Australian Competition and Consumer Commission v Harbin Pty Ltd

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

REASONS FOR JUDGMENT 1 Harbin Pty Ltd has admitted contravening s 52 and s 53(e) of the Trade Practices Act 1974 (Cth) in one segment of a full page newspaper advertisement for its products. The publication was made on 29 March 2007 and was not repeated. The matter now in issue is that of remedy, the Australian Competition and Consumer Commission seeking a significant suite of orders which Harbin in large measure resists. 2 The context in which I need to consider this matter is somewhat unusual. In September 2004 the ACCC accepted an undertaking of indefinite duration from Harbin under s 87B of the Act which amongst other things obliged Harbin to establish, maintain and have independently audited annually a compliance program which was to have specific regard to conduct that might breach Part V of the TP Act. The undertaking is, in several respects, more expansive in its terms than would be acceptable to a Court making orders under s 86C of the Act: see Australian Competition and Consumer Commission v Visy Paper Pty Ltd (No 2) (2004) 212 ALR 564 at [55]-[56]. It has not been alleged that this undertaking has been breached. Nonetheless, a further probation order is being sought under s 86C. 3 My own view of the relief that is appropriate to be ordered is less burdensome than what is now sought by the ACCC (the amended application filed at the hearing responded to objections raised in Harbin's written submissions), but is more demanding than Harbin would concede.

The Factual Setting 4 I begin with an abbreviated version of the parties' Statement of Agreed Facts. 5 (i) Harbin, trading as "Ray's Outdoors", carries on a business as a retailer of outdoor and camping goods at approximately 37 retail stores throughout Victoria, New South Wales, South Australia and Queensland. At the relevant time it had three such stores in South Australia, one of which, at Elizabeth, was a new store. 6 (ii) During the period 29 March to 31 March 2007, Harbin conducted an "Elizabeth Opening Sale" to promote the new store. On 29 March it caused the publication of a full page advertisement in the Advertiser newspaper promoting the sale. The Advertisement contained amongst other things an image of a barbecue adjacent to which were (a) the words "Rio Grand BBQ" in black text; (b) the characters $299.99 in black text struck through with a red line ("the Strikethrough Price"); and (c) the characters $99 in red text ("the Sale Price"). 7 (iii) By so doing Harbin represented that the price ordinary customers would have paid in Ray's Outdoors stores to purchase the barbecue immediately prior to 29 March 2007 was the Strikethrough Price ("The Price Representation"); and that it was offering the barbecue for sale to ordinary customers in Ray's Outdoors Stores at a saving of $200.99 for the duration of the sale ("the Saving Representation"). 8 (iv) It is agreed for the purposes of this proceeding that ordinary customers are members of the public other than persons who, when purchasing a product at Ray's Outdoors Store, qualify for a discount by reason of a circumstance that is additional to the purchase of a product. 9 (v) Contrary to the Price Representation, the price ordinary customers would have paid in Ray's Outdoors Stores to purchase the barbecue immediately prior to 29 March was less than the Strikethrough Price. And prior to that date, ordinary customers last paid the Strikethrough Price on 15 October 2006. 10 (vi) Contrary to the Saving Representation, Harbin was offering the barbecue for sale to ordinary customers at a saving of less than $200.99 for the duration of the sale. 11 (vii) Harbin admits that by reason of the matters referred to in paragraphs (i) to (vi) above it has, in trade or commerce: · engaged in conduct that is misleading or deceptive or is likely to mislead or deceive, in contravention of s 52 of the TP Act; and · in connection with the supply or possibly supply of goods or in connection with the promotion of the supply of goods, made false or misleading representations with respect to the price of goods, in contravention of s 53(e) of the Act, by making the Price Representation and the Saving Representation. 12 The following are other agreed facts said to be relevant to relief. 13 (viii) In 2004, the Commission conducted an investigation of Harbin regarding its failure to correctly label elastic luggage straps it offered for sale at "Ray's Outdoors Stores" in Victoria in compliance with the Trade Practices (Consumer Product Safety Standards) Amendment Regulation 1999 (No 1) (Regulation), a mandatory consumer product safety standard applicable to elastic luggage straps. On 21 September 2004, Harbin offered and the Commission accepted an undertaking pursuant to s 87B of the Act from Harbin to (inter alia) use its best endeavours to implement an upgraded corporate trade practices compliance program in accordance with Annexure C to that Undertaking. The scope of the compliance program covers Part V of the Act (including ss 52 and 53(e) of the Act). I comment further on the undertaking below. 14 (ix) On 5 July 2007, the Commission raised with Harbin its concern that the Strikethrough Price in the Advertisement was higher than the price at which the barbecue had been offered for sale immediately prior to 29 March 2007. On 10 July 2007, Harbin acknowledged and agreed with the Commission that it had not offered the barbecue for sale at the Strikethrough Price immediately prior to 29 March 2007. 15 (x) At the time of publication of the Advertisement, a range of people within Harbin were responsible for the creation, sign-off and publication of the Advertisement including procurement personnel and the advertising department. Accordingly, no one officer or employee of Harbin took ultimate responsibility for the pricing representations in the Advertisement. Harbin accepts there was a deficiency in this regard with respect to the Advertisement. 16 (xi) The Commission issued proceedings on 12 December 2007. Upon the issue of proceedings, Harbin took steps towards resolving the proceedings, including by: · making the admissions described above; and · cooperating with the Commission, including by preparing this statement of agreed facts. The proceedings are likely to be shortened as a result of Harbin's steps referred to in the preceding paragraph.

Additional factual material 17 In its 2004 undertaking to the ACCC, Harbin agreed to use its best endeavours to implement an upgraded corporate trade practices compliance program, "with a focus on prescribed product safety standards". In respect of that program, it undertook to implement the arrangements outlined in an annexure to the undertaking. The annexure required, amongst other things, that: · the compliance program was to inform the officers, employees, representatives and agents of Harbin who perform duties in Australia of the application of the Trade Practices Act 1974, with specific regard to conduct that may breach Part V of the Act, to Harbin's business; · to ensure that the compliance program complied with each of the twelve requirements specified in the undertaking, Harbin retain an independent compliance professional with expertise in trade practices law, for the purpose of assisting in developing the compliance program. · Harbin, at its own expense and for the purpose of ensuring that it maintained and continued to implement the compliance program, cause annual audits of the compliance program to be carried out in accordance with specified requirements which included the engagement of an independent compliance professional with expertise in trade practices law to conduct the audits. · Harbin was to implement promptly and with due diligence the recommendations which the Auditor might make which were reasonably necessary to ensure that Harbin maintained and continued to implement the compliance program in accordance with the requirements of the undertaking. · Harbin was, at its own expense, to cause to be produced and provided to the ACCC copies of each of the Audit Reports within 14 days of Harbin receiving them. 18 I note in passing that there is a body of opinion in decisions of this Court which questions both whether there is legislative authority for the Court acting under s 86C of the TP Act to order a respondent to instruct an expert to audit a compliance program and to deliver to the ACCC audit reports: see BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452 at [42]-[52]; Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 at [50]; or, if there be some other source of power so to do: see BMW Australia at [51]; whether it would ordinarily be appropriate to make such orders: see Visy Paper (No 2) at [56]. I share these doubts. 19 The additional evidence that has been put on by both parties has not added significantly to the factors that might inform the exercise of my discretion. The only person who gave oral evidence was Tom Vukovic. He is the Chief Executive Officer of Harbin who joined the company about four months after the publication of the offending advertisement. While he could, and did, give evidence about the compliance procedures that were in place at the time, he could not illuminate how the misleading advertisement came into existence. No one who was employed by the company at that time gave evidence. All that I have by way of explanation is the agreed fact that there was no person who had ultimate responsibility for pricing representations and, seemingly, that human error was the cause of the inaccuracy. 20 The ACCC has challenged the adequacy of the steps that have been taken by Mr Vukovic to improve Harbin's compliance regime (criticism was levelled both at its compliance documentation as it related to strikethrough pricing and at Harbin's inquiries as to circumstances surrounding the making of the Advertisement especially in relation to an only now disclosed, almost contemporaneous, Easter sale). Nonetheless, it is the case that remedial steps have been taken, prompted perhaps by the ACCC's importuning. It is unnecessary that I detail the change here given that I am satisfied that they represent a genuine response to the compliance problem exposed in this proceeding and, in particular, the absence of a clear line of responsibility for pricing representations. 21 I would also add that no evidence has been advanced by the ACCC that Harbin's s 87B undertaking has not been complied with in full.

The Appropriate Relief 22 It needs to be emphasised at the outset that though two sections of the TP Act have been contravened by the conduct in question, that conduct concerned a single advertisement for a single product for a sale on a single weekend. There is no suggestion that Harbin was designedly delinquent in the matter. The only proper inference to be drawn as to how the error in the pricing representation found its way into the advertisement is that it was facilitated by a system's defect (the absence of effective line of responsibility for pricing representations) which produced an inadequate check on the potential for human error in making pricing representations. Importantly, notwithstanding that the ACCC characterises Harbin's breach of the TP Act as "very serious", I consider that in the spectrum of Part V contraventions, Harbin's conduct is far from the egregious. 23 In its amended application, the ACCC now seeks relief by way of:

1. a declaration as to the contraventions of s 52 and s 53(e) of the Act;
2. an injunction for a period of five years to restrain Harbin from making a similar misrepresentation in relation to the sale price of a particular good (to put the matter inexactly);
3. an order for corrective advertising;
4. an order under s 86C(2)(b) for a probation order and associated orders; and
5. costs. I will deal with these in turn.

A Declaration 24 Harbin does not oppose the making of a declaration. It objected to the ACCC's original proposals (which sought two separate declarations) and advanced its own proposed declaration. The ACCC in its amended application proposed a slight variant on Harbin's. As I indicated at the hearing, I will make the declaration in the form Harbin proposed. While the ACCC's proposal is the more simple, Harbin's is the clearer. And the matter, in my view, is an appropriate one for the grant of declaratory relief. For businesses which rely upon newspaper advertisements as a regular vehicle for inviting consumer interest in bargains, sales, etc, the prospect of having a declaration made against it can be salutary when, as I note below, it is linked with an order for corrective advertising.

An Injunction 25 It is well accepted that an injunction is a discretionary remedy and will not be awarded as of course on proof of a contravention of the TP Act: BMW Australia at [35]-[36]. As the Full Court observed in Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (in liquidation) (2007) 161 FCR 513 at [111]: Many contraventions simply will not justify injunctive relief. We doubt whether unintentional misconduct in contravention of s 52 would lead to such relief. It is necessary for a claimant "to demonstrate that the injunction will serve a purpose": ibid; though it is unnecessary to that end to show that commission, continuance, or repetition of contravening conduct is threatened or apprehended: see s 80(4) and BMW Australia at [36]. 26 In the present matter the ACCC seeks to find justification for the grant of an injunction (albeit in appropriately limited terms that can be clearly understood and practically complied with: cf Australian Competition and Consumer Commission v Prouds Jewellers Pty Ltd (No 2) (2008) ATPR 42-230) in the following considerations (i) there is a need to prevent recurrence of contraventions given the inadequate procedures Harbin had in place at the time; (ii) inadequate investigations of the circumstances were made; (iii) Harbin has indicated it intends to continue to engage in two price advertising; (iv) Harbin has not provided documentary reassurance to the ACCC; and (v) the contravention occurred while Harbin had a compliance program in place. 27 For my own part, I am not satisfied that it is appropriate in the circumstances to sanction Harbin's single and unintentional contravention of the Act with the imposition of an injunction. If it be the case that Harbin needs further to be sensitised to the seriousness of breaching the TP Act and to be made more attentive to the purposes of its compliance program, this can be achieved by other more appropriate means which can be adapted to Harbin's particular circumstances, as I will indicate. Harbin has already demonstrated preparedness to change its procedures. I should add, I do not accept that its conduct after the contravention reflects so adversely upon it as to provide some justification for the award of injunctive relief.

Corrective Advertising 28 Section 86C of the Act empowers the Court to make an order for corrective advertising: on which see generally Australian Competition and Consumer Commission v Telstra Corporation Ltd (2007) ATPR 42-207 at 48,428 where the purposes informing such an order are helpfully collected. One such purpose, I would note, is to "aid in the enforcement of the primary orders and the prevention of repetition of the contravening conduct": Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 95 FCR 114 at 133. 29 It has been recognised on a number of occasions that this remedy can be a peculiarly apt one where the contravening conduct occurred in the course of a company's routine business advertising: see eg Australian Competition and Consumer Commission v Target Australia Pty Ltd (2001) ATPR 41-840 at 43,382. In such cases, particularly where no injunction is to be granted, a corrective advertising order can assist in making an advertiser "more assiduous in ensuring that it does not repeat the contravening conduct": Prouds Jewellers (No 2) at [13]. The making of such an order would, in my view, be salutary in the present matter. 30 I acknowledge that a considerable period has passed since the offending publication was made. While this may in a given instance be a factor telling against ordering corrective advertising, here it is not. Such an order, coupled with declaratory relief rather than an injunction, provides an appropriate coercive incentive to Harbin. 31 The form of corrective advertisement I will order to be published will be in the terms of that annexed to these reasons. With one necessary modification to reflect my refusal to award injunctive relief, it follows the form proposed by the ACCC.

A Probationary Order 32 The ACCC seeks the making of a probation order under s 86C(2)(b) of the Act which, put shortly, would require an independent review of the internal operations of Harbin's business including its existing compliance program to determine why the contravening advertisement contained the representations it did. Ancillary orders regarding the implementation of review recommendations etc are proposed. 33 Given there is a compliance program already in place pursuant to the 2004 s 87B undertaking and that that program is subject to independent, annual audits which are to be conducted in accordance with prescribed procedures leading to a report to be furnished to the ACCC, I intend to do no more than direct that a copy of my reasons and orders be served by Harbin on the independent auditor and that the ACCC be given written notification of that service within 14 days of such service. I give this direction while acknowledging that the undertaking itself imposes some obligations on Harbin which, as I earlier indicated, would not be imposed by the Court if making a s 86C probationary order. In the circumstances, though, I consider my direction will be likely to serve the review purposes sought by the ACCC but in a way less burdensome to Harbin.

Costs 34 Harbin acknowledges that it should pay the ACCC's costs relating to liability but, in anticipation, has submitted that the costs relating to the remedial orders should to a degree be apportioned to reflect the degree of success enjoyed by the parties. 35 Though the ACCC did not secure the amplitude of remedies it sought, it can properly be said to be the successful party and has in substance, though not necessarily in form, been vindicated in the composite of orders etc I propose to make. 36 Acknowledging that the discretion to award costs must be exercised judicially and that a successful party can be awarded all of its costs notwithstanding it has failed on a particular issue or claim, I am not satisfied that the present case is one in which my refusal to grant all of the relief sought ought be reflected in a partial reduction of costs to be awarded the ACCC. 37 I will order that Harbin pay the ACCC's costs. I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Finn.

Associate: Dated: 28 November 2008 Counsel for the Applicant: Mr T Duggan

Solicitor for the Applicant: Thomson Playford Cutlers

CORRECTIVE ADVERTISEMENT [Insert Ray's Outdoors Logo] By Order of the Federal Court of Australia Following legal action by the Australian Competition and Consumer Commission, the Federal Court has declared that in the course of promoting our "Elizabeth Opening Sale", advertised in this newspaper on 29 March 2007, we engaged in misleading or deceptive conduct in breach of the Trade Practices Act 1974 (Cth). The advertisement promoted a "Rio Grand" BBQ at a sale price of $99 and represented that the price at which the BBQ was offered for sale immediately prior to the sale was $299.99. The Federal Court found that we misrepresented what ordinary customers would have paid to purchase the BBQ immediately prior to the sale and what ordinary customers buying the BBQ during the sale would have saved because immediately prior to the sale the BBQ had been offered for sale to ordinary customers at less than $299.99. This advertisement has been paid for by Harbin Pty Ltd trading as "Ray's Outdoors".