Concerns with respect to the proposed redress order
140 At the hearing on 2 December 2020, I raised with the parties a number of concerns about the proposed redress order. The parties responded by filing supplementary submissions on 14 December 2020, and further submissions were made at the hearing on 15 March 2021. It is only necessary to refer to two of the concerns raised.
141 The first concern related to a proposed monetary "floor" on the redress scheme. The parties originally proposed that only franchisees that had paid more than $30,000 would be eligible to participate in the redress scheme, thereby excluding franchisees that had paid only the initial deposit for a franchise. This, it was submitted, would preserve more funds to be distributed to those franchisees who had suffered the most loss, in circumstances where only a pool of $500,000 would be available to satisfy the claims of more than 100 franchisees, some of whom had claims of over $150,000 each.
142 In my view, the proposed monetary floor is not justified and is unfair to those franchisees that suffered more modest losses. It can be accepted that, in some cases, the costs associated with administering a redress scheme might outweigh the losses suffered by particular consumers such that it would be uneconomic and wasteful to provide redress to those consumers. However, it is not apparent that this case falls into that category. The costs of administering the proposed scheme are likely to be very modest. The eligible franchisees number only 131 and the amounts paid by each of them in respect of their franchises is known. It is a simple and inexpensive task to contact the franchisees and invite them to participate in the scheme. It is also a simple and inexpensive task to apportion the $500,000 fund between the participating franchisees based on their relative losses (calculated as the amounts paid for their franchise). For those reasons, I have excluded any monetary "floor" to the redress scheme.
143 The second concern related to the operation of s 227 of the Australian Consumer Law which provides as follows:
227 Preference must be given to compensation for victims
If a court considers that:
(a) it is appropriate to order a person (the defendant) to pay a pecuniary penalty under section 224 in relation to:
(i) a contravention of a provision referred to in subsection (1)(a) of that section; or
(ii) conduct referred to in subsection (1)(b), (c), (d), (e) or (f) of that section that relates to a contravention such a provision; and
(b) it is appropriate to order the defendant to pay compensation to a person who has suffered loss or damage as result of that contravention or conduct; and
(c) the defendant does not have sufficient financial resources to pay both the pecuniary penalty and the compensation;
the court must give preference to making an order for compensation.
144 In Clinica, Mortimer J concluded (at [255]) that a non-party redress order under s 239 was an order for compensation within paragraph (b) of s 227. The parties did not contest that conclusion. Respectfully, I agree with that conclusion for the reasons expressed by her Honour.
145 In the present case, and for the reasons expressed earlier, I consider that it is appropriate to order Mr Campbell to pay a pecuniary penalty of $400,000. I also consider that it is appropriate to order Mr Campbell to compensate those franchisees who have paid monies to Jump Loops without receiving anything in return. The statement of agreed facts indicates that those franchisees have incurred losses of some $19.5 million. The parties have proposed that Mr Campbell pay an amount of $500,000 into a fund to be disbursed under the redress scheme. Plainly, that amount falls well short of the losses incurred by franchisees. The statement of agreed facts indicates that Mr Campbell does not have sufficient resources to pay both the proposed pecuniary penalty ($400,000) and the proposed compensation under the redress scheme ($500,000). In those circumstances, s 227 applies and requires the Court to give preference to making an order for compensation. The concern I raised with the ACCC was: what precisely does s 227 require in these circumstances? Is it consistent with the requirements of s 227 for the Court to order Mr Campbell to pay a pecuniary penalty of $400,000 to the Commonwealth of Australia in circumstances where the compensation to be paid to franchisees ($500,000) is only a small proportion of the loss suffered by franchisees? Does s 227 require the Court to preference an order for compensation by, for example, ordering Mr Campbell to pay an amount of $900,000 into the fund to be disbursed under the redress scheme, instead of ordering a pecuniary penalty?
146 In its written supplementary submissions, the ACCC submitted that s 227 mandates the temporal order or sequence of payment of penalties and compensation; that is, the Court must order that the compensation be paid first in time, before the payment of penalties, in circumstances where orders for both compensation and penalties are made. The ACCC submitted that s 227 does not mandate or permit the Court to reduce the amount of penalty so as to allow for a greater amount of compensation, let alone allow the Court to eliminate a penalty altogether in favour of compensation. In support of that submission, the ACCC referred to three matters.
147 First, the ACCC placed substantial reliance on the following statement in the Explanatory Memorandum to the Trade Practices Amendment Bill (No 1) 2000 (Cth), which introduced s 79B of the Trade Practices Act 1974 (Cth), the predecessor provision to s 227 of the Australian Consumer Law, at [30]:
The new section is not directed to allowing the Court to waive or reduce the fine or pecuniary penalty where it considers the defendant does not have sufficient financial resources, thereby allowing the defendant to avoid punishment. A Court may still impose a fine or pecuniary penalty. The provision allows the Court to order that a person who has suffered loss or damage will be compensated before a fine or pecuniary penalty will be paid into consolidated revenue. Where a fine or pecuniary penalty is not paid, proceedings for enforcement and recovery may be commenced under sections 77 or 79A.
148 Second, the ACCC emphasised the different objectives of a compensation order in comparison to a pecuniary penalty. It submitted that the purpose of a compensation order is redress whereas the purpose of a penalty order is deterrence. Additionally, the ACCC noted that compensation orders have different legal consequences to penalty orders: an order to pay a penalty survives bankruptcy or liquidation (see s 82(3) of the Bankruptcy Act 1966 (Cth) and s 553B of the Corporations Act 2001 (Cth)) whereas an order to pay compensation does not (it is converted into a right to prove alongside other ordinary unsecured debts and claims). The ACCC submitted that this feature of penalties promotes deterrence because it is a disincentive to the respondent entering into voluntary liquidation or filing a debtor's petition for bankruptcy.
149 Third, the ACCC submitted that a construction of s 227 that allowed an order of compensation to be made in substitution for ordering a penalty would involve:
"the unwinding of the satisfaction of the preconditions that allows one to reach the operative part of s 227 in the first place. To reach the operative part of s 227, the Court must consider it appropriate to order a penalty. If the Court was then to go on to only order compensation on the basis that this was said to give effect to s 227, it would have the result that the Court has determined it to no longer be appropriate to order a penalty. That is to say, the Court, as a result of the provision, would necessarily be taken to have changed its view that a penalty is appropriate to a different view that a penalty is not appropriate. "
150 The ACCC also submitted that increasing the amount payable by way of compensation and correspondingly decreasing the amount payable by way of penalty would lead to "unintended and potentially absurd outcomes". The ACCC argued that there are many cases in which a wrongdoer may not have the financial means to pay an appropriate amount of compensation in full and that an approach that preferenced an order for compensation over an order for penalty might result in no penalty being ordered. The ACCC argued that that would place a wrongdoer in a better position than if they were required to pay a penalty because of the bankruptcy and liquidation considerations referred to above. Further, as a redress scheme under s 239 is optional for non-party consumers, the wrongdoer may end up paying a smaller amount by way of compensation by reason that consumers do not take up the offered redress.
151 In the course of oral submissions made at the hearing on 15 March 2021, the ACCC softened a number of the submissions that it had made in writing. The ACCC accepted, where the conditions to s 227 apply, the section requires the Court to give preference to making an order for compensation. However, the ACCC submitted that the section does not command a binary choice between making an order for compensation or an order for a pecuniary penalty. The manner in which the preference is to be given is left to the Court. In that regard, the ACCC emphasised that there may be a range of factual circumstances that need to be considered in any given case including the amount of losses suffered, the amount of penalty that is appropriate and the evidence as to the resources available to the respondent. The Court is empowered to formulate orders that fulfil the statutory obligation in a wide range of circumstances.
152 In the present case, the ACCC conceded that, on the agreed facts, Mr Campbell does not have the resources to pay the proposed redress, let alone the pecuniary penalty. The ACCC submitted, however, that the order for a pecuniary penalty was important for the purposes of general deterrence.