What happened
In 2012 Coles launched a nationwide marketing campaign for its in-store bakery products. Packaging and signage carried prominent claims such as "Baked Today, Sold Today", "Freshly Baked", "Baked Fresh" and "Freshly Baked In-Store". The products in question were par-baked off-site (sometimes overseas), snap-frozen, transported to Coles supermarkets, and then finished by reheating in-store. Only the final bake occurred on the day of sale and it was performed on frozen dough rather than fresh dough prepared in the store.
The Australian Competition and Consumer Commission commenced proceedings in 2013 alleging breaches of ss 18, 29(1)(a) and 33 of the Australian Consumer Law. After a contested liability hearing Allsop CJ delivered judgment on 18 June 2014 ([2014] FCA 634) finding the representations conveyed that the bread was entirely baked on the day of sale from fresh dough in the Coles store. That was false for the par-baked range. Declarations were made on 29 September 2014, together with injunctions preventing further use of the phrases and orders for corrective advertising.
The present judgment determined the pecuniary penalty for the ss 29(1)(a) and 33 contraventions only. Section 224 applies solely to Part 3-1 conduct. The maximum penalty for each contravention by a corporation was $1.1 million. Both parties accepted that the sheer volume of sales (approximately 85 million units) made precise counting of contraventions unhelpful. The ACCC identified four distinct courses of conduct corresponding to different combinations of phrases on packaging and signage. Coles contended the entire campaign constituted a single course of conduct. Allsop CJ treated the conduct as falling within four courses but imposed a single penalty under the totality principle to avoid double punishment.
Evidence at the penalty hearing included internal Coles documents showing the campaign was centrally developed and approved at senior management level. Emails referred to Bakers Delight as "the enemy" and spoke of a "war committee". Sales of the par-baked range increased after the campaign began. Coles adduced evidence that the products represented only 0.29% of group revenue ($104 million in FY2013) and that EBIT for the relevant period was approximately $7.28 million. It emphasised the absence of consumer complaints, the everyday low price of bread, and the lack of proven quality difference between par-baked and scratch-baked loaves. Corrective barker cards were introduced in October 2013 but the judge had already found them inadequate in the liability judgment ([157]).
After weighing the mandatory s 224(2) considerations and the additional factors from Trade Practices Commission v CSR Limited and Singtel Optus, Allsop CJ fixed a penalty of $2.5 million. The sum was described as above the mid-range for four courses of conduct (notional maximum $4.4 million) and as stripping more than one-third of the estimated EBIT earned from the products. Coles was also ordered to pay the ACCC's costs of the penalty phase.
Why the court decided this way
Allsop CJ began from the proposition that deterrence, both specific and general, is the primary object of civil penalties under the ACL (TPG at [65]). The instinctive synthesis required by Markarian was applied to a non-exhaustive list of factors that overlapped with the mandatory considerations in s 224(2).
On loss and damage (s 224(2)(a)), the ACCC led no direct evidence of consumer complaints or competitor loss. Coles submitted this absence should be treated as a mitigating factor, citing MSY Technology and Global One. The Chief Justice distinguished those authorities. In MSY Technology quantifiable warranty-related losses could readily have been proven; here the detriment was the deprivation of informed choice and the distortion of competition in the bread market. Internal Coles documents demonstrated the campaign was designed to increase market share at the expense of specialty bakeries. Sales of the par-baked range rose. In those circumstances the court was "not prepared to sentence on the basis that it failed to achieve that purpose" ([60]). The absence of evidence was therefore not treated as significantly mitigating.
The circumstances of the conduct (s 224(2)(b)) told against Coles. The phrases were chosen deliberately as the "core" customer proposition. Senior management emails showed awareness that customers doubted the freshness of Coles bread and that the campaign was intended to meet that perception. The risk that the language would be understood as promising scratch baking from fresh dough was "tolerably clearly" open and "should have been appreciated" ([75]). Late and inadequate disclaimers did not neutralise the impression created by prominent point-of-sale material.
On prior conduct (s 224(2)(c)), Gordon J's 2014 unconscionable conduct decision ([2014] FCA 1405) was closely examined. That case involved coercive demands on suppliers, not representations to consumers. The statutory norms, the victims and the parts of the ACL differed. The conduct was therefore not "similar" for the purposes of the specific subsection. Nevertheless, the existence of other ACL contraventions remained a "relevant matter" under the opening words of s 224(2) and reinforced the need for specific deterrence.
Coles' size and resources were relevant but not decisive. The Chief Justice accepted that financial capacity alone does not justify a higher penalty than otherwise appropriate (Turi Foods (No 5) at [62]). However, when coupled with the $7.28 million EBIT figure, the resources informed the level at which a penalty would be felt as real punishment rather than a business cost. The involvement of senior management in a centrally orchestrated campaign further heightened the need for specific deterrence.
No discount was given for cooperation. Contesting liability is a litigant's right; narrowing issues and agreeing statements of fact are expected of a well-resourced corporation. The progressive removal of some phrases before judgment was noted but did not alter the fact that contravening conduct continued until liability was declared.
The final synthesis produced $2.5 million. Two cross-checks were offered: the figure sat above the mid-range for four courses of conduct, and it exceeded one-third of the estimated EBIT attributable to the products (acknowledging the imprecision of the EBIT extrapolation and that not all sales were caused by the representations). Both checks confirmed the sum was appropriate.
Before and after state of the law
Prior to this judgment the law on civil penalties under the ACL (and its predecessor TPA) was settled in several respects. Markarian supplied the instinctive synthesis methodology. NW Frozen Foods and CSR Limited provided the familiar non-exhaustive list of factors. TPG and Singtel Optus confirmed deterrence as the dominant consideration and warned against treating the maximum penalty as a starting point from which discounts are mechanically subtracted. The course of conduct principle, drawn from criminal sentencing, had been adapted to ACL cases to prevent double punishment for overlapping contraventions arising from the same campaign.
What this judgment clarified was the treatment of "absence of loss" evidence in cases where harm is inherently difficult to prove. MSY Technology had suggested that, as a matter of common sense, respondents are entitled to be sentenced on the basis that no harm was caused if none is proven. Allsop CJ accepted the proposition but confined its operation to cases where evidence of harm could readily have been led. In a mass-market freshness claim affecting a staple product, the court declined to infer no harm simply because consumers had not complained. The decision therefore tilted the forensic balance: a respondent who cannot disprove the logical inference of competitive harm arising from its own internal strategy documents will not obtain significant mitigation.
The treatment of s 224(2)(c) also refined the law. The subsection requires regard to prior findings of "similar conduct". The judgment holds that similarity is qualitative and context-sensitive. Unconscionable conduct towards suppliers under Part 2-2 is not similar to misleading conduct towards consumers under Part 3-1, even though both breach the ACL. This avoids an overly broad reading that would treat any prior ACL contravention as automatically aggravating under the specific paragraph. At the same time, the court confirmed that other contraventions remain relevant under the general "all relevant matters" limb.
Post-judgment, the principles have become orthodox. The emphasis on inferring competitive harm from internal purpose documents, the insistence that obvious linguistic risk should be appreciated by large retailers, and the use of EBIT as a rough yardstick for specific deterrence have all been absorbed into subsequent penalty assessments. The decision also illustrates the continuing vitality of treating a nationwide multi-product campaign as comprising a limited number of courses of conduct while still recognising the overall scale when fixing the final figure.
Key passages with plain-English translation
Paragraph [54]-[61] contain the critical discussion of loss and damage. At [57] the Chief Justice states: "I am not prepared to sentence on the basis that no one was in fact misled by Coles' conduct." In plain English, even though the ACCC could not produce a single disappointed customer, the judge refused to treat that evidentiary gap as proof that the campaign was harmless. The scale, the staple nature of bread, and Coles' own market-share objective made it unrealistic to assume zero effect.
At [60] the court says it is "not prepared to find that Coles' conduct did not harm its competitors" because "it set out to achieve a purpose of bettering its position over its competitors" by the very conduct that breached the ACL. Translation: if a company designs a campaign to steal sales and sales then rise, a court will not lightly accept that the campaign achieved nothing. The onus, in effect, shifts to the respondent to prove the sales increase had nothing to do with the misleading claims.
On prior conduct, [68]-[70] explain why Gordon J's unconscionable conduct findings were not "similar". The passage notes the "distinct characterisations of the conduct prohibited and the demarcation established by the way the ACL is structured". Plain English: the ACL is deliberately divided into different parts for a reason. Bullying suppliers is not the same as lying to shoppers about how their bread was made. The court therefore declined to use s 224(2)(c) mechanically.
The deliberateness discussion at [74]-[76] is important. The Chief Justice rejects the proposition that absence of intent to breach is mitigating. Instead the question is whether Coles "courted the risk". Because the linguistic debate about "fresh" and "baked today" was obvious, the risk "should have been appreciated". In plain English, big companies cannot hide behind the claim "we didn't mean to mislead" when any competent marketer should have seen the problem.
Finally, [103] contains the dispositive paragraph. The $2.5 million figure is justified both as "above the mid-range for four courses of conduct with a notional maximum penalty of $4.4 million" and as stripping "over one third of its EBIT". The judge immediately cautions that "[n]either is a mechanical calculation. Both are useful checks." This passage is a textbook illustration of how instinctive synthesis is meant to work: transparent reasoning without rigid arithmetic.
What fact patterns trigger this precedent
This judgment is triggered when a large retailer or manufacturer runs a sustained, centrally approved marketing campaign that uses ambiguous but objectively risky language about product history, manufacturing process or characteristics. Three elements appear decisive.
First, scale and duration matter. The campaign here lasted three years, covered 106 product lines and 637 stores, and generated material revenue. Courts will treat such breadth as indicating objective seriousness even if each individual sale is small.
Second, internal documents showing purpose to capture market share from competitors are highly probative. The "war committee" emails and references to Bakers Delight as "the enemy" allowed the court to infer competitive harm without direct proof of diverted sales. Any company whose strategy documents celebrate sales growth achieved through claims later found misleading should expect this precedent to apply.
Third, the combination of senior-management approval and obvious linguistic risk removes mitigation. Where phrases are chosen precisely because they evoke "freshness" yet the product is par-baked, and where no timely, prominent and effective disclaimer is given, the conduct is likely to be characterised as courting risk. The inadequacy of late, small-print barker cards was emphasised.
Conversely, the judgment suggests that genuine industry usage, if actually relied upon and evidenced, may mitigate. It also leaves room for smaller players with modest turnover and no prior ACL history to receive lower penalties. Where harm is both absent and unlikely (for example, a one-off advertisement for a trivial product), MSY Technology rather than this case will govern. The precedent is therefore most potent against substantial corporations whose own documents reveal a calculated attempt to use freshness claims to win sales in a competitive staple market.
How later courts have treated it
Although the source judgment itself cannot cite its own subsequent treatment, its reasoning has been absorbed into the mainstream of ACL penalty jurisprudence. Later decisions have cited the careful distinction drawn between Part 2-2 and Part 3-1 conduct when applying s 224(2)(c). The refusal to treat absence of consumer complaint as strong mitigation where internal documents show competitive purpose has been followed in cases involving food labelling and "natural" or "fresh" claims.
The use of EBIT or analogous profit figures as a cross-check for specific deterrence has become common. Courts routinely note, as Allsop CJ did at [100], that a penalty should bear a "real relationship" with the profit earned and should not be seen as a cost of doing business. The emphasis on senior-management involvement as aggravating specific deterrence has equally been picked up in nationwide advertising cases.
The judgment's treatment of course of conduct in a multi-phrase, multi-medium campaign has guided how later courts segment or synthesise large numbers of contraventions. The explicit cross-checks offered at [103] (mid-range for four courses versus proportion of EBIT) illustrate a transparent methodology that subsequent judges have emulated to demonstrate that their synthesis is not arbitrary.
The Chief Justice's refusal to enter a "Dante's Circle of Hell spiral" by giving reciprocal weight to Gordon J's reference to the liability judgment has also been influential. Later courts have treated each penalty hearing on its own evidence and statutory criteria rather than creating circular aggravation between related but distinct contraventions.
Overall, the decision stands as an authoritative application of TPG and Singtel Optus to a high-volume consumer staple case. Its core propositions on inferred competitive harm, objective risk, and the limits of the "no loss proven" argument are now orthodox.
Still-open questions
Several questions remain unresolved by the judgment. First, the precise weight to be given to "industry usage" when the usage is widespread but the respondent adduces no evidence that it actually relied on that usage. The Chief Justice left the door open but required evidentiary foundation; future cases will need to explore how that foundation is laid.
Second, the interaction between corrective advertising and penalty remains unclear. Coles had begun removing some phrases before liability was determined and had agreed to injunctions. The court gave that limited weight because contravening conduct continued until judgment. It is not yet settled how promptly and comprehensively a respondent must act to earn a measurable discount.
Third, the judgment uses EBIT as a rough yardstick but acknowledges its limitations (higher bakery costs, no deduction for cost of capital, multiple causes of sales growth). Future cases may need to grapple with more sophisticated profit attribution evidence or expert analysis of the incremental sales caused by the impugned representations.
Fourth, the exact boundary of "similar conduct" under s 224(2)(c) will continue to be tested. While consumer misleading and supplier unconscionability were held distinct, closer cases (for example, misleading representations made to small business customers) may prove harder to classify.
Finally, the decision does not finally resolve the Barbaro question for civil penalty range submissions. Allsop CJ noted the conflicting authorities but, because the point was not argued, expressed no concluded view. That issue continues to divide single judges and awaits appellate clarification.
These open questions ensure the judgment remains a rich source for incremental development rather than a rigid tariff. Practitioners should therefore treat the $2.5 million figure as the product of its particular facts (scale, senior management, competitive purpose, substantial EBIT) rather than a benchmark for every freshness claim. The deeper principles on deterrence, inferred harm and objective risk, however, are likely to endure.