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[2016] FCA 676
Federal Court of Australia
2016-06-03
Jagot J
Original judgment source is linked above.
JAGOT J: 1 These reasons for judgment relate to another part of the dispute between the Australian Competition and Consumer Commission (the ACCC) and entities involved in the market for laundry detergents in Australia. 2 In Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd (No 2) [2016] FCA 528 (the Colgate judgment) I imposed pecuniary penalties and made orders against Colgate-Palmolive Pty Ltd (Colgate) and one of its employees, Paul Ansell. 3 In these reasons for judgment I am concerned with the orders which should be made against the Fourth Respondent, Woolworths Limited (Woolworths). In common with the circumstances leading up to the Colgate judgment, the present parties have agreed the facts constituting Woolworths' conduct in contravention of the Trade Practices Act 1974 (Cth) (the TPA) and the pecuniary penalties and other orders which should be made in respect of those contraventions. In common with the outcome in the Colgate judgment, I am satisfied that the pecuniary penalties and other orders as agreed between the parties are appropriate to be made. 4 My reasons follow. 5 The relevant conduct took place in 2008 and 2009, in relation to the transition by Colgate, Cussons Australia Pty Ltd (Cussons), and Unilever Australia Limited (Unilever) from standard-concentrated laundry detergents (Standard Concentrates) to ultra-concentrated laundry detergents (Ultra Concentrates). 6 Woolworths admits, for the purpose of this proceeding, that it was, within the meaning of s 76(1)(e) of the TPA, directly or indirectly knowingly concerned in contraventions of s 45(2)(a)(i) and 45(2)(b)(i) of the TPA by Colgate, Cussons and Unilever who: (a) arrived at an understanding (the Withhold Supply Understanding) containing a provision (the Withhold Supply Provision): (i) with the substantial purpose of limiting the supply to Woolworths by Colgate, Unilever and Cussons of: (A) Ultra Concentrates until in or around February 2009; and (B) Standard Concentrates from in or around February 2009; (ii) which was an exclusionary provision within the meaning of section 4D of the TPA, and thereby contravened s 45(2)(a)(i) of the TPA; and (b) gave effect to the Withhold Supply Provision in the period from early February 2009 to early March 2009 and thereby contravened s 45(2)(b)(i) of the TPA. 7 Under s 76 of the TPA, the Court may impose a pecuniary penalty on a person who has contravened, or has been in any way knowingly concerned in or a party to a contravention of, a provision of Part IV of the TPA, including s 45. The Court may order the person to pay such pecuniary penalties in respect of "each act or omission" as the Court determines to be appropriate. 8 Section 76(1) of the TPA sets out the factors which the Court must consider in imposing a pecuniary penalty which include: the nature and extent of the act or omission, any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place, and whether the person has previously been found by the Court in proceedings under Part VI or Part XIB of the TPA to have engaged in any similar conduct. Judicial consideration of the pecuniary penalty provisions has identified other relevant considerations including the size of the contravening company, the financial position of the contravener, whether the contravening conduct was systematic, deliberate or covert, and the degree of market power of the contravening company as well as the effect on the functioning of the market, amongst other matters. 9 In the present case, it is agreed that by operation of s 76(1A)(b)(ii) of the TPA the maximum penalty for each contravention is $13.08 million or a total of $26.16 million for the two admitted contraventions. This is calculated as three times the value of the benefit, it also being agreed that the total benefit to Woolworths reasonably attributable to the acts or omissions constituting the contraventions is $4.36 million, comprised of the following: (a) cost savings from changing the category layout once rather than on 3 occasions: $800,000; (b) cost savings from advertising the transition once, rather than on 3 occasions: $260,000; (c) transport cost savings: $1.2 million; (d) warehouse cost savings: $900,000; (e) reduced store wages: $1.2 million. 10 The agreed pecuniary penalty is $9 million for both contraventions, which is about 34% of the maximum of $26.16 million. I am satisfied that this penalty reflects the objective seriousness of the contraventions, accords with the principal objective of achieving deterrence so that the price for the contraventions is "sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the [Trade Practices] Act" (Trade Practices Commission v CSR Ltd [1990] FCA 521; [1991] ATPR 41-076 at 52,152), and otherwise gives proper weight to the circumstances which the parties have identified, and which I accept, are relevant on the facts of the present case. 11 Consistently with the approach I took in the Colgate judgment, I annex to these reasons the statement of agreed facts and admissions (the SOAFA, Annexure A) and the joint submissions on liability (Annexure B). They disclose the careful consideration which the parties have given to the orders sought and form the basis for my conclusion that the orders are appropriate. 12 In particular, I note that as at 2009 Woolworths had more than 774 supermarkets in Australia trading under the "Woolworths" and "Safeway" brands, and more than 151 discount department stores in Australia trading under the "Big W" brand, all of which stocked, amongst other things, laundry products. Woolworths employed Stan Fuchs as Business Manager, Groceries, responsible amongst other things, for sales, profit and market share in respect of various business categories, including cleaning and laundry products, and authorised Mr Fuchs to act as Woolworths' agent in that capacity. 13 In 2008 and 2009, approximately two thirds of the annual volume of laundry detergents sold in Australia comprised powdered laundry detergents. Colgate, Cussons and Unilever were the largest wholesale suppliers of laundry detergents in Australia, with a combined market share measured both by value and by volume, of approximately 80%. Colgate, Cussons and Unilever, along with other wholesale suppliers of laundry detergents in Australia, made laundry detergent products available for sale to retailers within Australia, including to Woolworths and Coles. In 2008 Woolworths held a share by value of the laundry detergent market in Australia of approximately 42%. Woolworths had knowledge at all times in 2008 and 2009 that Colgate, Unilever and Cussons were competitors in the laundry detergent market. 14 Before February 2009, the majority of powdered and liquid laundry detergent products sold within Australia for domestic use comprised Standard Concentrates. In 2008 and 2009 representatives of Woolworths, including Mr Fuchs, attended various meetings and engaged in communications with representatives of Colgate, Unilever and Cussons. By the end of August 2008, Woolworths had decided it would accept shipments of Ultra Concentrates from 26 January 2009 and the in-store launch dates of Ultra Concentrates would be 2 March 2009 and Woolworths understood that each of Colgate, Cussons and Unilever would all be changing over their remaining Standard Concentrates to Ultra Concentrates at around the same date with an in-store launch at Woolworths of 2 March 2009. 15 From in or around early February 2009, in relation to the supply of laundry detergent products to Woolworths: (a) Colgate introduced powder and liquid Ultra Concentrate products, and ceased the supply of its previous powder and liquid Standard Concentrate products, save in respect of the sell-down of certain products; (b) Unilever introduced powder Ultra Concentrate products, and ceased the supply of its previous powder Standard Concentrate products, save in respect of the sell-down of certain products; and (c) Cussons introduced powder Ultra Concentrate products and some additional liquid Ultra Concentrate products, and ceased the supply of most of its previous powder and liquid Standard Concentrate products, save in respect of the sell-down of certain products and the supply of a particular Standard Concentrate product, Radiant Black Wash 750ml, to Woolworths. 16 It is admitted by Woolworths that Mr Fuchs: (1) Through his communications with Colgate, Cussons and Unilever relevant to the Withhold Supply Understanding knew the essential facts and matters constituting the contraventions by Colgate and Cussons in arriving at an understanding (with Unilever) containing the Withhold Supply Provision, and giving effect to that provision. (2) Had the apparent, but not actual, authority of Woolworths to engage in the communications which resulted in his knowledge of the Withhold Supply Understanding, albeit that he was not a member of Woolworths' senior management, and that, by reason of this, Woolworths was knowingly concerned in the contraventions as identified above. 17 I accept the joint submission that the contraventions in the present case are serious, while not at the most egregious end of the scale of seriousness. The seriousness of the contraventions is demonstrated by the fact that the conduct occurred in a national market for a staple product, (i.e. laundry detergents), the contraventions delivered benefits to Woolworths which cannot be characterised as trivial or insignificant, the conduct of Woolworths through its employee was a necessary component to give effect to the contraventions and, as agreed, "Woolworths wanted to ensure that there was a simultaneous transition to Ultra Concentrates by Colgate, Cussons and Unilever…, and to this extent had a shared objective with these manufacturers". 18 I accept also, however, that the conduct is not to be taken as indicative of systemic wrongdoing at Woolworths. Further, the Withhold Supply Understanding was a one-off arrangement limited to changing from supplying Standard Concentrates to Ultra Concentrates to Woolworths at a particular point in time, being February 2009, albeit this resulted in a permanent change in the products supplied to Woolworths. 19 While Woolworths has contravened the TPA and Competition and Consumer Act 2010 (Cth) (CCA) on other occasions the ACCC accepts, as do I, that those contraventions concern conduct of a different type when compared to the present case. I do not give those other contraventions material weight for that reason. 20 Woolworths is also one of Australia's largest retailers and the country's largest grocery retailer with substantial assets which are both relevant to the penalty to be imposed having regard to the principal object of specific and general deterrence of other contraventions. 21 It is relevant that Woolworths had in place at the material times a trade practices compliance program which included a trade practices policy that required employees not to discuss or reach understandings or arrangements with competitors about prices, specials, terms, customers or vendors, education through induction and ongoing staff training and manuals, various staff acknowledgments. As part of this program, for example, employees were required to sign an annual acknowledgement of the employees obligations as an employee of Woolworths as outlined in the Code of Conduct and agree that in the day to day performance of the employees job, the employee would comply with those policies, which included trade practices compliance, and disciplinary procedures. It is relevant also that Mr Fuchs, before the contraventions, acknowledged to Woolworths that he understood and accepted his obligations regarding trade practices and competition law and had attended trade practices compliance training. 22 Weight should be given to Woolworths' co-operation with the ACCC. As the joint submissions record: 95 Prior to the commencement of these proceedings, Woolworths cooperated with the ACCC in its investigation of these matters. 96 After the proceedings were commenced, Woolworths cooperated with the ACCC by reaching agreement as to the contraventions of the TPA admitted by Woolworths, and the penalty and non-penalty relief to be sought from the Court and the terms of the SAFA. 97 Woolworths is entitled to credit, in terms of a reduction of penalty, for having approached the ACCC around 10 weeks before trial and indicating it was prepared to discuss settling the proceedings and for having admitted to its involvement in contraventions of the TPA, and agreeing with the ACCC on the SAFA and non-penalty orders to be sought from the Court … Woolworths' co-operation with the ACCC has saved the ACCC and the Court (and ultimately the community) the cost and burden of fully litigating these proceedings. 23 Having regard to the Colgate judgment, it is important to note the joint submission of the parties, that they do not contend that there is a clear case that is commensurable, as a matter of principle, with the current case. The joint submission continues at [100]: It is to be noted that a hearing was held on 28 April 2016 for the purposes of determining the appropriate penalty to be applied in respect of Colgate's contraventions in this proceeding. A penalty of $12M was ordered against Colgate for its contravening conduct of making and giving effect to an understanding in similar terms to that admitted by Woolworths but was not confined to supply at Woolworths. However, given the different character of the impugned conduct, and the different roles of Woolworths and Colgate in the relevant supply chain the parties do not contend that the penalty imposed on Colgate is indicative of that which ought be imposed on Woolworths. 24 I accept this submission. 25 In the Colgate judgment at [13], I summarised what I considered to be key principles from the decision of the High Court in Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate; Construction, Forestry, Mining and Energy Union v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 326 ALR 476, being: (1) "Civil penalty proceedings are civil proceedings and therefore an adversarial contest in which the issues and scope of possible relief are largely framed and limited as the parties may choose" (at [53]); (2) "…the purpose of a civil penalty… is primarily if not wholly protective in promoting the public interest in compliance" (at [55]); (3) "…in civil proceedings there is generally very considerable scope for the parties to agree on the facts and upon consequences. There is also very considerable scope for them to agree upon the appropriate remedy and for the court to be persuaded that it is an appropriate remedy…it is entirely consistent with the nature of civil proceedings for a court to make orders by consent and to approve a compromise of proceedings on terms proposed by the parties, provided the court is persuaded that what is proposed is appropriate" (at [57]); (4) "…there is an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers" (at [46]); (5) "…the court is not bound by the figure suggested by the parties. The court asks "whether their proposal can be accepted as fixing an appropriate amount" and for that purpose the court must satisfy itself that the submitted penalty is appropriate" (at [48]); (6) "Subject to the court being sufficiently persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and…highly desirable in practice for the court to accept the parties' proposal and therefore impose the proposed penalty" (at [59]); (7) "…the regulator in a civil penalty proceeding is not disinterested…That consideration, however, supports, rather than detracts from, the propriety of a court receiving joint (or separate) submissions as to facts and penalty and imposing the proposed penalty if persuaded that it is appropriate. …it is the function of the relevant regulator to regulate the industry in order to achieve compliance and, accordingly, it is to be expected that the regulator will be in a position to offer informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance" (at [60]). 26 Given the agreed facts, the contraventions are established. 27 As in the Colgate judgment, I consider that I should accept that the desirability of giving effect to the agreement of the parties in the present matter is reinforced by the fact that they sophisticated, legally represented, and well able to understand and evaluate the desirability of the settlement. Further, and again as in the Colgate judgment, it is apparent that the joint submissions disclose that the parties have identified and evaluated all relevant factors, including those specified by s 76(1) of the TPA and as developed by judicial consideration. Given my conclusion that the proposed pecuniary penalty reflects the objective seriousness of the contraventions, accords with the principal objective of achieving deterrence and otherwise gives proper weight to the relevant circumstances of the present case, I make orders as agreed between the parties in that regard. 28 I accept also that it is agreed that an order under s 86C of the TPA should be made by which Woolworths must update its compliance and education/training program. As submitted: 111 The proposed upgraded compliance program has a sufficient nexus with Woolworths' contravening conduct. The improvements to be implemented focus on the provisions relevant to the contraventions, being sections 45(2)(a) and (b) of the CCA and the provisions of Part IV of the CCA which deal with similar or related conduct. The upgraded program requires training of relevant Woolworths employees to ensure their awareness of Woolworths' obligations and responsibilities in relation to those provisions. 112 It is clear to Woolworths, from the terms of the proposed order, what steps it must undertake to comply with the order. 113 It is in the public interest that Woolworths implement this upgraded program. 29 I note, that Woolworths has agreed to make a contribution of $250,000 towards the ACCC's costs of and incidental to the proceeding, to be paid within 28 days of the date of the Court's order. While this does not reflect the ACCC's true costs in the matter, an order should be made requiring this payment of costs. 30 Finally, the only other matter I should note is that the originally proposed orders have been amended, again consistently with the Colgate judgment, by deferring the making of the proposed declaration in paragraph 1 of the orders. This is because the admissions in the SOAFA and as referred to above are made by Woolworths alone for the purposes of this proceeding, whereas the proposed declaration refers also to a party which continues to defend the proceeding, being Cussons. As such, I will omit the proposed minute of order which is attached to the joint submissions. I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Jagot.
Associate: Dated: 3 June 2016 ANNEXURE A Statement of Agreed Facts and Admissions by the Applicant and Fourth Respondent (4 May 2016) A. Introduction 1 This Statement of Agreed Facts and Admissions (SAFA) is made for the purposes of section 191 of the Evidence Act 1995 (Cth) (Evidence Act) jointly by the Applicant, the Australian Competition and Consumer Commission (ACCC), and the Fourth Respondent, Woolworths Limited (Woolworths). 2 This SAFA concerns Woolworths' involvement in conduct that took place in 2008 and early 2009 in relation to the transition by Colgate-Palmolive Pty Ltd (Colgate), PZ Cussons Australia Pty Ltd (Cussons), and Unilever Australia Limited (Unilever) from standard-concentrated laundry detergents (Standard Concentrates) to ultra-concentrated laundry detergents (Ultra Concentrates) supplied to Woolworths. 3 This document identifies the facts relevant to the contraventions admitted by Woolworths for the purpose of these proceedings only. The facts agreed to, and the admissions made, are agreed to and made for the purpose of these proceedings only and do not constitute any admission outside the context of these proceedings. 4 For the purposes of these proceedings only, Woolworths admits that it was, within the meaning of s 76(1)(e) of the Trade Practices Act 1974 (Cth) (TPA), directly or indirectly knowingly concerned in contraventions of s 45(2)(a)(i) and 45(2)(b)(i) of the TPA by Colgate, Cussons and Unilever who: (a) arrived at an understanding (the Withhold Supply Understanding) containing a provision (the Withhold Supply Provision): (i) with the substantial purpose of limiting the supply to Woolworths by Colgate, Unilever and Cussons of: (A) Ultra Concentrates until in or around February 2009; and (B) Standard Concentrates from in or around February 2009; (ii) which was an exclusionary provision within the meaning of section 4D of the TPA, and thereby contravened s 45(2)(a)(i) of the TPA; and (b) gave effect to the Withhold Supply Provision in the period from early February 2009 to early March 2009 and thereby contravened s 45(2)(b)(i) of the TPA. 5 Woolworths notes that no admissions are made by it regarding: (a) the effect or likely effect upon competition of the Withhold Supply Understanding or any related conduct; and (b) any other contraventions of the TPA or conduct alleged by the ACCC in these proceedings other than as dealt with in this SAFA. 6 For the purposes of s 191(3)(a) of the Evidence Act, the parties have reached agreement as to the terms of relief to be sought from the Court to resolve the proceedings. The parties acknowledge that, under s 76 of the TPA, it is for the Court to determine whether the contraventions occurred and the quantum of any pecuniary penalties and other relief that should be ordered. 7 The ACCC and Woolworths respectfully request that the Court make orders in the form set out in the attached draft orders which include the following: (a) a declaration; (b) pecuniary penalties to be paid by Woolworths; (c) an order that Woolworths implement an updated compliance program; and (d) a contribution to the ACCC's costs. B. Parties 8 The ACCC is a body corporate established by section 6A of the Competition and Consumer Act 2010 (Cth) (CCA), which was named the TPA prior to 1 January 2011, and is entitled to sue in its corporate name. 9 During the period 1 January 2008 to 31 December 2009, Woolworths: (a) was carrying on business within Australia in, amongst other things, the wholesale acquisition, and retail supply and marketing, of a diversified range of fast moving consumer goods, including laundry products; (b) employed Stan Fuchs as Business Manager, Groceries, responsible, amongst other things, for sales, profit and market share in respect of various business categories, including cleaning and laundry products, and authorised Mr Fuchs to act as Woolworths' agent in that capacity; (c) operated, amongst other things, a national chain of supermarkets trading under the "Woolworths" and "Safeway" brands, and a national chain of discount department stores trading under the "Big W" brand; and (d) as at early 2009, had more than 774 supermarkets in Australia trading under the "Woolworths" and "Safeway" brands, and more than 151 discount department stores in Australia trading under the "Big W" brand, all of which stocked, amongst other things, laundry products. 10 References in sections C and D of this SAFA to: (a) Woolworths means Woolworths Supermarkets and does not include any other division of Woolworths Limited, including Big W; and (b) representatives of Woolworths other than Mr Fuchs are references to persons that reported to Mr Fuchs, or to whom Mr Fuchs reported. C. Facts relevant to liability 11 Throughout 2008 and 2009, consumers within Australia acquired powdered and liquid laundry detergents for domestic use in front-load and top-load washing machines, and for hand washing, to clean fabrics. 12 Throughout 2008 and 2009: (a) approximately two thirds of the annual volume of laundry detergents sold in Australia comprised powdered laundry detergents; and (b) approximately one third comprised liquid laundry detergents. 13 Throughout 2008 and 2009, Colgate, Cussons and Unilever were the largest wholesale suppliers of laundry detergents in Australia, with a combined market share, measured both by value and by volume, of approximately 80%. 14 Throughout 2008 and 2009, Colgate, Cussons and Unilever each manufactured powdered and liquid laundry detergents for wholesale supply within Australia, at the following locations: (a) Colgate at plants in Labrador, Queensland (powdered laundry detergents) and Villawood, Sydney (liquid laundry detergents); (b) Cussons at a plant in Dandenong, Victoria; and (c) Unilever at a plant in Petone, New Zealand. 15 Throughout 2008 and 2009, laundry detergents were supplied in Australia under the brand names: (a) Cold Power, Dynamo, Fab, Spree and Hurricane, and, up to and including February 2009, Love N Care - by Colgate; (b) Radiant, Duo, and Down to Earth - by Cussons; and (c) Omo, Surf and Drive - by Unilever. 16 Throughout 2008 and 2009, Colgate, Cussons and Unilever, along with other wholesale suppliers of laundry detergents in Australia, made laundry detergent products available for sale to: (a) retailers within Australia, including Woolworths and Coles; and (b) wholesalers within Australia, including Metcash. Other retailers or wholesalers to whom at least some suppliers made laundry detergents available included Big W, K-Mart, Franklins, Statewide Independent Wholesalers, API, Sigma, Symbion, Priceline and smaller independent retailers. From time to time, particular laundry detergent products were supplied on an exclusive basis to a particular retailer. 17 In 2008, the approximate market share of retailers, by value of the laundry detergent market in Australia was as follows: (a) Woolworths: 42%; (b) Coles: 32%; (c) Independents supplied by Metcash: 15%; (d) Big W: 6%; and (e) Franklins: 3%. 18 Throughout 2008 and 2009, Colgate, Cussons, Unilever and other laundry detergent suppliers (including Kao Australia Pty Ltd (Kao) and Amway of Australia Pty Ltd (Amway)) were members of Accord Australasia Limited (Accord), the national industry association for the Australasian hygiene, cosmetic and specialty products industry. Woolworths was not a member of Accord. 19 Throughout 2008, wholesale suppliers of laundry detergents in Australia, including Colgate, Cussons and Unilever, were experiencing rising costs of manufacturing laundry detergents, including increasing costs of sodium tripolyphosphate (STPP), an input for the production of powdered laundry detergents. Further, those suppliers were also experiencing extensive competition on the price of laundry detergents supplied by them, particularly in relation to retail promotional prices. 20 Throughout 2008 and 2009, the majority by: (a) volume; (b) units sold; and (c) value, of the retail sales of laundry detergent products in Australia, including Colgate's, Cussons' and Unilever's laundry detergent products, were retail sales at promotional prices. Concentration of laundry detergents 21 References in this SAFA to concentration of laundry detergents are references to a process of reducing the volume and/or weight of a laundry detergent product but retaining the level of active ingredients in a way that maintains (or approximately maintains) product performance. 22 A list of particular Standard Concentrate products sold within Australia for domestic use during some or all of 2008 and 2009 is set out in Annexure A to this SAFA. 23 Ultra Concentrates were more highly concentrated than Standard Concentrates. 24 A list of particular Ultra Concentrate products sold within Australia for domestic use during some or all of 2008 and 2009 is set out in Annexure B to this SAFA. 25 Prior to February 2009: (a) the majority of powdered and liquid laundry detergent products sold within Australia for domestic use comprised Standard Concentrates; and (b) a smaller proportion of laundry detergent products sold within Australia for domestic use were Ultra Concentrates. 26 In particular, prior to February 2009, in relation to Woolworths: (a) in respect of powdered laundry detergents, Colgate, Cussons and Unilever only supplied powdered Standard Concentrates, save that Colgate supplied a very small proportion of powdered Ultra Concentrates under the name "Hurricane Planet Green"; and (b) in respect of liquid laundry detergents: (i) Colgate only supplied liquid Standard Concentrates; (ii) Cussons only supplied liquid Standard Concentrates until around January 2008, when it commenced supply of liquid Ultra Concentrates in addition to continuing to supply liquid Standard Concentrates; and (iii) Unilever only supplied liquid Standard Concentrates until around January 2008, when it commenced supplying liquid Ultra Concentrates and commenced ceasing supply of liquid Standard Concentrates. 27 The remaining Standard Concentrate products supplied by Colgate, Cussons and Unilever to Woolworths for domestic use within Australia were, with a minor exception, transitioned to Ultra Concentrate products commencing from in or around February 2009. Cussons continued to supply a Standard Concentrate product, Radiant Black Wash 750ml, to Woolworths after February 2009. 28 A list of particular Ultra Concentrate products supplied by Colgate, Cussons and Unilever to Woolworths from in or around February 2009 vis-à-vis the previous equivalent Standard Concentrate products is set out in Annexure C to this SAFA. The market for laundry detergent in Australia 29 Throughout 2008 and 2009: (a) powdered and liquid laundry detergents, for domestic use, were reasonably substitutable for, or in close competition with, each other; and (b) Standard Concentrate products and Ultra Concentrate products, for domestic use, were reasonably substitutable for, or in close competition with, each other. 30 There was, at all material times, within the meaning of section 4E of the TPA, a market in Australia for the wholesale supply of powdered and liquid laundry detergent products for domestic use (the laundry detergent market). 31 Colgate, Cussons and Unilever were: (a) at all material times, in competition with each other within the meaning of section 45(3) of the TPA; and (b) at all material times, competitive with each other within the meaning of section 4D of the TPA; within the laundry detergent market. 32 Woolworths had knowledge at all times in 2008 and 2009 that Colgate, Unilever and Cussons were competitors in the laundry detergent market. Key personnel 33 Details of key Colgate, Cussons, Unilever and Accord personnel referred to in this SAFA are set out in Annexure D. Background to introduction of Ultra Concentrates at Woolworths 34 Starting around 2007, suppliers of laundry detergents in some other countries, including the United States, had transitioned to supplying more highly concentrated detergents. Woolworths therefore considered that it was inevitable that manufacturers of laundry detergent would transition to more highly concentrated detergents in Australia. 35 Woolworths managed the introduction and deletion of products in store through a category review process. This was a structured approach to product ranging in which Woolworths undertook bi-annual or annual category reviews. During the category review process Woolworths reviewed its existing product lines, and suppliers made submissions to Woolworths about new product lines (and the deletion of existing lines). The category review process was designed to ensure that changes to categories could be implemented in an efficient manner across all Woolworths stores. It was usual for the review dates for each category to take place at approximately the same time each year, so that the manufacturers and Woolworths personnel could plan for reviews. 36 In the laundry category, Woolworths usually conducted two range reviews a year, a major review, when it reconsidered the entire range of products for a category, and a minor review, when it typically changed only a small number of products. 37 In 2008 and 2009 suppliers were notified of the category review dates via a portal on Woolworths' website. Woolworths' 2009 major category review for the laundry category was originally scheduled for in store implementation in February 2009. Woolworths' 2010 major category review for the laundry category was scheduled for February/March 2010. 38 Category reviews typically involved five key steps that took place over 13 weeks: (a) EAN imaging and verification date (being the date by which the supplier provided an image of the product to be ranged); (b) suppliers' final submission date (being the date by which the supplier made submissions to the Business Manager about the products the supplier wanted Woolworths to range); (c) review completed date (being the date by which Woolworths made decisions about which products to range); (d) review results to suppliers date (being the date by which Woolworths provided the supplier with the results of the review); and (e) the planogram to store, or "POG" date (being the date on which the new planogram for the category to give effect to the review results was sent to stores for implementation). 39 Suppliers would commence wholesale supply of new products, and cease supply of outgoing products, by about one month prior to the in store implementation date. 8 January 2008 meeting of Colgate (including Paul Ansell) and Woolworths 40 On 8 January 2008, a meeting was held that was attended by representatives of Colgate and Woolworths, including Stan Fuchs. 41 The following documents were presented by representatives of Colgate at that meeting: (a) COL.505.007.2566, being a document entitled 'Colgate-Palmolive ultra detergents update' (Ultra Detergents Update); and (b) COL.703.004.1540, being a document entitled 'Colgate-Palmolive ultra detergents update' which was provided to Stan Fuchs and other Woolworths representatives at the meeting. 42 At the meeting, representatives of Colgate made statements orally and through slides to the effect of the following statements contained in the Ultra Detergents Update: (a) Under the heading "Ultra opportunity: Efficiency & Investment - Category" (slide 13): (i) in respect of the "current market": "Mature category, increasingly price-competitive High level of consumer inertia Retail value declining while operating costs rise
(a) a declaration; (b) pecuniary penalties to be paid by Woolworths; (c) an order that Woolworths implement an updated compliance program; and (d) a contribution to the ACCC's costs to be paid by Woolworths. 10 These joint submissions use terminology defined in the SAFA. B. Orders by consent: Principles 11 In Commonwealth of Australia v. Director, Fair Work Building Industry Inspectorate & Ors; Construction, Forestry, Mining and Energy Union & Anor v. Director, Fair Work Building Industry Inspectorate & Anor (CFMEU) [2015] HCA 46 the High Court (French CJ, Kiefel, Bell, Nettle and Gordon JJ, Gageler and Keane JJ), while confirming the role of the court in determining the appropriate penalty, affirmed without alteration the long-standing practices of this Court when receiving and considering submissions on the amount of civil penalties: North West Frozen Foods Pty Ltd v ACCC (1996) 71 FCR 285 (NW Frozen Foods) and Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41,993 (Mobil Oil). 12 The High Court confirmed that joint (or separate) submissions as to quantum of pecuniary penalty can be received in contested civil penalty proceedings,4 and held that: (a) it is to be expected that the regulator will be in a position to offer informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance;5 (b) it is consistent with the purposes of civil penalty regimes, and the public interest, that the regulator take an active role in attempting to achieve the penalty it considers appropriate;6 (c) the submissions of a regulator will be considered on their merits in the same way as the submissions of a respondent and subject to being supported by findings of fact based upon evidence, agreement or concession;7 and (d) ultimately the Court must satisfy itself that the proposed penalty is appropriate, and may do so in a number of ways, including:8 (i) commencing its reasoning on the basis of the proposed penalty, and determining whether that figure is within the permissible range of penalty in all the circumstances, albeit that, unassisted the Court may have selected a slightly different figure; or (ii) commencing its reasoning by independently assessing the appropriate range of penalties and then comparing that range to the proposed penalty. 13 There is a well-recognised public interest in the settlement of cases under the TPA. As Burchett and Keifel JJ observed in NW Frozen Foods:9 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 ACCC 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. These beneficial consequences would be jeopardised if corporations were to conclude that proper settlement were clouded by unpredictable risks. 14 In ACCC v Real Estate Institute of Western Australia Inc (ACCC v REIWA), French J (as his Honour then was) observed:10 The Court has a responsibility to be satisfied that what is proposed is not contrary to the public interest and is at least consistent with it. … Consideration of the public interest, however, must also weigh the desirability of non-litigious resolution of enforcement proceedings. 15 In deciding whether to make consent orders proposed by the parties, the Court must be satisfied that it has the power to make the orders proposed and the orders are appropriate.11 16 Once the Court is satisfied of these matters, the Court should exercise judicial restraint in scrutinising proposed settlements. In ACCC v Target Australia Pty Ltd, Lee J said this:12 It is the Court's duty in receiving consent orders in any matter to scrutinise such orders as to their appropriateness. However, after being satisfied as to the appropriateness of the orders, the Court should be slow to impede final settlement of such matters, particularly those involving public interest considerations. Moreover, the public has an interest in the mutual settlement of litigation, and subject to the foregoing the Court should be careful not to refuse to make orders simply because the orders may have been different had it been the Court's task to formulate them. 17 This principle of judicial restraint in scrutinising proposed settlements finds particular application in matters such as the present, where the consenting parties are sophisticated, one is a regulator, and each is legally represented and able to understand and evaluate the desirability of the settlement.13 18 In determining whether the Proposed Consent Order conforms with legal principle, the Court is entitled to treat the consent of Woolworths as an admission of all facts necessary or appropriate to the granting of the relief sought against it.14 Also germane is the fact that Woolworths has made admissions in the SAFA. C. Contraventions 19 Woolworths' involvement in the contraventions by Colgate and Cussons is admitted and set out in the SAFA. D. Declarations 20 The Court has a wide discretion under s 21 of the Federal Court of Australia Act 1976 (Cth) to make declarations of right: ACCC v Albert (2005) 223 ALR 467 at 472 at [26]. The principles stated in Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-8 (Gibbs J) and applied in this Court in ACCC v Goldy Motors Pty Ltd [2000] FCA 1885 at [30] by Carr J support the making of the proposed declarations. 21 Declarations relating to contraventions of legislative provisions are likely to be appropriate where they serve to record the court's disapproval of the contravening conduct, vindicate the applicant's claim that the respondent contravened the provisions and assist the regulator to carry out its duties, and deter other persons from contravening the provisions: ACCC v Construction, Forestry, Mining and Energy Union (2007) ATPR 42-140 at [6] and the cases there cited. That is the situation here. The declaration sought by the ACCC and agreed to by Woolworths is of utility and is an appropriate exercise of the court's discretion to grant declarations. It contains sufficient particulars of how and why the conduct amounted to a contravention of the TPA: cf. Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [90]. 22 In Forster,15 the High Court held that the following three threshold requirements should be satisfied before a declaration will be made: the question must be a real and not a hypothetical or theoretical one; the applicant must have a real interest in raising it; and there must be a proper contradictor. 23 Each of these requirements is satisfied in this case: (a) the proposed declarations relate to conduct that contravenes the TPA and the matters in issue have been identified and particularised by the parties with precision;16 (b) it is in the public interest for the ACCC to seek to have the declarations made and for the declarations to be made.17 There is a significant legal controversy which is being resolved. The ACCC is the public regulator under the TPA and CCA and has a genuine interest in seeking the declaratory relief; (c) Woolworths is a proper contradictor. Woolworths is a person who was involved in contraventions of the TPA and is the subject of the declarations. Woolworths has a genuine interest in opposing the declaratory relief. The court has power to make a declaration notwithstanding the consent of Woolworths.18 24 Having regard to the reasoning in ACCC v CFMEU19, the declarations sought are appropriate because they serve to: record the Court's disapproval of the contravening conduct; vindicate the ACCC's claims that Woolworths was involved in contraventions of the TPA; assist the ACCC in carrying out the duties conferred on it by the CCA in the future; assist in clarifying the law; and operate as a deterrent to other persons and corporations from contravening the CCA. 25 The proposed declarations contain sufficient indication of how and why the conduct complained of constituted involvement in conduct that was a contravention of the TPA20. The ACCC and Woolworths submit that the SAFA provides evidence in support of the proposed declarations.21 It is not necessary for parties to tender evidence in support of declarations.22 It has become the common practice in areas of public interest for the Court to make declaratory relief on the basis of agreed facts and admissions.23 E. Pecuniary Penalties - Applicable Principles (i) Section 76 of the TPA 26 Pursuant to s 76 of the TPA,24 the Court may impose a pecuniary penalty on a person who has contravened, or has been in any way knowingly concerned in or a party to a contravention of, a provision of Part IV of the TPA,25 including s 45. The Court may order the person to pay such pecuniary penalties in respect of "each act or omission" as the Court determines to be appropriate. 27 The maximum penalty for a body corporate in respect of each act or omission in contravention of s 45 of the TPA is governed by s 76(1A)(b) of the TPA. The application of that section in this case is dealt with in paragraph 65 onwards below. 28 A person is not liable to more than one pecuniary penalty in respect of the same conduct.26 "Same" in this context denotes a circumstance in which the very same episode of conduct is alleged to contravene two different provisions of the TPA. In such a case, only one penalty will lie. That situation does not relevantly arise in the present case. 29 In imposing a pecuniary penalty, the court must consider all relevant factors, including the following factors, which are listed in s 76(1) of the TPA: (a) the nature and extent of the act or omission; (b) any loss or damage suffered as a result of the act or omission; (c) the circumstances in which the act or omission took place; and (d) whether the person has previously been found by the Court in proceedings under Part VI or Part XIB of the TPA to have engaged in any similar conduct. 30 In addition to those factors, in NW Frozen Foods, Burchett and Kiefel JJ identified further relevant considerations that assist in assessing a pecuniary penalty under s 76 of the TPA. The Full Court endorsed the oft-cited "French factors" in the assessment of civil penalties under trade practices legislation.27 Perram J conveniently collected these factors, in respect of the imposition of a penalty under s 76E, in ACCC v Singtel Optus Pty Ltd (No 4) (2011) 282 ALR 246 at [11], referred to without demur on appeal,28 as follows: (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 of the contravener or at some lower level; (d) whether the contravener 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; (e) whether the contravener has shown a disposition to cooperate with the authorities responsible for the enforcement of the TPA in relation to the contravention; (f) whether the contravener has engaged in similar conduct in the past; (g) the financial position of the contravener; and (h) whether the contravening conduct was systematic, deliberate or covert. 31 In addition, the degree of market power of the contravening company and the effect on the functioning of the market may be germane.29 (ii) Deterrence as the primary consideration in pecuniary penalty 32 The principal object of a pecuniary penalty is deterrence, comprehending both the need to deter repetition of the contravening conduct by the contravener (specific deterrence) and to deter others who might be tempted to engage in similar contraventions (general deterrence). This informs the assessment of the appropriate penalty.30 This objective is of particular significance where commercial profit is the driver of the contravening conduct.31 33 In relation to both specific and general deterrence, French J (as his Honour then was) stated in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at 52,152:32 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 contravener and by others who might be tempted to contravene the [Trade Practices] Act. 34 Similarly, the Full Federal Court in NW Frozen Foods said this:33 The Court should not leave room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think contravention would pay… 35 The authorities emphasise the need to impose penalties of a sufficient quantum to deter businesses from weighing up the risks of a pecuniary penalty as a strategic business cost. In ACCC v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301, Goldberg J said at [39]: The penalty imposed must be substantial enough that the party realises the seriousness of its conduct and is not inclined to repeat such conduct. Obviously the sum required to achieve this object will be larger where the Court is setting a penalty for a company with vast resources. However, as specific deterrence is only one element and general deterrence must also be achieved, consideration of the party's capacity to pay must be weighed against the need to impose a sum which members of the public will recognise as significant and proportionate to the seriousness of the contravention. 36 In Australian Competition and Consumer Commission v Visa Inc [2015] FCA 1020 Wigney J said at [114]: Perhaps the primary consideration, however, is specific and general deterrence. … Given the size of Visa Worldwide and the global Visa business, only a very sizeable penalty is likely to operate as an effective deterrent here. Only a very sizeable penalty is likely to ensure that in the future the risk of incurring a penalty for contravention of the Act will not be treated as a mere cost of doing business in Australia. 37 Further, in Australian Competition and Consumer Commission v Navman Australia Pty Ltd (2007) ATPR ¶42-208 the Court said, at 48,442, [115] that: The penalty should constitute a real punishment which takes into account the size of the company and the overall commercial environment, but it should not be so high as to be oppressive… 38 In Singtel Optus Pty Ltd v ACCC (2012) 287 ALR 249, the Full Federal Court made clear the primacy of deterrence in the setting of a penalty under s 76E of the TPA at [62]-[63]: There may be room for debate as to the proper place of deterrence in the punishment of some kinds of offences, such as crimes of passion; but in relation to offences of calculation by a corporation where the only punishment is a fine, the punishment must be fixed with a view to ensuring that the penalty is not such as to be regarded by that offender or others as an acceptable cost of doing business. The primary judge was right to proceed on the basis that the claims of deterrence in this case were so strong as to warrant a penalty that would upset any calculations of profitability. The purpose of Optus's conduct was to generate sales, and hence, profits. The advertising deployed by Optus was calculated to win business from its rivals. The same share of business might not have been attracted by a more balanced presentation of the advantages of the plans. There is no reason to doubt that Optus knows its business sufficiently well that it is safe to proceed on the footing that its course of conduct in the campaign reflected informed calculation. While one cannot isolate the profits attributable to the campaign, it is necessary and desirable to impose a penalty which is apt to affect in a substantial way the profitability of Optus's misconduct. Generally speaking, those engaged in trade and commerce must be deterred from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention. 39 In ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640, the majority judgment of the High Court (French CJ, Crennan, Bell and Keane JJ) referred with approval to the comments of the Full Court in Singtel Optus. 40 In ACCC v Coles Supermarkets Australia Pty Ltd,34 Allsop CJ said: General deterrence can be achieved by demonstrating to others who might engage in similar conduct that the Court will seek to ensure that any penalty imposed in these cases will be adequate to ensure that conduct that is liable to mislead or deceive consumers will not be profitable: that penalties are not just a cost of doing business. 41 A penalty must not, however, be so high as to be oppressive: NW Frozen Foods (1995) 71 FCR 285 at 293. In considering what may constitute oppression, a penalty that is no greater than is necessary to achieve the object of general deterrence will not be oppressive, as "general deterrence will depend more on the expected quantum of the penalty for the offending conduct, rather than on a past offender's capacity to pay a previous penalty": ACCC v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 at [9]. Nevertheless, unless a penalty is sufficiently high, it may not have the appropriate deterrent effect. 42 The role of deterrence in the present case is addressed in section F below. (iii) Where penalties sought by consent 43 Litigation to establish contraventions of the TPA or CCA can be complex, time consuming and costly. It is in the public interest for litigation under the TPA or CCA (as with other litigation) to be concluded in the shortest time frame that is consistent with justice being done between the parties, thereby allowing the Court, and the ACCC as regulator, to address other matters. To that end, the Court has looked favourably upon negotiated settlements, provided that their terms recognise that the ultimate responsibility for the terms and making of the orders that resolve the proceedings rests with the Court.35 44 Where the Court is satisfied that the terms of the orders are appropriate, it is in the public interest for the Court to make orders on the terms agreed between the parties so as to encourage parties to assist the ACCC in its investigations and achieve negotiated settlements. The Court has recognised that, in addition to savings in time and costs, there is a public benefit in imposing agreed pecuniary penalties where appropriate as parties would not be disposed to reach such agreements were there unpredictable risks involved.36 45 In NW Frozen Foods, the Full Federal Court held that the key question for the Court in relation to proposed agreed penalties is whether the amount proposed is "within the permissible range" in all the circumstances.37 In some other recent cases, it has been held that the phrase "permissible range" refers to that range that would be permitted by the Court, which is neither manifestly inadequate nor manifestly excessive.38 46 The decision of the Full Federal Court in NW Frozen Foods was considered by the Full Federal Court in Mobil Oil.39 Mobil Oil held that the decision in NW Frozen Foods disclosed no error of principle. The Full Federal Court concluded that determining whether the amount proposed is within the permissible range may be approached by the Court either by considering first the proposed penalty and then whether it falls within the permissible range, or by considering first the appropriate range and then determining whether the proposed penalty falls within that range.40 47 In NW Frozen Foods, the Full Federal Court held:41 We agree with the statement made in several of the cases cited that it is not actually useful to investigate whether, unaided by the agreement of the parties, we would have arrived at the very figure they propose. The question is not that; it is simply whether, in the performance of the Court's duty under section 76, this particular penalty proposed with the consent of the corporation involved and of the Commission, is one that the Court should determine to be appropriate. 48 In Mobil Oil, the Court noted that the following propositions emerged from the reasoning on this issue in NW Frozen Foods42: (a) it is the Court's responsibility to determine the appropriate penalty; (b) determining the quantum of a penalty is not an exact science; (c) there is a public interest in promoting settlement of litigation, particularly where it is likely to be lengthy; (d) the view of the regulator, as a specialist body, is a relevant, but not determinative consideration on the question of penalty; (e) in determining whether the proposed penalty is appropriate, the Court examines all the circumstances of the case; (f) where the parties have put forward an agreed statement of facts, the Court may act on that statement if it is appropriate to do so in the circumstances of the case; (g) where the parties have jointly proposed a penalty, it will not be useful to investigate whether the Court would have arrived at that precise figure in the absence of agreement; (h) the question is whether that figure is, in the Court's view, appropriate in the circumstances of the case; (i) in answering that question, the Court will not reject the agreed figure simply because it would have been disposed to select some other figure; and (j) the agreed penalty will be appropriate if within the "permissible range". (iv) Determining penalty figure 49 The process to be applied in arriving at a particular penalty figure was considered in the context of criminal sentencing by the High Court in Markarian v R (2005) 228 CLR 357. That process is also applicable to the assessment of pecuniary penalties under s 76 of the TPA.43 50 In Markarian, Gleeson CJ, Gummow, Hayne and Callinan JJ held: (a) assessment of the appropriate penalty is a discretionary judgment based on all relevant factors (at [27]); further: …careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick (at [31]) (b) it will rarely be appropriate for a Court to start with the maximum penalty and proceed by making a proportional deduction from that maximum (at [31]); (c) the Court should not adopt a mathematical approach of increments or decrements from a predetermined range, or assign specific numerical or proportionate value to the various relevant factors (at [37], citing Wong v The Queen (2001) 207 CLR 584 at 611-612 per Gaudron, Gummow and Hayne JJ); (d) it is not appropriate to determine an objective sentence and then adjust it by some mathematical value given to one or more factors such as a plea of guilty or assistance to authorities (at [37] citing Wong v The Queen (2001) 207 CLR 584 at 611-612 per Gaudron, Gummow and Hayne JJ); (e) the Court "may not add and subtract item by item from some apparently subliminally derived figure" to determine the penalty to be imposed (at [39]); and (f) since the law strongly favours transparency, accessible reasoning is necessary in the interests of all, and, while there may be occasions where some indulgence in an arithmetic process will better serve the end, it does not apply where there are numerous and complex considerations that must be weighed (at [39]). 51 While the process of fixing an appropriate penalty must not be approached as a mathematical exercise, nonetheless careful attention must almost always be given to the maximum penalty. That is so for at least three reasons: first, because the legislature has legislated for the maximum penalty and it is therefore an expression of the legislature's policy concerning the seriousness of the prescribed conduct; secondly, because it permits comparison between the worst possible case and the case that the court is being asked to address; and thirdly, because the maximum penalty provides a "yardstick" which should be taken and balanced with all the other relevant factors: Markarian at [31]. (v) Course of conduct principle 52 As stated above, in the case of a corporation, the Court may order a maximum pecuniary penalty calculated in accordance with s 76(1A)(b) of the TPA for each act or omission in contravention of s 45 of the TPA. However, rather than imposing separate penalties for each technically available contravention the Court may, in its discretion, apply the course of conduct or one transaction principle where there is a sufficient interrelationship between the legal and factual elements of those contraventions. 53 The principle was explained by Middleton and Gordon JJ in Construction, Forestry, Mining and Energy Union v Cahill (2010) 194 IR 461 at [39] to [43] as follows: The principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, care must be taken to ensure that the offender is not punished twice for what is essentially the same criminality. That requires careful identification of what is "the same criminality" and that is necessarily a factual specific enquiry. Bare identity of motive for commission of separate offences will seldom suffice to establish the same criminality in separate and distinct offending acts or omissions. … A court is not compelled to utilise the principle because, as Owen JA said in Royer v Western Australia [2009] WASCA 139 at [28], "[d]iscretionary judgments require the weighing of elements, not the formulation of adjustable rules or benchmarks". The exercise of the sentencing discretion does not fall to be exercised in a vacuum. It is a matter of judgment to be exercised according to the facts of each case and having regard to conflicting sentencing objectives: see McHugh J in AB v The Queen (1999) 198 CLR 111 at [14]. For the same reasons, and contrary to the appellants' submissions, even if offences are properly characterised as arising from the one transaction or a single course of conduct, a judge is not obliged to apply concurrent terms if the resulting effective term fails to reflect the degree of criminality involved. Or, in the case of fines, a judge is not obliged to start from the premise that if there is a single course of conduct, the maximum fine is, in the present case, $110,000 for the CFMEU and $22,000 in the case of Mr Mates. 54 The principle has been recognised and applied in relation to imposing penalties for multiple contraventions of the TPA.44 As emerges from the passage from Cahill, using this analytical tool to group contraventions does not convert the maximum penalty for one contravention into the maximum penalty for the course of conduct as a whole. Nonetheless, the statutory maximum for each separate contravention operates as a guide to the seriousness with which Parliament regards wrongdoing of that kind.45 (vi) Totality principle 55 In determining the appropriate penalty, the totality principle must also be considered: ACCC v Baxter Healthcare Pty Ltd [2010] FCA 929 at [22]; ACCC v Coles Supermarkets Australia Pty Ltd [2014] FCA 1405 at [132]. And so, in Trade Practices Commission v TNT Australia Pty Ltd (1995) ATPR 41-375 the Court held that the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct involved.46 56 The totality principle operates as a "final check" to ensure that the penalties to be imposed on a wrongdoer, considered as a whole, are just and appropriate.47 In ACCC v Safeway Stores Pty Ltd (1997) 145 ALR 36 the Court considered the application of the principle of totality in the civil penalty context in the following terms: The totality principle is designed to ensure that overall an appropriate sentence or penalty is appropriate and that the sum of the penalties imposed for several contraventions does not result in the total of the penalties exceeding what is proper having regard to the totality of the contravening conduct involved. But that does not mean that a court should commence by determining an overall penalty and then dividing it among the various contraventions. Rather the totality principle involves a final overall consideration of the sum of the penalties determined…48 (vii) Parity principle 57 The parity principle requires that, when penalties are imposed, "there should not be such an inequality as would suggest that the treatment meted out has not been even handed".49 Similar contraventions should incur similar penalties, other things being equal, albeit that other things are rarely equal where contraventions of the TPA and CCA are concerned.50 The development of a consistent approach to the fixing of pecuniary penalties necessitates reference to prior decisions.51 58 However, the Court observed in NW Frozen Foods52 that penalties in one case are rarely of assistance in later cases. 59 Further, as the Full Federal Court observed in Singtel Optus v ACCC:53 …the Court is not assisted by…citations of penalties imposed in other cases, where the combination of circumstances were different from the present, as if that citation is apt to establish a "range" of penalties appropriate in this case. 60 The Full Court endorsed the following passage of Middleton J in Australian Competition and Consumer Commission v Telstra Corporation Ltd (2010) 188 FCR 238 at [215]: It is apparent that there are many difficulties in simply referring to penalties previously imposed for contraventions of legislation in widely differing circumstances or in circumstances where some of the factors are similar but others dissimilar to those of the present proceeding. In each case, the court must take into account the deterrent effect of the penalty and the fact that the penalties "should reflect the will of Parliament that the commercial standards laid down in the Act must be observed but not be so high as to be oppressive".54 61 In similar terms, in ACCC v Woolworths Limited [2016] FCA 44, Edelman J observed, at [129] and [133]: Consistency and the rule of law require consideration of the penalties awarded in similar cases, particularly if it is possible to discern a range from those cases. But how can the penalties in similar cases be compared if the weight of the relevant factors differs and those factors are incommensurable? Professor Sunstein has argued that "[a]n especially large task for legal theory is to offer an adequate description of how, in legal contexts, choices should be made among incommensurable goods and among different possible kinds of valuation": Sunstein C "Incommensurability and Valuation in Law" (1993) 92 Mich Law Rev 779, 861. ...the "parity principle"…does not suggest that incommensurable factors in the different circumstances of single cases can or should be compared. In NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285, 295, Burchett and Kiefel JJ said that a "hallmark of justice is equality before the law, and, other things being equal, corporations guilty of similar contraventions should incur similar penalties". But their Honours went on to say that different circumstances mean that "other things are rarely equal when contraventions of the Trade Practices Act are concerned". Further, as their Honours observed, cases are authorities for matters of principle. But a penalty decided on the basis of findings of fact in one case which differs from the circumstances of another case cannot dictate the penalty in that other case. F. Pecuniary Penalties - Application 62 The ACCC and Woolworths jointly submit that the Court should make orders imposing pecuniary penalties pursuant to s 76 of the TPA on Woolworths in respect of it being directly or indirectly knowingly concerned in the contraventions referred to in paragraph 1 of the Proposed Consent Order in the amount of $9 million. 63 The facts and admissions establishing the particular conduct that Woolworths admits constitutes it being directly or indirectly knowingly concerned in those contraventions of the TPA are set out in the SAFA, together with other matters relevant to penalties. 64 Each of the principles set out in section E above relevant to the imposition of pecuniary penalties is considered in the context of this proceeding. (i) Maximum penalty 65 In relation to maximum penalty, for the purposes of the proceeding only, the ACCC and Woolworths jointly submit that there were benefits, the value of which can be determined, that Woolworths obtained directly or indirectly and that are reasonably attributable to the acts or omissions which constituted it being directly or indirectly knowingly concerned in the contravening conduct set out in paragraph 1 of the Proposed Consent Order. 66 As set out in Section F of the SAFA, the total benefit to Woolworths reasonably attributable to those acts or omissions has been calculated by Woolworths, and accepted by the ACCC, to be $4.36 million, comprised of the following: (a) cost savings from changing the category layout once rather than on 3 occasions: $800,000; (b) cost savings from advertising the transition once, rather than on 3 occasions: $260,000; (c) transport cost savings: $1.2 million; (d) warehouse cost savings: $900,000; (e) reduced store wages: $1.2 million. 67 Accordingly, the maximum penalty for each act or omission which constituted Woolworths being directly or indirectly knowingly concerned in the contraventions of s 45 of the TPA is calculated pursuant to s 76(1A)(b)(ii), being three time the value of that benefit. 68 Based on the total value of the benefit as set out in paragraph 66 above, the maximum pecuniary penalty in respect of each of the contraventions referred to in paragraph 1 of the Proposed Consent Order is $13.08 million, being a maximum penalty of $26.16 million for the two contraventions. (ii) Nature, extent and duration of conduct and circumstances in which they took place 69 The SAFA sets out the nature and extent of the contravening conduct. 70 The contraventions in the present case are serious, while not being located at the most egregious end of the scale of seriousness. 71 First, the conduct occurred in a national market for a staple product, laundry detergents. 72 Secondly, the contraventions delivered benefit to Woolworths. As set out in paragraph 66 above, the total value of the benefit to Woolworths that is reasonably attributable to the acts or omissions which constituted it being directly or indirectly knowingly concerned in the contravening conduct has been calculated by Woolworths as $4.36 million. As noted above, the objective of deterrence, and especially specific deterrence, assumes particular significance where commercial profit is the driver of the contravening conduct. 73 Thirdly, the Withhold Supply Understanding would not have been given effect to by Colgate, Cussons and Unilever without the involvement of Mr Fuchs. 74 Fourthly, Woolworths wanted to ensure that there was a simultaneous transition to Ultra Concentrates by Colgate, Cussons and Unilever at Woolworths, and to this extent had a shared objective with these manufacturers. 75 Fifthly, the conduct of Woolworths in being directly or indirectly knowingly concerned in those contraventions was engaged in through the actions of Mr Fuchs. Mr Fuchs was a manager, and responsible for the laundry category (amongst other categories) at Woolworths. The conduct in which he engaged was the conduct of Woolworths. However, it is not alleged that conduct is indicative of systemic wrongdoing at Woolworths. It is accepted that Mr Fuchs acted with the apparent, but not actual authority of Woolworths. 76 Sixthly, the Withhold Supply Understanding was a one-off arrangement limited to changing from supplying Standard Concentrates to Ultra Concentrates to Woolworths at a particular point in time, being February 2009. However, whilst that arrangement was a one-off, it resulted in a permanent change in the products supplied to Woolworths. 77 Seventhly, the Withhold Supply Understanding was in the context of suppliers of laundry detergents in some other countries, including the United States, having transitioned to supplying more highly concentrated laundry detergents by late 2007. (iii) Similar conduct in the past 78 Woolworths has previously engaged in contraventions of the TPA and CCA. However, those contraventions concern conduct of a different type to that in issue in this case. Accordingly, consistently with the observations of Allsop J (as his Honour then was) in ACCC v Liquorland (Australia) Pty Ltd [2006] FCA 1799 at [19], these are not matters that would weigh heavily in assessing the appropriate penalty to impose. In this regard, his Honour noted: Submissions were made by the Commission as to Woolworths' so-called "record" in Trade Practices matters. I think one needs to be careful about that kind of conclusion. I do not propose to conduct a wide ranging enquiry into the linkages between the various cases in which Woolworths or its subsidiaries has or have been involved. I do not propose to give any real weight to these kind of similar fact questions. The liquor division of Woolworths appears to me to have operated independently. The relevant senior men in it, Mr Meagher and Mr Smith, had deep experience of the industry. It is unfortunate that no one appeared to turn his or her mind to the possibility that there might have been conduct which was directed at a relevant operating market. Nevertheless, I think that Woolworths conduct in these four episodes should be looked at on its own merits and I propose to impose a penalty without reference to other cases. (iv) The size of the contravenor, its financial position and market power 79 Woolworths Limited is a very large, publicly listed Australian company. It is one of Australia's largest retailers, and is the largest grocery retailer in Australia. 80 Woolworths Limited's turnover (being its net sales) for: (a) FY2008 was $47,035 million (FY08 - 53 weeks - Group sales); (b) FY2009 was $49, 595 million (FY09 - 52 weeks - Group sales); and (c) FY2015 was $60,679 million (FY15 - 52 weeks - Total Group sales). 81 Woolworths Limited's statutory profits for: (a) FY2008 were $1,615.5 million (FY08 - 53 weeks); (b) FY2009 were $1,860 million (FY09 - 52 weeks); and (c) FY2015 were $2,453.3 million (FY15 - 52 weeks). 82 Woolworths Limited's current assets and liabilities for: (a) FY2008 were Assets $4,502.2 million (2008 total current assets) and Liabilities $6,424.4 million (2008 total current liabilities); (b) FY2009 were Assets $4,859.2 million (2009 total current assets) and Liabilities $6,414.6 million (2009 total current liabilities); and (c) FY2015 were Assets [$7,660.9 million (2015 total current assets) and Liabilities $9,168.6 million (2015 total current liabilities). 83 During the relevant period, Woolworths had more than 774 supermarket stores across Australia trading under the "Woolworths" and "Safeway" brands. All of those stores sold laundry products. 84 Woolworths' "commercial activities substantially permeate the commercial and consumer life of the public", and it is appropriate to take that fact into account in determining the appropriate level of penalty.55 85 As set out above, when considering the extent to which the penalty achieves deterrence, the Court has had regard to a company's size and profitability and the need to ensure that pecuniary penalties are sufficient to achieve specific and general deterrence. In ACCC v Apple, the Court was concerned to ensure that the penalty was set at a level that would be meaningful for a corporation with substantial net assets and profitability.56 86 In ACCC v Coles Supermarkets Australia Pty Ltd [2015] FCA 330 after considering applicable authorities, Allsop CJ observed: These authorities make it clear that Coles' financial resources do not alone justify a higher penalty than might otherwise be imposed. However, they are clearly relevant to considering the size of the penalty required to achieve the end of specific deterrence and can be weighed against the need to impose a sum which will be recognised by the public as significant and proportionate to the seriousness of the contravention for the purposes of achieving general deterrence. 87 Further, as noted above, the degree of market power of the contravening company may be germane. At the relevant time, Woolworths was the largest retailer of laundry detergents in Australia, with approximately 42% market share by value.57 Coles was second with 32%, and Metcash third with 15% . (v) The period over which the contravening conduct extended 88 The Withhold Supply Understanding was reached in 2008 and given effect to in the period from February to March 2009. (vi) Conduct of Mr Fuchs and Woolworths' senior management 89 The conduct of Woolworths in being directly or indirectly knowingly concerned in the contraventions was engaged in by Stan Fuchs, who was Business Manager, Groceries, responsible for the laundry category (amongst other categories) at Woolworths. 90 Mr Fuchs was not a member of Woolworths' senior management. (vii) Culture of compliance 91 During 2008 and 2009, Woolworths had a trade practices compliance program in place which included the following elements: (a) company policies and procedures, including a trade practices policy which required employees not to discuss or reach understandings or arrangements with competitors about prices, specials, terms, customers or vendors; (b) a Code of Conduct which set out standards of conduct expected of Woolworths employees, including compliance with the Trade Practices Act, trading independently of competitors and acting fairly and honestly in all dealings with suppliers including not trying to influence supplier competitor pricing or deals; (c) education through induction and ongoing staff training and manuals; (d) legal approval processes, including before attending functions at which competitors may be present; (e) reporting and reviewing, including by the Woolworths compliance group established in 2008; (f) various staff acknowledgments, for example an annual requirement to sign an acknowledgement of the employee's obligations as an employee of Woolworths Limited as outlined in the Code of Conduct and agree that in the day to day performance of the employee's job, the employee would comply with those policies, which included trade practices compliance; (g) ad hoc compliance initiatives such as ad hoc training conducted by external counsel as well as memoranda, training and guidelines on recent developments; and (h) disciplinary procedures. 92 Mr Fuchs: (a) prior to the contraventions, acknowledged to Woolworths that he understood and accepted his obligations regarding trade practices and competition law; and (b) had attended trade practices compliance training. 93 It is appropriate for the Court to have regard not only to the existence of compliance programmes, but their effectiveness: ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 258 (Lockhart J, French J agreeing at 268); ACCC v George Weston Foods Ltd (2000) ATPR 41-763; [2000] FCA 690 at [20]-[23] and [44]-[53] (Goldberg J); ACCC v Origin Energy Electricity Ltd [2015] FCA 278 at [107]-[108] (Katzmann J). 94 There is no reason to believe that Woolworths' compliance program was ineffective merely by virtue of its involvement in the contraventions. Also, as noted above, it is accepted that Mr Fuchs acted with the apparent, but not actual authority of Woolworths. (viii) Co-operation 95 Prior to the commencement of these proceedings, Woolworths cooperated with the ACCC in its investigation of these matters. 96 After the proceedings were commenced, Woolworths cooperated with the ACCC by reaching agreement as to the contraventions of the TPA admitted by Woolworths, and the penalty and non-penalty relief to be sought from the Court and the terms of the SAFA. 97 Woolworths is entitled to credit, in terms of a reduction of penalty, for having approached the ACCC around 10 weeks before trial and indicating it was prepared to discuss settling the proceedings and for having admitted to its involvement in contraventions of the TPA, and agreeing with the ACCC on the SAFA and non-penalty orders to be sought from the Court: Trade Practices Commission v TNT Australia Pty Ltd. Woolworths' co-operation with the ACCC has saved the ACCC and the Court (and ultimately the community) the cost and burden of fully litigating these proceedings. 98 There is a clear benefit to the ACCC's investigations that respondents are encouraged to co-operate in appropriate cases. There is also a clear public interest in promoting settlement of litigation: Mobil Oil at [51]. It is appropriate that the penalty that would otherwise have been imposed be discounted in recognition of Woolworths' cooperation and facilitation of the administration of justice: ACCC v Visa at [121]. (ix) Parity principle 99 The parties do not contend that there is a clear case that is commensurable, as a matter of principle with the current case. The mandatory and discretionary factors to which the Court is to have regard provide sufficient guidance as to the appropriateness of the proposed penalties. Further, the proposed penalties are significant enough to achieve general deterrence without being oppressive to Woolworths. 100 It is to be noted that a hearing was held on 28 April 2016 for the purposes of determining the appropriate penalty to be applied in respect of Colgate's contraventions in this proceeding. A penalty of $12M was ordered against Colgate for its contravening conduct of making and giving effect to an understanding in similar terms to that admitted by Woolworths but was not confined to supply at Woolworths. However, given the different character of the impugned conduct, and the different roles of Woolworths and Colgate in the relevant supply chain the parties do not contend that the penalty imposed on Colgate is indicative of that which ought be imposed on Woolworths. (x) Totality principle 101 In determining the appropriate penalty, it is also relevant to take into account the "totality principle". In Trade Practices Commission v TNT Australia Pty Ltd, the Court held that the total penalty for each offence ought not to exceed what is proper for the entire contravening conduct involved.58 102 It is submitted that the penalties proposed in relation to Woolworths' contravening conduct are just and appropriate in all the circumstances of the case and appropriately take account of the entirety of Woolworths' conduct. (xi) Maximum Penalty 103 As noted above at paragraph 51, attention must be given to the maximum penalty that may be imposed in respect of an admitted contravention. The statutory maxima are stated at paragraph 68. 104 Having regard to those maxima and the matters traversed in Sections (i) - (x) above, a penalty in respect of the contraventions referred to in paragraph 1 of the Proposed Consent Order, in the amount of $9M represents approximately 34% of the maximum penalty of AUD$26.16M. 105 The parties respectfully submit that total penalty is appropriate in all the circumstances. The parties jointly submit that the Court should be satisfied of this because the proposed penalty as a total or as component parts are: (a) within the permissible range of penalty in all the circumstances, albeit that, unassisted the Court may have selected a slightly different figure; and (b) within what an independent assessment of the appropriate range of penalties would have resulted in. (xii) Proposed penalties 106 As noted above, the ACCC and Woolworths jointly submit that the Court should make orders imposing pecuniary penalties pursuant to section 76 of the TPA on Woolworths in the amount of $9M. G. Updated compliance program 107 By consent, the ACCC and Woolworths seek an order requiring Woolworths to update its compliance and education/training program, as set out in paragraph 4 of the Proposed Consent Order. 108 Section 86C of the TPA empowers the Court to make such an order. 109 The purpose of compliance orders and the matters that must be assessed by the Court in reviewing a proposed order and determining whether they are within power and appropriate were summarised by Gordon J (as her Honour then was) in Australian Competition and Consumer Commission v Sontax Australia (1988) Pty Ltd [2011] FCA 1202 at [36] as follows: The purpose of a probation order is to ensure a company-wide awareness of responsibilities and obligations in relation to the contravening conduct or similar or related conduct: Australian Competition and Consumer Commission v Anglo Estates Pty Ltd [2005] FCA 20; (2005) ATPR 42-044 at [46]. There must be a nexus between the terms of the compliance program and the contravening conduct: Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2007) ATPR 42-138 at [96]. The compliance program should set out the steps to be taken with sufficient clarity so that it is able to be performed. It should also be in the public interest that the respondent undertake the program: LG Electronics Australia at [14]. 110 In Australian Competition and Consumer Commission v LG Electronics Australia Pty Ltd [2006] FCA 1118, Siopis J ordered, by consent, that LG Electronics review its existing trade practices compliance program and implement an upgraded program in accordance with the proposed orders. The Court concluded that there was a sufficient nexus between the terms of the proposed program and the contravening conduct, that the program set out the steps to be taken with sufficient clarity and that it was in the public interest for LG Electronics to undertake the program. 111 The proposed upgraded compliance program has a sufficient nexus with Woolworths' contravening conduct. The improvements to be implemented focus on the provisions relevant to the contraventions, being sections 45(2)(a) and (b) of the CCA and the provisions of Part IV of the CCA which deal with similar or related conduct. The upgraded program requires training of relevant Woolworths employees to ensure their awareness of Woolworths' obligations and responsibilities in relation to those provisions. 112 It is clear to Woolworths, from the terms of the proposed order, what steps it must undertake to comply with the order. 113 It is in the public interest that Woolworths implement this upgraded program. 114 The ACCC and Woolworths submit that it is appropriate for the Court to make the order in the circumstances of this case. H. Costs 115 Woolworths has agreed to make a contribution of $250,000 towards the ACCC's costs of and incidental to the proceeding, to be paid within 28 days of the date of the Court's order. 116 Although this amount does not reflect the ACCC's true costs in the matter, the ACCC was prepared to not fully pursue its costs in the interests of an early settlement.59 Date: 4 May 2016
Australian Competition and Consumer Commission
Colgate-Palmolive Pty Ltd
[1990] FCA 521
[2009] WASCA 139
[2014] FCAFC 666
(2015) 326 ALR 476
(1996) 71 FCR 285
(2005) 223 ALR 467
(1972) 127 CLR 421
(2003) 216 CLR 53
(2011) 282 ALR 246
(2005) 215 ALR 301
(2012) 287 ALR 249
(2013) 250 CLR 640
(1995) 71 FCR 285
(2005) 215 ALR 281
(2005) 228 CLR 357
(2001) 207 CLR 584
(2010) 194 IR 461
(1999) 198 CLR 111
(1997) 145 ALR 36
(2010) 188 FCR 238
(1992) 38 FCR 248
(1999) 161 ALR 79
(2003) 198 ALR 417
(1981) 148 CLR 150
(2012) 201 FCR 378
(2006) 236 ALR 665
(2007) 161 FCR 513
(2007) 158 FCR 542
(2000) 172 ALR 532
(2013) 99 IPR 548
(1984) 4 FCR 296
(2007) 158 FCR 543
(2012) 206 FCR 160
(2004) 205 ALR 346
(2008) 168 FCR 383
(1997) 75 FCR 238
(2015) 229 FCR 331