Australian Competition and Consumer Commission v Bruhn [2012] FCA 959 | Case summary

REASONS FOR JUDGMENT 1 The applicant, Australian Competition and Consumer Commission (ACCC), seeks with the consent of the respondent a declaration, injunction and other orders. The ACCC also seeks the imposition of a pecuniary penalty under s 76E of the Trade Practices Act 1974 (Cth) (TPA) on the respondent. 2 The proposed consent orders may be summarised as: (a) a declaration as to the unlawfulness of the respondent's conduct; (b) an injunction pursuant to s 80 of the TPA; and (c) orders pursuant to s 86C of the TPA requiring the respondent, at the respondent's own expense to: (i) write a letter in the agreed terms to the respondent's customers; (ii) cause an advertisement in the agreed terms to be published in the Advertiser newspaper; and (iii) attend a training session to remind the respondent of her obligations under s 33 of The Australian Consumer Law (ACL), which is Schedule 2 of the Competition and Consumer Act 2010 (Cth). Section 33 came into force on 1 January 2011 and replaced s 55 of the TPA. 3 Although the parties are agreed on the proposed declaration, injunction and the orders, it is a matter for the Court to determine the relief that ought to be ordered in any particular proceeding. The Court will, of course, give due weight to the parties' agreement in considering the appropriate orders: Australian Competition and Consumer Commission v Target Australia Pty Ltd (2001) ATPR 41-840 at [24]. 4 The issue in dispute in the proceeding is the appropriate pecuniary penalty. The ACCC contends that a pecuniary penalty should be ordered in the amount of $100,000. The respondent contends that a pecuniary penalty of that amount would be harsh, crushing and manifestly excessive, but the respondent has not identified what she considers to be the appropriate penalty. 5 On 2 March 2012, the ACCC started this proceeding against the respondent, alleging contraventions of s 55 of the TPA, which provides: A person shall not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods. 6 On 15 April 2010, s 76E of the TPA came into force. Section 76E(2) of the TPA provides: (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. 7 Section 76E(1) empowers the Court to order a person who has contravened Division 1 of Part V of the TPA (other than s 52) to pay a pecuniary penalty to the Commonwealth. Section 55 was at the relevant time within Division 1 of Part V. Section 76E(3), Item 2(b), fixes the pecuniary penalty for a contravention of Division 1 of Part V of the TPA at not exceeding 2,000 penalty units for a contravenor who is not a body corporate. Section 4AA(1) of the Crimes Act 1914 (Cth) provides that a penalty unit is $110. Therefore, the maximum pecuniary penalty, assuming only a single contravention, is $220,000 for a contravenor who is not a body corporate. 8 The relevant starting point for the determination of the appropriate pecuniary penalty is 15 April 2010, because that is the date that s 76E, which is the provision under which a pecuniary penalty is sought, came into effect. The conduct complained of ceased in October 2010 (the penalty period). 9 On 16 May 2012, the parties filed an Amended Statement of Agreed Facts (ASOAF) pursuant to s 191 of the Evidence Act 1995 (Cth). The ASOAF contains the factual basis for making the proposed consent orders and the factual basis upon which the Court can proceed for the purpose of assessing the appropriate pecuniary penalty. 10 The respondent commenced business in November 2000 trading under the name "Rosie's Free Range Eggs", supplying free range eggs from her property at Eudunda in South Australia. A free range egg is produced from an uncaged hen. A cage egg is produced from a hen kept in a cage. 11 From about October 2006, the respondent started to acquire eggs from other egg producers, "Days Eggs Pty Ltd" (Days Eggs) and "Chirpy Chook Eggs" (Chirpy Chook). Approximately 32% of the eggs acquired from Days Eggs were free range eggs and the remainder were cage eggs. All of the eggs acquired from Chirpy Chook were cage eggs. 12 During the penalty period, the respondent only acquired eggs from Chirpy Chook, all of which were cage eggs. Those eggs, together with eggs produced on her property, were supplied to her customers with the representation that they were all free range eggs. 13 In the period before the penalty period, between March 2007 and 14 April 2010, the respondent supplied eggs to her customers without any qualification as to the method of production of the eggs. All eggs were packaged in cartons of six or 12 eggs, and the cartons displayed a label that stated the eggs were free range and had been produced and packed at Rosie's Free Range Eggs. The label included a further statement, "Rosie's Direct from the chook to you", which was accompanied by an image of the respondent in the country and surrounded by uncaged, seemingly free-roaming chickens. 14 In the penalty period, the respondent issued invoices to her customers, which included the statements "Rosie's Free Range Eggs" and "Direct from the chook to you", together with the image to which I have already referred. 15 The respondent has admitted that the supply of eggs in cartons and/or boxes with the label to which I have already referred, and the issue of invoices under the name "Rosie's Free Range Eggs", represented to her customers that the eggs supplied in the cartons and boxes were free range eggs. 16 The respondent knew that not all of the eggs supplied by Days Eggs were free range eggs, but that some were cage eggs, because she had agreed to acquire cage eggs from Days Eggs in the event that Days Eggs did not have sufficient free range eggs. She also knew that the eggs that she acquired from Chirpy Chook were cage eggs, because she regularly collected eggs from Chirpy Chook's property on which hens were kept in cages. 17 The respondent has admitted that the representations meant she was able to derive a significantly greater volume of sales by acquiring cage eggs, but supplying them as competitively priced free range eggs. 18 Over the period between January 2009 and October 2010, the business derived revenue of $186,978.55 by selling cage eggs as free range eggs. Of that sum, $42,400 was derived during the penalty period. 19 Section 55 of the TPA talks of conduct that is "liable to mislead", which can be contrasted with the words "likely to mislead" used in s 52. The words "likely to mislead" have a wider reach than the words "liable to mislead": Westpac v Northern Metals (1999) 14 IPR 499 per Northrop J at 502. 20 In determining whether or not the conduct is liable to mislead, it is necessary to identify to whom the representations were made, and whether a member of that class would be liable to be misled by the misrepresentation. In this case, the representations were made to the respondent's customers, which included members of the hospitality and retail industries. 21 The representations were undoubtedly misleading, because the persons to whom the representations were made would have understood that all of the eggs that were supplied were free range eggs when, in fact, during both the period prior to the penalty period and during the penalty period, only some of the eggs were of that kind. 22 The respondent accepts that the labelling of the eggs as free range eggs was false and the conduct therefore amounted to conduct that was liable to mislead her customers. 23 Section 55 of the TPA addresses conduct that is liable to mislead the public as to the nature or the characteristics of goods. A representation that eggs are free range eggs is a representation in relation to the nature and characteristic of the eggs, because the representation conveyed is that the eggs have been produced from hens that are not kept in cages but enjoy a free range. The eggs, therefore, are in the nature of free range eggs and have the characteristic of free range eggs: Australian Competition and Consumer Commission v C.I. & Co Pty Ltd [2010] FCA 1511. 24 As I have said, the respondent consents to the making of the declaration, the injunction and consequential orders, but the Court is still obliged to scrutinise the orders that are presented in the Court to determine their appropriateness before the Court makes those orders. 25 The applicant seeks a declaration in the following terms: 1. From about March 2007 until October 2010, the Respondent has, in trade or commerce, engaged in conduct that was liable to mislead the public as to the nature of characteristics of goods in contravention of section 55 of the Trade Practices Act 1974 (Cth) (the TPA) by: 1.1. supplying eggs to the customers set out in Annexure A to this Order (Relevant Customers), which were: 1.1.1. packaged in cartons of 6 eggs or twelve eggs with a label affixed which included the words "Rosie's Direct from the chook to you", "FREE RANGE EGGS" and "Produced and Packed at Rosie's Free Range Eggs" and an image of the Respondent outdoors and surrounded by chickens; 1.1.2. packaged in boxes containing fifteen cartons of twelve eggs or 6 trays of thirty eggs on which, from early 2009, the words "Rosie's Free Range Eggs" were printed in large red text; 1.2. supplying eggs to the Relevant Customers while trading under the business name "Rosie's Free Range Eggs" without any qualification as to the method of production of the eggs; 1.3. from about May 2010, issuing invoices to the Relevant Customers for the purchase of eggs which contained the words "Rosie's Free Range Eggs" and "Direct from the chook to you" and an image of the Respondent outdoors and surrounded by chickens, and thereby represented to the Relevant Customers that the eggs supplied to them were free range eggs, when, in fact, a substantial proportion of the eggs supplied to them were not free range eggs but cage eggs. 26 The Court has a wide discretion under s 21 of the Federal Court Act 1976 (Cth) to make declarations of a right: Trade Practices Commission v Santos Ltd (1993) ATPR 41-221. 27 There must be some utility for the making of the declaration, which means that there must be a question which is real and not theoretical. There should be a contradictor, but it is not necessary that the contradictor continues to oppose the making of the declaration through the whole of the proceeding: Australian Competition and Consumer Commission v MSY Technology Pty Ltd & Ors (2012) 201 FCR 378. 28 In this proceeding, the ACCC says that a declaration should be made, because it identifies the particular conduct engaged in by the respondent that amounted to a contravention of s 55 of the TPA and for the purpose of the pecuniary penalty that it seeks to have imposed. 29 I intend, in the exercise of my discretion, to make the declaration sought. 30 The ACCC seeks an injunction in the following terms, again which is consented to by the respondent: 2. The Respondent be restrained for a period of 5 years, whether by herself, her servants, agents or howsoever otherwise, in trade or commerce, in Australia, from; 2.1. representing that eggs are free range eggs; or 2.2. labelling any package of eggs in such a manner as would lead a consumer to believe or assume that the eggs contained in the package are free range eggs; or 2.3. aiding, abetting, counselling or procuring, or being directly or indirectly knowingly concerned in, or party to, any person or corporation: 2.3.1. representing that eggs are free range eggs; or 2.3.2. labelling any package of eggs in such a manner as would lead a consumer to believe or assume that the eggs contained in the package are free range eggs; when, in fact, the eggs are not free range eggs. 31 The power to make the injunction is given by s 80 of the TPA and injunctions granted pursuant to that section are in the nature of public interest injunctions. 32 The respondent has indicated that she intends to leave the industry at the earliest possible opportunity and, in those circumstances, it is unlikely that the respondent would contravene the TPA in the way envisaged in the proposed order. 33 However, the public interest may warrant the making of an injunction, notwithstanding that the contravenor is not likely to engage in the contravening conduct again: Trade Practices Act Commission v Mobil Oil Australia Ltd (1984) 4 FCR 296 at 300; Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd (2001) ATPR 41-811 at [32]. 34 I will make the injunction sought. 35 The other orders sought by the ACCC are: 3. Pursuant to section 86C of the TPA, the Respondent, at her own expense, and within 28 days from the date of this Order, cause; 3.1. a letter to be sent to each of the Relevant Customers set out in Annexure B, in terms of Annexure C to this Order; 3.2. an advertisement, in terms of Annexure D to this Order, to be published in The Advertiser newspaper and use her best endeavours to ensure that such advertisement is: 3.2.1. within the first 10 pages of the newspaper; and 3.2.2. of a size not less than 12cm wide by 20cm long. 4. Pursuant to section 86C of the TPA, the Respondent attend, at her own expense, within 6 months of the making of this order, a training session on her obligations under section 33 of the Australian Consumer Law (which is Schedule 2 to the Competition and Consumer Act 2010). 36 The purpose of the orders relating to the publishing of a letter to the respondent's customers is to inform the customers of the result of this proceeding and in general terms the orders made by the Court. The purpose of the advertisement is to inform the public generally about the outcome of the proceeding. 37 The order requiring the respondent to attend compliance training is intended to provide the respondent with a proper understanding of the Australian Consumer Law. 38 I will make the orders sought. 39 The Court must have regard to the matters mentioned in paragraphs (a), (b) and (c) of s 76E(2) of the TPA, which are the same matters to which the Court must have regard in a consideration of a pecuniary penalty under s 76(1) of the TPA. 40 For that reason, the Court has held that it is appropriate to have regard to the cases that identify the principles relevant to the assessment of a pecuniary penalty under s 76 of the TPA: Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) [2011] FCA 382. 41 Those principles have been identified in a series of cases commencing with Trade Practices Commission v CSR Limited (1991) ATPR 41-076 per French J at 52,152-52,153; NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285; and J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532. 42 Relevant matters were identified by French J (as he then was) in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52,152-52,153 and were expanded upon by the Full Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission 71 FCR 285 at 292-294, and J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission 172 ALR 532 at [150]. Those relevant matters are: (a) the size of the contravening company; (b) the deliberateness of the contravention and the period over which it extended; (c) whether the contravention arose out of the conduct of senior management or at a lower level; (d) whether the company has a corporate culture conducive to compliance with the TPA as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and (e) whether the company has shown a disposition to cooperate with the Australian Competition and Consumer Commission in relation to the enforcement of the TPA and in particular in relation to the contravention; (f) whether the contravenor has engaged in similar conduct in the past; (g) the effect on the functioning of the market and other economic effects of the conduct; (h) the financial position of the contravenor. 43 There are two matters to which the Courts have had regard that are relevant to an amount of penalty under s 76, which may not be relevant to a consideration of a pecuniary penalty under s 76E. Those two matters were identified by Perram J in Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) at [69], where he said: … I would accept that principles which have been applied in relation to the imposition of penalties under s 76 should be applicable to s 76E unless the context of the infringements makes plain that that cannot be so. The relevant factors under s 76 have been looked at in a number of decisions including Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52,152-52,153 per French J ("CSR Ltd"); NW Frozen Foods at 292-294 per Burchett and Kiefel JJ, Carr J agreeing; and J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 at 574 [150]ff per Black CJ, Lee and Goldberg J ("J McPhee & Son"). I would accept the applicability of the matters set out in those decisions to penalties under s 76E with two exceptions. The first of these concerns the degree of market power of the contravener, as evidenced by its market share and ease of entry into the market (referred to by French J in CSR Ltd at 52,153). The second concerns the reference in NW Frozen Foods and J McPhee & Son to the effect on the functioning of the market and other economic effects of the contravening conduct. I would accept that these could conceivably have some bearing on matters arising from breaches of Part V but I do not think that Part V is concerned substantially with matters of that kind. Apart from those observations, however, the other factors referred to in those decisions do seem to me to be applicable to the imposition of a penalty under s 76E. 44 In a business the size of the respondent's, some of those matters are less relevant than in circumstances where the contravenor is a corporation that has a sizeable market share. 45 The purpose of imposing a pecuniary penalty under s 76, and so also under s 76E, is deterrence, both specific and general. 46 It is necessary to impose a penalty that makes a contravention unprofitable and would persuade the contravenor not to repeat the contravention, and at the same time would also dissuade any other like-minded person from contravening the Act in a similar manner: Trade Practices Commission v Stihl Chainsaws (Aust) Pty Ltd (1978) ATPR 40-091 at 17,896; Trade Practices Act Commission v Mobil Oil Australia Ltd 4 FCR 296 at 297-298; NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission 71 FCR 285. 47 A pecuniary penalty that is not sufficiently high enough to dissuade both the contravenor and like-minded people from further contravention will not serve the purpose of the TPA. However, a pecuniary penalty must not be so high as to be oppressive. In Trade Practices Commission v Stihl Chainsaws (Aust) Pty Limited at 17,896, Smithers J said that the penalty should be sufficiently high to have deterrent effect. 48 The object of the TPA is to enhance the welfare of Australians through the promotion of competition and fairness in trade and commerce: s 2. One way of achieving this object is to provide pecuniary penalties that make a contravention of the TPA a liability for that business. 49 The ACCC has sought the one penalty for the respondent's contraventions over the penalty period. 50 The ACCC contends that the respondent's conduct constituted a serious breach of trust in relation to its customers. Once the cage eggs were placed or mixed in the cartons or boxes by the respondent for supply to the customers, the customers had no opportunity to determine whether the eggs were free range or cage eggs. 51 It is contended that the respondent's conduct was deliberate and that she knowingly engaged in the contravention. The conduct enabled her to label a less expensive product as a more expensive product in a manner that would be undetectable to consumer. The revenue obtained by the respondent during the penalty period was $42,400. 52 It is conceded that the respondent has cooperated with the ACCC in agreeing the facts contained in the ASAOF and in agreeing to the proposed consent orders. The respondent has avoided the ACCC incurring the cost of a hearing and has avoided the Court expending time taken for that hearing. 53 The respondent, the ACCC concedes, is in relatively strained financial circumstances, but the ACCC contends that should not prevent this Court from doing its duty to ensure that the object of general deterrence is met, even if the penalty will not be recoverable because of the respondent's financial position. 54 The ACCC contends that the conduct in this case was more culpable than the conduct of one of the respondents in ACCC v C.I. & Co, whom North J ordered to pay a pecuniary penalty of $30,000, in respect of conduct engaged in over a period of 15 days, which similarly involved falsely representing that cage eggs were free range. 55 In response, the respondent contends that her business is a small one conducted almost entirely by her without the assistance of staff other than on a casual basis. The respondent contends that the business does not provide for high income, and that her business is not such that it has any effect on competition. These events have had a catastrophic effect upon the respondent's business such that she intends to cease supplying her business customers as from 31 July 2012 and intends to cease selling from the Adelaide Farmers' Market from 2 September 2012. 56 The respondent submits that her taxable income for the financial year ended 2009 was $74,528; for the financial year ended 2010 was $56,613; and for the financial year ended 2011 was $39,790. 57 The respondent owns property but it is submitted that her assets only exceed her liabilities by a sum of in the order of $281,000. 58 The respondent submits that having regard to her cooperation with the ACCC, the injunction, the other orders, and that she intends to exit the business, that there is little point in providing for a pecuniary penalty that includes personal deterrence. She contended that the Court should take into account that she will have to pay both the ACCC's and her costs of this proceeding, which will be substantial. After the hearing I was advised that the parties had agreed that the respondent would pay $15,000 towards the ACCC's costs. She also said that her business is winding down and, after 2 September 2012, her income is problematic. 59 The question of penalty is not approached by a mathematical exercise but as a matter of judgment by way of instinctive synthesis. In my opinion, the pecuniary penalty sought by the ACCC would, having regard to the respondent's financial position and all the relevant circumstances of the case, and notwithstanding the need for general deterrence, be too harsh. 60 While accepting the ACCC's contention that the conduct complained of is serious, a penalty, in my opinion, of $50,000 would adequately bring to the attention of those like-minded persons in this industry who intended to engage in similar conduct that such conduct is unprofitable. 61 There will be an order that the respondent pay a pecuniary penalty of $50,000. 62 There will be a further order that the respondent pay the ACCC's costs fixed at $15,000. 63 I will hear the parties as to the time within which the pecuniary penalty should be paid. I certify that the preceding sixty-three (63) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.

Australian Competition and Consumer Commission v Bruhn

At a glance

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Judgment (9 paragraphs)

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Legislation Cited (6)

Cases Cited (7)

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