Australian Competition and Consumer Commission v High Adventure Pty Limited

REASONS FOR JUDGMENT THE COURT: 1 The Australian Competition and Consumer Commission brought an action against High Adventure Pty Limited and its director, Mr Scott, alleging that the company had contravened s 48 of the Trade Practices Act 1974 (Cth) (which prohibits the practice of resale price maintenance) and that Mr Scott was knowingly concerned in that contravention. The Commission sought the imposition of pecuniary penalties (which could not exceed $10 million in the case of High Adventure and $500,000 for Mr Scott) and other relief. The respondents admitted their wrongdoing and all the judge had to do was determine the appropriate penalty. The Commission advised the judge that in its view, having regard to the applicable principles which it outlined in some detail with reference to the relevant authorities, the appropriate penalty for High Adventure was between $40,000 and $100,000 and for Mr Scott it was between $10,000 and $35,000. The judge was also told that the respondents had agreed to pay the Commission's taxed costs. 2 In the event, the judge imposed on High Adventure a pecuniary penalty of $3,000 payable by three half yearly instalments. Mr Scott was ordered to pay a penalty of $2,000 also payable by six monthly instalments. As regards the costs, the judge did not order them to be taxed but fixed them in the sum of $15,000. He allowed them to be paid over a period of five years. 3 This appeal is from the orders made against High Adventure. The Commission says that the penalty is manifestly inadequate. The same may be said of the penalty imposed on Mr Scott but that was not appealed. At the conclusion of the hearing the appeal was allowed and a substitute penalty of $20,000 was imposed. We said that in due course we would publish our reasons for allowing the appeal. What follows are those reasons. 4 The matter arose in the following way. High Adventure is a wholesale supplier of paragliders and accessories which it purchased from Sky Paragliders of the Czech Republic. Something in the order of 150 to 200 paragliders are sold each year. High Adventure holds approximately 20 per cent of the market, selling each product for around $3,600. Pioneering Spirit Pty Ltd, which trades as Walkerjet, is a competitor of High Adventure. It also purchased paragliders from the Czech supplier. It sold those paragliders at prices ranging from $2,650 to $2,950, far below those of High Adventure. When High Adventure discovered that it was being undercut by Walkerjet, it got in touch with Sky Paragliders and complained about Walkerjet's actions. As a result Sky Paragliders told Walkerjet it would only sell paragliders to High Adventure. In turn, High Adventure informed Walkerjet that it would only supply it with the Czech product on certain terms. One term was (in substance) that High Adventure would set the retail price at which Walkerjet could sell the paragliders. Walkerjet would not accept this term and stopped selling Sky Paraglider products. 5 On these facts, there was a clear contravention of s 48. However, the penalties imposed were very low. An examination of the transcript of the hearing below as well as the reasons for judgment provides the explanation for this. They show that there were two reasons motivating the judge viz, his view of s 48 and his opinion about the impact of higher penalties. 6 As regards s 48 (perhaps even as regards the whole of Part IV) the judge during the hearing said this: "I'm not such an ardent disciple of competition as an economic model that it seems to me to be necessary to go knocking out of the ring everyone who does something slightly anti-competitive every so often. I happen to believe personally that competition is not necessarily a great economic model but I know that it's the one that the Act adopts and the one that I have to apply." 7 Notwithstanding the judge's opinion, s 48 was indeed enacted on the premise that competition is important in the distribution of goods and that vertical price fixing, or resale price maintenance (supplier regulation of the price at which goods are resold), eliminates that competition. Several reasons have been put forward to explain why resale price maintenance is undesirable. One is that it permits the supplier to take advantage of retailers by denying them the freedom to set a price most advantageous to themselves. Another is that resale price maintenance is often a manifestation of price fixing among retailers themselves. A third reason is that a powerful supplier may insist that minimum prices be imposed on its retail goods. Yet another view is that resale price maintenance inevitably eliminates dealer competition with the undesirable consequence that consumers are limited in the range of choices they have with respect to price. 8 In Australia, resale price maintenance is illegal per se. The practice was first outlawed, though not in express terms, by the Australian Industries Preservation Act 1906 (Cth)). That Act was modelled on s 1 of the Sherman Act of the United States which in Dr Miles Medical Co. v John D Park & Sons Co., 220 US 373 (1911) was held to proscribe resale price maintenance. In the current legislation, the Trade Practices Act, s 48 provides that: "A corporation or other person shall not engage in the practice of resale price maintenance." The conduct that will constitute the practice of resale price maintenance is identified in s 96. It is not necessary to refer to that provision in any detail. It is sufficient to note that s 48 will be contravened if, as in this case, a supplier of goods makes a statement of a price that is likely to be understood as the price below which the goods are not to be sold: s 96(3)(f). 9 The second reason such a low penalty was imposed was because the judge said he had no intention of "impos[ing] penalties that would ruin the respondents' [and Mr Scott's] family". Indeed, the judge criticised the Commission for insisting that a pecuniary penalty be imposed in lieu of a community service order or a probation order under s 86C (which the judge had suggested the Commission should consider). He said he could "only conclude that it [was] the desire of the [Commission] to ruin the respondents financially". 10 There are several observations that can be made about the judge's approach. The first (which in the circumstances is probably the least significant) concerns his view that imposing an appropriate penalty would ruin the respondents. We have examined the financial statements that were before the judge. They do not indicate that High Adventure would be forced into liquidation even were a penalty of $40,000 or thereabouts imposed, provided the company was given time to pay. 11 The second observation is that by focusing on the detriment to the respondents the judge ignored both the seriousness of the contravention as well as the need to fix upon an appropriate penalty by reference to the need to deter future contraventions. As the cases to which the judge was referred show, the principal, if not the sole, purpose for the imposition of penalties for a contravention of the antitrust provisions in Part IV is deterrence, both specific and general. This rule is so well entrenched that citation of authority is unnecessary. Moreover, as deterrence (especially general deterrence) is the primary purpose lying behind the penalty regime, there inevitably will be cases where the penalty that must be imposed will be higher, perhaps even considerably higher, than the penalty that would otherwise be imposed on a particular offender if one were to have regard only to the circumstances of that offender. In some cases the penalty may be so high that the offender will become insolvent. That possibility must not prevent the Court from doing its duty for otherwise the important object of general deterrence will be undermined. 12 As well as deterrence, the judge was required to take into account a variety of other factors. These include, on the one hand, aggravating factors such as deliberateness of the conduct in question and the company's knowledge that the conduct was unlawful, and, on the other hand, factors in mitigation such as the small size of the company, that the anti-competitive conduct occurred in a relatively small market and that neither respondent is likely to offend again. When all factors are brought to account the range of penalties suggested by the Commission was clearly appropriate, though the upper end was on the high side. 13 Significantly, and this is the third observation, the statement that the Commission was motivated by a desire to ruin the respondents was with great respect unwarranted. In the first place there was nothing before the judge to justify the statement. In the second place the opposite was true. The Commission was doing no more in this case than fulfilling its statutory function as well as its duty to the court. It is clear enough that what lay behind the judge's statement was the Commission's refusal, despite the urging of the judge, to drop its claim for pecuniary penalties in favour of a community service order or probation order. The Commission did not accede to the judge's suggestion. To do so may have resulted in a call for a derisory penalty. So it was clearly open to the Commission to take the course that it did. 14 Finally, we should explain how we have arrived at the substitute penalty of $20,000. In our view the appropriate penalty was somewhere between $30,000 and $40,000. We were, however, willing to impose a lower penalty for the following reasons. First, at the hearing itself the Commission had dropped its suggested penalty to $20,000. This was done to deflect some of the criticisms from the judge. For the sake of consistency it maintained that position on the appeal, not even pressing for the costs. Second, we took into account that High Adventure is a one man company and a penalty imposed on the company will in reality fall upon Mr Scott. Finally, though not the subject of any argument, there is the possibility that the so-called double jeopardy rule should be applied. That rule either permits or requires a discount to be applied on a successful appeal against an inadequate sentence. As to the application of the rule to a corporation see Comptroller-General of Customs v D'Aquino Bros Pty Ltd (1996) 85 A Crim R 517, a decision of the Court of Criminal Appeal of New South Wales. I certify that the preceding fourteen (14) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Heerey, Finkelstein and Allsop.