years, undertakes to the Court to refrain from inducing or attempting to induce or being directly or indirectly, knowingly concerned in, or party to the making of, or the arriving at, or the giving effect to, any such contract, arrangement or understanding between a corporation and one or more of its competitors which contains a provision or provisions that: (i) any or all of them would no longer provide estimating services without charge but would pass on to the customer any charges incurred at cost;

(ii) any or all of them would procure or attempt to procure or induce other competitors to make arrangement or arrangements, alternatively to arrive at an understanding or understandings, containing a provision to the same effect, but including such other competitors or some of them, as the provision set out in sub-paragraph (i) above; or

(iii) any or all of them would charge customers for estimating services at a particular price or particular prices or in accordance with or by reference to a particular mechanism, process or procedure by which the price or prices of estimating servicesto be charged by all or any of them would be fixed or controlled.' 40 As with the first undertaking, I have the power to accept the undertaking and I think it would be appropriate to do so. The individual respondents, other than Mr McDonald, had legal representation, and Mr McDonald told me that he had received legal advice. 41 The third undertaking is proffered by Auspine, the fourth is proffered by Bone Timber and JAG Timber, and the fifth is proffered by the individual respondents. All undertakings require positive measures to be undertaken by those proffering them and the measures involve compliance or education programmes. 42 I will deal first with the fifth undertaking because it is straightforward and can be disposed of briefly. It is in the following terms: 'An undertaking given to the Court by each of Mr Frank McDonald, Mr Andrew Bone and Mr Gary Daniel that he will attend a Trade Practices Compliance seminar in accordance with the terms of Annexure 2 hereto.' 43 Annexure 2 provides as follows: '1. The Respondent will attend a Trade Practices Compliance Seminar conducted by an independent person with appropriate knowledge of trade practices law within 3 months of this Undertaking. 2. The Seminar will address the provisions of Part IV of the Trade Practices Act 1974 ("the TPA") proscribing restrictive trade practices and will, in particular, address the issue of price fixing and anti-competitive collusion in the context of contracts, arrangements and understandings.' 44 In my opinion, the undertaking is within power and it would be appropriate to accept it. It is true that the seminar will go beyond the particular provisions in issue in this case, but I think there is a sufficient nexus between the alleged contravening conduct and the subject matter of the proposed seminar. The seminar is to relate to Part IV of the Act and, in particular, the issue of price fixing and anti-competitive collusion in the context of contracts, arrangements and undertakings. In my opinion, a knowledge of the other provisions of Part IV of the Act will assist in an understanding of the operation of s 45 and s 45A. 45 The third undertaking is proffered by Auspine and is in the following terms: 'An undertaking given to the Court by the first respondent that it will implement the recommendations contained in the March 2006 'Report on the Implementation and Effectiveness of Auspine Limited's Trade Practices Compliance Program' prepared by Watchdog Compliance Pty Ltd which forms exhibit DCJ-1 to the affidavit of David Charles Johnson filed on behalf of the First Respondent in these proceedings.' 46 Mr Johnson is the author of the report. He holds qualifications in economics and law and was employed in the Commission's compliance section for a number of years. He appears to be well-qualified to express the opinions set out in the report. 47 The purpose of the report was to review the implementation and effectiveness of Auspine's trade practice compliance programme over five years. The aim or purpose of the report is stated in paragraph 13 as follows: 'This report aims to provide Auspine with a summary of the trade practices compliance measures that Auspine has taken over the preceding five years and our independent assessment of how effective those measures have been.' 48 The conclusions of Mr Johnson are generally favourable to Auspine in terms of the effectiveness of its trade practices compliance programme. However, in the course of his report Mr Johnson makes a number of recommendations, and those recommendations are the subject of the undertaking. They are as follows: '46. Auspine may wish to consider the development of short, targeted information sheets that could be made available to staff as relevant (eg restrictive trade practices issues, consumer protections issues). These would be more likely to be read and referred to by staff than the longer manuals and policies that are currently available.

47. It may also benefit Auspine to engage in a process (eg regular e‑mails, notices or short regular training sessions for staff) which are designed to raise staff awareness of their everyday trade practices obligations.

62. That Auspine, in consultation with its current Company Secretary and Legal Counsel review whether any additional support or resources are required to effectively perform the role of Compliance Manager.

75. Auspine may wish to consider strengthening its program by arranging regular "reminder" sessions for staff and business managers on how trade practices issues can be identified and referred. For example, as resources permit, Auspine's Legal Counsel may be able to provide regular brief presentations at various Business Unit meetings within Auspine on current trade practices related matters that may have an impact on Auspine. This will also allow that person to "touch base" with staff and keep trade practices compliance current in the minds of staff in between the planned biannual training sessions.

88. If training is to be rolled out to Auspine staff every two years, steps should be taken during that time to ensure that staff remain aware of current trade practices issues and any changes to the legislation.

89. Auspine may wish to consider short, regular trade practices "information" sessions that could be conducted for targeted staff on topics of relevance to Auspine's operations. This will assist Auspine by reducing the time between training sessions, ensuring more targeted training is conducted while minimising disruption to everyday duties of staff and general business operations of Auspine.

104. Auspine may wish to strengthen the Program by taking steps to remind staff on a regular basis of the trade practices risks that are relevant to their everyday operations. This could be done by way of targeted brief information sessions for groups of staff or regular presentations by Auspine's Legal Counsel at Business Unit or staff meetings.' It seems to me that there are two difficulties with this undertaking. The first difficulty is that the compliance programme to which the undertaking relates goes beyond the provisions of ss 45 and 45A of the Act and indeed the provisions in Part IV of the Act (Z-Tek, REIWA). This difficulty can be overcome by linking the recommendations to the provisions in Part IV of the Act. 49 The second difficulty relates to the nature of the recommendations. Is it within power or appropriate to impose nothing more than an obligation to consider doing something? Counsel for the Commission said that it was, likening the obligation to that placed on the holder of a power to appoint property of a testator or settlor to third parties. I am prepared to accept that in the circumstances of this case it is within power and appropriate to impose an obligation (or accept an undertaking) requiring Auspine to consider doing something. The undertaking is proffered as part of a commercial settlement. Auspine is a large organisation which has a detailed trade practices compliance programme and an obvious interest in improving the same. The difficulty with some of the recommendations set out above is that they do not even place an obligation on Auspine to consider taking a particular course of action. I would not accept an undertaking in such terms. This particular problem can be overcome by making the obligation to consider mandatory. 50 The fourth undertaking is proffered by Bone Timber and JAG Timber and is in the following terms: 'An undertaking given to the Court by each of the Third and Fifth Respondents that it will implement a Trade Practices Corporate Compliance Program in accordance with the terms of Annexure 1 hereto.' 51 There are difficulties with this undertaking which arise from the terms of the programme referred to in the undertaking. To understand these difficulties, it is necessary to set out in full the terms of the programme: '1. The Respondent shall appoint a Trade Practices Compliance Officer to be responsible for the implementation of the Program. The Program will be implemented within two calendar months of this Undertaking. 2. The Respondent shall ensure that The Trade Practices Compliance Officer receives training in trade practices law. 3. The Respondent will ensure that the Program, including processes which the Respondent intends to implement in order to comply with the Program, are approved by an independent external consultant with appropriate knowledge of trade practices law prior to implementation. 4. The Respondent shall require the Trade Practices Compliance Officer to review: 4.1 The contents of any media and material containing training or operational information for its staff to ensure that it adequately addresses and informs about: 4.1.1 restrictive trade practices proscribed by Part IV of the Trade Practices 1974 [sic] ('the TPA'), including in particular price fixing and anti-competitive collusion in the context of contracts, arrangements and understandings; and

4.1.2 consequences of breaching the TPA. 4.2 Training and operating procedures for its staff involved in any way in quoting or providing takeoffs for supply of timber, or in organizing, attending or otherwise participating in any meetings with competitors concerning matters relevant to the trading activities of such persons, to ensure that its staff are adequately informed and advised about: 4.2.1 restrictive trade practices proscribed by the TPA, including in particular price fixing and anti-competitive collusion in the context of contracts, arrangements and understandings;

4.2.2 not contravening the provisions of Part IV of the TPA; and

4.2.3 consequences of breaching the TPA. 5. The Respondent shall require the Trade Practices Compliance Officer to maintain a documentary record of the compliance review of: (a) The Respondent's training and operational media and material;

(b) The Respondent's training and operating procedures for staff involved in any way quoting or providing takeoffs for supply of timber, or in organizing, attending or otherwise participating in any meetings with competitors concerning matters relevant to the trading activities of such persons. Such documentary record will include: (i) a description of the media and materials;

(iii) written advice that the relevant media and materials have been reviewed and cleared by the Trade Practices Compliance Officer (including the date on which they were reviewed);

(iv) written advice of any improvements that could be made to reduce the risks of possible contraventions of the TPA that were identified by the Trade Practices Compliance Officer and the action taken to implement those improvements.

6. The Respondent shall ensure that the documentary records of the compliance reviews are available to the Australian Competition and Consumer Commission to be reviewed from time to time. Such records are to be available from one week after the date of review for a period of three years after that date. Such records are to be provided to the Australian Competition and Consumer Commission within five working days of a written request for those records.

7. The Respondent shall ensure that an independent external consultant with expertise in trade practices law conducts training on the Program including in relation to price fixing and anti-competitive collusion in contravention of Section 45 of the TPA, to the Respondent's staff on six occasions during the three year period following the making of this Undertaking. The first of these training programs is to be completed within three calendar months of this Undertaking and the remaining five on a six monthly basis thereafter.

8. The Respondent shall retain an independent external consultant with expertise in trade practices law to provide the Australian Competition and Consumer Commission with three annual reports (being at 12 months, 24 months and 36 months following the making of this Undertaking) on the Respondent's compliance with the Program, and these reports shall be provided to the Australian Competition and Consumer Commission within:

9. The annual reports shall include the review and reporting of:

(b) The implementation of the Program, its consistency with Australian Standard AS-3806 and the achievement of its objectives over the preceding twelve months; and

(c) Any recommended changes to the Program that may be necessary to ensure achievement of its objectives.' 52 The principal problem is that the major aspects of the programme are not defined. The formulation of the programme is left to the respondent and the external consultant (clause 3). The suggestion is that it is up to an independent external consultant to determine if whatever programme is formulated is appropriate and is implemented from time to time (clauses 8 and 9). As I have said, I do not see a difficulty with a requirement that an independent external consultant review the question of compliance with a programme providing the major aspects of the programme are defined and providing the question of whether there has been a breach of the programme is not made to turn solely on the consultant's opinion. A further difficulty is that there is a suggestion (see clause 9(c)) that the programme may be changed from time to time. 53 I do not think that I have the power to accept this undertaking or, in the alternative, I do not think that it is appropriate to do so.

Conclusion 54 For these reasons, I refuse to accept the undertakings proffered by the respondents and to make the orders sought by the parties. I will give the parties liberty to apply so that the parties can make a further application if so advised. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Besanko.

Associate: Dated: 7 September 2006 Counsel for the Applicant: E Strong QC and N Wilson

Solicitor for the Applicant: Norman Waterhouse

Counsel for the First Respondent: R Ross-Smith

Solicitor for the First Respondent: T Nguyen

The Second Respondent: The Second Respondent appeared in person.

Counsel for the Third and Fourth Respondents: S Lumsden

Solicitor for the Third and Fourth Respondents: Wallmans Lawyers

Counsel for the Fifth and Sixth Respondents: P Britten-Jones

Solicitor for the Fifth and Sixth Respondents: Cowell Clarke

Date of Hearing: 17 July 2006

Date of Judgment: 7 September 2006