Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd

THE COURT FINDS THAT: 3. For the purposes of s 83 of the Act, the relevant facts are those set out in the Statement of Agreed Facts of 15 April 2002.

THE COURT ORDERS THAT: 4. The respondent pay to the Commonwealth of Australia a pecuniary penalty in the sum of $250,000 in respect of each contravention of s 48 of the Act. 5. The respondent (whether by its directors, employees or agents or otherwise howsoever) be restrained for a period of five years from the date on which this order is made, from: (a) withholding the direct or indirect supply of goods, being any packaged grocery lines, including toothpaste, household cleaners, laundry detergents, hair care products, personal care products and oral care products ("packaged grocery lines"), to a person in the wholesale or retail grocery industry in Australia for the reason that that person has not agreed not to sell those goods at a price less than a price specified by the respondent; (b) withholding the supply of goods being any packaged grocery lines to a person ("the acquirer") for the reason that a third person, who is in the wholesale and retail grocery industry in Australia and has obtained, or wishes to obtain, those goods, directly or indirectly, from the acquirer, has not agreed not to sell those goods at a price less than a price specified by the respondent; (c) making or taking any step to make it a condition of any sale to any person in the wholesale or retail grocery industry in Australia ("the acquirer") of goods, being any packaged grocery lines, that the acquirer, or any person to whom the acquirer directly or indirectly supplies those goods, agrees not to sell those goods at a price less than a price specified by the respondent; (d) making or taking any step to make it a condition of any sale to any person in the wholesale or retail grocery industry in Australia ("the acquirer") of goods, being any packaged grocery lines, that the acquirer, or any person to whom the acquirer directly or indirectly supplies those goods, agrees not to advertise those goods at a price less than a price specified by the respondent. 6. The Court notes that the respondent has given the applicant, pursuant to s 87B of the Act, an undertaking to maintain for a period of three years a compliance program in respect of Pt IV of the Act. 7. The respondent pay the applicant's costs in the sum of $50,000. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

AND: COLGATE-PALMOLIVE PTY LTD (ACN 002 792 163)

Background 1 This application relates to two separate contraventions of s 48 of the Trade Practices Act 1974 (Cth) ("the Act") on the part of the respondent, Colgate-Palmolive Pty Ltd ("Colgate"). That section concerns the practice of resale price maintenance. The details of the contraventions are identified in a statement of claim filed on 15 November 2000 by the Australian Competition and Consumer Commission ("the ACCC"). 2 Colgate is a wholly owned Australian subsidiary of the well known parent company which is incorporated in the United States. It manufactures and supplies in Australia a broad range of household, laundry, oral care and personal care products. It has approximately 25 per cent total national market share in relation to those products. Its market share in Tasmania is approximately 28 per cent. For the financial year ended 31 December 1997 its pre-tax (before abnormals and income tax) consolidated net profit was $31.274 million on operating revenue of $347.229 million. 3 Several parties were directly affected by the contraventions. They included Prego Gifts Pty Ltd ("Prego"), a wholesaler of grocery and variety lines including packaged grocery lines based in Melbourne. They also included Radiata Investments Pty Ltd and Rye Holdings Pty Ltd which between them operated some 20 bargain stores in Tasmania under the business name Chickenfeed Bargain Stores ("Chickenfeed"). These stores carried a wide range of bargain store items, including a number of grocery lines such as toothpaste, laundry powders, soaps and other personal care products. 4 Prego was a customer of Colgate's Victorian Pharmacy Division. Chickenfeed was a customer of Prego. Included among its 20 stores in Tasmania was what was described as a "$2 store". That store carried mainly slow moving and disposal or obsolete stock acquired through a range of wholesalers specialising in the distribution of such stock. Grocery items were a small part of the product range. 5 In its defence to the statement of claim, Colgate largely admitted the allegations made by the ACCC. Subsequently, the parties reached agreement as to what, in their view, would be the appropriate disposition of this proceeding. They agreed upon the pecuniary penalties to be imposed, and also upon various injunctions which should be granted in order to ensure that Colgate does not re-offend. They recognised, of course, that the ultimate decision regarding these matters was to be made by the Court.

the contravening conduct 6 The contraventions which have been admitted arise out of two quite separate incidents. It is appropriate that I summarise the facts relating to each of them in some detail.

The December 1994 Conduct 7 In October 1994, Chickenfeed purchased from Prego 10,368 packets of 140g Colgate Regular Toothpaste for retail sale in Tasmania. Early in November 1994, it advertised the toothpaste on television at a price of $2 per packet. Shortly thereafter, Woolworths (Victoria) Pty Ltd, trading in Tasmania as both Purity Supermarkets and Roelf Vos Supermarkets, complained to Colgate about the fact that its toothpaste was being advertised for sale at that price. 8 In November 1994, Chickenfeed ordered a further 20,736 packets of 140g toothpaste from Prego. Prego in turn ordered the necessary stock from Colgate. 9 On or about 1 December 1994, Peter Nathan, the State Manager, Pharmacy for Colgate informed Uri Bar, the Managing Director of Prego, and Ashley Wilson, the Merchandise Manager for Chickenfeed, that Colgate would supply the further of packets of toothpaste to Prego for onsale to Chickenfeed, but only on condition that Chickenfeed undertook not to advertise that product for sale at $2 per packet. Mr Wilson refused to give any such assurance. As a result, Colgate withheld supply of the product. The February 1997 Conduct 10 On or about 7 February 1997, Chickenfeed placed an order with Prego for a number of Colgate products. These included various types of toothpaste, as well as Gow's Laundry Detergent, Ajax Liquid Gel and Ajax Crème Cleanser. 11 Colgate's Pharmacy Business Account Manager in Victoria, Margaret Watson, told Prego that Colgate would supply it with these products on condition that Chickenfeed agreed not to advertise them. Her reason for imposing that condition was that she believed that Chickenfeed was likely to advertise the products at prices below those preferred by Woolworths for the same or similar goods. 12 On 12 February 1997, Chickenfeed wrote to Ms Watson agreeing not to advertise the products, thereby enabling them to be supplied. On 18 February 1997, the products were dispatched. Despite its assurance to Colgate, Chickenfeed promoted the products extensively on television. The relevant legislative provisions 13 Section 48 of the Act states: "A corporation or other person shall not engage in the practice of resale price maintenance." 14 The expression "practice of resale price maintenance" is defined in s 4. It means the "practice of resale price maintenance" referred to in Pt VIII. Part VIII in turn contains s 96 which is headed "Acts constituting engaging in resale price maintenance" and relevantly provides: "(1) Subject to this Part, a corporation (in this section called "the supplier") engages in the practice of resale price maintenance if that corporation does an act referred to in any of the paragraphs of subsection (3) … (3) The acts referred to in subsections (1) and (2) are the following: (a) … (b) … (c) … (d) the supplier withholding the supply of goods to a second person for the reason that the second person: (i) … (ii) has sold, or is likely to sell, goods supplied to him or her by the supplier, or goods supplied to him or her by a third person who, directly or indirectly, has obtained the goods from the supplier, at a price less than a price specified by the supplier as the price below which the goods are not to be sold; (e) the supplier withholding the supply of goods to a second person for the reason that a third person who, directly or indirectly, has obtained, or wishes to obtain, goods from the second person: (i) … (ii) has sold, or is likely to sell, goods supplied to him or her, or to be supplied to him or her, by the second person, at a price less than a price specified by the supplier as the price below which the goods are not to be sold … (f) … (4) … (5) … (6) ... (7) A reference in any of paragraphs (3)(a) to (e), inclusive, including a reference in negative form, to the selling of goods at a price less than a price specified by the supplier shall be construed as including references to: (a) the advertising of goods for sale at a price less than a price specified by the supplier as the price below which the goods are not to be advertised for sale; …" 15 Part VIII also contains s 98 which is headed "Withholding the supply of goods". That section relevantly provides: "(1) For the purposes of paragraph 96(3)(d) or (e), the supplier shall be deemed to withhold the supply of goods to another person if: (a) … (b) … (c) in supplying goods to the other person, the supplier treats that person less favourably, whether in respect of time, method or place of delivery or otherwise, than the supplier treats other persons to whom the supplier supplies the same or similar goods; or (d) …" 16 It is also necessary to note that a contravention by a person of any of the provisions in Pt IV of the Act may lead to an order by the Court that that person pay to the Commonwealth a pecuniary penalty in respect of each act or omission by the person to which s 76 applies. The pecuniary penalty payable by a body corporate is not to exceed, for each act or omission, $10M. When determining what pecuniary penalty should be imposed, the Court is required to have regard to "all relevant matters" including the nature and extent of the act or omission and any loss or damage suffered as a result thereof. That Court is also required to have regard to the circumstances in which the act or omission took place and whether the person has previously been found, in proceedings under Pt IV, to have engaged in any similar conduct. 17 Section 80 of the Act provides that where, on the application of the ACCC, the Court is satisfied that a person has engaged in conduct that constitutes a contravention of a provision of Part IV it may grant an injunction in such terms as it determines to be appropriate.

the admitted Contraventions 18 Colgate has admitted that by reason of the events that occurred between October and December 1994, it engaged in an act of resale price maintenance in contravention of s 48 of the Act (by virtue of the operation of ss 96(3)(d)(ii) and 96(3)(e)(ii) of the Act). 19 It has further admitted that by reason of the events that occurred in February 1997 it engaged in an act of resale price maintenance in contravention of s 48 of the Act (by virtue of the operation of the same paragraphs of s 96(3) of the Act).

The joint submission 20 The parties provided a joint submission to the Court as to the pecuniary penalties that should be imposed and other orders that should be made. They also provided a statement of agreed facts, setting out the basis upon which they sought to have the matter resolved. 21 In so doing, both parties acknowledged that, under s 76 of the Act, it is for the Court to make its own assessment of, and to determine, the quantum of any pecuniary penalty that should be ordered. 22 The parties have submitted that a pecuniary penalty totalling $500,000 should be imposed in respect of the two contraventions of s 48 which Colgate has acknowledged. They have also agreed upon the terms of various orders that should be made against Colgate in order to ensure its future compliance with Pt IV of the Act.

General Principles 23 The parties have agreed that the general principles which govern the level of penalty to be imposed in matters of this kind are as follows: · litigation to establish a contravention of Pt IV of the type alleged is complex, time consuming and costly. It is in the public interest for such litigation to be concluded as quickly as possible. To that end the Court looks with favour upon negotiated settlements, provided that it is accepted that the ultimate responsibility for the fixing of a pecuniary penalty lies with the Court: Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375; NW Frozen Foods v Australian Competition and Consumer Commission (1996) 71 FCR 285. · there is a public benefit in imposing agreed pecuniary penalties, provided that the level of those penalties is appropriate. Parties would be less inclined to reach such agreements if unpredictable risks were involved: Trade Practices Commission v Allied Mills (No 4) (1981) 37 ALR 256 at 259, NW Frozen Foods v Australian Competition and Consumer Commission (supra) at 291, and 298-299 and Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 at 86-87. Penalties agreed between the ACCC and the respondents, when found to be within the range that the Court would consider appropriate, ought therefore to be imposed. · the total penalty for related offences ought not to exceed the penalty that would be appropriate for the entire contravening conduct (the "totality principle"): Trade Practices Commission v TNT Australia Pty Ltd (supra) at 40,169; Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1997) ATPR 41-562 at 43,817. · a prime objective to be achieved when imposing a pecuniary penalty under s 76 is deterrence. That has two aspects, specific and general: Trade Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 296 at 297-8.

Factors tending to the imposition of substantial pecuniary penalties in the present case · Colgate has substantial assets and revenue, and generates significant profits from its Australian operations. It is well able to meet substantial pecuniary penalties. · it also has a substantial degree of market share in relation to household and personal products in Tasmania. The brands which were subject to the restrictions imposed on advertising, Colgate and Ajax, were leading market brands. · following the December 1994 conduct, a member of middle management became aware of what had occurred. However, he did nothing about it. The same thing happened in relation to the February 1997 conduct.

Factors tending to mitigate the contravening conduct and to lead to lesser pecuniary penalties being imposed · the amount of loss or damage caused by the contravening conduct was comparatively small. Although at the relevant times Chickenfeed operated some 20 stores in Tasmania, grocery lines represented a relatively small part of its business. (a) Colgate's December 1994 conduct led to Prego and Chickenfeed sustaining small losses. The public was, for a time, deprived of the opportunity to purchase a small quantity of toothpaste at a cheap price. (b) Colgate's February 1997 conduct did not result in any loss to anyone. The products ordered were supplied and advertised to the public. · Colgate engaged in the contravening conduct only after it received complaints from Woolworths regarding the price at which Chickenfeed was advertising its products. The conduct was not the result of any considered policy on its part to ensure that retail prices remained at certain levels. · the conduct was carried out without the prior knowledge or consent of Colgate's senior management or directors. The personnel responsible were relatively junior members of its organisation. · after the ACCC served s 155 notices on Colgate in December 1977, and senior management finally became aware of what had occurred, it took steps to ensure that, in future, goods supplied to Chickenfeed would be free of any restriction upon advertising. · after the ACCC commenced its investigation into these matters, Colgate introduced, and maintained, a compliance program covering all conduct under the Act relevant to its business. That compliance program was designed and supervised by a firm of external solicitors. Moreover, it recently employed a lawyer whose principal task was to maintain and monitor the program. · Colgate had co-operated fully with the ACCC throughout its investigation. · prior to these offences, Colgate had not been the subject of any previous proceedings in respect of Pt IV or Pt V of the Act.

Conclusion 24 After giving this matter careful consideration, I have come to the conclusion that it is appropriate to impose pecuniary penalties totalling $500,000 upon Colgate. I have reached that conclusion in the light of the extensive body of authority which holds that where the ACCC and a respondent have reached a negotiated settlement in relation to a contravention of Pt IV of the Act, and the amount proposed is, broadly speaking, within the "permissible range" (having regard to all of the circumstances), the Court should not depart from that agreed figure. 25 In Trade Practices Commission v Allied Mills (No 4) (supra) Sheppard J said at 259: "It is, of course, true that the penalty has been suggested to me by the agreement of the parties. Uninformed of their agreement, I may have selected a different figure, but I am satisfied that it would not have been very different from theirs. There is from time to time, amongst members of the profession and amongst the public, discussion concerning plea bargaining. Sometimes it is suggested that it involves disreputable conduct. It is my opinion that that is so if it at all implicates the court in private discussions as to what the court's attitude will or would be likely to be if a particular course is taken. In this case nothing of that kind has occurred. The parties have made their own agreement and put it to the court for approval, not knowing what its attitude was likely to be. … This, of course, is not a criminal case; the liability is civil only. But, even in the most serious criminal cases, it is not unusual for the prosecution to accept a plea to a lesser charge, subject always to the approval of the court. I have said what I have only to explain that the course which the parties have adopted is both proper and not uncommon, even though perhaps novel in the comparatively new field of trade practices." 26 In North West Frozen Foods v Australian Competition and Consumer Commission (supra) Burchett and Kiefel JJ said at 290-291: "The Act places on the shoulders of the Court the responsibility to determine the "appropriate" penalty in each particular case, having regard to "all relevant matters" including the matters specified in the section. But effects upon the functioning of markets, and other economic effects, will generally be among the most significant matters to be considered as relevant, so that the Court is likely to be assisted greatly by views put forward by the Australian Competition and Consumer Commission, or by economists called on behalf of the parties. Since the decision in Trade Practices Commission v Allied Mills Industries Pty Ltd, it has been accepted that both the facts, and also views about their effect, may be presented to the Court in agreed statements, together with joint submissions by both the Commission and a respondent as to the appropriate level of penalty. Because the fixing of the quantum of a penalty cannot be an exact science, the Court, in such a case, does not ask whether it would without the aid of the parties have arrived at the precise figure they have proposed, but rather whether their proposal can be accepted as fixing an appropriate amount. There is an important public policy involved. When corporations acknowledge contraventions, very lengthy and complex litigation is frequently avoided, freeing the courts to deal with other matters, and investigating officers of the Australian Competition and Consumer Commission to turn to other areas of the economy that await their attention. At the same time, a negotiated resolution in the instant case may be expected to include measures designed to promote, for the future, vigorous competition in the particular market concerned. These beneficial consequences would be jeopardised if corporations were to conclude that proper settlements were clouded by unpredictable risks. A proper figure is one within the permissible range in all the circumstances. The Court will not depart from an agreed figure merely because it might otherwise have been disposed to select some other figure, or except in a clear case." 27 Their Honours referred to authorities in both Australia and New Zealand as having "provided unanimous support" for the approach outlined. 28 In Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (supra) French J said at 87: "… in relation to proposed consent orders and undertakings the court will not simply substitute its own view of the orders or undertakings which it would have made if those proffered fall within the range of an appropriate disposition of the case." 29 I should make it clear that were it not for the fact that the parties have agreed that pecuniary penalties totalling $500,000 should be imposed, I would probably have fixed upon a higher figure. Contraventions of s 48 are serious violations of the conditions laid down by Parliament for the conduct of corporate trade and commerce. The prohibition upon resale price maintenance is intended to create conditions under which the public will benefit from traders competing with each other in respect of prices, unfettered by price restraints imposed by suppliers of goods upon retailers. Deliberate contravention of that prohibition should be visited with heavy penalties: Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091 at 17,895. 30 The conduct of Colgate in the present case is aggravated to some degree by the fact that on both occasions, after the contravention came to the attention of middle management, the problem was, for all practical purposes, simply swept under the carpet. 31 If one of the principal objects to be achieved when imposing a pecuniary penalty is to deter both the offending company and others from engaging in the proscribed conduct, I am inclined to think that pecuniary penalties totalling $500,000 (out of a potential maximum of $20M, given that there are two separate and distinct contraventions) may fail to achieve that aim. I bear in mind that to a large corporation such an amount may not act as a significant deterrent. In this regard, I have taken note of the analysis of Finkelstein J in Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited (No 2) [2002] FCA 559 as to the principles to be taken into account when imposing pecuniary penalties for contraventions of s 45 of the Act. 32 I cannot leave this matter without commenting briefly upon what I consider to be the somewhat undesirable practice on the part of the ACCC in presenting this Court with a specific figure as an "agreed pecuniary penalty". I acknowledge that both the ACCC and Colgate have accepted that the figure proposed is in no way binding upon the Court. However, when pressed to point to a single instance when the Court has not, in the past, endorsed such a figure, counsel found it difficult to do so. 33 It is difficult to imagine that the parties would propose a pecuniary penalty that is so clearly beyond the permissible range that the Court would depart from it. As the authorities presently stand, the Court is bound to impose an agreed pecuniary penalty, save in such circumstances. I acknowledge that a contravention of s 48 is not a criminal offence. The liability is civil only. I also acknowledge the importance of the principles enunciated in NW Frozen Foods v Australian Competition and Consumer Commission (supra), and in particular the need for corporations to have certainty of outcome if they are to be encouraged to engage in negotiated settlements. I am bound by these principles, and a well established line of authority, to accept that the Court will not depart from an agreed figure merely because it might otherwise have been disposed to select some other figure. 34 However, there are dangers associated with this approach. The Court may be seen, perhaps not altogether incorrectly, to act as a "rubber stamp" in simply approving a decision taken at an executive level by a body charged with investigating and prosecuting contraventions of the Act, but having no role in actually imposing particular sanctions for those contraventions. Negotiated settlements are an important vehicle for resolving complex matters such as those involved in the present case. It must also be borne in mind, however, that the public interest in ensuring that corporations that engage in behaviour of the kind that occurred in this case are dealt with appropriately, and that proper recognition is given to the need for specific and general deterrence. There are important parallels between the fixing of a pecuniary penalty under s 76, and the ordinary sentencing process which is quintessentially a matter for the courts: Australian Competition and Consumer Commission v ABB Transmission and Distribution Limited [2001] FCA 383 at pars 4-6 per Finkelstein J. 35 I should emphasise that nothing that I have said should be regarded as a criticism of a joint submission being received regarding what might be the appropriate range of pecuniary penalties to be imposed. A submission couched in those terms can assist in achieving a measure of certainty, and consistency of treatment with other like cases. At the same time, unlike what seems to have emerged as the more usual practice, namely putting forward an "agreed penalty", the suggestions of an appropriate range of pecuniary penalties allows for the proper exercise of judicial discretion in what is fundamentally a matter for the courts to determine. 36 I propose to order that Colgate pay a pecuniary penalty of $250,000 for each of the two contraventions in which it has engaged. I also propose to grant injunctions in the terms agreed by the parties. I note the undertaking proffered by Colgate pursuant to s 87B of the Act. I will order that it pay the ACCC's costs which I fix in the sum of $50,000.

I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Weinberg.

Counsel for the Applicant: Mr R.A. Brett QC and Ms E.A. Strong

Solicitor for the Applicant: Australian Government Solicitor