REASONS FOR JUDGMENT
1 These are my reasons for the terms of the relief that I am prepared to grant consequential upon the conclusions expressed in my reasons of 30 June 2006 that Woolworths Limited contravened s 45 of the Trade Practices Act 1974 (Cth).
2 These reasons assume a familiarity with what is contained in those reasons. I will not redefine terms or use language otherwise than as used in those primary reasons.
3 For the reasons that I gave in June, I concluded that Woolworths had contravened s 45(2)(a)(i) and (b)(i) in respect of the Ettamogah and Global Beer episodes and that Woolworths had contravened s 45(2)(a)(ii) and (b)(ii) in all four episodes.
4 The question arises as to the appropriate relief to be given. Declarations as to contravention have been made. There was no issue between the parties that a penalty is called for under s 76 of the Act. The issue between the parties as to penalty was the appropriate level. Also, the parties were at issue as to whether injunctive relief should be granted in addition to declaratory relief, and in what form.
5 The parties filed additional evidence for this hearing on relief.
6 The evidence revealed a compliance programme in Woolworths dealing with issues under the Act. It is unnecessary to deal with this evidence in any detail. It is sufficient to say that I should not approach the question of penalty on the basis that Woolworths had been cavalier or careless in its systems to seek to ensure compliance with the Act. The compliance systems were not effective. I am still able to conclude, however, that real attempts had been made systemically to bring about a likelihood of compliance with the Act.
7 Further evidence was led by Woolworths about the operation of the liquor industry, the role of the Licensing Court and the place of deeds of the kind here in the settlement of such actions. Some objection was taken to this evidence by the Commission on the ground that it went over the ground dealt with by Mr Schwartz at the earlier hearing and on the ground that it contradicted some of my findings. Woolworths made clear that no challenge was being made at this hearing to my earlier findings and on this basis I allowed the evidence.
8 The parties have provided me with comprehensive submissions on relief. Those submissions will remain with the file. The comprehensiveness of these submissions makes my task easier. I do not propose to deal with every aspect of these submissions, but only those matters which bear directly upon the exercise of judgment which I make in granting relief.
9 An important piece of background to the fixing of an appropriate penalty is that the first respondent ("Liquorland") and the Commission reached a settlement prior to orders being made by Gyles J, substantially in relation to the matters litigated before me: [2005] FCA 683. In that matter, Liquorland accepted liability in respect of five contraventions of s 45(2)(a)(i) of the Act. There was no admission or agreement about s 45(2)(a)(ii) or (b)(ii) dealing with the purpose of substantially lessening competition. These contraventions were constituted by Liquorland entering into the four deeds the subject of the proceedings against Woolworths (Ettamogah, Palms Village, Global Beer and Jin Ro) as well as a further fifth deed to which Woolworths was not a party. In those proceedings, Liquorland and the Commission made a joint submission to the Court that a penalty should be imposed upon Liquorland in the sum of $950,000 for each contravention. On 31 May 2005, Gyles J imposed these penalties which represented a total penalty of $4.75 million in respect of the five deeds. A joint submission was put to the Court about injunctive relief and the Court made an injunction for three years.
10 The Commission uses the orders against Liquorland as a foundation for a submission that a significantly higher penalty should be imposed upon Woolworths. Woolworths uses the orders in the Liquorland aspect of the matter as a reason for a lower penalty.
11 Neither party argued that the Liquorland and the Commission settlement and orders made pursuant thereto should not be taken into account in the setting of the penalty. Both parties accepted that the principle of parity should apply by reference to which equivalent conduct should attract equivalent penalty.
12 The foundation of Woolworths' submission that the Liquorland settlement and orders should lead to a lower penalty in this case was the proposition that, at least in part, the orders made by Gyles J were founded on the assumption that the evidence disclosed some effect on competition. Here, it was submitted, there had been no proof of effect on competition, and indeed, when one takes my findings as to the question as to whether the applicants for the liquor licence would have obtained unrestricted licences, one can see that, at least in relation to these applicants, little, if any, damage had been proved.
13 The Commission on the other hand said that the conduct was of a serious character, importantly by reason of my conclusion that a purpose of substantially lessening competition was found.
14 Woolworths accepted in submission that the figures in the Liquorland orders should not be the subject of precise paring or fine weighing. It can be said with some justification that [67] of Glyles J's reasons contained an assumption of an effect on competition which was not the subject of satisfactory proof here. However, there was no finding by Gyles J, as there was here, of a purpose of substantially lessening competition.
15 That latter distinction is of some importance. Lying at the heart of the Act is the competitive process. A subjective purpose of a substantial commercial entity of substantially affecting competition is of the utmost seriousness. This is especially so when experienced senior officers undertook such conduct deliberately to ensure that licences did not become any form of competitive platform or threat. Whilst no particular effect was proved, I should approach the matter on the basis that the conduct was seen as relevantly important to protect Woolworths' interest by ensuring the absence of a competitive platform. It was of relevant commercial significance to Woolworths and should be viewed in that light.
16 Woolworths also placed great emphasis, as it did in the earlier hearing, upon the relationship between the conduct and the working of the Liquor Act. Much emphasis was placed on the proposition that Woolworths could lawfully have proceeded to hearing in all these cases and opposed the grant of any licence based on its vindication of rights under the Liquor Act. Thus the degree of seriousness of the deeds should be viewed in the light of settlement of cases which could have been run to the disadvantage of the applicants and taking up public time and expense in the Licensing Court.
17 I think there is force in those submissions, to a point. I agree that one needs to appreciate that the objection process, with whatever purpose, was lawful. However, as I explained in my primary judgment, that does not mean that the purposes that attended the objection process do not also attend the execution of the documentation. As I sought to explain in my principal judgment, these documents were not just the settlement of legal proceedings, they were for the purpose of preventing these licences being used in the future by the applicants and transferees in the manner I have earlier described. It may well be that the applicant could have successfully opposed all these applications. It would then have been required to justify its position before the Licensing Court. Even if it won the cases and even if conditions of some kind had been imposed it would not necessarily have had the advantageous position for a future public interest objection if the then licensee sought a variation that it did with these deeds in place. Also, in relation to three of the applicants I doubt very much that it would have been able to obtain by Court order the equivalent of a covenant never to seek a variation by the Court. Thus, while I think one must be careful to recognise that the objection process is not the subject of a penalty, one must also be careful not to diminish the importance of what was done and what was sought to be done in the deeds by the background of the objection process.
18 The evidence is, and I accept, that there was not a deliberate intention to breach the Act. There was a deliberate purpose, however, to affect competition in the local area. That was the whole point of the conduct in question. The fact that it did not cross the minds of anyone at Woolworths that the entry into these deeds may cause a problem does not lead to any discount in the penalty. Given the background of the objection process it is perhaps understandable that the whole conduct was looked at within the paradigm of the Liquor Act and not the Trade Practices Act. Nevertheless, if I am correct in relation to the analysis which I made of the market, there is no doubt that one purpose of these deeds was substantially to affect competition in the relevant sense. Whilst there has not been any particular effect on competition that has been proved what is clear is that the subject matter of the activity, the off-licences themselves, were important integers in the working of the market. I do not repeat what I said in my principal judgment. It is sufficient to say that the failure to prove any particular aspect of effect does not detract from the conclusion that these were serious contraventions of the Act.
19 Submissions were made by the Commission as to Woolworths so-called "record" in Trade Practices matters. I think one needs to be careful about that kind of conclusion. I do not propose to conduct a wide ranging enquiry into the linkages between the various cases in which Woolworths or its subsidiaries has or have been involved. I do not propose to give any real weight to these kind of similar fact questions. The liquor division of Woolworths appears to me to have operated independently. The relevant senior men in it, Mr Meagher and Mr Smith, had deep experience of the industry. It is unfortunate that no one appeared to turn his or her mind to the possibility that there might have been conduct which was directed at a relevant operating market. Nevertheless, I think that Woolworths conduct in these four episodes should be looked at on its own merits and I propose to impose a penalty without reference to other cases.
20 There is a body of evidence about the compliance culture within Woolworths. I am not prepared to find on the evidence that Woolworths has not attempted, as far as can be done, to undertake a real system of making sure that employees, both senior and junior, understand the obligations of the company and them arising from the Act. There is evidence of significant steps in relation to compliance and education of employees. I think these episodes can be explained by the operation of the liquor division being undertaken as it always has been by reference to the State legislation. That is not an excuse, but I think it does explain why that which one might have assumed would have occurred did not occur - that when parties start behaving in a way that is intended to prevent entry of competitors into a market warning bells begin to sound. That is perhaps putting it overly simply. Nevertheless, I think that the interconnection between all activities of Woolworths business and the operation of the Actis probably plain now.
21 The parties were not at issue as to the relevant principles to be applied. It is unnecessary to set the various factors out in detail. It is sufficient to note that they have been fully discussed in many cases: in Australian Competition and Consumer Commission v Visy Paper Pty Ltd (No 2) (2004) 212 ALR 564 at [28] and [29], Australian Competition and Consumer Commission v D M Faulkner Pty Ltd [2004] FCA 1666 at [53], Australian Competition and Consumer Commission v McMahon Services Pty Ltd (No 1) [2004] FCA 1171 at [84] to [85], N W Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285at 294-295, Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170, Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 and Australian Competition and Consumer Commission v High Adventure Pty Ltd [2005] FCAFC 247.
22 I must of course direct myself to the terms of s 76: "all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered… and the circumstances in which the act or omission took place". I also recognise the fundamental place that deterrence, both general and specific, plays in the setting of the penalty.
23 I have approached the matter on the basis that each episode should be viewed as a composite body of facts and the entry into and giving effect to the deeds should be viewed as one continuous series of acts. The Commission did not submit that to do so would be an error.
24 There are these four episodes calling for a penalty. I do not think that the absence of contraventions based on s 4D brings the Jin Ro and Palms Village episodes into a substantially less serious category than the other two. In respect of all the episodes there was a purpose of substantially lessening competition. That Mr Dixon and Mr O'Brien were obliged to put up with extensive negotiation and reduction in what they wanted to do does not add significantly to the seriousness of the events. In all the events, there was a desire to ensure the valuable licence that was the subject of the application being as far as possible stultified and rendered not useful for any future operator. That of course is in the context that if the objection had been pressed no licence at all may have been issued. Neither Woolworths nor the Commission submitted that this approach was flawed.
25 Another way that Woolworths sought to stress the Liquor Act background was to place it as an example of the anti-competitive conduct being encouraged, even if not authorised, by a public authority (the Licensing Court) or by legislation (the Liquor Act). Reference was made in these terms to the revised guidelines of the European Commission on the method of setting fines imposed pursuant to Article 23(2)(a) of Regulation No 1/2003 issued on 28 June 2006. Having regard to the protocol that has been put in place by Woolworths for some time for the conduct of Licensing Court applications, one can see the tension (though not irreconcilable tension) between practical day-to-day affairs under the Liquor Act and compliance with the Act. I think it is overstating the issue to say that the State public authority encouraged contravention of the Act. But, nevertheless, the obvious encouragement of resolution of cases other than by being run as contested hearings can be accepted.
26 With four episodes and bearing in mind the principle of parity by reference to the Liquorland orders, the need to recognise some discount in Liquorland for the approach it took and the fact that I have made findings about the purpose of substantially lessening competition, my view is that there should be penalties imposed significantly above those imposed on Liquorland, but not dramatically so. The Commission has sought penalties in the order of $3.5 to 4 million for each episode ($14m to $16m in total) for reasons it has set out in detail in its written submissions. Taking into account the factors addressed in those submissions and set out in the judgments to which I have referred and placing a significant, indeed overwhelming, weight on deterrence, I have come to the view that an appropriate penalty in respect of each episode is $1.75 million. That will lead to a total penalty of $7 million. I think that appropriately reflects the seriousness with which the Court views conduct in contravention of s 45, but at the same time recognises the particular context in which these events occurred arising under the Liquor Act. The anti-competitive aspects of the conduct of Woolworths had a direct relationship with the State legislation and a litigation framework based upon it. That is not to excuse the conduct in this case but, as I have sought to set out, it perhaps sets it in context.
27 The parties cannot agree on injunctive relief. A detailed protocol concerning Liquor Act objections has been in place for some years. It was put in place voluntarily by Woolworths. It has not been the subject of criticism by the Commission. The Liquor Act has been amended to remove the needs objection. Woolworths says, therefore, that there is not risk of repetition. Woolworths is prepared to undertake to the Court not to enforce any aspect of the four deeds in question.
28 The terms of the injunction sought by the Commission after some suggestions in debate were as follows:
"The second respondent be restrained, whether by its directors, servants, agents or howsoever otherwise for a period of three years from the date of this order from making, or arriving at, or giving effect to, inducing or attempting to induce any person to make or arrive at, or give effect to, or being in any way knowingly concerned in, or party to, the making or arriving at, or giving effect to, any contract, arrangement or understanding with an applicant for an off-licence retail licence or an hotelier's licence in New South Wales which:
(a) has legal effect independently of proceedings in the Licensing Court in respect of a liquor licence application; and
(b) was made or arrived at by the second respondent for the purpose, or a substantial purpose, of:
(i) preventing, restricting or limiting the supply to take-away liquor by the said applicant to particular persons or classes of person; or
(ii) substantially lessening, preventing or hindering competition in a market in which the second respondent competes with the said applicant in New South Wales.
Provided that this order does not:
(c) apply to any conduct which would be disregarded under section 51 of the Act."
29 In all the circumstances, in particular having given weight to the kind of considerations discussed in Universal Music Australia Pty Ltd v Sharman Networks Ltd (2006) 153 FCR 110 at [40]-[49], I am not prepared at the moment to make the injunction sought by the Commission. My reasons for doing so are twofold. First, like Gyles J in the Liquorland matter, I am concerned about the three year period. If final injunctive relief is appropriate it is not clear to me why a three year period is adequately protective of the public. On the other hand, if protection is only required for such a time, the terms of the relief are somewhat blunt or imprecise. The terms of the injunction are almost a requirement that the Act not be contravened. That kind of order, as the discussion in Universal Music v Sharman Networks makes clear, has been discouraged, with certain exceptions.
30 I am not satisfied that the public will be adequately protected by this injunction or without it. If the protocol that has been in place for some time by Woolworths has been followed and can be expected to be followed there is a strong basis to argue, as Woolworths does, that the injunction is unnecessary. If the protocol has not been followed or is unlikely to be, there is a strong basis to argue that the injunction is necessary and perhaps that it needs refinement to be stronger in terms.
31 It is not the role of the Court to initiate relief. It is the role of the Court to ensure that relief is adequate and appropriate to protect the public. Subject to hearing from the parties, I propose to order that on or before 31 July 2007, Woolworths, at its own cost, provide to the Commission a report of an independent expert of the working of the protocol referred to in the affidavit of Mr Rohl. That report should be in sufficient detail about a sufficient number of cases to give a reliable view as to the operation of that protocol. I will leave the detail of the formulation of this order to the parties' agreement, in the first instance. I am mindful of the difficulties that legal professional privilege may cause. I doubt, however, that such difficulties will be insuperable. If the Commission does not wish to press for such an order. I will not make it.
32 Before I make orders, it is appropriate to say something about the second respondent's conduct. An appreciation of the nature of the conduct is only obtained in full by reading my detailed reasons published on 30 June 2006. I do not propose to put any gloss upon those reasons. I have made the findings contained therein and referred to in these reasons. The conduct of Woolworths in relation to the four episodes has been described in the commercial press as "bullying". It is unnecessary to ascertain or discuss the source of this language. It may or may not be language which is appropriately applied to summarise the conduct in relation to any one or more of these episodes. Minds might differ about that. It was not, however, a term that I used in my reasons. It is only necessary for me to say that no part of the penalty which I am imposing upon Woolworths is attributable to a notion that any of the applicants to licences or anyone else in this case were "bullied". The penalty is directed to the serious conduct which had the relevant purposes, in particular the purpose of substantially affecting competition in a market. I have taken the unusual step of putting this paragraph in my reasons because of the thematic reporting by some in the commercial press about this case. Nothing I have said is intended as a criticism of any newspaper or journalist. My reason for including this paragraph is to avoid any misunderstanding as to the nature of the seriousness of the conduct to which the penalties are directed.
33 To the extent that orders for a report (if pressed for by the applicant) would make all orders in August and today interlocutory I will grant leave to appeal, so that Woolworths is in the position it would be if the orders were complete and final.
34 The further orders that I will make are therefore as follows:
1. In respect of the contraventions by the second respondent of s 45(2)(a)(i) and (ii) and (b)(i) and (ii) of the Trade Practices Act constituted by the entry into and giving effect to the written agreements in the form of the deeds:
(a) dated 26 November 1998 with Ettamogah Darling Harbour Pty Ltd, Leigh Christopher O'Brien, Ralph Joseph Patterson and the first respondent; and
(b) made in or about November 2000 with David John Dixon, Donna-Marie Dixon and the first respondent
and dealing with the contraventions constituted by the entry into and giving effect to each deed separately as to each episode, the second respondent pay to the Commonwealth of Australia a pecuniary penalty in the sum of $1,750,000 in respect of each group of contraventions.
2. In respect of the contraventions by the second respondent of s 45(2)(a)(ii) and (b)(ii) of the Trade Practices Act constituted by the entry into and giving effect to the written agreements in the form of deeds:
(a) dated 18 August 1997 with Jin Ro Australia Pty Ltd, Deannah Jang and the first respondent; and
(b) dated 1 March 2000 with Sandra May Hopkins, the Palms Shopping Village Pty Ltd, John Saunders, Malcolm Logan, Thomas Cahill, the first respondent and D & D Haslam Pty Ltd
and dealing with the contraventions constituted by the entry into and giving effect to each deed separately as to each episode, the second respondent pay to the Commonwealth of Australia a pecuniary penalty in the sum of $1,750,000 in respect of each group of contraventions.
3. For the avoidance of doubt, orders 1 and 2 represent penalties totalling $7,000,000, being $1,750,000 for the Ettamogah episode, $1,750,000 for the Jin Ro episode, $1,750,000 for the Palms Village episode and $1,750,000 for the Global Beer episode, as those phrases are to be understood by reference to the reasons for judgment herein dated 30 June 2006.
4. The second respondent by itself, its servants, agents or otherwise be restrained from relying on, or enforcing in any way, any of the agreements referred to in orders 1(a) and (b) and 2(a) and (b) above or any terms thereof.
5. If the applicant is to press for relief in the nature of the independent report discussed in the reasons published today:
(a) the applicant bring into Court not later than 29 January 2007 orders providing for a report to the applicant no later than 31 July 2007;
(b) the applicant consult with the second respondent in respect of the terms of such order;
(c) the proceedings stand over to a date to be fixed after 31 July 2007 in respect of any claim for injunctive relief, consequent upon consideration of any report referred to in order 5(a) above; and
(d) if there is to be any debate about the making of the order for the report the argument as to that matter stand over to a date to be fixed in February 2007
6. The second respondent pay the applicant's costs of the proceedings.
7. To the extent that orders 5 and 6 mean that these orders together with the orders made on 11 August 2006 remain interlocutory thus requiring leave to appeal, leave to appeal is granted and the time for filing any notice of appeal from the orders made on 11 August 2006 and today be extended up to and including 16 February 2007.
I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Allsop.