Australian Competition and Consumer Commission v Kogan Australia Pty Ltd

Federal Court of Australia|2020-12-07|Before: Ms P, Davies J

10% Discount Representation

Between at least 27 June to 30 June 2018, the respondent (Kogan), in trade or commerce, in connection with the supply or possible supply, or the promotion of retail goods offered for sale on its website www.kogan.com/au/ (the website): (a) engaged in conduct that was misleading or deceptive and/or likely to mislead or deceive in contravention of s 18 of the Australian Consumer Law (ACL); and (b) made false or misleading representations with respect to the price of goods in contravention of s 29(1)(i) of the ACL; by representing that if consumers purchased products during Kogan's "Tax Time Promotion" and used the code "TAXTIME" at checkout, they would receive a 10% discount off the price at which these products were available for sale for a reasonable period before the Tax Time Promotion, which was not the case because: (c) on 26 June 2018, Kogan increased the price of 621 products it offered for sale on the website (Affected Products), in many cases by at least 10%; and (d) for a reasonable period before 26 June 2018, the price of most of the Affected Products had remained unchanged. Limited Time Discount Representation
Between at least 27 June to 30 June 2018, Kogan, in trade or commerce, in connection with the supply or possible supply, or the promotion of retail goods offered for sale on the website: (a) engaged in conduct that was misleading or deceptive and/or likely to mislead or deceive in contravention of s 18 of the ACL; and (b) made false or misleading representations with respect to the price of goods in contravention of s 29(1)(i) of the ACL; by representing that consumers had a limited opportunity, if they purchased products during the Tax Time Promotion and used the code "TAXTIME" at checkout, to receive a 10% discount off the price at which these products would be available for sale for a reasonable period after the Tax Time Promotion, which was not the case because: (c) on 2 July 2018 Kogan reduced the price of the Affected Products, in many cases by at least 10%; and (d) for a reasonable period after 2 July 2018, the price of most of the Affected Products remained unchanged.

Pursuant to s 224(1) of the Australian Consumer Law in Sch 2 to the Competition and Consumer Act 2010 (Cth), Kogan pay to the Commonwealth of Australia a pecuniary penalty in respect of the conduct referred to in paragraphs 1 and 2 above in the amount of $350,000.
Kogan pay the applicant's costs of the proceeding, such costs to be taxed in default of agreement. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

Introduction 1 On 17 July 2020, the Court delivered reasons for concluding that the respondent (Kogan) had engaged in misleading or deceptive conduct and made false or misleading representations and thereby contravened ss 18 and 29(1)(i) of the Australian Consumer Law (ACL), Sch 2 to the Competition and Consumer Act 2010 (Cth): Australian Competition and Consumer Commission v Kogan Australia Pty Ltd [2020] FCA 1004 (liability judgment). The contravening conduct involved Kogan making the statements "Use code TAXTIME to reduce prices by 10% at checkout" on the Kogan website and in electronic direct marketing (eDM) messages sent to consumers, alone and in conjunction with statements such as "48 hours left!" and "Ends midnight!", and making the statement "use code TAXTIME to reduce almost all Kogan.com prices by 10% at checkout" in SMS messages sent to consumers, in the advertising of its "Tax Time Promotion" between 27 and 30 June 2018. The Court found that by making those statements, Kogan made representations to consumers that: (a) if consumers purchased products during the Tax Time Promotion using the code "TAXTIME" (TTP code) at checkout, they would receive a 10% discount off the price at which the products were available for sale for a reasonable period before the Tax Time Promotion (10% Discount Representation); and (b) consumers had a limited opportunity, if they purchased products during the Tax Time Promotion and used the TTP code at checkout, to receive a 10% discount off the price at which these products would be available for sale for a reasonable period after the Tax Time Promotion (Limited Time Discount Representation). (together, the Representations) 2 The Court found that the Representations were false or misleading in relation to 621 of the products to which the Tax Time Promotion applied (the affected products) because Kogan increased the prices of the affected products before the Tax Time Promotion and decreased the prices of the affected products following the Tax Time Promotion, thereby eroding any genuine 10% discount on the affected products using the TTP code. The applicant (ACCC) seeks orders for declaratory relief under s 21 of the Federal Court of Australia Act 1976 (Cth) (Federal Court Act), orders for pecuniary penalties under s 224 of the ACL in the total amount of $2 million, orders for injunctive relief under s 232 of the ACL, publication orders under s 247(1) of the ACL and an order that Kogan pay the ACCC's costs of and incidental to the proceeding. 3 Kogan does not oppose the Court making declarations in the form sought by the ACCC but has opposed the amount of the penalty sought by the ACCC and also the injunction, corrective advertising and costs orders sought by the ACCC. Kogan contended that a pecuniary penalty of $150,000 would be more than adequate. Kogan also contended that the appropriate costs order would be for Kogan to pay 50% of the ACCC's costs.

Declarations 4 I am satisfied that it is appropriate for declaratory relief to be ordered in the terms sought by the ACCC. The proposed declaratory orders reflect the contraventions found by the Court and will serve to record the Court's disapproval of the conduct, vindicate the ACCC's claim that Kogan contravened the ACL, assist the ACCC to carry out its duties, inform consumers of the nature of the contravening conduct and make clear to other would-be contraveners that such conduct is unlawful: Australian Building and Construction Commissioner v Construction, Forestry, Mining and Energy Union [2017] FCAFC 113; 254 FCR 68 (ABCC) at 87 [92]-[93].

Pecuniary penalty 5 Section 224(1) of the ACL empowers the Court to impose a pecuniary penalty for a contravention of s 29 of the ACL. The maximum penalty at the time of the contraventions was $1.1 million per contravention: s 224(3) of the ACL. The ACL does not empower the Court to impose a pecuniary penalty for a contravention of s 18 of the ACL. Section 224(2) 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; (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 ch 4 or pt 5-2 of the ACL to have engaged in any similar conduct. 6 Other matters that will usually be relevant include: (a) the size of the contravening company; (b) the deliberateness of the contravention and the period over which it extended; (c) whether the contravention arose out of the conduct of senior management of the contravener or at some lower level; (d) whether the contravener has a corporate culture conducive to compliance with the ACL as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; (e) whether the contravener has shown a disposition to cooperate with the authorities responsible for the enforcement of the ACL in relation to the contravention; (f) whether the contravener has engaged in similar conduct in the past; (g) the financial position of the contravener; and (h) whether the contravening conduct was systematic, deliberate or covert: Trade Practices Commission v CSR Limited [1990] FCA 521; (1991) ATPR 41-076 at 52,152-3; NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; 71 FCR 285 at 292 per Burchett and Kiefel JJ (Carr J agreeing at 299); Singtel Optus v Australian Competition and Consumer Commission (No 4) [2011] FCA 761; 282 ALR 246 at 251 [11]. 7 The process of fixing the amount is not an exact science and, in each case, is undertaken instinctively, not mathematically, by synthesising all relevant factors into an overall figure: Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; 287 ALR 249 (Singtel FCAFC) at 263 [54], citing Middleton J in Australian Competition and Consumer Commission v Telstra Corporation Ltd [2010] FCA 790; 188 FCR 238 at 282 [250]-[251]. 8 The primary purpose of the imposition of a pecuniary penalty is to act as a specific deterrent to the contravener and as a general deterrent to others who might be tempted to contravene the law: Commonwealth v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; 258 CLR 482 (FWBII) at 506 [55] per French CJ, Kiefel, Bell, Nettle and Gordon JJ (Gageler J agreeing at 511 [68], Keane J agreeing at 513 [79]); ABCC at 88 [98]; Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; 250 CLR 640 (TPG Internet HCA) at 659 [65] per French CJ, Crennan, Bell and Keane JJ. The specific and general deterrent effect of pecuniary penalties is achieved by putting a price on a contravention that is "sufficiently high" to deter repetition by both the contravener and would-be contraveners: FWBII at 506 [55] per French CJ, Kiefel, Bell, Nettle and Gordon JJ (Gageler J agreeing at 511 [68], Keane J agreeing at 513 [79]). In Singtel FCAFC, in a passage at 265 [62]-[63] approved by the High Court in TPG Internet HCA at 658-9 [64] and [66], the Full Court explained the need to ensure that the penalty in such cases "is not such as to be regarded by that offender or others as an acceptable cost of doing business" and will deter those engaged in trade and commerce "from the cynical calculation involved in weighing up the risk of penalty against the profits to be made from contravention". In Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd [2016] FCAFC 181; 340 ALR 25 (Reckitt Benckiser), the Full Court also emphasised the primacy of deterrence where there is a potential distortion of competition in the market on the part of the contravener, who gains an unfair advantage over competitors who complied with the law. As the Full Court stated at 54 [151], "the greater the risk of consumers being misled and the greater the prospect of gain to the contravener, the greater the sanction required, so as to make the risk/benefit equation less palatable to a potential wrongdoer and the deterrence sufficiently effective in achieving voluntary compliance". 9 Where there are a number of contraventions that are considered to form part of a single course of conduct, then an overall penalty may be assessed on that basis: Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; 269 ALR 1 at 12 [39]. The ACCC submitted that there are three courses of conduct: the "website conduct", comprising the Representations made to consumers on the Kogan website, which had 631,743 unique visitors during the Tax Time Promotion; the "eDM conduct", comprising the Representations made in 25,696,963 eDM messages (being 12 separate eDM messages or between two and four eDM messages per day) sent to approximately 10,136,450 subscribing consumers, of whom 3,367,910 consumers opened the email eDM messages; and the "SMS conduct", comprising representations sent by SMS messages to 930,142 subscribing consumers. The ACCC submitted that grouping Kogan's conduct in this way took into account the factual interrelationship in the Representations made to each consumer and the overlap between the Representations, while recognising the deployment of different media with different characteristics. I do not accept that contention. Albeit that the Representations were deployed through three different media, the contravening conduct was not qualitatively different in nature nor legally and factually distinct and should be viewed as a single course of conduct. 10 The ACCC argued that a number of factors pointed to the need for a penalty that is sufficient to deter Kogan from engaging in similar conduct in the future. In particular, it was argued: (a) the contravening conduct was serious and extensive and caused financial and non-financial harm to consumers and competitors; (b) Kogan's conduct is recent and the conditions in which the relevant conduct occurred continue to exist; in those circumstances, there remains the potential for consumer harms from conduct of a similar kind; (c) the decisions leading to Kogan's conduct were made intentionally by senior management and with the knowledge that the Tax Time Promotion may be understood in the way described by the Representations; (d) Kogan is a significant entity that is experiencing considerable growth from its online retail business and makes substantial profits; in those circumstances, a penalty commensurate with the modest profit Kogan claims it earned from the entire promotion would clearly be inadequate to secure deterrence and could be seen to be simply a cost of doing business such that the risk of engaging in the wrongdoing was a business risk worth taking; (e) despite the ACCC previously bringing concerns of a similar nature to Kogan's attention, it either ignored those concerns or its compliance measures and culture were insufficient to prevent the contravening conduct in this case; and (f) Kogan has expressed no contrition for its conduct and, to the contrary, has exhibited at best a failure to engage with, and at worst a blatant disregard for, the circumstances that led to the contravening conduct in this case. 11 The ACCC further argued that a number of matters point to the need for a penalty which will strongly deter other businesses which may be minded to contravene in a similar way. It was submitted: (a) first, the online retail industry in which Kogan operates is very large with many major competitors; it involves the supply of consumer goods that are required by most Australians and involves significant consumer expenditure. It can readily be inferred that consumers have increasingly relied on online retail in the COVID-19 environment. Coupon code promotions are commonly used by other major retailers, including eBay, Amazon and Alibaba. As such, the potential for misrepresentations to cause widespread harm to consumers in that industry, and the potential gains to be made from them by such businesses, are both significant and real; (b) secondly, if misrepresentations in the online retail industry are not seen to attract sufficient penalties, consumer confidence in the industry will be undermined. This will in turn undermine market efficiency, which depends upon consumer confidence in being given reliable, truthful and accurate information. It may also harm compliant businesses, which may wrongly be assumed by consumers to operate in a like manner. That is particularly so in circumstances where, absent ongoing price monitoring by consumers and/or the ACCC, pricing misrepresentations of the nature in this case are difficult to detect; (c) thirdly, the Court must leave no room for the impression that it is worth online retail businesses courting the risk of contravention (because it may not be detected or because the penalties could be treated as a mere cost of doing business or are less than the cost and effort of developing a strong compliance program and culture). This requires a penalty of a sufficient size to send a strong deterrent message which will prevent any cynical profit/risk calculus. A sufficient penalty sends the required warning to other online retail businesses that they cannot, by non-compliance, gain a competitive advantage over those who do comply and invest in developing a strong compliance program and culture. 12 As these reasons develop, I do not accept all the claims made by the ACCC supporting its case for a penalty of $2 million to achieve the primary purpose of specific and general deterrence.

The nature and extent of the act and circumstances of the act 13 The ACCC contended that Kogan's contravening conduct was serious because the Representations misled consumers as to the genuineness of the discount available to them on affected products and created a misleading impression that consumers had a limited time to obtain a genuine 10% discount when they did not. The ACCC also emphasized that although the duration of the contravening conduct was relatively short (four days), the Representations were made in the context of a time-limited sale promotion and a "tax time" promotion at the end of the financial year (and overlapping with Kogan's end of financial year sales), a time in which, it was submitted, it is reasonable to infer that consumers are both more inclined to be enticed by sales promotions and have real expectations of genuine savings. It was submitted that consumers are entitled to expect such sales promotions to offer genuine savings. Instead, it was submitted, in respect of the affected products, Kogan chose to elevate its so-called "business requirement" to match prices on eBay - which was running a promotion offering a discount on Kogan products at the time of the Tax Time Promotion (eBay promotion) - over its obligations to ensure it did not mislead or deceive consumers. 14 It was contended also that the contravening conduct was extensive, in that the Representations were promoted through three kinds of media to over 25 million consumers and were seen by many millions of those consumers. Consumers who saw the eDM and SMS messages, and visited the website, included those who had not previously visited the website or purchased a Kogan product. It was submitted that although the affected products comprised a small percentage of products advertised in the Tax Time Promotion, the number of affected products was not negligible and the absolute number of consumers potentially affected was nevertheless very significant. 15 The ACCC further argued that the affected products were a driver of Kogan's deliberate decision or strategy to increase prices because of its decision to participate in the eBay promotion, in which all of the affected products and a further 200 additional products were involved, and thus to offer the Tax Time Promotion in respect of all 78,111 products (almost all of the products available for sale on the Kogan website). Many of the affected products were consumer electronics (eg computers and smart phones, the latter described in evidence as Kogan's "most visible and core products") and 91% of them were offered at prices over $100. It was submitted that the Representations were not only likely to, but did in fact, entice a significant number of consumers into Kogan's marketing web and such consumers constituted the majority of all sales orders and the vast majority of consumers who purchased an affected product during the Tax Time Promotion. Of the 25,696,963 eDM messages, a total of 3,367,910 were opened by consumers and there were 249,106 clicks from the eDM messages directly to the Kogan website. Of the 930,142 consumers who received the SMS messages, there were 9,386 clicks directly to the Kogan website. The ACCC submitted that not only did the contravening conduct deny consumers the genuine 10% discount that was advertised, but it denied or seriously distorted consumer choice, by denying consumers the opportunity to make decisions based on reliable, truthful and accurate information. In that regard, it was said, it is reasonable to infer that those consumers who purchased the affected products during the Tax Time Promotion might otherwise have waited or may not have purchased those products from Kogan at all. 16 Kogan did not seek to argue that its contravening conduct was not serious but it did submit, viewed in context, that there are a number of highly relevant mitigating factors on the question of penalty. Kogan argued that the contravening conduct applied only to a very small subset of the products offered for sale as part of the Tax Time Promotion (621 products out of 78,111, or 0.8%) and for four days only, and that the contravening conduct was also quite limited in scope in that it comprised two overlapping representations and those representations were implied, not express. It led affidavit evidence from Mr Daniel Taft, Director of Operations at Kogan, to show that there was only a relatively small number of consumer transactions in respect of the affected products (2,385). Mr Taft's evidence also showed that the number of new customers who purchased products on the Kogan website did not increase during the Tax Time Promotion and that Kogan's new customer acquisition rate remained relatively stable during 2018, including after the Tax Time Promotion. Kogan also cavilled with the proposition advanced by the ACCC that consumers are more inclined to be enticed by sales at the end of the financial year, contending it was "mere conjecture", and with the proposition that consumers who purchased affected products during the Tax Time Promotion might have waited or may not have purchased the products from Kogan, arguing that the ACCC had adduced no evidence to support that claim. 17 Kogan's contravening conduct must be viewed as serious, as misrepresentations about discounts offered on products not only harm purchasers acquiring such products on the basis that they are getting a genuine discount but also may impact on consumer confidence in discount promotions when legitimately made - that is, when products are being offered for sale with a genuine discount on price. In my view, it can reasonably be inferred, without the need for direct evidence, that customers seeking a genuine discount may well have waited or may not have purchased from Kogan if they were aware that the product was not genuinely discounted, given that customers had a legitimate expectation that they would receive the discount advertised. Furthermore, the end of the financial year customarily is a time at which discounted sales promotions occur with the likelihood of attracting more consumers and, given that the Tax Time Promotion was advertised so widely, the potential for harm to purchasers of the affected products was significant. That said, the contravening conduct was, as Kogan submitted, limited in that the Representations were only misleading or deceptive in respect of a small subset of products (the 621 affected products) out of the total of 78,111 products available for sale on the Kogan website as part of the Tax Time Promotion, and by reason that the Tax Time Promotion was of short duration. That consideration, in my view, does somewhat lessen the weight that would otherwise be attached to these factors in assessing the amount of penalty to be imposed. 18 Kogan also argued that it was relevant to take into consideration that Kogan's conduct, viewed as a whole, was beneficial to consumers, as consumers otherwise had the substantial benefit of the eBay promotion (a 20% reduction in price across all of the products on the Kogan Dick Smith eBay store) and, save with respect to the affected products, the substantial benefit of the Tax Time Promotion. Kogan also pointed to the fact that it increased the price of the affected products because of the eBay price comparison requirement to avoid a situation where it was selling those products at substantially below cost. These matters, in my view, miss the point and carry no weight.

Loss or damage suffered as a result of the act/benefits to Kogan 19 There was no direct evidence of any loss or damage suffered by consumers from the contravening conduct and it is not possible for the Court to determine the precise loss and damage as a result of the contraventions. However, on the basis of Kogan's evidence that 2,024 units of affected products were purchased during the Tax Time Promotion by consumers using the TTP code for a total cost of $1,158,875 (including GST) and that it may be inferred that consumers would have saved 10% had the discount been genuine, the ACCC submitted that the potential financial harm to those consumers may be estimated to be approximately $115,888 (or 10% of the total cost paid by consumers). Kogan argued that amount is overstated as the ACCC had incorrectly applied the contractual measure of damages and, if the correct approach was taken, some consumers would appear to have obtained some discount on the purchase of the affected products. On Kogan's estimation, calculated using its gross and net profit figures from the financial year ended 30 June 2018 as a proxy, Kogan made a net profit of $10,898.88 from the sale of the affected products. Based on that analysis, it was submitted that it is difficult to see how even the potential financial loss could exceed $10,898.88. 20 For present purposes, it is unnecessary to examine the competing positions or to make a determination as to which methodology more accurately reflects the potential financial loss or damage as, on either view, the potential loss or damage is a modest amount. 21 The ACCC also argued in this context that it may be inferred that the contravening conduct harmed Kogan's competitors by depriving those competitors of the opportunity to make sales to consumers who were enticed into purchasing Kogan's products. Such an inference is open to be drawn but given the relatively small number of purchases and the modest financial benefit received by Kogan from the sales, it can, I think, be inferred that it is unlikely that competitors suffered any material harm from deprivation of the opportunity to make sales to those consumers. 22 The ACCC submitted also that there remains potential for consumer harm from similar conduct because the circumstances in which the relevant conduct occurred continue to exist. It is sufficient to deal with this submission by observing that the contravening conduct occurred some two and a half years ago and there is no suggestion that Kogan has since engaged in any further contravening conduct.

Whether Kogan has previously engaged in similar conduct 23 Kogan has not previously been found by a court to have engaged in any similar conduct.

Deliberateness and the role of management 24 There was no finding by the Court in the liability judgment that Kogan intentionally contravened the law. However, the evidence did show that, in making the decision to advertise the Tax Time Promotion in the manner it did, Kogan's marketing department was aware that the Tax Time Promotion may be understood in the way described by the Representations and consciously avoided using expressions such as "save" or "discount" or "10% off" because the marketing department was aware that some prices may have increased: [88] of the liability judgment. The ACCC submitted that there was at least "a degree of risk" in Kogan's conduct that should have been appreciated by its management and that Kogan was prepared to take that risk by reason that: (a) the decision to increase the price of the affected products at the same time as offering the Tax Time Promotion was intentional; (b) the decision was made with the knowledge that there could be misleading representations to consumers in the process; (c) there was no evidence that Kogan considered whether a genuine discount was in fact available, despite legal advice to the effect that legal approval was provisional on there being "a genuine discount available"; (d) Kogan was aware that increasing its prices prior to a promotion would "diminish the benefit of consumers", it being a requirement of the eBay agreement not to increase prices on its eBay store in the seven days prior to the eBay promotion for that reason. Similarly, Kogan was aware that decreasing its prices on its eBay store following the eBay promotion was either restricted as a condition of participation in the eBay promotion, or at least could be a "bad look and feel" and "confusing or weird" for consumers; and (e) Kogan's directors were on notice, following enforcement action taken against a related company in 2016, that the ACCC considered offering a discount and increasing prices during the discount period to be a potential breach of the ACL. 25 The ACCC also pointed to the fact that Kogan's Director of Marketing (Mr Casey Dunn), Executive Director (Mr David Shafer), and CEO (Mr Ruslan Kogan) were each involved in the decisions to conduct, and advertise, the Tax Time Promotion. 26 Kogan accepted that senior management were involved in the Tax Time Promotion, but resisted the proposition that there was any deliberateness in its conduct that favoured the need for a significant penalty to deter it from similar conduct. Kogan argued that the evidence showed that the view was formed that although the advertising could not say "save" or "discount", it could say "take 10% off the code" in compliance with the law. That view was erroneous, but I do not think there was a deliberateness in Kogan's conduct in the sense of "courting the risk" of contravention or being reckless as to such: cf Australian Competition and Consumer Commission v Coles Supermarkets [2015] FCA 330 (Coles) at [74]-[76]; Reckitt Benckiser at 58-9 [130]-[136]. It may be put against Kogan that it should also have sought legal advice on whether the addition of the words "off the code" was adequate to remove the misleading or deceptive aspect of the advertising. Kogan may also be criticised for its lack of appreciation of the extent of the risk of contravention but it cannot be said in my view that Kogan must have known that the addition of the words "off the code" would not be sufficient to avoid contravention. 27 As the authorities make clear, "innocence" is not an ameliorating factor in the imposition of the pecuniary penalty and does not justify either no penalty at all or a light penalty: Flight Centre Ltd v Australian Competition and Consumer Commission (No 2) [2018] FCAFC 53; 260 FCR 68 (Flight Centre) at 85-6 [63]. However, as the Full Court in Flight Centre stated at 86 [64], it is relevant to know that the conduct was done believing it to be innocent and that the party, now disabused of its belief, will not, or is likely not to, reoffend. In such circumstances specific deterrence is of less significance and, in the present case, weighs on the amount of the penalty to be imposed. 28 The ACCC's reliance on earlier enforcement action is more appropriately addressed in considering Kogan's history of compliance.

Kogan's compliance culture 29 The ACCC submitted that Kogan's history of compliance is relevant in three ways. First, it was said to indicate that Kogan is not entitled to the kind of mitigation which would be appropriate in the case of a contravener with a previously exemplary compliance record. Secondly, it was said to highlight Kogan's attitude to (or disregard for) compliance, in circumstances where the ACCC has brought concerns of a similar nature to Kogan's attention in the past. Thirdly, it was said to reinforce the need for specific deterrence. 30 Although Kogan has not previously been found by a court to have engaged in any similar conduct, the ACCC pointed to the fact that a related entity in 2009 provided an undertaking under s 87B of the Trade Practices Act 1974 (Cth) regarding misleading price representations in advertisements making price comparisons in circumstances where the products had not been offered for sale at the higher price (2009 undertaking). The undertaking included a requirement to implement a trade practices law compliance program. In 2016, a different entity related to Kogan paid three infringement notices for alleged false or misleading representations arising from an advertised 20% discount in circumstances where the prices of three products had been increased before, and subsequently reduced after, the discount promotion (2016 infringement notices). Both entities had the same controlling directors as Kogan. The ACCC did not rely on the infringement notices as evidence of any prior contraventions or admissions but as evidence that the ACCC had brought concerns of a similar nature to Kogan's attention in the recent past and that "[r]egardless of those concerns being brought to [Kogan's] attention, Kogan decided to engage in similar conduct in this case only three years later". 31 I am not persuaded that this "prior conduct" has the significance contended for by the ACCC. First, the 2009 undertaking was given some 11 years ago. Secondly, the 2016 infringement notices (which were resolved without admission of liability) appear to relate to confined incidences of alleged contravening conduct. Thirdly, it is relevant that Kogan has not been the subject of any action taken against it by the ACCC for similar conduct in the past. In the circumstances, I do not take these prior incidences as indicative of a culture of disregard for compliance with Australian law. 32 The ACCC next argued that there is no evidence that Kogan conducted any ACL training between August 2015 and the time of the contravening conduct in June 2018. It was submitted also that it is apparent that such training as there was had been insufficient to prevent the contravening conduct. It was argued that it was particularly concerning that despite staff training and protocols to ensure external legal advice is obtained in relation to proposed marketing and promotional statements, that advice was either not heeded as a matter of substance or not in fact sought with respect to the website and eDMs. It was also submitted that there was no other evidence to suggest that Kogan had adapted or improved its compliance culture and policies to take into account the ACCC's concerns that were brought to its attention by the issuing of the 2016 infringement notices. In all the circumstances, the argument went, it was unclear whether the explanation for Kogan's conduct was inadequate compliance or disregard for compliance. I disagree. In my view, it may be inferred that there has been insufficient and inadequate staff training but not a disregard for compliance. Nor, in so far as there have been deficiencies in the compliance programs, is that indicative of a culture of noncompliance. 33 Next the ACCC argued that Kogan has demonstrated no contrition for the contravening conduct. Reference was made to the fact that on 25 May 2019, two days after the ACCC commenced these proceedings, Kogan emailed its subscribers and advertised in the Australian Financial Review newspaper another discount code promotion using the code TAXTIME "to reduce current website prices by 10% at checkout" (emphasis in advertisement). The advertisement included a disclaimer about the dynamic nature of Kogan's prices. It was submitted that the tenor and timing of the advertisement demonstrated a disregard for the concerns raised by the ACCC about Kogan's conduct, and a rejection of the opportunity to reflect meaningfully on, and improve, its conduct. The ACCC also pointed to the fact that around the same time, Kogan amended its "disclaimer" for "discount code promotions" including to state "[s]ome current website prices may change while this offer is available, and/or may have changed recently". It was submitted that, to the extent it suggests some steps on Kogan's part to avoid or at least disclaim conduct of the kind in this case, it did little to address the cause of the contravening conduct: that is, the deliberate decision to increase the prices at the same time as offering a 10% discount. It was submitted that the Court should also be cautious in relying on Kogan's description of its disclaimers as evidence of how those disclaimers would be deployed in any particular case in circumstances where, it was argued, it is apparent that the disclaimer said to be in effect at the time of the Tax Time Promotion was not in fact the same as the disclaimer included in the Tax Time Promotion advertisements. Finally, it was submitted Kogan's ASX announcement on 21 July 2020, four days after the liability judgment was delivered, stated that Kogan's decision-making assumes their customers are "smart shoppers who have done lots of research" and that Kogan made that announcement despite the finding made by this Court that the relevant class of consumers to whom Kogan directed the Tax Time Promotion included members who were not familiar with the Kogan website, or with Kogan's promotions, and were not aware that Kogan's prices frequently changed. It was submitted that the content of the announcement suggested, at a minimum, a failure to engage with the circumstances that led to consumer harm in this case and to accept responsibility for its own wrongdoing. 34 The short answer to the ACCC's submissions is that Kogan did take some corrective action, whether or not the ACCC's criticisms of the use and form of disclaimer have substance and are justified. In view of the fact that some corrective action has been taken, it cannot be said that Kogan has not acknowledged its contravening conduct or accepted the necessity to make changes to its advertising in order to remedy its contravening conduct and avoid a repetition of the conduct. Accordingly, the ACCC's claim of lack of contrition is not a factor which I consider warrants the need for a significant penalty in order to deter Kogan from further such conduct.

Size of contravener and financial position 35 In determining the amount of penalty it is relevant to have regard to the size of the contravener and its financial position. As the authorities indicate, the imposition of a higher penalty will ordinarily apply where a large corporation is involved in order to achieve a deterrent effect, but the penalty should still be proportionate to the contraventions: Coles at [92]. An important factor in setting the amount of the penalty is that it should be sufficiently adequate to secure deterrence against a large and profitable company to avoid any civil penalty being absorbed as the cost of doing business: Australian Competition and Consumer Commission v Cornerstone Investment Aust Pty Ltd (in liq) (No 5) [2019] FCA 1544 at [41]; Australian Competition and Consumer Commission v viagogo AG (No 3) [2020] FCA 1423 at [34].

Co-operation 36 The ACCC acknowledged that Kogan had been co-operative to the extent that it complied with s 155 notices issued to it and provided certain information voluntarily to the ACCC, though it submitted that its conduct during the course of the proceedings (such as narrowing the issues in dispute by way of its concise response) was no more than is expected of any litigant in compliance with the obligations under s 37N of the Federal Court Act and the Court's case management imperatives. I think that submission is a bit harsh and fails to give due and proper regard to the steps taken by Kogan to enable the trial to proceed as efficiently and expeditiously as possible, including voluntarily recreating its homepage and sale process as they stood at the time of the Tax Time Promotion. Some discount for cooperation is warranted in my view.

Adverse publicity 37 A factor that Kogan argued is relevant to the amount of penalty is that Kogan has already received a very substantial amount of adverse publicity in connection with this proceeding. It was submitted this extra-curial punishment or detriment weighs against the need for a higher penalty, especially to achieve specific deterrence. Kogan relied on evidence that in May 2019, the ACCC and media outlets made several public announcements about the proceeding. After judgment was delivered on liability, the ACCC and media outlets made several public announcements. According to newspaper reports, the chairman of the ACCC said the ACCC would seek penalties "in the millions" of dollars. Kogan submitted that its parent company's share price dropped by 6.4% and 4.6% respectively after each of these events. However, that assertion was unsupported by any evidence and I place no weight on it.

Conclusions on penalty 38 Taking all these matters into consideration, it seems to me that the penalty of $2 million sought by the ACCC is excessive, but a penalty of $150,000 is insufficient. The penalty urged by Kogan does not reflect the seriousness of the contraventions nor provide sufficient deterrent value both to Kogan and to others against engaging in such conduct in the future. On the other hand, the benefit to Kogan and the harm to consumers who purchased the affected products was modest, the harm caused to third party competitors was unlikely to be substantial, Kogan did not deliberately intend to engage in the contravening conduct and the material does not indicate a culture of non-compliance or disregard of the law. In such circumstances the need for a penalty to achieve specific deterrence is less significant. General deterrence remains significant though, reflecting the seriousness of the contravening conduct, and in my view, there should be a penalty imposed of $350,000.

Injunctions 39 Under s 232(1)(a) of the ACL, the Court may grant an injunction in such terms as the Court considers appropriate if it is satisfied that a person has engaged, or proposes to engage, in conduct that constitutes or would constitute a breach of, relevantly, ss 18 or 29 of the ACL. The ACCC seeks the following injunctive relief: An injunction restraining Kogan for a period of three years from the date of the Court's order, whether by itself, its servants, agents or howsoever otherwise, in trade or commerce from representing that: (a) consumers will receive a discount off the price at which products were available for sale for a reasonable period before the discount period; and (b) consumers have a limited opportunity to receive a discount off the price at which products will be available for sale for a reasonable period after the discount period, when that is not the case. 40 In my view there is no warrant for an injunction in that form. There has been a significant passage of time between the contravening conduct and final orders and no further contravening conduct during that time: cf TPG Internet HCA at 660 [69] per French CJ, Crennan, Bell and Keane JJ. Further, the injunction does no more than seek compliance with the law, where no real risk of further misconduct is identified. As the Full Court in Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146; 161 FCR 513 explained at 539-544 [102]-[111] and [114], normally it is only where there is a real risk of further misconduct that injunctive relief is contemplated. An injunction should not be seen as a necessary vindication of the applicant's conduct in bringing the proceedings. Other relief may better serve that purpose. Nor should an injunction be sought primarily for public relations purposes, however worthy such purposes may be: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (No 2) [2012] FCA 629 (TPG Internet FCA) at [19].

Corrective advertising 41 The Court has the power to make orders for the publication of corrective notices: s 246(2)(d) of the ACL. The ACCC submits that a corrective publication order is necessary and appropriate in circumstances where: (a) Kogan has, since proceedings were instituted and following the liability judgment, made public advertisements and announcements indicating its disregard for, or failure to comprehend, the circumstances that led to the contravening conduct; (b) although the contravening conduct occurred over two years ago, and was of relatively limited duration, there remains the potential for consumer harm from conduct of a similar kind; (c) consumers visiting the Kogan website should be alerted to the fact of the contravening conduct (given they are most at risk of future similar conduct); and (d) alerting consumers to the contravening conduct is likely to aid the enforcement of the injunction, including because Kogan may be less likely to repeat the contravening conduct. 42 I do not consider that corrective advertising is required in the present case. First and foremost, more than two years have passed since the contravening conduct and there has been no further contravening conduct in the meantime. Secondly, it is unlikely that consumers will continue to labour under a misapprehension as a result of the contravening conduct given the passing of time, and the fact that the contravening conduct related to a small number of products offered for sale as part of the Tax Time Promotion that ran over four days only: TPG Internet FCA at [150].

Costs 43 Kogan submitted that in view of the small scale of the contravening conduct in this proceeding the Court should order that Kogan pay 50% of the ACCC's costs. It was submitted that the costs and resources of this proceeding were not proportionate with the conduct, any loss suffered by consumers or gain made by Kogan. In my view there is no warrant not to make an order requiring Kogan to pay the ACCC's costs of the proceeding. Kogan unsuccessfully defended the proceeding and its submissions provide no basis to depart from the ordinary rule that costs should follow the event. I certify that the preceding forty-three (43) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Davies.

Trade Practices Act 1974(Cth)s 87B

At a glance

Court

Decision date

Before

Source

Judgment (17 paragraphs)

Parties

Legislation Cited (3)

Cases Cited (17)