Australian Competition and Consumer Commission v Hercules Iron Pty Ltd

Legal principles 3 The law relating to contempt proceedings, after undergoing something of an upheaval in the mid-1990s, is now fairly well settled. The Federal Court of Australia Act 1976 (Cth) ("FCA") gives the Federal Court "the same power to punish contempts of its power and authority as is possessed by the High Court in respect of contempts of the High Court": s 31 of the FCA. The High Court, in turn, has the same power under s 24 of the Judiciary Act 1903 (Cth) to punish contempt as was possessed by the Supreme Court of the Judicature in England as of 1903: Pattison (Trustee), in the matter of Bell (Bankrupt) v Bell [2007] FCA 137 at [43]-[44] ("Pattison"). 4 The Federal Court's contempt power extends to both civil contempt, which is punishable by fines, and criminal contempt, which is punishable by imprisonment. Here, the ACCC seeks only fines (of $10,000 from each respondent), and thus the proceeding is civil rather than criminal. It is true that, to a certain extent, the High Court has abolished the distinction between civil and criminal contempt by adopting a "beyond a reasonable doubt" standard of proof for both. However, the level of disobedience (i.e. intent or mens rea) required to make out a civil case remains lower. 5 Merkel J summarized the current state of contempt law in Louis Vuitton Malletier SA v Design Elegance Pty Ltd (2006) 67 IPR 611 at [6] as follows: Deliberate conduct which is in breach of a court order will constitute wilful disobedience of the order, and therefore a civil contempt, unless the conduct be casual, accidental or unintentional: see Australian Meat Industry Employees' Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 106-107 ('Mudginberri') and 112-113. However, the disobedience will amount to a criminal contempt if it involves "deliberate defiance or, as it is sometimes said, if it is contumacious": see Witham v Holloway (1995) 183 CLR 525 ('Witham') at 530. … However, as all proceedings for contempt are now regarded as criminal in nature, all of the charges must be proved beyond a reasonable doubt: see Witham at 534. 6 In Australian Competition and Consumer Affairs v Hughes (2001) ATPR 41-807 at [17], [19] and [20], Tamberlin J explained the importance of certainty in the drafting of mandatory or prohibitory orders and then went on to explain the duty of those subject to such an order in the following terms: The general rule is that it is the duty of those who are subject to an order of a court to strictly observe the terms of the order: see Borrie and Lowe The Law of Contempt 3rd ed 1996, at 559-560; Arlidge, Eady & Smith On Contempt, 2nd ed 1999 at 189. It is not necessary for a court to prescribe the manner in which the required result is to be achieved; it is sufficient if the court clearly specifies that a respondent is to carry out a particular course of conduct: see Concrete Constructions Pty Ltd v Plumbers and Gasfitters Employees Union (No 2) (1987) 15 FCR 64 at 72-73 per Wilcox J. The order must specify with certainty the result to be achieved but it is not for the applicant to suggest, or for the court to prescribe, a particular method of compliance. In this case it is the duty of Hughes to find out and implement proper means of obeying the order. Whether the duty imposed on those subject to a mandatory or prohibitory order is one duty or two, they are simply stated: to strictly observe the terms of the order and to find out and implement proper means of obeying the order. 7 As Tamberlin J said in Hughes, for contempt it is not necessary to prove any subjective intent to deliberately disobey the order: see Stancomb v Trowbridge Urban District Council [1910] 2 Ch 190 at 194. What then is the position when the order is not observed by a failure to implement a means of obeying the order? Can such an omission be casual, accidental or unintentional? In Australian Meat Industry Employees' Union v Mudginberri Station Pty Ltd (1986) 161 CLR 98 at 113, Gibbs CJ, Mason, Wilson and Deane JJ stated: ... lying behind punishment for a contempt which involves wilful disobedience to a court order, is the very substantial purpose of disciplining the defendant and vindicating the authority of the court. In our view the reasons supporting the recent decisions are compelling and they should be accepted by the authority of this Court. It follows that a deliberate commission oromission which is in breach of an injunctive order or undertaking will constitute such wilful disobedience unless it be casual, accidental or unintentional. (Emphasis added) 8 As has been noted, as soon as orders are issued the person bound by that order becomes responsible for taking adequate and continuing steps (Lade & Co Pty Ltd (2006) 2 Qd R 531at [106]) or all possible steps (Heatons Transport (St Helens) Ltd v Transport and General Workers Union [1973] AC 15 at 113) to comply with the order. If a person bound by an order fails to take such steps to comply with the order, it cannot be said that the conduct was casual, accidental or unintentional.

Facts 9 Against that legal background, I turn now to the facts of the present case. In an affidavit filed on 12 June 2008, Mr Hatz admits that he engaged in the conduct alleged, but states that the non-compliant beds have either already been or will be recalled and collected by Hercules. An ACCC investigator, Mr Colin Pennell, also deposed in an affidavit filed on 6 May 2008 that Mr Hatz admitted to him in a telephone call on 12 March 2008 that Mr Hatz had been involved in Hercules' supply of possibly non-compliant beds. 10 Further evidence was adduced, by way of invoices, consignment notes, letters of instruction, additional affidavits from ACCC investigators, affidavits from process servers, affidavits from employees of Sydney's Furniture and Thriftway Furniture, and affidavits and reports from an independent testing laboratory, Australasian Furnishing Research and Development Institute Limited ("Furntech"), to establish that: 1. the beds were supplied by Hercules after the Orders had been entered and served upon the respondents; 2. those beds did not in fact comply with the Prescribed Standard; and 3. the chain of custody was intact (i.e. the beds that were tested for compliance were the same beds that were supplied after entry and service of the Orders and their condition had not been changed from the time of delivery to the time of testing). 11 I will not recite in further detail the ACCC's evidence supporting the three factual propositions set out above because the respondents failed to dispute that evidence, either by way of cross-examination or positive evidence of their own. In fact, in an affidavit sworn on 30 July 2008 by Mr Hatz ("the July Hatz Affidavit"), he admitted that "a small number of non-complying Bunks that remained in my warehouse … were mixed together with the new complying bunks" and subsequently delivered to Sydney's Furniture and Thriftway Furniture. Accordingly, it suffices to say that I am satisfied beyond a reasonable doubt that the facts are as alleged by the ACCC and summarised in [10]. 12 That being the case, there are two remaining issues: first, whether the conduct described amounts to contempt (i.e. whether I am further satisfied beyond a reasonable doubt that those facts constitute a deliberate breach of paragraphs 14 and 15 of the Orders by the respondents); and secondly, if it is contempt, what is the appropriate penalty. 13 With respect to the first issue, it is not in dispute, and I am satisfied beyond a reasonable doubt, that the respondents were served with, were aware of and understood the Orders and, in particular, they were aware of the consequences of a deliberate breach of those Orders. 14 The question which then arises is whether I am satisfied beyond a reasonable doubt that the conduct (the supply of the non-complying beds to Sydney's Furniture and Thriftway Furniture) was "deliberate defiance or, as it is sometimes said, if it is contumacious" or was "casual, accidental and unintentional": see [5] - [8] above. 15 The respondents contended by reason of the contents of the July Hatz Affidavit that I could not be satisfied beyond reasonable doubt that non-compliance with the Orders was deliberate and that I should find that the non-compliance was "casual, accidental and unintentional". I reject that contention. First, despite repeated extensions of time granted to the respondents to file and serve material directed to the issue of non-compliance with paragraphs 14 and 15 of the Orders, the July Hatz Affidavit addresses why there was non-compliance with those orders in the following terms: In relation to the Bunks supplied after 5 February 2008, all those delivered to Sydney Furniture, Michael's Furniture and Thriftway ... have been collected by the First Respondent. In relation to those Bunks, there were a small number of non complying Bunks that remained in my warehouse which, accidentally and unintentionally, were mixed together with the new complying Bunks. Once this was discovered, the procedures that were put in place to ensure compliance comprised: (a) All non-complying Bunks were disposed of; (b) Once new Bunk components had been manufactured, they were taken into the packing area and physically checked for quality purposes … Counsel for the Respondents submitted that the "small number" of non-complying bunk beds was limited to 6. There is, in fact, no evidence of the number of non-complying beds supplied after 5 February in breach of the Orders. 16 In any event, the "explanation" provided by Mr Hatz on behalf of both respondents is deficient in a number of critical respects. First, no evidence was provided of the steps put in place to ensure compliance with the Orders made on 5 February. In the absence of such evidence, I am entitled to assume that no steps were put in place at that time. Consistent with the authorities, that itself is sufficient for a finding of contempt. 17 However, there are other additional reasons why I am satisfied beyond reasonable doubt that that is the correct finding. The "explanation" establishes that despite the Orders, non-complying Bunks remained in the respondents' warehouse. The Bunks were non-complying because they failed to comply with the Prescribed Standard. The Bunks were a risk to the safety of the children using them. This was a serious matter. Why those Bunks remained in the warehouse was never explained. How those non-complying bunks were "mixed together" with the new bunks was never explained. The non-complying bunks simply should not have been there or should have been identified in a manner which prevented such a "mix up". 18 Finally, the steps ultimately taken after the breach of the Orders was established and referred to by Mr Hatz (see [15] above) are steps that, on any view, should have been taken on 5 February 2008. If they had been taken (namely disposal of non-complying bunk beds and physical inspection of new beds), at least this aspect of the matter would not be before the Court. They are not steps which are extraordinary or, it would seem, costly. 19 It is true that Mr Hatz voluntarily confessed the conduct to the ACCC, and I also accept that he has shown some willingness to recall the offending products and make amends to affected customers. However, having regard to the facts just outlined, I consider that those factors go more properly to the issue of penalty rather than the success of the contempt case itself. Accordingly, I am satisfied beyond reasonable doubt that the conduct complained of constitutes deliberate conduct amounting to civil contempt under the authorities referred to earlier: see also ACCC v INFO4PC.com Pty Ltd (2002) 121 FCR 24 at [10].

Penalty 20 That brings me to the second issue, being the appropriate penalty. Merkel J helpfully outlined the factors relevant to contempt penalties in Louis Vuitton at [25]: It was common ground between the parties that the following factors, which were outlined in the written submissions of counsel for Maskiell, are relevant to penalty. 1.5 In deciding the appropriate penalty, a court should consider the following factors: (1) contemnor's personal circumstances; (2) nature and circumstances of the contempt: R v West Australian Newspapers Ltd; Ex Parte DPP (WA) (1996) 16 WAR 518; (3) effect of the contempt on the administration of justice: Durack v Gallagher (1982) 44 ALR 272 at 286-7; (4) contemnor's culpability: Durack v Gallagher (1982) 44 ALR 272 at 286-7; (5) need to deter the contemnor and others from repeating contempt: DPP v John Fairfax & Sons Ltd (1987) 8 NSWLR 732, Kirby P at 741; and (6) absence or presence of a prior conviction for contempt: Attorney-General (NSW) v Macquarie Publications Pty Ltd (1988) 40 A Crim R 405 at 410. However, other criminal history is irrelevant: R v Giscombe (1984) 79 Cr App R 79 at 84. 1.6 In deciding the amount of any fine the Court should take into account the contemnor's financial means: Smith v R (1991) 25 NSWLR 1. The court may also suspend the fine on terms. Contrition and apology 1.7 Genuine contrition and a full and ample apology may also reduce the penalty: R v Gray [1900] 2 QB 36 at 41-2; Superstar Australia Pty Ltd v Coonan & Denlay Pty Ltd (No 2) (1982) 65 FLR 432 at 436. Imprisonment 1.8 It is widely accepted that the court should only impose a term of imprisonment in the most serious criminal contempt cases: Keeley v Justice Brooking (1979) 143 CLR 162 at 179; Gallagher v Durack (1983) 152 CLR 238. 1.9 In Deputy Commissioner of Taxation v Hickey [1999] FCA 259, Carr J held that imprisonment is a "last resort": see also R v Vasin (1985) 39 SASR 45; James (1985) 14 A Crim R 364; Skipper (1992) 4 A Crim R 260. As indicated above (par 1.6), a court has considerable flexibility in that it may impose a penalty of fines or imprisonment and then suspend such penalty on conditions or terms: see also Universal City Studios LLLP v Hoey (2007) 73 IPR 45 at [90]; Pattison at [49]. 21 As noted earlier, I accept that the respondents have shown contrition and a willingness to make amends. It is also true that the respondents do not have any prior convictions for contempt, at least so far as the record shows. The evidence is that the first respondent ceased trading on 30 May 2008. With respect to Mr Hatz's personal circumstances, no evidence was provided to the Court however there is some reason to believe that he is an individual who was having a number of personal and health-related problems during the period in which the substantive proceedings and contempt occurred. However, in my view, the present case nevertheless warrants something more than a nominal penalty for two reasons: specific deterrence and general deterrence. 22 I will deal with specific deterrence first. Even prior to the making of the Orders on 5 February 2008, there was a lengthy history of evasion and non-compliance which should be noted. After the ACCC began investigating consumer complaints against Hercules in September 2007, the respondents represented to the ACCC that they would voluntarily undertake a recall of non-compliant bunk beds. When they did not comply with that undertaking, the ACCC initiated the substantive s 65C proceedings on 14 December 2007. 23 The Court then made interlocutory orders on 19 December 2007 enjoining further supply of non-compliant beds, requiring a recall, instituting a compliance program, and mandating publication of corrective advertising. The respondents failed in whole or in part to undertake some of these steps and were late in taking others. This led, after mediation, to the making by consent of the final Orders on 5 February 2008. Again, the history of the matter shows that the respondents have failed to comply with various requirements of those Orders, which led the ACCC to bring its motion for contempt on 6 May 2008. I should note, however, that in its original notice of motion, the ACCC did not seek the imposition of any monetary penalty. The motion was originally scheduled to be heard on 4 June 2008, but it was adjourned at the request of the respondents so they could put on evidence to rebut the charges. The respondents then sought a further adjournment on 25 June 2008, which was granted on the condition that the respondents send letters to those who had been supplied with non-compliant beds by 2 July 2008 and make arrangements for their recall. Mr Hatz was ordered to file an affidavit of compliance with this order by 7 July 2008. Leave was also granted on 25 June 2008 to file the current amended notice of motion by which the ACCC now seeks monetary sanctions of $10,000 against each respondent. Mr Hatz did not file the affidavit of compliance as ordered on 25 June. In fact, it was not filed unto 31 July 2008. 24 In view of the repeated failure of the respondents to comply with their own representations to the ACCC as well as with orders of Court, dating back to September 2007 and continuing to the present, I have reached the view that an appreciable financial penalty is necessary to specifically deter the respondents from again breaching the Orders. Notwithstanding any present show of contrition, however genuine, I do not consider it likely that they will comply in the future with the Orders in the absence of a concrete penalty. 25 With respect to general deterrence, I should note that the Prescribed Standard addresses minimum safety requirements for bunk beds such as the spacing between the base slats (which goes to structural integrity) and sharpness and protrusion of corner posts. Needless to say, beds not complying with these requirements have a higher risk of collapsing or causing injury by way of scratches and cuts. Indeed, the ACCC investigation in this matter was triggered by a complaint from parents that one of the respondents' beds had collapsed while their children were in it. 26 In other words, the continuing supply of non-compliant beds by the respondents involves not simply a technical or de minimis violation of law, but a violation directly and substantially impacting on health and safety issues. This is a serious matter, and it would not do to end it with a nominal fine or no sanction at all, thereby sending a message to others similarly situated that breaches of court orders tending to endanger the safety of others may be made with impunity. For that reason as well, I consider that an appreciable penalty is warranted. 27 I should also note that the ACCC, in an annexure to its submissions, provided a fairly exhaustive summary of penalties imposed for contempt in other trade practices cases brought by the ACCC. I do not, however, consider it necessary or worthwhile to undertake a recitation of the facts or amounts in those cases because the penalty imposed in each case must ultimately turn upon the facts and circumstances of that particular case: cf Australian Ophthalmic Supplies Pty Ltd v McAlary-Smith (2008) 165 FCR 560 at [12], [87] (stating, in the context of penalties for contraventions of the Workplace Relations Act, that it is a fundamentally wrong approach to appeal to precedent because "[t]he choice of penalty must be dictated by the individual circumstances of a case, not by a line by line comparison with another case"). That being said, I do note that the proposed penalty in this case does appear to fall well within the range of penalties imposed in other cases for similar breaches. Counsel for the respondents contended that each of the cases referred to by the ACCC concerned what he described as intentional breaches. I do not consider that the circumstances of this case should be given a lesser penalty simply on the basis of omission rather than commission. 28 For the foregoing reasons, I consider that the respondents are guilty of civil contempt and the fines requested by the ACCC of $10,000 against each respondent are necessary and appropriate in light of all the circumstances.

Costs 29 The ACCC sought an order that its costs be paid on an indemnity basis. In order for a court to exercise its discretion to award costs on that basis, there must be some special or unusual feature in the case justifying departure from the ordinary practice. Typical examples of circumstances justifying an award of costs on an indemnity basis include irrelevant or wholly unmeritorious allegations of fraud, frivolous or vexatious claims, wilful time-wasting, abuse of process, and contempt of court: see eg Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225. Here, as in Colgate, the "particular facts and circumstances of the case in question [which I have set out above] warrant the making of an order for payments of costs other than on a party and party basis": Colgate at 233-234.

Conclusion 30 Accordingly, I propose to grant declarations that: 1. By reason of the first respondent, in breach of paragraph 14 of the Orders of Gordon J of 5 February 2008: (a) on 22 February 2008, supplying Comet and Asteroid bunk beds not complying with Australian safety standard AS/NZA 4220:1994, cited in Consumer Protection Notice No. 1 of 2003 and published in the Commonwealth of Australia Gazette GN12 (26 March 2003) ("the Prescribed Standard") to Sydney's Furniture & Bedding of 256 Settlement Road, Thomastown, Victoria; (b) on 12 and 22 February 2008, supplying Comet bunk beds not complying with the Prescribed Standard to Thriftway Furniture of 102 Old Geelong Road, Hoppers Crossing, Victoria, the first respondent is guilty of contempt. 2. By reason of the second respondent, in breach of paragraph 15 of the Orders of Gordon J of 5 February 2008, being directly or indirectly knowingly concerned in or party to the conduct described in 1 above, the second respondent is guilty of contempt. 31 Consequent upon the granting of those declarations, the appropriate orders are: 1. On or before 4 September 2008, the first respondent shall pay to the District Registrar of the Court a fine in the sum of $10,000 or by such further time and by such instalments as the District Registrar may allow. 2. On or before 4 September 2008, the second respondent shall pay to the Registrar of the Court a fine in the sum of $10,000 or by such further time and by such instalments as the District Registrar may allow. 3. In the event that there is default in payment of either of the fines the District Registrar shall apply to the Court for directions concerning enforcement. 4. The respondents pay the applicant's costs of, and incidental to, the notice of motion dated 6 May 2008 and amended notice of motion dated 27 June 2008, on an indemnity basis. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Associate: Dated: 8 August 2008 Counsel for the Applicant: Mr P Wallis

Solicitor for the Applicant: Corrs Chambers Westgarth

Solicitor for the Respondents: Garland Hawthorn Brahe