Australian Competition and Consumer Commission v BAJV Pty Ltd

Federal Court of Australia (Full Court)|2014-05-02|Before: Flick JJ

Introduction 1 This is an appeal by the Australian Competition and Consumer Commission ("the Commission") from certain orders made by a single Judge of the Court on 8 July 2013, whereby a penalty of $200,000 was imposed on the first respondent, BAJV Pty Ltd ("BAJV") and a penalty of $40,000 was imposed on the second respondent, the managing director of BAJV, Brendon Ayers. These penalties were imposed in respect of contraventions of ss 51AB, 53(e) and 53(g) of the Trade Practices Act 1974 (Cth) ("the TP Act") occurring between 15 April 2010 and 31 December 2010, and in respect of contraventions of ss 21, 29(1)(i) and 29(1)(m) of the Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth) ("the ACL") occurring between 1 January 2011 and February 2012. 2 The proceeding before the primary Judge was commenced by the Commission on 10 November 2011. The respondents filed their Defence on 17 February 2012. An Amended Defence was filed on 20 April 2012. The Commission filed an Amended Originating Application, and an Amended Statement of Claim, on 29 October 2012. Subsequently, the parties narrowed the areas of dispute between them considerably, and a Statement of Agreed Facts and Admissions ("the statement of facts") was filed on 25 January 2013. That statement formed the basis of the factual material before the primary Judge, and included admissions by the respondents that they had contravened the provisions of the TP Act and the ACL upon which the Commission sued. 3 When the proceeding came before the primary Judge in late May 2013, the only issues for determination by his Honour were the penalties to be imposed upon BAJV and Mr Ayers (declaratory relief only was sought against the then third respondent, Teresa Carr, and that was not opposed) and as to costs. In addition to the statement of facts, his Honour received further evidence from both sides. He resolved the remaining areas of dispute by making the penal orders referred to above, and by ordering the respondents to pay the Commission's costs. 4 The Commission contends that the primary Judge erred in the determination of penalties in a number of respects, to which we shall refer below. Provisionally upon us reaching the stage of exercising for ourselves the discretion to determine the appropriate penalties, the Commission contends that a penalty of $300,000 to $350,000 should be imposed on BAJV, and a penalty of $50,000 should be imposed on Mr Ayers. 5 The respondents have cross-appealed against the costs order made against them by the primary Judge. We shall refer to the grounds of that cross-appeal in due course below. 6 At the time of the events which formed the basis of the Commission's proceeding at first instance, BAJV operated a car rental business in Tasmania. Its capital consisted of 400 $1 shares. Mr Ayers and his company, ACR (Aus) Pty Ltd, owned 100 shares each. The remaining 200 shares were owned by CLA Holdings Pty Ltd (or, depending on the document one reads, CLA Holdings Ltd, which will, without discrimination, be referred to as "CLA"), which in turn was beneficially owned, through Australian subsidiaries, by a European car rental concern called "Europcar". Mr Ayers was one of two directors of BAJV, the other being an appointee of CLA, Ronald Santiago. BAJV operated as "Europcar" in Tasmania pursuant to a franchise agreement made on 1 November 2000 ("the franchise agreement"), under which the franchisor was CLA (pursuant, it seems, to an assignment of June 2007 from Delta Car Rentals Australia Pty Ltd, a subsidiary of CLA). 7 Under cover of a letter dated 22 March 2013, CLA gave 30 days' notice of intention to terminate the franchise agreement, within that time, certain breaches of that agreement were rectified. The acts and omissions of BAJV upon which CLA relied as constituting those breaches were those which had been admitted, and conceded, in the statement of facts. Rather than contesting CLA's right to give this notice, Mr Ayers negotiated with CLA the terms upon which he would co-operate to bring the franchise agreement to an end, and to transfer the Europcar business in Tasmania to CLA or its nominee. 8 The result of the matters just referred to is that Mr Ayers and his company, at the time of the hearing before the primary judge and now, own 100% of the capital in BAJV, but BAJV no longer had or has a business. Mr Ayers accepted an engagement as a consultant to CLA for a two-year period on a remuneration of $100,000 pa, and he agreed not to compete with CLA in the rental car business for five years. 9 In his affidavit sworn on 7 May 2013, Mr Ayers said: The impending loss of my business, which my wife Lisa and I have worked tirelessly to establish and grow since I began in the rental car industry in 1995, has been very hard for me and my family, and added significantly to the cost, both financial and emotional, associated with this proceeding. Further, given my long and (up to now) successful and friendly relationship with CLA Holdings and Europcar, it is very disappointing to me personally that CLA Holdings has used the [statement of facts] in this proceeding as the platform for bringing the Franchise Agreement to an end. That disappointment is exacerbated by the fact that CLA Holdings (through Mr Santiago) actively participated in the process of negotiating and agreeing to the [statement of facts], without disclosing how CLA Holdings and Europcar were apparently proposing to use it once it had been signed.

The facts of the case 10 In one way or another, the conduct which BAJV agreed was in contravention of the TP Act and the ACL related to the charges which it imposed on those of its customers who had had the misfortune to damage their cars while on hire. During the period in respect of which the question of penalties arose, the Europcar website contained a written statement that, if a vehicle were damaged, a "damage liability fee" would be charged and, if the loss or damage were ultimately less than this fee, part of the fee would be refunded. BAJV's standard contract of hire contained terms to the effect that the hirer must return the vehicle in the same condition as when it was hired, that the hirer must pay the damage liability fee if there were damage to the vehicle, that BAJV was authorised to charge all moneys payable to the hirer's credit card and that, if the hirer believed there was an error in what he or she had been charged, or that the amount charged was unreasonable, he or she must initiate the "dispute resolution procedure" for which the contract provided. 11 The first of two broad categories of conduct of which the Commission complained was what was described as "non-refund conduct". Particulars of that conduct were set out in the statement of facts as follows: 29. In the course of managing the repair of rental vehicles during the relevant period, BAJV, by Mr Ayers and Ms Carr, engaged in the following conduct: 29.1 where a rental customer paid a Damage Charge to BAJV and the Cost of Repair was less than the Damage Charge paid, BAJV would often not contact the rental customer to notify that person of that lower Cost of Repair; 29.2 BAJV would often not notify the rental customer, without first receiving an enquiry from the customer, that a refund was due; and 29.3 BAJV would often not process a refund to the rental customer without first receiving an enquiry from the customer about whether any refund was payable to them. BAJV maintained a set of standard charges for items or types of damage, which it applied when charging its customers for accident damage of the relevant kind. Those charges nearly always exceeded the likely cost of repair for the item concerned or for damage of that kind. In such a case, BAJV nearly always failed to refund the difference to the customer. BAJV agreed that this practice was capable of leading its customers into thinking that the standard charge was the actual cost of repair and that no refund was owed to them, when this was not always the case. 12 A second aspect of the non-refund conduct related to the way BAJV arranged for minor repairs to be carried out and paid for by customers. The statement of facts provided as follows: 35. When a rental vehicle was returned to BAJV by a rental customer with Minor Damage: 35.1 BAJV would charge the rental customer a Damage Charge by reference to the Cost of Repair, including by reference to the Standard Charges …; 35.2 where the Minor Damage consisted of dents and scrapes, BAJV would not always have every instance of Minor Damage repaired alone; 35.3 instead sometimes repairs would be carried out after the vehicle had incurred several incidences of Minor Damage and BAJV would then have multiple repairs conducted at one time for a lower Cost of Repair than the total of the Damage Charges charged to the rental customers for those several incidences of Minor Damage; 35.4 in many of … [those] cases …, the Cost of Repair for each of the incidences would also be less than the Damage Charges charged to the rental customers for those several incidences of Minor Damage; 35.5 when the Cost of Repair in respect of each incident of Minor Damage was less than the Damage Charge charged to the rental customer, BAJV failed to refund the difference between the Cost of Repair and that Damage Charge. BAJV agreed that this practice was capable of leading its customers into thinking that the amount charged for the minor damage was the cost of repair and that, accordingly, no refund was owed to them, when this was not always the case. 13 A third aspect of the non-refund conduct related to situations in which a hired car had been involved in a collision with a third party's vehicle. The statement of facts provided as follows: 37. Where a rental customer returned a rental vehicle which had been involved in an accident with a third party: 37.1 BAJV charged that rental customer the full Damage Liability Fee, irrespective of … the nature and extent of the accident damage and the cost or estimated cost to repair it, [irrespective of] whether or not the rental customer was at fault in the accident, [and irrespective of] the extent of the damage to the third party's property. 37.2 BAJV retained the sum charged … irrespective of the Cost of Repair … [and] even where the third party was at fault, if the third party had not confirmed that it made no claim against BAJV. 37.3 [BAJV] had a general policy that such funds be retained for 7 years, in cases where BAJV considered that there was a possibility of a claim being made by a third party which had not crystallised at that stage. 37.4 However, BAJV's system for recording and reviewing damage and repair files was inadequate in that it did not ensure that in every case where … a third party claim was resolved for a sum (after deducting the Cost of Repair to the rental vehicle) that was less than the Damage Liability Fee, and BAJV otherwise received other confirmation that any claim by the third party would not be made or (after deducting the Cost of Repair to the rental customer's vehicle) would be less than the full Damage Liability Fee, BAJV would process a refund to the rental customer in a timely manner. BAJV agreed that this practice was capable of leading its customers into thinking that it had an effective system in place for processing a refund that was due to be made to a rental customer, when this was not the case. 14 The second of the categories of conduct of which the Commission complained was what was described as the "two invoice practice". There were three repairers to which BAJV sent its cars for off-site body repairs. In each case the repairer's quotation for the repair of a damaged car was sent to BAJV, and formed the basis of the "damage charge" which it levied on the customer concerned. In the case of one of these repairers (Booth's Bodyworks), after the repair was undertaken two invoices for the work would be issued: one at the quoted price which did not provide for any discount for labour and which included any parts listed at a retail price, and one at the quoted price less a 10% discount on labour, and excluding any amount for parts, and with other adjustments to the quoted price variations, including any reductions in labour charges, reductions in other charges, and reductions relating to parts that were not required. In the cases of the other two repairers, after the repair was undertaken the repairer would issue a three-page invoice, wherein the second page would show the original quoted price with parts at the parts supplier's listed price plus an additional margin and the first and third pages would show the amount payable by BAJV, excluding any amount for parts, and with any other adjustments to the quoted price including any reductions in labour charges, reductions in other charges, and reductions relating to parts that were not required. 15 BAJV ceased using Booth's in about June 2010 due to concerns about the quality of its workmanship. In the case of all three repairers, where the repair involved the replacement of parts, the repairer would arrange for the relevant parts supplier to send an invoice for the parts directly to BAJV with the parts invoiced at a discount from the price used by the repairer in its quotation and in the higher-priced of its invoices. It was the lower invoiced price which was paid by BAJV, but it was the higher invoiced price which was used by BAJV for the purposes of requiring payment from its customers. BAJV agreed that this two invoice practice was capable of leading its customers into thinking that it was entitled to payment of the amount in the higher invoiced price as its cost of repair, when this was not the case.

The legislative scheme 16 Relevantly, the TP Act provided: 51AB Unconscionable conduct (1) A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable. …. 53 False or misleading representations A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services: …. (e) make a false or misleading representation with respect to the price of goods or services; …. (g) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy. …. 76E Pecuniary penalties - consumer protection etc. (1) If the Court is satisfied that a person: (a) has contravened any of the following provisions: …. (ii) a provision of Division 1 or 1AAA of Part V (other than section 52); …. (c) has aided, abetted, counselled or procured a person to contravene such a provision; …. the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate. (2) In determining the appropriate pecuniary penalty, the Court must have regard to all relevant matters including: (a) the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and (b) the circumstances in which the act or omission took place; and (c) whether the person has previously been found by the Court in proceedings under Part VC or this Part to have engaged in any similar conduct. (3) The pecuniary penalty payable under subsection (1) is not to exceed the number of penalty units worked out using the following table: Number of penalty units Item For each act or omission to which this section applies that relates to ... the number of penalty units is not to exceed ... …. 2 a provision of Division 1 or 1AAA of Part V (other than section 52) (a) if the person is a body corporate - 10,000; or (b) if the person is not a body corporate - 2,000. ….

(4) If conduct constitutes a contravention of 2 or more provisions referred to in paragraph (1)(a): (a) a proceeding may be instituted under this Act against a person in relation to the contravention of any one or more of the provisions; but (b) a person is not liable to more than one pecuniary penalty under this section in respect of the same conduct. 17 In respect of the period commencing on 1 January 2011, the corresponding provisions of the ACL were ss 21(1)(a), 29(1)(i), 29(1)(m) and 224 respectively.

The proceeding before the primary Judge 18 As mentioned above, the parties placed a number of agreed declarations before the primary Judge, which his Honour made by consent. Some of them related to the particular circumstances of individual customers. To the extent that the declarations were of a general nature, they were as follows: 1. From about December 2006 until February 2012, in the course of managing the repair of rental vehicles, by engaging in conduct that had the following components: 1.1. where a person who had rented a BAJV vehicle and who failed to return the rented vehicle in the same condition as when it was rented (Rental Customer) paid to BAJV the amount contained in a tax invoice issued by BAJV to the Rental Customer (Damage Charge) in respect of damage caused, or alleged by BAJV to have been caused, to its rental vehicle (Damage) and the amount paid by BAJV to a repairer or parts supplier in respect of accidental damage to a vehicle (Cost of Repair) was less than the Damage Charge paid; 1.2. BAJV would often not contact the Rental Customer to notify them of that lower Cost of Repair; 1.3. BAJV would often not notify the Rental Customer that a refund was due; and 1.4. BAJV would often not process a refund to the Rental Customer without first receiving an enquiry from the Rental Customer about whether any refund was payable to them (Non-Refund Practice), BAJV, in trade or commerce, engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the Trade Practices Act 1974 (TPA) and section 18 of the Australian Consumer Law (ACL). 2. By from about December 2006 until February 2012: 2.1. maintaining a set of standard charges for items or types of damage (Standard Charges), which nearly always exceeded the likely Cost of Repair for the items or types of damage; 2.2. directing its employees to apply the Standard Charges when charging Rental Customers for Damage of that kind; and 2.3. in the event that the Cost of Repair was less than the Damage Charge, nearly always failing to refund the difference between the Cost of Repair and that Damage Charge, BAJV, in trade or commerce, engaged in conduct which was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the TPA and section 18 of the ACL. 3. By employing the following practices from about December 2006 until February 2012 where vehicles were returned to BAJV by Rental Customers with accidental damage that was capable of being repaired by on-site repairers (Minor Damage): 3.1. charging the Rental Customers a Damage Charge by reference to a purported repair cost, including by reference to the Standard Charges; 3.2. where the Minor Damage consisted of dents and scrapes, not having each instance of Minor Damage repaired alone; 3.3. sometimes waiting until the vehicle had incurred several incidences of minor Damage and then having multiple repairs conducted at one time for a lower Cost of Repair than the total of the Damage Charges charged to the Rental Customers for those several incidences of Minor Damage; and 3.4. when the Cost of Repair in respect of each incident of Minor Damage was less than the Damage Charge charged to the Rental Customer, failing to refund the difference between the Cost of Repair and the Damage Charge, BAJV, in trade or commerce, engaged in conduct which was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the TPA and section 18 of the ACL. 4. By employing the following practices from about December 2006 until February 2012 where vehicles were returned to BAJV by Rental Customers having been involved in accidents with third parties: 4.1. charging the Rental Customers the full amount of the Damage Liability Fee, irrespective of: 4.1.1. the nature and extent of the Damage and the cost or estimated cost to repair it; 4.1.2. whether or not the Rental Customer was at fault in the accident; 4.1.3. the extent of the damage to the third party's property; 4.2. retaining the sum charged: 4.2.1. irrespective of the Cost of Repair; and 4.2.2. even where the third party was at fault, in circumstances where the third party had not confirmed that it made no claim against BAJV; 4.3. having a general policy that the sum charged be retained for 7 years, in cases where BAJV considered that there was a possibility of a claim being made by a third party which had not crystallised at that stage; and 4.4. not creating any entry in its accounting records or employing any system that would have the effect of processing any refund in a timely manner to the Rental Customer, BAJV, in trade or commerce, engaged in conduct which was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the TPA and section 18 of the ACL. 5. From about December 2006 until February 2012, by implementing the following practice (Two Invoice Practice) in relation to the repair of rental vehicles that were for repair by off-site repairers Booths Bodyworks, FT Guy Bodyworks and Cramps Bros Bodyworks: 5.1. receiving from the repairer two invoices, each for a different amount in respect of the repair of the Damage, the amount specified in the invoice for the lower amount being the amount for payment by BAJV; and 5.2. using the invoice for the higher amount in support of representations to its rental customers, or third parties from whom BAJV was claiming payment in respect of the Damage, that the Cost of Repair was the amount specified in the Higher Invoice, BAJV, in trade or commerce, engaged in conduct which was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the TPA and section 18 of the ACL. 6. From about December 2006 to at least February 2012, in circumstances where the persons listed in Annexure A rented vehicles through BAJV's Europcar Tasmania business (Renters) and returned the vehicles with Damage, BAJV, in trade or commerce: 6.1. by representing that each of the Renters was liable to BAJV for: 6.1.1. the Damage Charge as set out in the Damage Letter and/or tax invoice provided by BAJV to that Renter; and 6.1.2. the Damage Charge which would be the Cost of Repair, when this was not the case, 6.1.3. engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the TPA; and 6.1.4. in connection with the supply or possible supply of goods and/or services, made a false or misleading representation with respect to the: a. price of goods and/or services, in contravention of section 53(e) of the TPA; and b. existence of a condition, right or remedy in contravention of section 53(g) of the TPA; and 6.2. by representing to Renters that the Cost of Repair was or would be the Damage Charge when this was not the case: 6.2.1. engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the TPA; and 6.2.2. in connection with the supply or possible supply of goods or services, made a false or misleading representation with respect to the price of goods and/or services, in contravention of section 53(e) of the TPA. 7. From about December 2006 to at least February 2012, by representing to each of the Renters that if the Damage Charge charged to the Renter was greater than the Cost of Repair, BAJV would pay to the Renter an amount calculated by reference to the difference between the Damage Charge and the Cost of Repair, when this was not the case, BAJV, in trade or commerce: 7.1. engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the TPA; and 7.2. in connection with the supply or possible supply of goods or services, made a false or misleading representation with respect to the: 7.2.1. price of goods and/or services, in contravention of section 53(e) of the TPA; and 7.2.2. existence of a condition, right or remedy in contravention of section 53(g) of the TPA. 8. From at least about 2006 to at least February 2012, by representing to consumers via the Europcar website that: 8.1. a rental customer would not be charged for loss and damage in excess of what was provided for under the terms of the Rental Agreement, when in fact BAJV sometimes did charge rental customers more than it was entitled under the Rental Agreement; and 8.2. if the amount BAJV charged a rental customer for the loss and damage was greater than what it was entitled under its Rental Agreement, the difference would be refunded to the rental customer, when this was not the case, BAJV, in trade or commerce, 8.3. engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the TPA and section 18 of the ACL; and 8.4. in connection with the supply or possible supply of goods or services, made a false or misleading representation with respect to the: 8.4.1. price of goods and/or services, in contravention of section 53(e) of the TPA and section 29(1)(i) of the ACL; and 8.4.2. existence of a condition, right or remedy in contravention of section 53(g) of the TPA and section 29(1)(m) of the ACL. 9. From at least about 2006 to at least February 2012, by representing to consumers via the Europcar website that if a Rental Customer is involved in an accident involving the rented vehicle, the maximum amount charged would be a Damage Liability Fee, when this was not the case, BAJV, in trade or commerce: 9.1.1. engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of section 52 of the TPA and section 18 of the ACL; and 9.1.2. in connection with the supply or possible supply of goods or services, made a false or misleading representation with respect to the price of goods and/or services, in contravention of section 53(e) of the TPA and section 29(1)(i) of the ACL. …. 13. From about December 2006 until February 2012, BAJV, by: 13.1. engaging in the conduct with respect to the Non-Refund Practice referred to in paragraph 1 above; 13.2. engaging in the conduct with respect to standard charges, minor damage and damage arising out of accidents with third parties referred to in paragraphs 2, 3 and 4 above; and 13.3. implementing the Two Invoice Practice referred to in paragraph 5 above, being policies and/or practices: 13.4. that had the effect or likely effect of: 13.4.1. concealing from Rental Customers that the Damage Charge was more than the Cost of Repair; 13.4.2. increasing the amount of money collected by BAJV in respect of Damage; 13.4.3. increasing the amount of money retained by BAJV in respect of Damage; 13.4.4. enabling BAJV to retain money to which it was not entitled; and 13.4.5. the implementation of which constituted the use by BAJV of unfair tactics, in circumstances where: 13.5. BAJV had substantial knowledge and experience in relation to assessing the seriousness of Damage, the repair process and the likely costs of repairing Damage; 13.6. Rental Customers did not, or alternatively could not be reasonably expected to have, any substantial knowledge or experience in respect of the costs of repairing vehicle damage or the likely cost of repairing the Damage; 13.7. the description of the Damage provided to Rental Customers in the tax invoices, Damage Letters and payment records issued by BAJV was expressed in terms of BAJV's own damage coding system and, accordingly: 13.7.1. was not readily understandable by Rental Customers; 13.7.2. did not readily allow Rental Customers to understand the precise nature or extent of the Damage; and 13.7.3. the circumstances identified in 13.6 above made it more difficult for the Rental Customer to assess the likely cost of repairing the Damage; 13.8. Rental Customers had no means of independently verifying the Cost of Repair; 13.9. it was one of BAJV's standard form contractual terms and conditions that, prior to renting the vehicle, the Rental Customer must have authorised BAJV to charge all monies payable to BAJV under the rental contract to the Rental Customer's credit card; 13.10. at about the time that BAJV prepared the tax invoice specifying the Damage Charge for each Rental Customer, it charged the Rental Customer's credit card and, accordingly, received payment from the Rental Customer, without the Rental Customer having to provide additional authority for the charge; 13.11. Rental Customers were often: 13.11.1. not present at the time of BAJV identifying the Damage and charging the Rental Customer's credit card in respect of the damage; 13.11.2. not aware of the Damage and/or the charge made to their credit card by BAJV until subsequently receiving the tax invoice and notification from BAJV that their credit card had been charged; and 13.12. the amount of the Damage Charge was also relevant to the amount of additional fees and charges paid to BAJV by the Rental Customer because the fees and charges, including an additional credit card fee were calculated by BAJV by reference to the Damage Charge, BAJV engaged in conduct, in trade or commerce, in connection with the supply of goods and/or services to persons, that was, in all the circumstances, unconscionable, in contravention of section 51AB of the TPA and section 21 of the ACL. …. 15. Mr Ayers as the person: 15.1. with overall responsibility for the management of BAJV; 15.2. who controlled and directed all functions of the Tasmanian Europcar Business and was actively engaged in implementing and supervising all activities of the business, aided, abetted, counselled or procured and was directly or indirectly knowingly concerned in, or party to, each of the contraventions referred to in paragraphs 1 to 14 above. The reference in Declaration 6 above to "Annexure A" was to a schedule to the statement of facts which set out the names of 46 individual customers of BAJV, and the circumstances of those customers, in relation to whom the respondents admitted contraventions of the TP Act and/or the ACL. Declarations 10, 11, 12 and 14, not set out above, dealt with contraventions which related to the particular circumstances of specified customers. There was no agreement about penalties. 19 It will be seen that there were many categories of contravening conduct in which the respondents admitted they had engaged. For the purpose of fixing penalties, the primary Judge treated the respondents' contravening conduct as involving two "courses of conduct", one of which related to the non-refund conduct and the other of which related to the two invoice practice. The maximum penalties available for contraventions of the relevant kind were $1.1m for a corporation and $220,000 for an individual. Since there were two courses of conduct, as his Honour pointed out, "this results in maximum available penalties of $2.2 million for BAJV and $440,000 for Mr Ayers" (paragraph [26]). 20 After receiving evidence additional to that set out in the statement of facts and hearing the parties, the primary Judge imposed the penalties referred to in [1] above.

The issues before the Full Court 21 The Commission has appealed against the quantum of the penalties imposed on BAJV and Mr Ayers. Its grounds are as follows: 1. The learned primary judge erred in taking into account, when determining the appropriate amount of the penalties to be imposed on BAJV and Mr Ayers, the appellant's failure to respond to the respondents' letter dated 28 February 2011 before commencing the proceeding (paragraphs [37], [41] and [50] of the Reasons for Judgment). 2. The learned primary judge erred in: 2.1. finding that, in the period June 2010 to December 2011, BAJV took steps to ensure that the conduct which gave rise to the contraventions ceased and established systems to prevent further transgressions (paragraphs [29], [47]), in circumstances where the evidence supported such a finding only in respect of the period November 2010 to December 2011; 2.2. accordingly, proceeding on the basis (when determining the appropriate amount of the penalties to be imposed on BAJV and Mr Ayers) that the contravening conduct only took place over a period of about 6 weeks rather than about 6 months after the commencement of the penalty provisions (paragraphs [29], [30], [41]). 3. The learned primary judge erred in proceeding on the basis, when determining the appropriate amount of the penalty to be imposed on BAJV, that BAJV was a small to medium sized family company (paragraphs [33], [35], [41]), in circumstances where (inter alia): 3.1. BAJV was 50% owned by the franchisor of the Europcar car rental business in Australia; 3.2. a director of the franchisor of the Europcar car rental business in Australia was a director on the Board of BAJV; and 3.3. BAJV traded as "Europcar" which is a large and well-known car rental business. 4. The learned primary judge erred in determining that the appropriate penalties were $200,000 for BAJV and $40,000 for Mr Ayers in circumstances where : 4.1. the maximum penalty for the two courses of conduct was determined to be $2.2 million for BAJV and $440,000 for Mr Ayers (paragraph [25]); 4.2. the Court considered that the contravening conduct should attract what might be described as a "mid range" penalty but leaning towards the lower end of the socalled mid range (paragraph [41]); and 4.3. the penalties determined by the Court are not within what could be described as the "mid range" between the maximum penalty and zero. 22 In the Commission's appeal, no complaint is made about the general approach taken by his Honour, which involved a consideration of the mandatory factors set out in s 76E(2) of the TP Act and s 224(2) of the ACL and of the discretionary matters mentioned, for instance, by Perram J at first instance in Australian Competition and Consumer Commission v SingTel Optus Pty Ltd (No 4) (2011) 282 ALR 246, 250-251 [11] and mentioned, without criticism, by the Full Court in the same case, SingTel Optus Pty Ltd v ACCC (2012) 287 ALR 249, 258 [37]. One of those discretionary matters has become of particular importance in the appeal, and will be the subject of further attention below. 23 Neither did the Commission advance a challenge to the appropriateness of the broad framework for the fixing of penalties employed by the primary Judge. We note, specifically, that there was no challenge to his Honour not having first identified what would have been an appropriate penalty in respect of each of the courses of conduct referred to and then applied totality principle consideration to the sum of the two. 24 The Commission's challenge to the primary Judge's decision relates to four specific aspects of his Honour's reasoning. In each respect, his Honour exercised a judicial discretion analogous to that involved in sentencing. The well-established House v The King (1936) 55 CLR 499, 504-505 principles apply to the determination of an appeal of this kind. They have been authoritatively stated on many occasions, it being sufficient here to refer to three recent instances: Stuart v Construction, Forestry, Mining and Energy Union (2010) 185 FCR 308, 324-325 [45]-[46]; SingTel Optus 287 ALR 249 at 260-261 [43]-[44]; and Comcare v Post Logistics Australasia Pty Ltd (2012) 207 FCR 178, 193 [38]-[39]. 25 The respondents have cross-appealed against the costs order made by the primary Judge. Here the sole ground pressed at the hearing of the appeal was: The learned primary judge erred in finding that the appellant's costs of the proceeding should not be limited to a figure in the range of $25,000 to $50,000, because the appellant's reluctance to negotiate had already been taken into account in the assessment of penalties (paragraph [50] of the Reasons for Judgment). 26 For reasons which will appear, we propose to deal with the Commission's first ground of appeal and the respondents' remaining ground of cross-appeal together, after we have dealt with the Commission's second, third and fourth grounds. 27 Although this appeal was heard some nine days after the delivery of judgment in Barbaro v R (2014) 305 ALR 323, it was not suggested by either party that that judgment was relevant to the matters which we have to consider.

The relevant period of contravention 28 The Commission's second ground relates to something said by the primary Judge in a section of his reasons headed "The nature and extent of the contraventions and ensuing loss and damage", namely: Although the admitted contravening conduct spans from December 2006 to February 2012, the vast bulk of it occurred between 21 December 2006 and 14 May 2010. … In the period June 2010 to December 2011, BAJV took steps ensure that the conduct which gave rise to the contraventions ceased and established systems to prevent further transgressions. His Honour went on to say, in another paragraph, that "whilst the relevant period of the offending conduct was brief, its effect would not have been insignificant" and, later in his reasons, that "the period to which the Court is entitled to have regard in assessing penalty is a relatively short one". His Honour also observed that, it was unlikely, "given the steps put in place by BAJV to remedy the contravening conduct, that there would be many examples of contravening conduct from mid-2010 to November 2011." 29 The error which the Commission sought to identify here was a factual one: on the evidence, it was said, the "steps" which BAJV took to ensure that the offending conduct ceased and the systems which it established to prevent further transgressions were not taken and established until about November 2010. From the date - 15 April 2010 - upon which the respondents' conduct became subject to penalty under the TP Act to the point where these remedial steps were taken was more than six months, not merely about six weeks as seems to have been assumed by the primary Judge in his reasons. 30 While counsel for the respondents suggested that their clients' receipt of notices under s 155 of the TP Act in about June 2010 caused them then to be thinking "this could be a problem" and examining their conduct, there was no serious challenge to the Commission's case on appeal that, with respect to taking steps and establishing systems, the evidence did not justify any more favourable finding for the respondents than that they commenced to take concrete measures only subsequent to the examinations in October 2010. The reference to June 2010 must, therefore, in the appellant's submission, be accepted as a factual error on the part of the primary Judge. 31 The submission made in the alternative by counsel for the respondents on this point should, however, be accepted. This submission had two elements. The first was to point out that there could be no suggestion that his Honour was labouring under the false impression that there was no contravening conduct between June and November 2010. There was annexed to the statement of facts a schedule of the 46 customers of BAJV whose circumstances were the subject of specific complaint, which included references to conduct in that period. The second element was that there were, in fact, only three of those customers in relation to whom there was conduct which fell within that period. The Commission's written submissions on the appeal identified those three instances. The respondents noted that two of those instances involved the two invoice conduct. Ms Carr accepted in cross-examination that, in those two instances, she had issued recovery proceedings in the Magistrates Court on behalf of BAJV against two hirers without informing Mr Ayres that she was using the false higher invoice figures after he had instructed her not to follow the two invoice conduct any more. 32 In our view, it is not plausible to consider that the primary Judge was not fully conscious of what the actual facts of the case were. When set against the overall period with respect to which the respondents contravened the legislation (which went back to 2006) it was correct for his Honour to say that the period which fell subsequent to June 2010 was relatively short, and to base his determination upon the view, which clearly he held, that the case would have presented very differently had all the contraventions in the overall period been on the table for consideration. 33 The view we take with respect to the Commission's second ground is that, although his Honour made observations which did involve an error of fact, that error was not of sufficient consequence to undermine the validity or the viability of the ultimate conclusion which he reached on penalty. The Commission's second ground of appeal should be rejected.

The size of the contravener 34 The Commission's third ground relates to something said by the primary Judge under the heading in his reasons "The size of the contraveners". His Honour referred to the financial positions of BAJV and of Mr Ayers, and continued: Subsequently, BAJV's financial position has been adversely affected by its loss of the Europcar franchise in Tasmania. Mr Ayers' financial position has also been adversely affected by that loss. The estimated profit before tax for BAJV of $40,000 in the recently completed financial year will doubtless have to be adjusted downwards. It is sufficient to say that BAJV is not a large profitable company but is more in the nature of a corporate entity for a small to medium family business. Although Mr Ayers is in a relatively secure financial position and is currently engaged on a consultancy for $100,000 per year, he is by no means a wealthy man. 35 Associated observations by his Honour which were subject to criticism fell under the heading "Whether the contraventions arose out of the conduct of senior management", namely, that the factor did not loom large in the assessment of an appropriate penalty because "BAJV is a relatively small and unsophisticated company" and that "Mr Ayers' position should not be equated with senior management in a well resourced, sophisticated corporation"; and also in the concluding paragraph of his Honour's reasons on penalty, as follows: The Court is also not dealing with a large sophisticated corporation but a relatively unsophisticated small to medium-sized family business. 36 It was submitted on behalf of the Commission that the primary Judge mischaracterised the size and nature of BAJV. At the time of the contraventions, BAJV was 50% owned by Europcar's Australian franchisor, one of its directors was the nominee of that franchisor, and it traded as "Europcar", "a large and well-known car rental business". Although the respondents did not seriously resist the latter submission, there was, so far as we can see, nothing in the statement of facts, and no finding by his Honour, as to the size in Australia of the business which describes itself as "Europcar", nor as to its reputation in the mind of the Australian public generally. The Commission conducted its appeal on the silent assumption that this proposition - that Europcar was "a large and well-known car rental business" - was treated in the proceeding below as self-evident, and we are prepared to approach this third ground on that basis. 37 At the time of the contraventions, then, it may be accepted that BAJV was the franchisee of, and was half-owned by, a trading concern of some substance. It may be noted in passing, of course, that the Commission proceeded only against the respondents, and not against the franchisor or its officers. Moreover, there was no evidence, that the Commission identified on appeal, to suggest any awareness by CLA or Mr Santiago of the conduct complained of during the period in which it occurred. The point of significance to this ground of appeal, however, is that, as at the time that the primary Judge came to impose penalties for contraventions of the TP Act and the ACL, BAJV was appropriately described as his Honour did, that is, as "a small to medium family business". The Commission did not submit otherwise. The point raised by the Commission involves the question whether, to the extent that "the size of the contravener" is a relevant discretionary matter to consider when fixing penalty, it should be looked at apropos the date of the contravention or apropos the date when the penalty is imposed. The Commission submitted the former, the respondents submitted the latter. 38 The authorities in this area of the law are on occasion concerned with the question whether the size of a parent, or controlling, company apropos the actual contravener should also be taken into account in the determination of penalty. That broad issue was not addressed in any detail in the submissions made on the present appeal, and would become relevant only if the Commission's appeal against the approach in fact taken by the primary Judge were to be upheld. The Commission's point is that the primary Judge ought to have determined the appropriate penalty to be imposed on BAJV by reference to a standpoint in which CLA was a 50% shareholder in, and the franchisor of, BAJV. The relevant time, it was said, was when the contraventions occurred, not when the penalty was imposed. 39 The list of discretionary factors to which Perram J referred in SingTel Optus had its origin in the judgment of French J in Trade Practices Commission v CSR Ltd [1991] ATPR 41-076. His Honour said ([1991] ATPR 41-076 at 52,152-52,153): The assessment of a penalty of appropriate deterrent value will have regard to a number of factors which have been canvassed in the cases. These include the following: …. 4. The size of the contravening company. 5. The degree of power it has, as evidenced by its market share and ease of entry into the market. 6. The deliberateness of the contravention and the period over which it extended. 7. Whether the contravention arose out of the conduct of senior management or at a lower level. 8. Whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention. 9. Whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention. 40 It is significant that French J proffered this list of factors not as discretionary considerations in the broad, but as relevant to the "appropriate deterrent value" of the penalty to be imposed. That reflected what his Honour had earlier said in CSR ([1991] ATPR 41-076 at 51,152): The principal, and I think probably the only, object of the penalties imposed by s. 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravenor and by others who might be tempted to contravene the Act. The importance of size to the achievement of deterrent was also evident in French J's endorsement, in effect, of the reasoning of St John J in Trade Practices Commission v Pye Industries Sales Pty Ltd [1978] ATPR 40-089 at 17,859 and of Pincus J in Trade Practices Commission v. Sony (Australia) Pty Ltd [1990] ATPR 41-053 at 51,690-691. 41 The subject was addressed comprehensively by the Full Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285, 292-294, per Burchett and Kiefel JJ, with whom Carr J relevantly agreed. Of particular significance in the present context is the following passage (71 FCR at 293): In [Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR 40,161] (at 40,168), it was pointed out that some other factors which have been regarded as important actually flow from what French J called in CSR Ltd (at 52,152) "[t]he primacy of the deterrent purpose in the imposition of penalty". One of those factors is the size of the corporation involved, since "[w]hat would deter a small company might have little effect on a very large one". That size was a factor was noted in CSR Ltd (at 52,154) and in Trade Practices Commission v Carlton United Breweries Ltd (1990) 24 FCR 532 at 542. The correctness of this explanation of the significance of the size of the contravener to the matter of deterrence has not, so far as we can see, ever been doubted by the Full Court, and remains good law. The passage above was referred to, with apparent endorsement, by Merkel J (Black CJ and Sackville J agreeing) in Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170, 181 [48]. 42 Self-evidently, any consideration of deterrence in the context of the imposition of penalties is a forward-looking exercise. With respect to specific deterrence, the appropriate penalty is one that will be sufficient to deter the contravener from engaging in the same or similar contravening conduct in the future. If the "size" of the contravener has changed since the contraventions occurred, it would, in our view, involve no error for the court to fix the penalty by reference to the circumstances which existed at the time of judgment and which, as a matter of reasonable apprehension, would exist into the future when the deterrent effect of the penalty would be having its appropriate impact on the behaviour of the contravener. This is the approach which the primary Judge took in the present case, and we do not think he could be criticised on that account. 43 Counsel for the Commission emphasised, unsurprisingly, the importance of general deterrence in this area of the law. As the High Court has recently emphasised: "General and specific deterrence must play a primary role in assessing the appropriate penalty in cases of calculated contravention of legislation where commercial profit is the driver of the contravening conduct": Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 304 ALR 186, 199 [65]. We accept that, in giving effect to the objects of the TP Act and the ACL so far as they involve the conduct of trading corporations, the perception by the wider business community of the firmness with which the court will deal with established contraventions must be regarded as of the utmost significance. However, an observer, from that community, of the outcome of the present case as reflected in the judgment of the primary Judge would note that a small to medium sized family company was subjected to a penalty appropriate to its then size and circumstances. He or she would have no basis to assume that the penalty which might be imposed on a larger company in otherwise similar circumstances would be of the same order. Indeed, the very point, made in CSR and subsequent cases, that size is relevant in the context of deterrence will, in this way, be achieved by taking into account a contravener's size at the time when the penalty comes to be imposed. 44 Lest our reasoning in this area be misunderstood, we would add three qualifications. First, exactly what should constitute "size" in any particular case remains an open question. As mentioned above, the present appeal was conducted on the basis that BAJV was relevantly "smaller" at the time of the judgment of the primary Judge than at the time of the contraventions. At the time of the judgment BAJV had no on-going car rental business and Europcar had no shareholding or management interest in it. 45 Secondly, we would not wish to be taken as foreclosing the question whether, and if so how, the assumed attributes of a larger contravener, other than size as such, at the time of contravention might be relevant to the level of penalty to be imposed. For example, on the present appeal it was submitted on behalf of the Commission that size at the time of contravention was relevant because it was to be assumed that a company which was a part of a large nationally organised group would have the resources to keep abreast of the requirements of the law in the relevant area, and to implement protocols which would ensure that the law was observed. The seriousness of not having done so was, it was submitted, very much a matter to be taken into account on penalty. While we would accept the force of these considerations at the general level, the present appeal should not be decided by reference to them, and we would not express any final view as to how they might have borne upon the exercise of the primary Judge's discretion. This argument was not put to his Honour below, in which circumstance we could not, consistently with the authorities to which we have referred, hold that his Honour erred by not making reference to it. 46 Thirdly, it ought to be apparent that the case before the primary Judge had nothing to do with a situation in which it is said that the imposition of a particular penalty would threaten the solvency of the company or person on which or whom it is to be imposed. His Honour was concerned with size in the sense explained in CSR and NW Frozen Foods, not with insolvency or the risk of it. Thus references to authorities in which it has been held that the risk of insolvency should not stand in the way of the court imposing a penalty which is appropriately responsive to the considerations mentioned in those cases are no proper basis upon which to challenge the correctness of the approach taken by the primary Judge in the present case. 47 For the above reasons, the Commission's third ground should be rejected.

The "lower end of the mid-range" 48 The Commission's fourth ground is a matter of arithmetic. In the paragraph of his reasons headed "Conclusion on the quantum of penalties", the primary Judge said that he considered that the contravening conduct "should attract what might be described as a 'mid-range' penalty but leaning towards the lower end of the so-called mid range". His Honour said: Applying the instinctive synthesis involved in the totality principle, whilst acknowledging the inexactness inherent in this process, the Court considers that the appropriate penalty should be as follows: $200,000 for BAJV; and $40,000 for Mr Ayers. In a situation in which the relevant maxima were $2.2million for BAJV and $440,000 for Mr Ayers, it was submitted on behalf of the Commission that the penalties ultimately fixed by the primary Judge were a long way below anything that could be described as the lower end of the mid-range. 49 It is here important to note that the Commission's appeal does not, in any of its four dimensions, involve the proposition that the penalties actually determined by the primary Judge were manifestly inadequate. We would add that, from the exposure which we have had on appeal to the facts of the case below, and subject to the Commission's grounds as such, there is nothing in the case that would appear to sustain a conclusion of manifest inadequacy. Had there been something of that nature, this arithmetical curiosity on the part of his Honour might have contributed to the Full Court's understanding of how the inadequacy came about. It might then have played its appropriate part in the identification of relevant error. But, as we have said, that is not the situation. 50 In its written outline, the Commission proposed that, for BAJV, the "mid-range" penalty would have been one which lay between, say, $900,000 and $1.3million. As a matter of arithmetic, it may be accepted that this fell within, but did not delimit, a "mid-range". But, when invited by the Full Court to indicate the level of penalty that should be imposed on BAJV if error on the part of the primary Judge were found and the discretion had to be exercised again, the Commission submitted that the appropriate range was $300,000 - $350,000. On any view, therefore, a penalty which answered the description of lying at the lower end of the Commission's nominated mid-range would be well in excess of anything that ought to have been imposed in the circumstances of the case. 51 In fairness to his Honour, it may be that his reference to "a 'mid range' penalty" at the lower end should be read with his reference to the totality principle and the instinctive synthesis. The lower end of the mid-range for a single penalty was close to the pecuniary penalties that the primary judge imposed. It is likely that his Honour had in mind the cumulative effect of the penalty he imposed. The fact that each contravention considered alone might attract a lower end of the mid-range penalty does not mean that the sentencer will simply cumulate both penalties. The totality principle requires the sentencer to have regard to the overall impact on the contravener in structuring the sentence. The Commission did not contend that his Honour erred in imposing a single penalty without having first identified the separate penalties that were appropriate for both causes of conduct and then adjusting those under the totality principle: cp Mill v The Queen (1988) 166 CLR 59 at 62-63 per Wilson, Deane, Dawson, Toohey and Gaudron JJ; Lukatala v Birch (2008) 223 FLR 1 at 15-16 [75]-[77] per Rares J. 52 An appellate court must recognise that the sentencer has a very flexible discretion to mould an appropriate sentence within the parameters set by legislation and the need for consistency of approach. However, there is no single correct sentence: Markarian v The Queen (2005) 228 CLR 357 at 371 [26]-[27] per Gleeson CJ, Gummow, Hayne and Callinan J. 53 There is a tension - possibly even an inconsistency - between his Honour's comment about the lower end of the mid-range and the penalties which he in fact imposed. But the appeal is against his Honour's order, and there is no doubt but that he thought the penalties in fact imposed were appropriate. The fact that his Honour, in effect, got his arithmetic wrong in describing where his penalties would fit within the range (if that is what happened) was not, in our view, sufficient to vitiate the exercise of the discretion involved in the actual determination of the penalties to be imposed on the respondents. It would not justify appellate intervention. The Commission's fourth ground of appeal should be rejected. The relationship between penalty and costs 54 Finally, we come to the Commission's first ground of appeal and the respondents' remaining ground of cross-appeal. Each relates to a letter which was sent by the respondents' solicitors to the Commission on 28 February 2011. This was subsequent to the examination, in October 2010, of Mr Ayers and others by the Commission as part of its investigations into the conduct of the Europcar franchisee in Tasmania. The letter referred to an invitation which had been extended to the respondents by the Commission "to participate in a without prejudice discussion about how the matters being investigated by the [the Commission] might be resolved". Such a discussion was, it seems, held. 55 The letter of 28 February 2011 then proceeded as follows: 3. Having now considered carefully the transcripts of the examinations and given advice (in conjunction with counsel) to Europcar on its potential for exposure to claims under sections 51AB and 52 of the TPA, we are instructed to write to you with a view to progressing the discussions begun at the conclusion of the examinations. We begin by outlining our understanding of the circumstances said to give rise to the breaches alleged and then set out a proposal for resolution. As you will appreciate, that proposal is presently informed only by Europcar's own documents and the evidence given by the four examinees referred to above. The ACCC may be seized of documents and evidence of third parties that might cause Europcar to reconsider its position but, as presently advised, Europcar continues to have serious reservations about the form and basis for any claims against it and the proposal below has been formulated accordingly. What followed in the letter may be broadly described as an articulated defence of the respondents' position, and could not be viewed as involving any concessions that the Commission might then reasonably have considered to be useful. 56 However, the letter concluded as follows: 25. As presently advised, although Europcar accepts that there have been isolated instances where dealings with particular customers have been less than satisfactory, Europcar does not accept that its conduct can be said to amount to contraventions of either s 51AB or s 52 of a repeated or systemic nature. In those circumstances, Europcar is willing to settle the claims so far made by the [Commission] by entering into an agreement pursuant to which Europcar will agree to: (a) investigate vehicle damage claims, with a view to identifying those where a refund should have been given and, where appropriate, processing those refunds; (b) better inform customers of how Europcar assesses vehicle damage, including by providing details of any standard charges for particular types of damage; (c) implement systems that can identify and track the amount charged to a customer for vehicle damage, the cost of repair (and any associated fees and charges), whether a refund is due or may become due to the customer and the payment of that refund; (d) develop and implement a TPA compliance and training program; (e) agitate for a revision to the terms of Europcar's rental agreement, to ensure that it properly reflects a system under which Europcar only charges customers for the actual cost of damage plus appropriate allowances for downtime, administrative charges and the like; and (f) the [Commission] making a public announcement on terms to be agreed with Europcar outlining the terms of the resolution. 26. In relation to paragraph 25(a) above, we are instructed that Europcar has commenced already a process of reviewing files of customers charged for vehicle damage since, say, 1 January 2009, with a view to identifying any files where refunds have been overlooked or otherwise and paying those refunds. 27. We reiterate that that proposal is presently informed only by Europcar's own documents and the evidence given by the four examinees referred to above. The ACCC may be seized of documents and evidence of third parties that might cause Europcar to reconsider its position. Europcar would welcome the opportunity to consider any further relevant matters that you are able to disclose, to discuss with you any comments you have on our analysis above and to flesh out the terms of an agreement along the lines suggested. 57 The Commission did not respond to the letter of 28 February 2011. The next the respondents knew of what the Commission intended to do about the case was the commencement of this proceeding on 10 November 2011. At the hearing of the appeal, senior counsel for the Commission did not advance any justification for the Commission's failure to respond to the letter: on behalf of his client, he accepted that there should have been a response. 58 The primary Judge referred to the Commission's failure to respond to the letter in three places in his reasons. First, under the heading "Co-operation with the [Commission]", his Honour noted that the letter had been "met with silence". Secondly, under the heading "Conclusion on the Quantum of Penalties", his Honour said: It is significant that BAJV and Mr Ayers cooperated with the [Commission] and took steps to ensure that the offending conduct would not be repeated. The Court considers that the [Commission] should have taken a more proactive role in responding to the respondents' then lawyers' invitation to meet for discussions before instituting this proceeding. Thirdly, in the final paragraph of his reasons, which dealt with the subject of costs, his Honour said: BAJV and Mr Ayers propose that costs should be limited to a figure in the range of $25,000 to $50,000, having regard to their offer to meet with the [Commission] to attempt to resolve their dispute before the commencement of this action. However, I see no reason why costs should not follow the event, given that the [Commission]'s reluctance to negotiate has already been taken into account in the assessment of penalties. 59 Neither side was content with the way the primary Judge had treated these related issues of penalty and costs. For the Commission, it was submitted that it was one thing for his Honour to have taken into account the respondents' readiness to co-operate with the Commission, but it was another thing altogether for him to have taken into account what was perceived to be suboptimal negotiating behaviour on the part of the Commission as a factor tending towards the imposition of a lighter penalty. Such behaviour, it was submitted, was irrelevant to the determination of what was a proper penalty for the respondents' conduct. 60 For the respondents, it was submitted that a qualification of the Commission's conventional entitlement to costs was the most obvious means by which the court should have marked its disapproval of the Commission's failure to accept the invitation, extended on 28 February 2011, to enter into constructive discussions. Particularly having regard to s 37N of the Federal Court of Australia Act 1976 (Cth), such a qualification was called for in the circumstances of the case before the primary Judge. It was wrong for his Honour, it was submitted, to have used an unquantified measure of restraint in the fixation of penalties as an expedient to avoid having to make what was on any view an appropriate costs order in the circumstances of the case. 61 In response to the Commission's appeal, the respondents accepted that the Commission's "reluctance to negotiate" could not be a proper basis for discounting the amount of the penalty that would otherwise have been imposed. However, they submitted that this was not what his Honour did. Other than in the passage last referred to in [58] above, the context in which his Honour mentioned the Commission's response to the letter of 28 February 2011 was the respondents' readiness to co-operate. In the context of that passage, counsel for the respondents referred to what had been said in their own written submissions before the primary Judge on the question of costs: "The [Commission] chose to bring these proceedings instead of accepting BAJV and Mr Ayers' offer to meet and attempt to resolve matters between them." It was put that all the primary Judge was doing was to refer to that submission, and to reject it. 62 In response to the cross-appeal, the Commission submitted that the respondents had not advanced any "proper basis" for costs to be limited to a figure between $25,000 and $50,000; that the outcome of the case vindicated the position which it had taken from the outset, and did not reflect the "denials and justifications" in the letter of 28 February 2011; and that it could not be inferred that the costs of the proceeding were increased, or that the resolution of the underlying dispute was slower, less efficient or more expansive, as a result of its failure to respond to the letter. The Commission also pointed out that there had, in fact, been discussions between the parties at various points both before and after the commencement of the proceeding below. 63 While the essentially pragmatic approach taken by the primary Judge may, on one way of looking at it, have had its attractions, ultimately we are unable to read his Honour's reasons in the way proposed by the respondents. His Honour said that the Commission's reluctance to negotiate had been taken into account in the assessment of penalties: this was not merely, as the respondents submitted, by way of rejection of their submission on costs. The primary Judge should be taken at his word. Once that understanding of his Honour's reasons is established, the respondents did not seek to defend such an approach to the assessment of penalties. Although we would not want to be understood as laying down any categorical proposition applicable to all situations, in the circumstances of the present case we accept the Commission's submission that it was not open to the primary Judge to reduce the penalty that would otherwise have been appropriate because the Commission did not, before commencing its proceeding, engage in a sufficiently conscientious conversation with the respondents in an attempt to head off the proposed litigation. Other than the making of generalised submissions focussing upon the Commission's reluctance to negotiate in advance of litigation, the facts that may or may not have been unfolding between February and November 2011 were largely left unexplored in the present proceeding and not exposed to judicial scrutiny. The factors which should inform the assessment process have been referred to above, and, indeed, otherwise provided a conventional template for the approach which the primary Judge took. Those factors do not allow for a consideration of the failure of the Commission to respond to the respondents' letter of 28 February 2011. 64 The foregoing reasons should not, of course, be taken as casting any doubt on the propriety of a court taking into account the impact, including the deterrent effect, which the costs of the regulator's litigation have had on a contravener in the determination of penalty: see eg Minister for Sustainability, Environment, Water, Population and Communities v Gas Point Guildford West Pty Ltd [2013] FCA 621 at [30] and Minister for Sustainability, Environment, Water, Population and Communities v Fairglen Pty Ltd (trading as Liberty Braybrook) [2014] FCA 273 at [84]-[95]. That the chastening effect of the cost of litigation, including the need to pay all or part of the costs of the successful regulator, may, in an appropriate case, be taken into account is uncontroversial, but the present case was not an example of such an approach on the part of the primary Judge. 65 On the facts of the present case, it must be concluded that, in the assessment of penalties, the primary Judge allowed himself to be influenced by an irrelevant consideration. That was, with respect, an error on his Honour's part that should be corrected on appeal. It follows that his Honour's discretion on the determination of costs also miscarried. It was accepted by counsel for the Commission that, if we should uphold their client's first ground of appeal, the first ground of cross-appeal should also be upheld. It will, therefore, be necessary to consider for ourselves the level of penalties that ought to be imposed on the respondents in the circumstances of the case, and also whether costs should be limited as proposed in the cross-appeal.

Re-assessment of penalties 66 Although, as noted above, the Commission submitted that penalties of $300,000 - $350,000 and $50,000 for BAJV and Mr Ayers respectively would be appropriate in the circumstances of the case, it did not seek to lead further evidence on the subject, nor even to refer us to such of the evidence as had been before the primary Judge that did not find its way into the Appeal Book. Indeed, that submission was not based on any systematic analysis even of the material that was before the Full Court that might be thought relevant to the matter of penalty. The Commission invited the Full Court to re-exercise the discretion to fix penalties on the basis of the findings made by the primary judge that were not disturbed on appeal and any that the Full Court substituted on the appeal and cross-appeal. The Commission's case on appeal is that the higher penalties which it proposes are such as should attract themselves to the Full Court by reference to the circumstances upon which light has been directly focussed in the submissions we have received. That course will be followed here. 67 From that starting point, there are two observations we would make. First, the error we have identified in the reasons of the primary Judge should be perceived at lying towards the margin, rather than at the centre, of those reasons. In all other respects, we have rejected the Commission's criticisms of his Honour's approach. And secondly, allowing for the implicit discount which, we have held, his Honour was not justified in applying, we consider that the penalties which he imposed were of an appropriate order in the circumstances of the case. The significance of the size of the contravener to the effectiveness of deterrence is, in our view, a most important consideration. The statutory range of permissible penalties must perform service in contravention proceedings brought against businesses of all sizes and in all circumstances. Thus, while a penalty which represents 10% of the applicable maximum might be of little significance to a large enterprise, it might, and in our view would, constitute a significant deterrent for an enterprise of BAJV's present size, the moreso when coupled with the order for costs of the lengthy proceedings at trial which, for the reasons below, is appropriate. And a corresponding conclusion is appropriate in the case of Mr Ayers, as the present owner and manager of BAJV. 68 We would hold that penalties of $220,000 and $44,000 ought to be imposed on BAJV and Mr Ayers respectively, in place of those for which the orders of the primary Judge provided.

Costs 69 As mentioned above, counsel for the Commission accepted that their client was properly to be criticised for its failure to respond to the respondents' letter of 28 February 2011. A timely and considered response may well (we could not say would) have led to constructive negotiations and to the resolution of the present case by a less costly pathway than that actually followed. It is not unreasonable to suppose that the Commission's own costs were somewhat higher than they might otherwise have been by reason of its choice to prepare a complete case against the respondents without, at least in the initial stages, any co-operation from them - co-operation which their letter of 28 February 2011 demonstrated might reasonably have been anticipated. 70 In its submission criticising the primary Judge for having taken into account, in the determination of penalty, its failure to respond to the letter of 28 February 2011, the Commission said that "any perceived shortcomings on the part of the regulator can be fully and flexibly dealt with in a wide variety of other ways … [including] … adverse costs orders …". The Full Court accepts that submission, and propose to act on it in the present case. In the Full Court's view, and bearing in mind the matters mentioned in the previous paragraph, the costs of the proceeding at first instance to which the Commission would be otherwise entitled as the successful party should be reduced by 15%. 71 Because of the mixed degree of success which the parties have had on the appeal and the cross-appeal, the Full Court considers that justice would be done if there were no order as to the costs of either of those proceedings. I certify that the preceding seventy-one (71) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Rares, Jessup and Flick.

Trade Practices Act 1974(Cth)ss 51AB, 53(e), 53(g), 76E

ctices Commission v. Sony (Australia) Pty Ltd [1990] ATPR 41-053 Trade Practices Commission v TNT Australia Pty Ltd [1995] ATPR 40,161

Australian Competition and Consumer Commission v BAJV Pty Ltd [2014] FCAFC 52 CORRIGENDUM 1 In the first sentence of paragraph 7 of the reasons for judgment published this day, the word "unless" be inserted so that the sentence reads: Under cover of a letter dated 22 March 2013, CLA gave 30 days' notice of intention to terminate the franchise agreement unless, within that time, certain breaches of that agreement were rectified. I certify that the preceding one (1) numbered paragraph is a true copy of the Corrigendum to the Reasons for Judgment herein of the Honourable Justices Rares, Jessup and Flick.

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