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[2016] FCA 1286
Federal Court of Australia
2016-11-02
Siopis J
Original judgment source is linked above.
Upon the Respondent undertaking to the Court for a period of 3 years, whether by itself, its servants or agents, not to represent, in trade or commerce, that: (A) applying heat reflective paint to the roof of a house can reduce the interior temperature of the living zones of that house by up to 10 degrees Celsius; (B) applying heat reflective paint to the exterior walls of a house can and will reduce the surface temperature of those walls by up to 15 degrees Celsius; or (C) applying heat reflective paint to the exterior walls of a house can and will significantly reduce the interior temperature of that house; unless it: (D) has reasonable grounds for making the particular representation; and (E) clearly and prominently explains the environmental, structural and other factors that may reduce the effect of applying heat reflective paint to a normal house in realistic conditions.
BACKGROUND 1 The respondent, DuluxGroup (Australia) Pty Limited (Dulux), is a subsidiary of DuluxGroup Limited, a publicly listed company and the market leader for the manufacturing and distribution of paint in Australia. 2 During the period June 2009 to September 2012, Dulux engaged in marketing and advertising activities in respect of two of its products: Dulux AcraTex InfraCOOL roof paint (InfraCool) and Dulux Weathershield Heat Reflect exterior wall paint (Heat Reflect). These two paints differed from Dulux's standard roof paint and its standard exterior wall paint, because each of these two paints included pigments which reflected infrared radiation, whereas the standard paints did not. 3 Dulux's marketing and advertising activities included publishing and distributing colour cards, colour fact sheets, promotional flyers and press statements, and also causing advertisements to be broadcast on television and to be published in newspapers, magazines and on social media. The publications and advertisements made representations about the cooling benefits to be derived by consumers from using InfraCool roof paint and Heat Reflect wall paint rather than standard roof and exterior wall paints. 4 On 4 December 2012, the Australian Competition and Consumer Commission (ACCC) commenced a proceeding in this Court in which it alleged that in making a number of representations in the publications and advertisements referred to above, Dulux had engaged in conduct which was false or misleading or deceptive, or likely to mislead or deceive; and so contravened, in respect of conduct prior to 1 January 2011, s 52 and s 53(c) of the Trade Practices Act 1974 (Cth) (the TPA) and, in respect of conduct after 1 January 2011, s 18 and s 29(1)(g) of the Australian Consumer Law (ACL) in Sch 2 to the Competition and Consumer Act 2010 (Cth). Among the remedies sought by the ACCC was the imposition of a pecuniary penalty in respect of contravening conduct which occurred since 15 April 2010. 5 The ACCC pleaded that there were some 59 representations made in various media used by Dulux for the purposes of marketing and advertising the two paint products. Dulux denied that the impugned promotional materials gave rise to the representations that the ACCC had pleaded. Dulux went on to plead that it had made some representations as to the attributes of the two paint products but in terms different to those pleaded by the ACCC. 6 This gave rise to a trial of the preliminary issue of whether the impugned promotional materials gave rise to the representations pleaded by the ACCC. 7 On 30 October 2014, I delivered reasons for judgment which determined those preliminary issues (Australian Competition and Consumer Commission v DuluxGroup (Australia) Pty Limited [2014] FCA 1158 (Dulux No 1)). 8 Subsequently, the parties reached a settlement in relation to the question of liability. Consequent thereon, the ACCC amended its statement of claim and Dulux amended its defence to make admissions that reflected the terms of the settlement. 9 The parties also agreed a statement of facts for the purposes of s 191 of the Evidence Act 1995 (Cth). I will refer to certain of the agreed facts below. 10 At the penalty hearing, the parties provided to the Court a minute of proposed consent orders. In that minute, the parties proposed that, upon Dulux giving an undertaking to the Court, the Court make a number of declarations and orders. 11 The declarations sought are set out in detail below. However, in summary, the declarations sought are to the effect that, in publishing and distributing the impugned promotional materials, Dulux made three representations which were false or misleading or deceptive or, likely to mislead or deceive, and, in so doing, contravened s 52 and s 53(c) of the TPA in respect of conduct prior to 1 January 2011, and s 18 and s 29(1)(g) of the ACL in respect of conduct after 1 January 2011. 12 The minute of consent orders also proposed the making of orders for the publication of notices by Dulux in the Australian newspaper and on its website, advising that the Court has made the proposed declarations. There is also a proposed order that Dulux pay the ACCC's costs of this proceeding fixed in the sum of $150,000. 13 The undertaking by Dulux referred to in the minute of consent orders is to the following effect: Upon the Respondent undertaking to the Court for a period of 3 years, whether by itself, its servants or agents, not to represent, in trade or commerce, that: (A) applying heat reflective paint to the roof of a house can reduce the interior temperature of the living zones of that house by up to 10 degrees Celsius; (B) applying heat reflective paint to the exterior walls of a house can and will reduce the surface temperature of those walls by up to 15 degrees Celsius; or (C) applying heat reflective paint to the exterior walls of a house can and will significantly reduce the interior temperature of that house; unless it: (D) has reasonable grounds for making the particular representation; and (E) clearly and prominently explains the environmental, structural and other factors that may reduce the effect of applying heat reflective paint to a normal house in realistic conditions. 14 The declarations sought are as follows: 1 From about June 2009 until September 2012, the Respondent (Dulux), in trade or commerce: (a) engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of: (i) section 52 of the Trade Practices Act 1974 (Cth) (TPA) in respect of conduct prior to 1 January 2011; and (ii) section 18 of the Australian Consumer Law which is Schedule 2 to the Competition and Consumer Act 2010 (Cth) (ACL) in respect of conduct since 1 January 2011; (b) in connection with the supply and possible supply, and in connection with the promotion of the supply of Dulux InfraCOOL roof paint (InfraCOOL Paint), (i) in respect of conduct prior to 1 January 2011, made representations of performance characteristics or benefits that InfraCOOL Paint does not, in fact, have in contravention of section 53(c) of the TPA; and (ii) in respect of conduct prior to 1 January 2011, made false or misleading representations about the performance characteristics or benefits of InfraCOOL Paint in contravention of section 29(1)(g) of the ACL; and by representing to consumers, in an in-store colour card and a two-paged online colour fact sheet that applying InfraCOOL Paint to the roof of a house can reduce the interior temperature of the living zones of that house by up to 10ºC (InfraCOOL Representation), when in fact that was not the case and Dulux did not have reasonable grounds for making the InfraCOOL Representation. 2 From about November 2011 until at least September 2012 Dulux has, in trade or commerce: (a) engaged in conduct that was misleading or deceptive or was likely to mislead or deceive, in contravention of section 18 of the ACL; (b) in connection with the supply and possible supply of Dulux Weathershield Heat Reflect house paint (Heat Reflect Paint) made false or misleading representations about the performance characteristics or benefits of Heat Reflect Paint in contravention of section 29(1)(g) of the ACL; by representing to consumers: (c) through the following promotional materials: (i) in-store point of sale collateral being a promotional flyer and standees (self-standing cardboard displays); (ii) Dulux webpages; (iii) an in-store colour card; (iv) posts appearing on the Dulux Facebook page; (v) print media advertisements appearing in: (A) Better Homes & Gardens magazine (March 2012); (B) Australian House and Garden; (C) Queensland Times; (D) Warrnambool Standard; (E) Gladstone Observer; and (F) Port Stephens Examiner; (vi) a press release; and (vii) a promotional video appearing on YouTube, that applying Heat Reflect Paint to the exterior walls of a house can and will significantly reduce the interior temperature of that house; and (d) through the following promotional materials: (i) the materials referred to in paragraph 2(c) above (with the exception of the Australian House & Garden magazine print media advertisement); (ii) images and text on the exterior of Heat Reflect Paint tins; (iii) print media advertisements appearing in: (A) Better Homes & Gardens (December 2011); (B) Building Products News magazine; (C) Weekend Gold Coast Bulletin; (iv) an additional press release; (v) a television commercial; and (vi) a segment on the television show Better Homes & Gardens, that applying Heat Reflect Paint to the exterior walls of a house can and will reduce the surface temperature of those walls by up to 15 degrees Celsius, (collectively, the Heat Reflect Representations), when in fact that was not the case and Dulux did not have reasonable grounds for making the Heat Reflect Representations. 15 The representation referred to in the proposed declarations as the InfraCool Representation was made in two documents, the InfraCool colour card and the online InfraCool colour fact sheet. These documents contained words and images which are referred to and extracted at [14] and [59] in Dulux No 1. 16 The representations referred to in the proposed declarations as the Heat Reflect Representations were made in a number of different promotional materials, in various publications and in television commercials which were broadcast nationally, as well as through social media and on Dulux's webpage. These are all identified in para 2(c) and para 2(d) in the proposed declarations. These publications are referred to and considered in detail in Dulux No 1. 17 The parties also agree that a pecuniary penalty should be imposed upon Dulux in relation to the admitted statutory contraventions which are the subject of the proposed declarations. However, the parties have not agreed on the amount of that pecuniary penalty. This question was the subject of controversy at the penalty hearing. 18 I will deal with the question of the appropriate amount of the pecuniary penalty later in these reasons.
the statement of agreed facts 19 The statement of agreed facts dealt with a number of different matters relevant to the proposed declarations and the other proposed orders. I will initially refer to those agreed facts insofar as they describe the background to the making of the representations and also later in the reasons, insofar as they affect the various factors to be taken into account in assessing the appropriate pecuniary penalty. 20 I set out below a summary of those agreed facts which relate to the background to the making of the representations.
InfraCool paint 21 Dulux began to develop the InfraCool paint in late 2006. Mr Ian Ramond Schultz, a marketing manager with Dulux, supervised the development of the paint and the associated marketing materials. Mr Schultz had no formal technical qualifications, but had worked in "various technical and production roles" in the paint industry since about 1980. 22 During the period from 1990 to mid-2000s, Mr Schultz reviewed various academic articles, mainly from the United States of America, on the use of cool roof technology. This is technology which includes pigments in the paint which reflect infrared radiation from the sun. Mr Schultz also reviewed during that period some marketing materials from Dulux's competitors in Australia which had developed market leading cool roof paints using heat reflective technology. 23 Dulux acquired infrared reflective pigments which it used in the InfraCool paint from Shepherd Colour Company (Shepherd), a supplier of paint pigments, which is based in the United States of America. 24 There are two measures which are used in the paint industry to assess the effectiveness of the heat reflective qualities of heat reflective paint. These are: "total solar reflectance (TSR)" and "thermal emittance (TE)". The TSR is a measure of the solar radiation (both visible and infrared) reflected by a surface and TE is a measure of the surface's efficiency in releasing heat to its environment. There is also in use in the paint industry, a standard known as the American Society for Testing and Materials (ASTM) E1980 Standard which is used for calculating the Solar Reflectance Index (SRI) of horizontal and low-sloped opaque surfaces at standard conditions. The SRI uses the TSR and TE of a surface to model the relative steady state surface temperature of that surface under standard, namely, assumed solar and ambient conditions, in relation to the standard white (SRI = 100) and standard black (SRI = 0) surface; in essence, SRI rates the ability of a roof's surface to stay cool in the sun. The SRI of a horizontal or low-sloped opaque surface may be used to calculate a prediction of the temperature of that surface at standard (assumed) conditions, using the ASTM Standard calculator (ASTM calculator). That calculation does not, however, involve measuring the actual temperatures. 25 The TSR and the TE of a particular paint can be measured by tests using the appropriate testing equipment. Shepherd had the appropriate testing equipment to measure the TSR and TE of paint. 26 Dulux sent panels which were coated with samples of InfraCool paint and equivalent non-heat reflective paint, namely, standard colour paint, to Shepherd for testing the TSR and TE of the panels. Shepherd provided Dulux with these results and, also, acquainted Dulux with the ASTM calculator. Dulux then used the ASTM calculator to model estimated surface temperatures of the panels coated with the InfraCool paint and equivalent colour standard paint sent to Shepherd. The model predicted that in low wind conditions, surface temperatures in respect of InfraCool Charcoal and InfraCool River Gum, two dark paints, would be in the order of 13ºC to 16ºC lower than the equivalent surfaces coated with the same colour non-reflective paint. Dulux continued to work with Shepherd to model the estimated surface temperatures using the ASTM calculator for the full range of its InfraCool paint. 27 In about May 2007, Dulux arranged for Allunga Exposure Laboratory to conduct practical testing of panels coated with InfraCool paint and the equivalent standard paint in two colours, by exposing the panels to the sun. Temperature data loggers were attached to the panels to measure the temperatures of the panels. The test results which were provided to Dulux showed maximum surface temperature difference in the order of 14ºC to 17ºC between InfraCool paint and panels coated with standard paint in those two colours. 28 In January 2008, Dulux conducted a trial at a house in Highgate, South Australia. Dulux painted over the roof of the house which had already been painted with standard River Gum colour paint with InfraCool River Gum colour paint. The trial measured the surface temperature of the roof and the temperature in the ceiling cavity before and after the application of the InfraCool River Gum colour paint. 29 In January and February 2009, Dulux performed a case study by painting part of the metal roof of its AcraTex factory in South Australia, with heat reflective white paint called Cool Roof White and recording the temperature of the roof surface and the work area beneath the roof. The temperatures recorded on and below the painted surface were compared to those in the unpainted portions of the AcraTex factory. 30 From about late 2008 to mid-2009, Dulux developed the InfraCool colour card and the InfraCool colour fact sheet, each of which contained the InfraCool Representation. The colour card was designed for distribution in trade outlets where InfraCool paint was supplied. 31 The InfraCool colour card was approved for publication at a meeting of Dulux technical and marketing managers in about May or June 2009. 32 The InfraCool colour card was not reviewed by any Dulux legal staff for compliance with the TPA prior to its publication. 33 In 2009, Dulux had a competition and consumer law compliance policy programme, but, at that time, Dulux's programme did not require all marketing materials to be reviewed by Dulux's legal group for compliance with consumer laws. 34 In about June 2009, Mr Schultz delivered a power point presentation to Dulux's sales staff. In the presentation, Mr Schultz referred to a range of general information about heat reflective paint coatings and "cool colours" including the studies referred to above and also to the New South Wales Building Sustainability Index. The parties agreed that this information provided some basis to believe that applying a heat reflective coating to the roof of a house may reduce the temperature of the interior living spaces of that house, depending on climate conditions and attributes of that house. 35 From about June 2009, the InfraCool colour card was available to trade painters and consumers of outlets where InfraCool paint was supplied. The InfraCool colour fact sheet was also accessible from the Dulux website from about September 2009. 36 After the release of the InfraCool paint to the market in June 2009, Dulux conducted some further case studies at three locations in South Australia and four locations in Victoria. It also became aware of two additional academic reports supporting the use of cool roof products. 37 Dulux made the following admissions in relation to the making of the InfraCool Representation: 46 Prior to publishing, distributing, and making available the InfraCOOL Colour card and InfraCOOL Fact sheet, Dulux did not: (a) conduct or obtain any studies or tests in which InfraCOOL Paint was applied to the roof of any house and the temperature of the interior living space of that house was measured; (b) conduct or obtain any studies or tests from which it could be reasonably or accurately predicted that InfraCOOL Paint, applied to the roof of any house, would reduce the temperature of the interior living space of that house by 10 degrees; or (c) conduct any other investigations that verified or substantiated the Admitted 10 Degrees Cooler Representation. 47 The materials relied on by Dulux provided a basis to predict or expect reductions in the surface temperature of a roof painted with a "cool" coating, such as InfraCOOL Paint, as well as temperature reductions in ceiling cavities, depending on the attributes of the building and weather conditions. However, those materials did not provide Dulux with a reasonable basis for making the Admitted 10 Degrees Cooler Representation. 48 The effect of applying InfraCOOL Paint to the roof of a house on the interior temperature of that house is likely to vary substantially, depending upon the presence of factors including: (a) roof pitch; (b) paint colour; (c) building materials used to construct the house; (d) internal and external dimensions of the house; (e) ventilation of the house; (f) whether and how the house was insulated; (g) window placement; and (h) other environmental conditions affecting the house, including shading, wind and external air temperature. 49 These factors make it difficult to predict the extent of any reduction in interior temperature that would result from the application of InfraCOOL Paint to any particular house. 50 Applying InfraCOOL Paint to the roof of a house with poor attic ventilation and no insulation may result in lower temperatures in its interior living spaces, depending on weather conditions. However, any such reductions would be reduced if the house had effective insulation and attic ventilation. 51 … 52 There is no evidence that applying InfraCOOL Paint to the roof of a normal Australian house would ever reduce the interior temperature of the living space by 10C. 38 The "Admitted 10 Degrees Cooler Representation" referred to in the agreed facts is the InfraCool Representation the subject of the first proposed declaration.
Heat Reflect paint 39 Dulux began developing the Heat Reflect paint in about March 2011. The Heat Reflect paint used the same infrared pigments as used in the InfraCool paint, and was effectively a product extension of InfraCool paint. 40 In March 2011, Ms Elizabeth Palazzotto, senior brand manager at Dulux, consulted with Mr Zoran Krnic, a senior team leader in the product development team at Dulux, about claims which could be made about the extent to which the application of Heat Reflect paint to the exterior walls of houses could reduce the surface temperature of the walls painted with that product. Mr Krnic said in effect that not enough was known to make specific claims. 41 In April and May 2011, the Dulux managers responsible for the development of the Heat Reflect paint agreed that testing was required to verify the performance claims made in relation to the Heat Reflect paint. They consulted managers who were involved in the development of the InfraCool paint. 42 On 30 May 2011, Mr Zoran Krnic sent panels coated with Heat Reflect Woodland Grey paint and Heat Reflect Classic Cream paint, and corresponding Dulux standard paints, to Dulux's facility at Beverley, South Australia, to be tested for the TSR and TE of each of the four paints. 43 When the results were supplied, the ASTM calculator was used to estimate the relative surface temperature reductions between the Heat Reflect and the standard paints. The modelling estimated relative surface temperature reductions in low wind conditions, when painted over a white background of 15ºC and 14ºC for Heat Reflect Woodland Grey compared to standard Woodland Grey and 5ºC and 4ºC for Heat Reflect Classic Cream compared to standard Classic Cream. 44 Mr Kolver, a manager at Dulux, was then responsible for developing Heat Reflect paint. Mr Kolver proceeded on the basis that the ASTM calculator could be used to estimate wall surface temperature reductions associated with the use of Heat Reflect paint. However, the ASTM calculator was not an appropriate standard for estimating or predicting the effect of the application of heat reflective paint to external walls because the standard was designed for the application in relation to horizontal or low-sloped surfaces, and the walls of a house have lower "solar availability" than those surfaces. There is no ASTM or similar standard that can be used to estimate wall surface temperature reductions associated with heat reflective paint. 45 On 22 June 2011, Mr Langkilde, a technical manager at Dulux, emailed the results of the application of the ASTM calculator to Mr Schultz, and said that the thermal benefit could be as high as 14ºC when the cooling airflow was "slight". 46 In June 2011, a "mock-up" of a Heat Reflect paint tin label was being considered by Dulux for use at the Bunnings Expo which is held annually at which suppliers make presentations in relation to new products to employees of Bunnings. Mr Kolver considered the possibility of using a claim of a surface temperature reduction of up to 10ºC for the Bunnings' "mock-up". 47 In response, a member of the marketing department emailed Mr Krnic and Mr Kolver stating that the suggestion of claiming a 10ºC cooler capability for the paint was "really worrying" as a 15ºC reduction was "being communicated at the Bunnings Expo". 48 Thereafter, Mr Krnic, on Mr Kolver's instructions, prepared paint coated panels for further surface temperature testing. 49 On 27 June 2011, Ms Baker, a Dulux marketing manager, emailed Mr Kolver and in referring to the representation that would be made in relation to the surface temperature reduction stated: The 15 Degrees may become 10 on the final blue arrow, but we are going to push on with proofing to meet our timeline. This gives us a week for Zoran to complete his testing to confirm our proposition and we can change it before it goes to print if required. 50 I interpolate to say that the reference to the "blue arrow" was a reference to the use of a picture of a blue arrow containing words and numbers representing the extent of the temperature reduction benefit to be obtained by using Heat Reflect paint, rather than standard paint, in the proposed marketing and advertising materials. 51 In carrying out the further testing, Mr Krnic tested some panels which had been coated with Woodland Grey Heat Reflect paint using a test rig. The test conditions did not resemble the conditions that would exist if Heat Reflect paint was applied to the external wall of a domestic house. Accordingly, the results did not provide a reliable basis to predict the extent to which applying Heat Reflect paint rather than standard wall paint to a house could or would reduce the surface temperature of the exterior walls or the interior of the house. 52 On 6 July 2011, Mr Kolver sent an email to Ms Baker following Mr Krnic's testing and stated: I am happy to sign off the 15 degrees Celsius claim. We started our testing yesterday and have seen very positive results. 53 From July 2011 to September 2011, Dulux formulated the rest of the Heat Reflect paint range (being about 50 colours), tested the TSR and TE of all the Heat Reflect paints in the range and the equivalent for standard paint, and then used the ASTM calculator to estimate the surface temperature reductions. The modelling results were finalised in around September 2011. The modelling results indicated that, for over 20 colours, the estimated surface temperature reduction was 15ºC or more for Heat Reflect paint compared to standard paint in equivalent colours in low wind speeds. It is to be noted that low wind speeds generate the highest difference. 54 From July 2011 to October 2011, a number of draft promotional materials that conveyed the Exterior Temperature Reduction Representation and the Interior Temperature Reduction Representation were submitted to Ms Elizabeth Wright of the Dulux legal group for a review and approval. 55 During that period, there was ongoing communication between Ms Wright and Ms Palazzotto about issues arising from the draft promotional materials. 56 On 18 August 2011, Ms Wright approved the Heat Reflect colour card. 57 In September 2011, Ms Wright asked Ms Palazzotto to confirm that Dulux could substantiate the claim "keeping the inside of your home cooler", then proposed to be made in the promotional materials for the Heat Reflect paint. On 27 September 2011, Ms Palazzotto asked Mr Schultz: (a) "Lizzie would like us to confirm the claim 'keep your home cooler' or 'keeping the inside of your home cooler'"; and (b) "[c]an any tests support the 'inside cooler' claim. If so, what are they." 58 On 4 October 2011, Ms Palazzotto again emailed Mr Schultz and asked him for: hard evidence on the "keep your home cooler" which could infers [sic] that the inside temperature is cooler. 59 Later that day, Mr Schultz replied that the validity of cool wall technology had been modelled by Oak Ridge National Laboratory for the US EPA. The modelling to which Mr Schultz referred was contained in a progress report on a joint research project carried out by Textured Coatings of America and Oak Ridge National Laboratory, published in 2005. The progress report concluded that cooling energy savings could be achieved using heat reflective paint but also stated: (a) "[b]ehaviour of solar radiation control on vertical walls more complicated that [sic] low-slope roofs. Difficult to generalize simply"; and (b) "[c]omplexity of real wall applications (different orientations, shading and construction) makes generalization very difficult". 60 Mr Schultz also annexed an academic paper to his email called: "Energy Savings for Stucco Walls Coated with Cool Colours" and extracted a passage from that paper which he believed supported the proposition. The paper did not, however, address the relationship between cooling energy savings and interior temperature. 61 At various times during the period 18 August 2011 to 15 November 2011, Ms Wright approved distribution of the Heat Reflect colour card disclaimers for "Up to 15ºC cooler" for subsequent use on the Heat Reflect paint tins and Heat Reflect colour card, the Heat Reflect television commercial scripts, the representations on the webpage and the Heat Reflect promotional material. 62 However, Ms Wright was not asked to approve the Heat Reflect Facebook page, the Heat Reflect print media advertisements and the Heat Reflect "Better Homes & Gardens" television segment. This was because Ms Palazzotto considered that these materials were the same as had already been approved. 63 Nor was Ms Wright asked to approve the Heat Reflect paint tin label. This was because on 29 August 2011, Mr Krnic had separately approved both the Heat Reflect paint tin label and the Heat Reflect colour card for technical claims, and the representations contained on the tin label were the same as those in the materials referred to in [61] above, which had previously been approved by Ms Wright. 64 Ms Wright's approval of the marketing and advertising materials that conveyed the two impugned representations was based on the assumption that the representations could be substantiated on technical grounds. This is evident from an email to Ms Palazzotto of 18 October 2011 in which Ms Wright stated: I assume that the claim "Up to 15 degrees cooler" can be substantiated and that specifically, (a) we can prove it to be true, (b) the caveats in the small print are both reasonable and complete (see my note below), (c) that the claim, which is in relation to surface temperature readily translates to a difference inside the house, thereby justifying the claim, "Reflects heat to keep your home cooler" (sic)," 65 There was no response to Ms Wright in relation to the assumptions expressed in her email. 66 Dulux made the following admissions in relation to the Heat Reflect Representations: 100 Prior to publishing, distributing, making available or broadcasting each of the materials that conveyed the Exterior Temperature Reduction Representation and the Interior Temperature Reduction Representations, Dulux did not: (a) conduct or obtain any studies or tests in which Heat Reflect Paint was applied to the walls of any house and the interior temperature of that house was measured; (b) conduct or obtain any studies or tests from which it could be reasonably or accurately predicted that Heat Reflect Paint, applied to the walls of any house, would reduce the temperature of the interior or that house by any significant amount; or (c) conduct any other investigations that provided reasonable grounds for the Exterior Temperature Reduction Representation and the Interior Temperature Reduction Representation. 67 The "Exterior Temperature Reduction Representation" referred to in para 100 of the agreed facts, refers to the representation at para 2(d) of the proposed declarations (see [14] above); and the Interior Temperature Reduction Representation, referred to in that paragraph, refers to the representation at para 2(c) of the proposed declarations (see [14] above).
mr schultz's evidence 68 Dulux also read an affidavit of Mr Ian Ramond Schultz, dated 2 November 2015, at the penalty hearing. 69 Mr Schultz deposed that he was, at the date of the affidavit, the marketing manager of the Dulux AcraTex division. Mr Schultz said that he moved to his role as marketing manager in mid-2007, and that in that role he was engaged in the commercial realisation of products. This role involved identifying product opportunities and then following technical development, marketing those products. This, said Mr Schultz, may initially involve undertaking some technical work or research in conjunction with the technical manager and his team. Mr Schultz had responsibility for the development and marketing of the InfraCool paint products. 70 Mr Schultz was also involved in giving technical advice in relation to the development and marketing of the Heat Reflect paint products. 71 Mr Schultz's affidavit described in detail the Highgate test and the AcraTex test he supervised in relation to InfraCool paint products prior to approving the InfraCool marketing and advertising materials for release to the public in about June 2008. Those tests are referred to at [28] and [29] above. Mr Schultz also deposed to other tests which he had supervised at different locations and at different times from October 2009 to December 2012. However, none of those tests was structured in a manner directed towards substantiating the impugned representation; namely, a test to compare the effects of painting one roof with InfraCool paint and another roof with the equivalent standard paint of the same colour, on the interior temperature of the relevant room or rooms over a period of time. I did not find evidence of those subsequent tests helpful in addressing the question of the appropriate penalty.
the joint expert report 72 In addition, there was before the Court a joint expert report which expressed the opinion of Dr Ronnen Levinson and Dr Eric Guyer as to the characteristics and performance of heat reflective paint.
WHETHER THE COURT SHOULD MAKE THE DECLARATIONS SOUGHT 73 I deal now with the question of whether the declarations and orders sought should be made. 74 The Court will not make orders in a proceeding which a regulatory authority has brought, simply because the regulatory authority and the parties have reached an agreement as to the orders which they seek. The Court must be satisfied that it is appropriate that orders in the terms sought, be made. 75 In my view, on the basis of the agreed facts, it is appropriate that the proposed declarations which the parties have put forward by way of a minute of proposed orders be made. 76 I am also of the view that it is appropriate, on the basis of the agreed facts, that the orders for the publication of the notices in the Australian newspaper also be made.
APPROPRIATE PECUNIARY PENALTY 77 I now deal with the question of the appropriate pecuniary penalty. 78 Both parties submitted that the question of the appropriate penalty should be approached on the basis that the contravening conduct should be characterised as comprising two separate courses of conduct, namely, the marketing and advertising campaign in respect of each of the InfraCool paint and the Heat Reflect paint. 79 There were, of course, strictly speaking, multiple contraventions of the ACL by Dulux. Each publication of the impugned representations through the media identified in the declarations would have constituted a separate contravention carrying a maximum penalty of $1.1 million. However, as was observed by Allsop CJ in Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Limited (2015) 327 ALR 540 at [17]-[18] (Coles), it would not be helpful to approach the question of assessing the penalty by this method. 80 Rather, in my view, the proper approach in a case such as this is that which was adopted by Allsop CJ in Coles, namely, a recognition that the characterisation of the contravening conduct into two broad courses of conduct did not have the effect of limiting the maximum potential penalty which could be imposed to $2.2 million, but rather that the recognition of the two courses of conduct operated to "frame the analysis of the appropriate penalty". 81 At [18] of Coles, Allsop CJ expressed the position in these terms: …the better approach was to determine the penalty assisted by understanding the extent to which there was a certain number of courses of conduct leading to potentially a huge number of contraventions. The instinctive synthesis endorsed by the High Court in Markarian should then be conducted by reference to a recognition of the multiplicity of breaches, a broad view of the course or courses of conduct, and an assessment of the overall extent and seriousness of offending, together with all other relevant considerations, in particular deterrence. 82 In Commonwealth v CFMEU; DFWBII v CFMEU (2015) 326 ALR 476 (CFMEU), the High Court found that the principles set out in Barbaro v The Queen (2014) 253 CLR 58 did not apply to civil penalty proceedings. The High Court also confirmed that a court could hear submissions from a regulator in support of the making of consent orders which imposed a civil penalty; and that a court could make such consent orders where it was appropriate to do so. Further, the High Court found that a regulator was entitled to make submissions as to what amount might be an appropriate pecuniary penalty. 83 After the High Court judgment in CFMEU was delivered, each of the parties made supplementary submissions as to the appropriate amount of pecuniary penalty. 84 The ACCC submitted that the appropriate penalty in respect of the totality of the contravening conduct was $800,000. Dulux, on the other hand, submitted that an appropriate pecuniary penalty would be in the range of $200,000 to $250,000. 85 The proper approach to the imposition of a pecuniary penalty in this case is to have regard to the relevant considerations and then to apply what has been referred to as an "instinctive synthesis" which takes into account all of the considerations. 86 Section 224(2) of the ACL applies to this case, and provides that in determining the appropriate pecuniary penalty, the Court must have regard to "all relevant matters including": (a) the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and (b) the circumstances in which the act or omission took place; and (c) whether the person has previously been found by a court in proceedings under Chapter 4 or this Part to have engaged in any similar conduct. 87 In Trade Practices Commission v CSR Limited [1990] FCA 521 (CSR Limited), French J (as his Honour then was) identified a number of relevant factors that may be of assistance in assessing an appropriate penalty in a case such as this. More recently, in the case of Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 4) (2011) 282 ALR 246, Perram J also referred to, and expanded upon, the factors to which French J referred in CSR Limited. The application of the factors identified in these cases will vary from case to case. 88 In this case, in my view, the following are the relevant factors to which the Court should have regard in assessing an appropriate pecuniary penalty:
NATURE AND CIRCUMSTANCES OF THE CONTRAVENING CONDUCT 92 The nature of the contravening conduct comprised the publication and distribution of advertising and promotional materials which contained the impugned representations described in the declarations, in circumstances where Dulux did not have reasonable grounds for making the representations. 93 In my view, the nature of the contravening conduct is serious. This is because there was a substantial incongruity between the nature and content of the impugned representations and the basis upon which Dulux made the representations. However, albeit that the contravening conduct is serious, it is not so serious as to place the conduct at the upper range of seriousness. I find the contravening conduct to fall into the lower to middling range of seriousness. 94 I deal first with the nature and content of the impugned representations. 95 First, the impugned representations were directed toward, and misrepresented, the major selling point of the two heat reflective paint products. The representations were not directed toward incidental aspects of the paint products. 96 The impugned representations made bold claims as to the benefits to be derived by consumers in using the heat reflective paints, rather than the equivalent standard paint; and these claims were expressed in persuasive terms. In some of the marketing and advertising materials, Dulux used powerful images and suggestive colours to represent the cooling benefits that a consumer could expect to receive by using the heat reflective paints, rather than standard paints, to paint the roof or exterior walls of his or her home. Thus, for example, the image used in the InfraCool colour card shows red heat arrows penetrating the roof of the house painted with ordinary black roof paint into the room below where a thermometer displays an internal temperature of 35ºC. By contrast, the roof which has been painted with InfraCool black paint is depicted as being totally effective in deflecting the red heat arrows so that the room below the roof shows a thermometer with an internal temperature of 25ºC. Further, the colour scheme Dulux used in the image further emphasises the beneficial effect of using InfraCool paint, rather than standard paint, by using red and orange to depict the interior of the room beneath the roof painted with standard paint and blue to depict the interior of the room beneath the roof painted with InfraCool paint. 97 The promotional materials such as, for example, the standees and the colour card for Heat Reflect paint adopted a similar approach in representing the significant interior temperature reduction to be derived by using Heat Reflect paint, rather than the equivalent standard paint, to paint the exterior walls of a room. These materials also depict red heat arrows being successfully deflected by the Heat Reflect paint from entering the interior of the room protected by that paint, but, by contrast, passing through the wall of a room adjacent to a wall painted with the standard paint. Also, cool colours are used to depict the interior of the room adjacent to a wall painted with Heat Reflect paint, while warm red and orange colours are used to depict the interior of a room adjacent to the wall painted with standard paint. 98 Secondly, in some instances, Dulux sought to enhance the persuasive power of the impugned representations by utilising technical terms and graphs. Thus, for example, the representations on the colour card for InfraCool paint made reference to scientific terms such as "total solar reflectance" (TSR) data and "spectral reflectance performance" (SRP). There was reference to the fact that TSR and SRP were assessed in accordance with the ASTM. There was also an accompanying graph which purported to reflect the substantial reduction in surface temperature of the roof by using InfraCool paint, rather than standard paint of the same colour. 99 Thirdly, the impugned representations were not of a character which a consumer could verify for himself or herself by carrying out his or her own research. 100 These circumstances, together with the fact that Dulux is a well-known and reputable manufacturer of paint, meant that it was more likely that an ordinary or reasonable consumer would give credence to the asserted superior performance capabilities of the heat reflective paints, over the equivalent standard paints, referred to in the impugned representations. 101 It is in this context, that the basis upon which Dulux acted in making the representations is to be assessed. 102 It is apparent from the content of the marketing and advertising materials that Dulux appreciated that the main selling point of the heat reflective paints for a consumer was the benefit to be obtained by applying heat reflective paints, rather than standard paints, to a roof or exterior walls in reducing the interior temperature of the house or room. This is because a consumer would not be particularly attracted by the prospect of having a roof or wall with a cooler surface temperature if that did not translate into a cooler room. 103 In relation to the InfraCool paint, it is agreed that, prior to making the InfraCool Representation in about June 2009, Mr Schultz was aware of, and reviewed scientific articles about cool roof technology from the United States of America, and some marketing materials from producers of heat reflective paint in Australia. It was also agreed that Dulux had worked with Shepherd, a United States company, which had acquainted Dulux with the ASTM calculator and Dulux had acquired some knowledge about heat reflective paint in working with Shepherd. Further, it was agreed that Allunga Exposure Laboratory in the United States had carried out some tests for Dulux, measuring the comparative reduction in the surface temperature of a roof painted with Dulux InfraCool paint, and standard roof paint. 104 Dulux had also in January 2008, carried out a trial on a house in Highgate, South Australia, by painting the roof of the house with InfraCool paint over an existing but weathered standard paint and measuring the resulting comparative changes in temperature of the roof surface and the attic space beneath the roof. Dulux had also carried out another trial by painting part of the metal roof of its AcraTex factory in South Australia with InfraCool paint. 105 However, it was also agreed that, prior to making the InfraCool Representation, Dulux never carried out any tests to measure the respective interior temperature of the rooms of a house whose roof had been painted with either InfraCool paint or standard roof paint of the same colour. 106 It was agreed that while the information available to Mr Schultz and Dulux provided some basis to believe that applying heat reflective paint to the roof of a house may reduce the interior temperature of that house, depending on climate conditions and the attributes of the house, that information did not comprise reasonable grounds for making the InfraCool Representation. 107 Further, the agreed facts also show that the marketing and advertising materials, containing the InfraCool Representation, were, in May or June 2009, approved for release to the public by a meeting of Dulux's technical and marketing managers, without them having first taken legal advice as to whether, in making the InfraCool Representation, Dulux was complying with its obligations under the TPA. 108 In relation to the Heat Reflect wall paint, the agreed facts show that Ms Palazzotto involved Ms Wright of the Dulux legal division in the approval process for the marketing and advertising materials for that paint. However, it is also apparent from the agreed facts that Ms Palazzotto and Ms Wright relied upon the advice of the technical staff as to whether the performance claims made about the Heat Reflect paint could be substantiated. 109 The agreed facts also show that the technical staff at Dulux did not carry out any tests which measured any actual reduction in room temperature in respect of a room whose exterior walls had been painted with Heat Reflect paint, compared to the equivalent standard paint. Rather, Dulux relied upon the use of the ASTM calculator in assessing the performance characteristics of the Heat Reflect paint in circumstances where it was not appropriate to use that calculator. Also, Dulux tested surface temperature reduction by using small painted panels and a test rig. It was also agreed that this was an inadequate test to support the impugned representations. Further, Mr Schultz, on 4 October 2011, in providing what he regarded as substantiation for the claim that Heat Reflect paint would keep "your home cooler", referred to research from the United States of America which it was agreed did not support the scope of the impugned representations. 110 It is apparent from the agreed facts that the technical managers involved in the development of the two heat reflective paints did not have formal educational qualifications in that paint and its associated technology, and that they only had limited expertise and understanding of the measurement techniques associated with heat reflective paint. This is especially evident from the use by the technical managers of the ASTM calculator in assessing the attributes of Heat Reflect paint, when that calculator was not appropriate for that purpose. In other words, the technical managers did not have the necessary training, experience or expertise to provide to the marketing personnel with well informed and proper advice as to the performance capabilities of the heat reflective paint. 111 Further, it is apparent that the technical managers, both in June 2009, when they approved the InfraCool marketing and advertising materials, and in June 2011 to October 2011, when they participated in the approval process for the Heat Reflect paint materials, did not understand the extent of rigour required in the testing of the heat reflective paints for that information to satisfy the requirement that Dulux have reasonable grounds for making claims as to the attributes of the Dulux products in question. 112 These deficiencies render Dulux's contraventions serious, but as I have said, comprises conduct which falls within the range of lower to middling range of seriousness, rather than at the higher end. 113 Dulux contended in mitigation of the seriousness of Dulux's conduct, that the InfraCool and Heat Reflect paints did, in fact, deliver cooling benefits to the consumers who purchased these paints beyond the benefits which they would have derived had they purchased standard paints, albeit that those benefits were not to the extent of the benefits which Dulux had represented. 114 Dulux relied upon the joint expert report in support of that contention. 115 In my view, the joint expert report does not comprise sufficiently probative evidence to support the breadth of the submission made by Dulux. 116 The joint expert report is heavily qualified and the experts say no more than that the application of heat reflective paints, rather than standard paints of the same colour, may result in the reduction of room temperature. It is to be observed that the joint expert report is not founded on actual tests carried out by the experts as to the relative cooling benefits to be derived of painting roofs and walls with InfraCool and Heat Reflect paints, rather than equivalent standard paints. 117 However, the experts do, subject to the heavy qualifications referred to, express an opinion in respect of the possible potential reduction in the internal temperature of a room beneath a roof painted with heat reflective paint in place of standard paint of the same colour. That scenario ("Scenario A" in the joint expert report) most approximates the scenario referred to in the impugned representations. The experts express the qualified view that, in that particular scenario, the possible potential interior temperature reduction in the case of a house with a poorly ventilated roof, depending upon the assessment methodology used, could be between 0.5ºC-3.3ºC (using one means of assessment) or between 0.4ºC-1ºC (using another means of assessment). In the case of a better insulated roof, there could be an internal temperature reduction of between 0.2ºC-1.1ºC (using the first means of assessment) or between 0.1ºC-0.3ºC (using the second means of assessment). 118 The joint expert report is even more qualified in relation to expressing an opinion on the potential impact of heat reflective wall paint on the internal temperature of an adjacent room. The report recognised that there was an absence of data upon which to found such an opinion. However, the experts proceeded to make an estimate in respect of a hypothetical house in Sydney using the Los Angeles irradiation data for Sydney, and extrapolating from data in respect of the painting of a roof with heat reflective paint. The experts observed that the estimate should be regarded as an "upper bound" estimate because it neglected factors which reduced the extent to which heat reflective wall paint could lower solar heat gain. These factors included overhangs, adjacent houses and nearby trees and vegetation. In any event, subject to those and other qualifications, the experts estimated that the application of heat reflective paint to external west, east and south facing walls of a house in Sydney would be less effective at reducing internal temperature than the application of heat reflective roof paint to the roof of that house. The experts estimated that the application of heat reflective paint to those walls would generate an interior room temperature reduction in old houses of approximately 46% of that which may be achieved by the application of heat reflective paint to the roof, and 35% in newer houses. 119 Applying those discounts to the figures referred to in [117] above, demonstrates a very small potential reduction in temperature. 120 I, therefore, place little weight on this submission by Dulux. 121 I find, therefore, that the contravening conduct was serious and fell within the lower to middling range of seriousness.
The extent of the contravening conduct and the loss or damage suffered 122 In considering the extent of the contravening conduct, I will distinguish between the representations made in relation to the InfraCool paint and the Heat Reflect paint.
InfraCool paint representation 123 As mentioned, the InfraCool Representation was contained in InfraCool colour card and in the InfraCool colour fact sheet. 124 It was an agreed fact that approximately 30,000 InfraCool colour cards were distributed to about 30 trade centres in Australia between June 2009 and September 2012. 125 The InfraCool colour fact sheet was published online on the Dulux website during the period September 2009 to September 2012. There was no information before the Court as to how many times that information was accessed. 126 The aggregate amount spent on marketing of the InfrCool paint was $23,829, which was spent entirely upon the production and distribution of the InfraCool colour card. 127 The ACCC also contended that one could infer that Dulux intended that there be a wider dissemination of the InfraCool Representation by sales staff to customers when discussing the InfraCool colour card with customers. In support of this contention, the ACCC referred to the agreed fact that Mr Schultz made a Power Point presentation to Dulux sales staff, and that five pages of the presentation were devoted to the InfraCool colour card, which is itself only a two page document. The ACCC contended that it was to be inferred that the presentation was intended to educate the Dulux sales staff on the content of the InfraCool colour card and that the InfraCool Representation was passed on by the Dulux sales staff to painters who would then convey the information to their customers. Accordingly, said the ACCC, the dissemination of the impugned representation by that means should also be taken into account in assessing the extent of the impugned conduct. 128 I do not place much weight on this submission in assessing the extent of the contravening conduct as it is essentially speculative.
Heat Reflect paint representations 129 As is apparent from the terms of the declarations made, the materials and advertisements, and the attendant impugned representations promoting and advertising the Heat Reflect paint, were distributed on a much wider scale than those promoting and advertising the InfraCool paints. 130 The relevant marketing activities included the distribution of colour cards, promotional materials such as standees, and the placement of television commercials, as well as advertisements in newspapers, magazines and social media such as Facebook and YouTube. The impugned representations were also contained on the labels on the Heat Reflect paint tins. 131 It was agreed that approximately 256,000 Heat Reflect colour cards were distributed to approximately 500 retail outlets; and, that the Heat Reflect television commercials were broadcast nationally on television channels 7, 9 and 10 (and regional equivalents) during the period November 2011 to May 2012. The amount spent on the television commercials was a total of $253,659.10. 132 There was also an advertorial segment which was broadcast during the television show "Better Homes & Gardens" on 9 March 2012, which advertised the Heat Reflect paint. This advertorial placement cost Dulux a total of $15,585.31. 133 The advertisements appeared in the print media referred to in the declarations at various times during the period December 2011 to March 2012. The total amount spent in relation to the promotion of the paint through the print media was $26,182.80. 134 The YouTube video was available for viewing on YouTube during the period November 2011 to August 2012. The video was viewed 5,497 times. However, less than 30% of viewers watched the whole video. 135 There was no information available as to the number of times the advertisement was accessed on either Dulux's webpage or Dulux's Facebook page during the period from November 2011 to August 2012 when it was available for viewing on these media. 136 The labels on the Heat Reflect tins contained the two impugned Heat Reflect Representations until February 2013. It was agreed that about 4,800 cans of the paint were sold. 137 The aggregate amount spent on marketing the Heat Reflect paint was $990,742. 138 The total period, therefore, during which the impugned representations for Heat Reflect paint were made was from November 2011 to February 2013. However, I observe that the television and print media advertising campaign occurred primarily during the period November 2011 to August 2012, and I accept Dulux's submission that, to a large measure, the publication of the impugned Heat Reflect Representations lasted for less than one year. 139 However, it is clear that, in contrast to the position in relation to the InfraCool paint, the impugned representations in respect of the Heat Reflect paint were published widely and that Dulux intended thereby to influence consumers directly throughout the whole of Australia. 140 Dulux sought to minimise the extent of the contravening conduct by referring to the fact that the paint was not a "consumer staple" and that the market for heat reflective paint comprised only 0.66% of the paint industry by revenue in Australia. Dulux also referred to the fact that the Heat Reflect paint failed as a product. Further, Dulux made submissions comparing the scope and cost of the advertising campaigns in other cases in which pecuniary penalties had been imposed. However, in my view, each case must ultimately depend on its own facts. 141 In my view, the weight to be given to the extent of the contravening conduct in this case is to be considered by reference to the fact that the contravening conduct occurred in the course of a marketing campaign by Dulux to procure market share for both paints in a small part of the Australia-wide paint market. I find that the extent of Dulux's contravening conduct was such as to enable Dulux to attain 12% of the heat reflective paint market in Australia in approximately three years, and, therefore, cannot be regarded as insignificant.
LOSS SUFFERED BY REASON OF THE CONTRAVENING CONDUCT 142 It is appropriate to consider the question of loss by reference to any loss suffered by Dulux's customers, on the one hand, and by Dulux's competitors on the other hand. 143 It was an agreed fact that Dulux had only received two complaints from consumers in relation to the InfraCool paint and no complaints in relation to the Heat Reflect paint. 144 Dulux submitted there was no evidence of any consumer or competitor suffering pecuniary loss and that this was a significant mitigating factor to take into account in the assessment of the appropriate penalty. The ACCC submitted that the Court should decline to find that no consumer suffered loss because, by reason of the contravening conduct, consumers may have lost the opportunity to purchase a different product. 145 I accept that, in some cases, the fact that there was no evidence that any consumer or competitor had suffered a pecuniary loss will be a fact to take into account in mitigation of the amount of a penalty which may otherwise be imposed. 146 However, in my view, there will also be cases where it will be appropriate to have regard to whether the circumstances were such that consumers may have lost the opportunity to purchase a different product by reason of the impugned conduct. At [57] in Coles, Allsop CJ observed: The primary source of any loss or damage to consumers was of a non-pecuniary nature. The fact that they had lost the opportunity to make a different purchasing choice that they may have made had they been provided with accurate information about the goods they were purchasing. 147 Dulux argued that this was not a lost opportunity case because, although the heat reflective paints could not provide the benefits represented by the impugned representations, they were, nevertheless, heat reflective paints; and the joint expert report showed that heat reflective paints could deliver some cooling benefits, even if not to the extent represented by Dulux in the impugned representations. 148 I do not place any weight on this submission, for the following reasons. 149 In this case, there was a price premium between heat reflective and non-heat reflective standard paint in relation to both InfraCool paint and Heat Reflect paint. 150 It was an agreed fact that between June 2009 and September 2012, the price of InfraCool paint was $12.64 per litre, whereas the price of Dulux standard roof paint was $7.69 per litre. It follows that the InfraCool paint was sold at a premium of $4.95 a litre. It is also an agreed fact that during that period Dulux supplied about 144,000 litres of InfraCool paint. The consequence is that in purchasing the InfraCool paint, consumers were during that period, paid a total of $700,000 more than if they had purchased standard Dulux roof paint. 151 The recommended price of the Heat Reflect paint varied according to the colour of the paint. However, it is not disputed that consumers paid a premium for the Heat Reflect paint as opposed to the Dulux standard wall paint product. An analysis of the prices in the agreed facts shows that the approximate premium for the Heat Reflect paint over the standard wall paint was $2.20 per litre. Based on those figures, together with the agreed fact that about 48,000 litres of Heat Reflect paint was sold, consumers were induced to pay a total of about $105,600 more than if they had purchased Dulux's standard wall paint. 152 As mentioned, the joint expert opinion is qualified and expressed in general terms. The opinion is not founded on actual tests undertaken by the experts of the cooling benefits of InfraCool or Heat Reflect paints compared to the equivalent standard roof and wall paints respectively, in Australian weather conditions. In any event, such possible potential cooling benefits to which the experts refer are very marginal. There is no evidence which establishes that, if the consumers were appraised of such marginal benefits, they would have still purchased the Dulux InfraCool and Heat Reflect paints at the premium price that was paid by the consumers. 153 In this case, by extolling the advantages of heat reflective paint over standard paint, Dulux intended to induce consumers to buy the more expensive InfraCool and Heat Reflect paint, rather than standard paint to paint their roofs and exterior walls. In those circumstances, it is curious that Dulux now would seek to contend that consumers, in purchasing heat reflective paint, rather than standard paint, had acted otherwise than in accordance with how Dulux intended them to act. Therefore, although no evidence was adduced that any consumer had suffered any actual pecuniary loss, I am not prepared to find that consumers did not suffer a loss by losing the opportunity to purchase the cheaper standard paint. 154 The ACCC also submitted that it was relevant to consider the potential loss suffered by Dulux's competitors. 155 In this regard, in Coles, Allsop CJ observed at [61]: I am not prepared to find that Coles' conduct did not harm its competitors. It set out to achieve a purpose of bettering its position over its competitors. It set out to do so by engaging in the conduct that, in fact, breached the ACL. 156 However, Allsop CJ went on to observe that any harm suffered in that case would be extremely difficult to quantify. 157 Relying on these observations, the ACCC submitted that the Court should not find that no competitor suffered loss or damage, even if the Court is unable to quantify that loss or damage. 158 Dulux introduced a heat reflective product into a market in which there were already suppliers in Australia of heat reflective paint. It is obvious, therefore, that Dulux undertook a marketing and advertising campaign of which the contravening conduct was part, in order to earn market share. 159 It was an agreed fact that InfraCool paints were first released to the market in June 2009 and Heat Reflect paint in 2011. As I have mentioned, it was also agreed that, in 2012, Dulux controlled about 12% of the heat reflective paint market in Australia. It follows that, with the assistance of Dulux's marketing and advertising campaigns, which included the contravening conduct, Dulux achieved a not insignificant market share within about three years from the release of the InfraCool paints. I am, therefore, not prepared to find that the contravening conduct did not cause loss to competitors.
THE INVOLVEMENT OF SENIOR MANAGEMENT 160 The ACCC contended that senior management of Dulux was involved in the contravening conduct and that fact should be taken into account in assessing the appropriate penalty. The ACCC relied specifically on the involvement of Mr Schultz and Ms Palazzotto. 161 As I have mentioned, Mr Schultz supervised the development of InfraCool paint and its associated marketing materials. He was involved in the development and marketing of the Heat Reflect paint. Mr Schultz was also involved in approving the release of the InfraCool colour card and InfraCool colour fact sheet for release to the public, and in making the Power Point representation to sales staff to which I have referred. 162 Ms Palazzotto was closely involved in the marketing of the Heat Reflect paint and liaised with Mr Schultz and other members of the Dulux technical department about the content of the proposed representations about the attributes of the Heat Reflect paint. 163 Ms Palazzotto also worked with Ms Wright, from the Dulux legal division, in approving the marketing and advertising materials for the Heat Reflect paint for release to the public. 164 Dulux contended that Mr Schultz and Ms Palazzotto should not be regarded as being part of the senior management of Dulux, as they were not directors of Dulux. 165 I do not accept that because each of Mr Schultz and Ms Palazzotto was not a director of Dulux, each should not be treated as being within the senior management of Dulux for the purposes of determining the appropriate pecuniary penalty to be imposed on Dulux. 166 I say this because it is to be inferred from the agreed facts that each of Mr Schultz and Ms Palazzotto was in a sufficiently senior position to be influential in the decision on behalf of Dulux to approve for release to the public the impugned marketing and advertising materials for each of the InfraCool and Heat Reflect paints. Plainly, the release of promotional materials to the public for the purpose of inducing consumers to purchase Dulux products in a new market for Dulux, is a significant corporate act by Dulux. It is to be inferred that Dulux would only confer that authority on persons occupying senior management positions in Dulux. Further, and importantly, there is no agreed fact which indicated that the approval of the marketing and advertising materials occurred at any higher level of management in Dulux. 167 These circumstances, in my view, place each of Mr Schultz and Ms Palazzotto in the category of senior management for the purpose of the imposition of an appropriate pecuniary penalty. I find, therefore, that senior management were involved in the contravening conduct.
Dulux's compliance PROGRAMME 168 The existence of a corporate compliance programme directed towards procuring compliance with the company's obligations under the relevant consumer legislation, has been considered a mitigating factor in relation to the imposition of a pecuniary penalty (NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 293-294). However, the mitigating effect is lessened if the compliance programme fails (Australian Competition and Consumer Commission v George Weston Foods Ltd [2000] FCA 690 at [45]). 169 It was an agreed fact that, during the period July 2009 to July 2012, Dulux had a code of practice in relation to compliance with the TPA. This document was headed: "Orica Australia Pty Ltd - Trade Practices Compliance Guide" (the Orica compliance guide). 170 The background to Dulux having a compliance guide bearing the heading, "Orica Australia Pty Ltd" throughout that period was explained at the hearing as follows. The current business operations of Dulux were, at one time, owned and conducted by a public company, Orica Ltd (Orica). The Dulux operations were then transferred from Orica into Dulux, as a subsidiary of a separate public company, Dulux Group Ltd. Dulux Group Ltd was then floated on the Australian Stock Exchange. Notwithstanding these events, Dulux continued to use the Orica compliance guide even after the business operations were now part of a different publicly listed company. 171 There was also in existence, during the relevant period, another document headed: "Trade Practices Golden Rules" which Dulux contended also formed part of its compliance programme. 172 It was further agreed that during the period July 2009 to July 2012, as part of its compliance programme, Dulux required relevant employees to undertake face-to-face and online competition and consumer law training approximately every two to three years. It was also an agreed fact that Mr Schultz, Ms Palazzotto and Mr Kolver had attended trade practices compliance training. 173 It was also an agreed fact that, in July 2012, Dulux revised its compliance programme. I observe, however, that this only occurred after the ACCC had written to Dulux about the misleading claims made in relation to the Heat Reflect paint. 174 In my view, the agreed facts do not demonstrate an active and effective inculcation of a compliance culture by Dulux during the period July 2009 to July 2012. I base that finding on the following reasons. 175 First, the Orica compliance guide, which had been inherited from Orica, and the 10 Trade Practices Golden Rules were only of limited value in procuring compliance with Dulux's consumer law obligations. 176 The Orica compliance guide comprised 31 pages but only five pages were devoted to misleading or deceptive conduct. These five pages comprised a brief summary of the effect of s 52 and s 53 of the TPA, and some examples of conduct which may be considered misleading or deceptive. However, the guide did not identify a specific practical formal procedure to be followed by Dulux's managers for the approval of marketing and advertising materials which made claims about the attributes and performance of new, or existing, products. In particular, whilst the Orica compliance guide encouraged consultation with Dulux's legal division when employees had any doubts about the application of the law in relation to his or her proposed conduct, it did not include an obligation to clear any marketing or advertising materials with the legal division before release to the public. 177 The 10 Trade Practices Golden Rules was a superficial two page pamphlet which set out 10 "golden rules". The tenor of the pamphlet was that it was each employee's obligation not to contravene the TPA. Only one of the 10 golden rules addressed the obligation not to engage in misleading or deceptive conduct. That rule did no more than state that an employee was not to make false or misleading representations about Dulux's products or those of its competitors. There was another rule which stated that, in case of doubt, an employee should consult with Dulux's legal division. 178 Secondly, although it was an agreed fact that Mr Schultz, Ms Palazzotto and Mr Kolver had attended trade practices compliance training, there was no agreed facts as to how often, and when, each had attended that training. However, it is apparent from the matters disclosed in the agreed facts, that the compliance programme and training had failed to inculcate in those managers a proper understanding of the extent of Dulux's obligation under the law not to engage in false or misleading or deceptive conduct. 179 Thus, it was an agreed fact that the decision to approve the InfraCool colour card and InfraCool colour fact sheet was taken at a meeting of marketing and technical managers in May or June 2009, and that these managers had not sought legal advice from Dulux's legal division as to whether the performance claims made in those documents, complied with Dulux's obligations under the TPA. 180 It is to be inferred that Dulux's compliance programme had failed to educate the managers at that meeting and those who were involved in the development of the marketing materials (including Mr Schultz), as to the nature and extent of the conduct which might give rise to liability under the TPA. This is because, notwithstanding, the exhortation in the Orica compliance guide to consult with Dulux's legal division in cases of doubt, those managers did not regard the circumstances such as to warrant referring the marketing materials to the legal division for advice. 181 Accordingly, I am of the view that there was not in June 2009, either within the marketing department or the technical department responsible for developing InfraCool paint, a sufficient appreciation of the nature and content of Dulux's obligations under the TPA, notwithstanding the existence of a compliance programme within Dulux at the time. 182 The position in relation to the approval of the Heat Reflect paint in 2011 is a little different. 183 The agreed facts do show that in April 2011, Ms Palazzotto did appreciate that the performance claims in respect of the Heat Reflect paint being made in the marketing and advertising materials needed to be justified; and that it was necessary to obtain advice from Dulux's legal division on this issue. 184 However, it is also apparent from the agreed facts that as far as Mr Schultz and the members of the technical department were concerned, nothing had changed from May or June 2009. Dulux had still failed to inculcate in these persons a proper understanding of the extent of the requirement to satisfy the statutory obligations in relation to making performance claims to the consumers about Dulux's products. Thus, the agreed facts do not demonstrate that from August 2011 to November 2011, during which the marketing and advertising materials for the Heat Reflect paint were approved, there was an awareness, in the technical department, of the requirement for Dulux to be able to rely on research in relation to its new products which was sufficiently relevant and rigorous so as to provide reasonable grounds for making the performance claims published in the marketing and advertising materials. The failure of Dulux's compliance programme in this respect is significant because it was the members of the technical department who were ultimately responsible for the verification of the content of the performance claims that were made in the marketing and advertising materials. The agreed facts show that Dulux's legal division relied to a large extent on the opinion of the technical department when approving performance claims for the Heat Reflect paint made in the marketing and advertising materials. 185 In my view, whilst Dulux did have some regard to the need to advise and train its employees about the company's consumer law obligations, the compliance programme adopted and implemented by Dulux prior to July 2012 was inadequate. 186 In my view, therefore, the Dulux compliance programme and its implementation during the period July 2009 to July 2012, does not operate as a mitigating factor in relation to the assessment of the appropriate penalty. It is, in my view, a neutral consideration. 187 I do not accept Dulux's contention that the ACCC has, by not pressing for orders that Dulux institute a compliance programme, tacitly accepted that Dulux's compliance programme was during the relevant period satisfactory. It is obvious from the ACCC's submissions on penalty that it did not accept that Dulux's compliance programme was satisfactory.
deliberateness of the contravening conduct 188 The ACCC did not contend that Dulux had engaged in a deliberate course of conduct to contravene the TPA and the ACL.
Prior Contraventions 189 Dulux has not been found to have previously contravened the TPA or the ACL or engaged in similar conduct previously.
cooperation 190 The following are agreed facts relevant to the question of the cooperation of Dulux with the ACCC in its investigation and, also, in the resolution of this proceeding. 191 The ACCC first wrote to Dulux regarding complaints about the representations made in the marketing of Heat Reflect paint in March 2012. 192 In March 2012, after Dulux became aware of the ACCC's investigation into the Heat Reflect paint, Dulux amended the InfraCool colour card by removing temperature readings so that it no longer conveyed the 10ºC cooler representation by reference to thermometer readings. In March 2012, Dulux updated its website with the amended InfraCool colour card. 193 However, between March 2012 and September 2012, Dulux inadvertently continued to distribute about 800 of the unamended InfraCool colour cards and left an active weblink to the InfraCool colour fact sheet on its website. 194 As already mentioned, in July 2012, Dulux revised its compliance guide. The new guide was referred to as the "DuluxGroup Competition and Consumer Law Compliance Policy & Guide" (the 2012 guide). The 2012 guide included updates to reflect the introduction of the ACL and a requirement that all marketing and advertising materials be reviewed and signed off by the Dulux legal division. 195 In July 2012, Dulux arranged for further testing of the surface temperature reductions that could be achieved using Heat Reflect paint. Those tests were conducted using panels with standard and Heat Reflect paint in Darwin, Northern Territory, and in the United States of America. Without being required to do so, Dulux supplied the results of these tests (which were adverse to Dulux's interests) to the ACCC. 196 On 7 August 2012, Dulux issued instructions to cease distribution of Heat Reflect paint point of sale printed materials and removed the relevant website and social media content. 197 In September 2012, Dulux issued instructions for the withdrawal of the InfraCool colour card from Dulux trade centres and disabled the remaining weblink to the InfraCool colour fact sheet on the Dulux website. 198 On 17 December 2012, Dulux's management decided to withdraw the Heat Reflect paint from sale. On 24 January 2013, the Heat Reflect paint was withdrawn from sale. 199 The ACCC commenced this proceeding on 4 December 2012. Early in the proceeding, Dulux denied the representations pleaded by the ACCC, but pleaded that the marketing and advertising materials had given rise to representations in terms different to those pleaded by the ACCC. Dulux referred to those representations as "admitted representations". One of the admitted representations is the InfraCool Representation which is the subject of the declaration. Also, early in the proceeding, Dulux made admissions as to the misleading nature of the InfraCool Representation and one of the Heat Reflect Representations. 200 The ACCC acknowledged that Dulux was entitled to credit for cooperation with the ACCC during its investigation, and for its conduct in relation to the disposition of this proceeding. 201 I agree that Dulux has cooperated fully with the ACCC in its investigation. I also accept that Dulux has to a considerable extent cooperated with the ACCC in the disposition of this legal proceeding. It is the case, of course, that Dulux did in the preliminary proceeding, challenge the ACCC's claim that the marketing and advertising materials gave rise to the representations the ACCC alleged. Dulux failed in its challenge in respect of the two representations which comprised the Heat Reflect Representations which are the subject of the declarations. However, it is also the case that Dulux did enjoy some success in that preliminary proceeding. 202 The extent of the cooperation by Dulux with the ACCC in its investigation, and in the subsequent litigation, is a substantial factor weighing in mitigation of the pecuniary penalty.
deterRence and Dulux's Size and Financial Position 203 As I have mentioned, Dulux is a subsidiary of DuluxGroup Limited, which is a publicly listed company. 204 The agreed facts on this issue were to the following effect. 205 In the year ended 30 June 2014, DuluxGroup Limited generated sales revenue of $1.6 billion, earnings before interest and tax of $183.8 million and a net profit after tax of $111.9 million. According to IBISWorld (a credible publisher of industry research and analysis), Dulux has a 26% market share in the paint industry in Australia and is the market leader. 206 During the relevant period, InfraCOOL paint sales resulted in a trading profit to Dulux of about $643,000, while Heat Reflect paint sales resulted in a trading loss of about $911,000. 207 Dulux estimated that in 2012, heat reflective paints made up approximately 0.66% of the paint industry in Australia by revenue. 208 Dulux is not the market leader in relation to the manufacture and supply of heat reflective paints in Australia. As previously mentioned, Dulux estimated that in 2012, its share of the heat reflective paints market was approximately 12%, making it the third largest supplier of heat reflective paints in Australia. 209 I will consider the question of Dulux's size and financial position in the context of considering the question of deterrence. 210 As mentioned, it is well recognised that the notion of deterrence is the principal purpose for the imposition of a pecuniary penalty. In considering deterrence, it is necessary to have regard to both general deterrence and specific deterrence. 211 General deterrence requires that the penalty imposed is substantial enough to demonstrate to other potential contraveners that such conduct will be seriously punished so that they are deterred from engaging in such conduct. 212 Specific deterrence requires the penalty imposed be substantial enough to ensure that a contravener appreciates the seriousness of its conduct and is not inclined to repeat that conduct. 213 However, in having regard to the question of deterrence, it is also necessary to bear in mind the principle of proportionality such that the penalty imposed is proportionate to the seriousness of the contravention. 214 Dulux accepted that deterrence was an important consideration in imposing a pecuniary penalty. However, in relation to deterrence, Dulux contended that the fact that it was a subsidiary of a large publicly listed company should not influence the amount of the pecuniary penalty imposed. Dulux submitted that the penalty to be imposed should be proportionate to the seriousness of the contravention, not proportionate to Dulux's financial position. In particular, said Dulux, the fact that it was a subsidiary of a large publicly listed company with a strong financial position did not of itself aggravate the contravening conduct and, thereby, warrant a larger penalty than might otherwise be imposed. 215 Dulux went on to submit that an ordinary business person or member of the public would view a penalty of $200,000 as being significant and proportionate, and as a strong deterrent from contravening the ACL. 216 Dulux also contended that specific deterrence should not be a significant factor in the circumstances of this case for a number of reasons. First, Dulux has never previously contravened the TPA or the ACL. Secondly, Dulux had by its cooperation in response to the ACCC's investigation, and in relation to this proceeding, demonstrated that it has an exemplary culture of compliance. Thirdly, said Dulux, there was no suggestion that it had sought to take advantage of its financial position by engaging in the contravening conduct on the basis that any pecuniary penalties it may incur would be worth the risk and would simply be treated as a cost of doing business. Rather, said Dulux, the likely penalty, costs and associated harm to Dulux's reputation would far exceed any possible marketing benefit. 217 In my view, when considering the question of deterrence, the financial resources of a company to pay the penalty is a relevant consideration in assessing the propensity of the penalty to have a deterrent impact upon the behaviour of the company and also on retaining public confidence in the administration of the consumer legislation. However, this principle must also operate in conjunction with the principle that the penalty should be proportionate to the seriousness of the conduct. 218 The operation of these two principles means that there may be cases where the financial resources of the contravening company will carry more weight in the instinctive synthesis, than in other cases. Thus, for example, in cases where the contravention is particularly serious such as where the company has acted in a cynical manner, treating the imposition of a penalty as a cost of doing business, the need for a penalty which will operate, and be seen to operate, as an effective deterrent, may call for a higher penalty to be imposed on a well-resourced contravening company than upon a less well-resourced contravening company. 219 In this case, however, the origins of the contravening conduct are not to be found in a cynical attempt by the management of Dulux deliberately to make false or misleading or deceptive claims about the capability of its heat reflective paint in cynical disregard of its obligations under the consumer protection laws for commercial advantage. Rather, in my view, as I have found, the seriousness of the conduct is to be measured by reference to the lack of experience and expertise of Mr Schultz, Mr Volker and members of the Dulux technical staff in relation to the qualities and performance capabilities of heat reflective paint and their lack of appreciation of the requisite degree of rigour that was required in testing the paint in order to make representations which complied with consumer laws. 220 I have found that the contravening conduct was serious, but that seriousness was at the lower to middling end of the seriousness, rather than at the higher end of serious contravening conduct. The penalty to be imposed should, therefore, be proportionate to that circumstance. The fact that Dulux is a well-resourced company will not mean that the Court will impose a higher penalty than is proportionate to the seriousness of the contravening conduct. 221 In determining whether to impose a penalty which reflects an element of specific deterrence, I accept that since Dulux has not contravened the TPA or ACL previously, and has cooperated with the ACCC in its investigation and the resolution of this litigation and has taken remedial steps after the commencement of the ACCC investigation. I also accept that the reputational harm arising from this proceeding will have had a salutary effect upon Dulux. 222 However, it remains the fact that the integrity of representations to consumers about the attributes of Dulux's paints which depend upon technical or scientific analysis, depends upon a consciousness of Dulux's technical staff of the need for those representations to be founded upon sufficiently relevant and rigorous technical and scientific testing and research, and accurately to reflect the results of that testing and research. Thus, even though Dulux has introduced a compliance programme which now requires marketing and advertising materials to be reviewed by Dulux's legal division, the advice which is given by the lawyers will still depend to a considerable extent upon the quality of the instructions given to them by Dulux's technical personnel. That dependence is illustrated in this case by the agreed facts as to the circumstances leading up to the approval by Ms Wright of some of the marketing and advertising materials in relation to the Heat Reflect paint. 223 I am of the view that notwithstanding Dulux's fine reputation and record and its laudatory cooperation with the ACCC, and the steps it has taken to improve its compliance programme, there is a need for the penalty to reflect an element of specific deterrence as a reminder to Dulux of the need to be constantly vigilant to ensure that there are reasonable grounds for the claims that it makes about the performance, and attributes of its products. 224 There is also a need for the penalty to reflect an element of general deterrence to other companies which make performance claims in respect of their products which depend upon technical or scientific testing and research.
the appropriate pecuniary penalty 225 As mentioned, each of the parties made submissions as to the appropriate pecuniary penalty to be imposed. In making their submissions, each party proposed a penalty which reflected the totality of the contravening conduct. In other words, the parties did not propose separate penalties in relation to each of the two courses of conduct which they identified, namely, the contravening conduct in respect of the marketing and advertising of the InfraCool paint and the marketing and advertising of the Heat Reflect paint. 226 The ACCC contended that the appropriate penalty which took account of the totality of the contravening conduct was $800,000. On the other hand, Dulux contended that the appropriate penalty to be applied was in the range of $200,000 to $250,000. 227 I have set out above my views in relation to the factors to be taken into account in reaching an instinctive synthesis as to the appropriate penalty. 228 Thus, I have had regard to the fact that the contravening conduct was serious, but at the lower to middling range of seriousness, that the extent of the conduct was limited, but nevertheless, effective in securing within about three years a 12% market share of the heat reflective paint market in Australia, and the fact that Dulux's senior management was involved in the contravening conduct. 229 I have not taken into account as a mitigating factor, Dulux's contention that there was no loss suffered by consumers and competitors, nor its contention that there was an effective compliance programme during the relevant period; but also, I have not regarded the failure which I have identified in the compliance programme as an aggravating factor. 230 I have, however, had regard to the following factors as being mitigating factors: the fact that the contravening conduct was not undertaken in deliberate contravention of the consumer legislation, the fact that Dulux has not previously been held to have contravened any provisions of the TPA or the ACL, the fact that changes were promptly implemented by Dulux to its compliance programme, the cooperation between Dulux and the ACCC during its investigation, and the remedial steps taken by Dulux at that time, and Dulux's cooperation in the disposition of this proceeding. 231 Applying an instinctive synthesis to the appropriate penalty and taking into account the factors to which I have referred, and applying the totality principle, I am of the view, that an appropriate penalty in relation to the totality of Dulux's contravening conduct is $400,000. 232 I will, accordingly, order that Dulux pay a penalty in the sum of $400,000. 233 I have already observed that the minute of consent orders also proposes that there be an order that Dulux pay the costs of the ACCC in the sum of $150,000. I will also make that order. I certify that the preceding two hundred and thirty-three (233) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.
Australian Competition and Consumer Commission
DuluxGroup
[1990] FCA 521
(2015) 327 ALR 540
(2015) 326 ALR 476
(2014) 253 CLR 58
(2011) 282 ALR 246
(1996) 71 FCR 285