Australian Competition and Consumer Commission v Metricon Homes Qld Pty Ltd

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 299 of 2012

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

AND: METRICON HOMES QLD PTY LTD (ACN 005 149 137)

JUDGE: COLLIER J DATE: 31 JULY 2012 PLACE: BRISBANE

REASONS FOR JUDGMENT 1 On 25 June 2012 the Australian Competition and Consumer Commission ("ACCC") filed an application in which it sought pecuniary penalties, injunctions and declarations in respect of conduct of the respondent, Metricon Homes Qld Pty Ltd ("Metricon Qld"). In summary the pecuniary penalties, injunctions and declarations sought were: In relation to conduct occurring prior to 1 January 2011 - pursuant to s 76E and s 80 of the Trade Practices Act 1974 (Cth) ("TPA") and s 21 of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act"). In relation to conduct occurring on or after 1 January 2011 - pursuant to s 224 and s 232 of the Australian Consumer Law ("ACL") which is Sch 2 to the Competition and Consumer Act 2010 (Cth) ("CCA"), and s 21 of the Federal Court Act. 2 The ACCC claimed that the conduct in which Metricon Qld engaged was in contravention of ss 52, 53(a), 53(e) and 53(g) of the TPA and ss 18, 29(1)(a), 29(1)(i) and 29(1)(m) of the ACL. I note that, by reason of item 6 of Sch 7 to the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth), the TPA as in force immediately before 1 January 2011 continues to apply to acts or omissions which occurred before that date. 3 Metricon Qld admits engaging in the conduct as claimed by the ACCC. The parties have reached agreement in respect of pecuniary penalties, injunctions and declarations, and now seek orders from this Court reflecting their agreement.

Background 4 Metricon Qld is a company that built and offered for sale detached residential houses in south-east Queensland and northern New South Wales. Metricon Qld offered houses in three series, being the Allegra, Freedom and Designer Series. Between approximately 27 January 2009 and 27 September 2011, Metricon Qld supplied around 1,600 residential houses to customers. 5 Metricon Qld has maintained display centres in Brisbane, the Gold Coast, Toowoomba, the Sunshine Coast, and northern New South Wales. Metricon Qld has also maintained a website at http://www.metricon.com.au advertising homes for sale, including information about price and inclusions.

Pictorial representations in the Resort Style Living Brochure 6 Between about 17 July 2010 and 15 January 2011, Metricon Qld caused to be prepared, published and distributed around 1,060,000 copies (including three different versions) of a brochure called "Resort Style Living" both in print media (the Gold Coast Bulletin, the Courier Mail and the Sunshine Coast Daily) and through its display centres. 7 In each brochure Metricon Qld depicted in detail particular house designs which it represented were offered "from" a specific price. Each house design depicted included: features and fittings of types offered by Metricon Qld, but not included in the "from" price; and features and fittings not offered by Metricon Qld. 8 The houses depicted in the brochures were not the houses available at the advertised "from" price - rather what was available at the advertised "from" price was a house of the relevant design with base specifications. 9 It is not in dispute that Metricon Qld continued to publish and distribute versions of the brochure over a six-month period, notwithstanding that, at all times, Metricon Qld knew that many of the features and fittings depicted in the photographs of the particular house designs contained in the brochures were not included in the represented price, and that some items were not supplied by Metricon Qld at all. 10 The parties agree that a single pecuniary penalty in the sum of $150,000 be imposed on Metricon Qld for contravention of s 53(a) and s 53(e) of the TPA and, in relation to conduct that occurred on or after 1 January 2011, for contravention of s 29(1)(a) and s 29(1)(i) of the ACL.

Build Time Guarantee 11 Between January 2009 and August 2011 Metricon Qld included representations in all advertising brochures it published that it would guarantee build times ranging between 14 and 24 weeks (for different ranges and during different periods) for the houses it offered, and that it would compensate purchasers for rental costs up to $300 per week if the build time was not met. 12 The build time guarantee was stated to be subject to terms and conditions. Those terms and conditions could be found only on the Metricon Qld website, and not in any advertising brochures. The advertising brochures only mentioned that conditions applied and that those conditions could be found on the website. The terms and conditions excluded houses: featuring split level designs (despite the fact that the advertising brochures stated that the build time guarantee applied to both single and double storey houses); purchased with Metricon Qld promotional packages or offers; with any upgrades (including, but not limited to, landscaping, driveways, or exterior finishes such as rendering or bag and paint); with any structural or cosmetic variations to the standard design; and requiring retaining walls, significant site works or rock excavation. 13 During the relevant period at least one of the exclusions applied to the majority of houses built by Metricon Qld, with the result that very few customers were able to take advantage of the build time guarantee. 14 The parties agree that Metricon Qld knew that: the build time guarantee did not automatically apply to the majority of houses offered for supply by it or to the majority of houses purchased by consumers during the relevant period; and if a special offer was accepted, the build time guarantee was excluded. 15 The parties also agree that readers of the brochures containing the build time guarantee were induced to believe - and then act on the belief - that the build time guarantee applied to all single storey and double storey houses offered for sale by Metricon Qld, when in fact the terms and conditions excluded the majority of houses sold by Metricon Qld during the relevant period. 16 The parties jointly recommend a single pecuniary penalty in the sum of $250,000 be imposed on Metricon Qld for conduct occurring from 15 April 2010 to 31 December 2010 contravening s 53(g) of the TPA and, in relation to conduct which occurred on or after 1 January 2011, for conduct contravening s 29(1)(m) of the ACL.

Discount List Prices 17 Between 1 July 2009 and 13 December 2010 Metricon Qld caused to be prepared, published and distributed around 45,000 copies of brochures (including around 20 different versions) containing promotions entitled "Home Expo Promotion" and "Red Hot Rollback Promotion", advertising Freedom and Allegra Series houses and their prices, both in print media (the Gold Coast Bulletin, the Courier Mail and the Sunshine Coast Daily) and through its display centres. 18 During the relevant period, the brochures contained price lists including a "list price" (apparently the price for each house with base specifications and a "traditional" façade, immediately before the start of the promotion), a "pay only" price, and an amount that could be saved if the house (with basic specifications and a traditional façade) were purchased during the relevant promotion at the "pay only" price. 19 However, it is now not in dispute that each of the houses represented in the brochures had either: never been offered for supply by Metricon Qld at all; or not been offered for supply at the list price immediately before the start of the promotion. In fact, most of the houses (with base specifications) and a traditional façade had been offered at the "pay only" price offered during the immediately preceding Home Expo or Red Hot Rollback Promotion. 20 Metricon Qld's conduct was intended to make customers believe they were making substantial savings, when in fact this was not the case. The parties agree that Metricon Qld knew that this was the case. 21 The parties jointly recommend a pecuniary penalty in the sum of $250,000 be imposed on Metricon Qld in respect of conduct from 15 April 2010 contravening s 53(e) of the TPA.

Upgrades Package 22 Between approximately 3 January 2009 and 19 June 2011 Metricon Qld caused to be prepared, published and distributed "Upgrades Package" brochures which advertised additional features and fittings available when purchasing a specific house design. In these brochures Metricon Qld represented: that each of the features and fittings in the package had a "standard price" or "RRP" at which Metricon Qld normally supplied the feature or fitting; that each feature and fitting had a "promotional price" at which the features and fittings would be supplied as part of an Upgrades Package; and that purchasers would save the difference between the standard and promotional prices if they purchased the Upgrades Package. 23 However Metricon Qld accepts that it had not entered into transactions for the supply of most of the features and fittings represented at the standard price or RRP in the period immediately before the start of the promotion. In relation to the remainder of the features and fittings, Metricon Qld had on only very few occasions entered into transactions for the supply of the particular feature or fitting at the standard price or RRP in the period immediately before the start of the promotion. 24 Accordingly, Metricon Qld misled its customers in relation to the value of the features and the savings available if the customers purchased an Upgrades Package. 25 The parties jointly recommend a single pecuniary penalty in the sum of $150,000 be imposed on Metricon Qld for conduct occurring from 15 April 2010 to 31 December 2010 in respect of the Upgrades Package for contraventions of s 53(a) and s 53(e) of the TPA and, in respect of conduct that occurred on or after 1 January 2011, for contravention of s 29(1)(a) and s 29(1)(i) of the ACL.

Principles applicable in determining appropriate relief 26 The parties are in agreement both that the ACCC is entitled to relief and as to the form the relief should take. The parties accept that, notwithstanding their agreement, it is clear from s 76E of the TPA and s 224 of the ACL that it is for the Court to determine whether the contraventions of s 52 and s 53 of the TPA and s 18 and s 29 of the ACL have occurred, and the quantum of any appropriate pecuniary penalties (in respect of contraventions of s 53 TPA and s 29 ACL) or other relief which should be ordered. In the exercise of power granted by the legislation the court is not merely giving effect to the wishes of the parties, it is exercising a public function and must have regard to the public interest in doing so (cf Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 161 ALR 79 at [18]). 27 Comprehensive submissions have been filed by the parties, in the form of a Statement of Agreed Facts and Admissions, explaining the relief sought. In considering the relief jointly proposed by the parties, I take into account the following: 1. The fact that the regulatory authority and the contravening party are in agreement as to relevant facts and the appropriate relief (Australian Competition and Consumer Commission v Korean Air Lines Co Ltd [2011] FCA 1360 at [21], [23-27]). As Lee J observed in Australian Competition and Consumer Commission v Target [2001] FCA 1326 at [24]: It is the Court's duty in receiving consent orders in any matter to scrutinise such orders as to their appropriateness. However, after being satisfied as to the appropriateness of the orders, the Court should be slow to impede final settlement of such matters, particularly those involving public interest considerations. Moreover, the public has an interest in the mutual resolution of litigation, and subject to the foregoing the Court should be careful not to refuse to make orders simply because the orders may have been different had it been the Court's task to formulate them. 2. the joint submissions of the parties. 3. The non-exhaustive list of factors listed by s 224(2) of the ACL (which reflect those in s 76E(2) TPA) as matters the Court should take into account in determining quantum of penalty, namely: the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; the circumstances in which the act or omission took place; whether the person has previously been found by the Court in proceedings under Ch 4 or Pt 5-2 to have engaged in similar conduct. 4. Factors originally listed by French J in Trade Practices Commission v CSR Limited [1990] FCA 521 at [42] and approved and expanded by the Full Court in later cases including NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 292 and J McPhee & Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 at 577-580: the size of the contravening company; the degree of power it has, as evidenced by its market share and ease of entry into the market, and in particular the effect on the functioning of the market and other economic effects of the conduct; the deliberateness of the contravention, the period over which it extended and in particular whether the conduct was systematic, deliberate or covert; whether the contravention arose out of the conduct of senior management or at a lower level; whether the company has a corporate culture conducive to compliance with the relevant legislation, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the relevant legislation in relation to the contravention; whether the company has engaged in similar conduct in the past; and the financial position of the contravening company. 5. in respect of pecuniary penalty - the fact that the principal object of a penalty in this context is deterrence both of the actual contravener and others, and not oppression of the contravener (cf CSR Limited at [40]). 28 High maximum pecuniary penalties exist for contravention of the legislation under consideration, particularly for corporations. Section 224(3) of the ACL prescribes $1.1 million for each act or omission as the maximum pecuniary penalty payable by a body corporate for contravention of Pt 3-1. This continues the level of maximum penalty prescribed by s 76E of the TPA for contraventions between 15 April 2010 and 31 December 2010, albeit that s 76E referred to a maximum penalty of 10,000 penalty units (of $110) rather than the specific monetary sum. 29 The parties jointly submit that the combined pecuniary penalty payable by Metricon Qld should be $800,000 for the conduct both before and after 1 January 2011 - namely: $150,000 in respect of the Pictorial Representations conduct; $250,000 in respect of the Build Time Guarantee conduct; $250,000 in respect of the Discount List Prices conduct; and $150,000 in respect of the Upgrades Package conduct.

Consideration 30 In the circumstances I consider it appropriate to make orders in the terms sought by the parties as being within the appropriate range for conduct of this nature. I do so for the following reasons. 31 First, in my view a significant pecuniary penalty ought be imposed on Metricon Qld in respect of its contraventions of the TPA and the ACL. The conduct in which Metricon Qld engaged was egregious in the sense that: it continued over a period of time - two and half years in respect of the Build Time Guarantee, although less in relation to the other admitted contraventions; as Metricon Qld admits - all the conduct was intended to induce at least some consumers, who, at a particular point in time, might have approached another builder, to purchase a house from Metricon Qld; and importantly - while it appears that the parties are not aware whether any actual loss or damage was caused as a result of the contraventions, it appears from material before the Court that the average price of a Metricon Qld house sold between January 2009 and September 2011 was $307,483, representing a very substantial commitment to the consumers involved. 32 Second, $800,000 is, in my view, a significant penalty. While it is considerably less than the total combined maximum penalty which could be imposed in the circumstances, nonetheless it is a significant amount considered both in isolation and in view of the financial position of Metricon Qld. In particular I note from agreed material before the Court that: the total assets of the company as at 30 June 2011 were $24,475,509; and its net income before tax for the financial year ended 30 June 2011 was approximately $2,529,009. 33 Third, it is clear that there was participation by senior management of Metricon Qld in the contravening conduct. All promotions required approval by the General Manager of Metricon Qld, and information for inclusion in the contravening material was derived from the General Manager, the Sales Manager, the Purchasing Manager, the Estimating manager, the Marketing Manager and the Drafting Manager. In this respect, it is clear that contraventions did not occur as a result of unauthorised conduct by, for example, lower-level employees of the company. 34 Fourth - and, unfortunately, not uncommonly - although Metricon Qld had competition and consumer compliance policies and programs in place at the time of the contraventions, those policies and programs failed to prevent the contravening conduct. I note however from the material before the Court that those policies and programs are currently being reviewed. 35 Fifth, it appears on the material before me that the Court has not previously found Metricon Qld in breach of either the TPA or the CCA in any respect. 36 Sixth, the parties submit that, in summary: the sales transaction of a Metricon Qld house extends over many months; during that time there is frequent interaction between Metricon Qld sales and other staff and the customer to develop the detailed design and particular fittings and features of each customer's house and the supporting documents; and this afforded customers the opportunity to find out what was actually included and at what price before contracting with Metricon Qld even if they had been initially misled as to such matters as admitted by Metricon Qld. 37 While I note that, on the material before the Court, customers were entitled to withdraw from any dealings with Metricon Qld before formally committing to a building contract, in my view this entitlement needs to be considered in light of the "many months" spent by customers in reaching agreement with Metricon Qld on aspects of a house. To that extent, in my view a not-unlikely result of the company's contravening conduct would be the initial inducement of the customer to do business, and a subsequent reluctance of customers to commence new negotiations with a new builder after having spent those months engaging with Metricon Qld. 38 Seventh, I note on material before the Court that Metricon Qld's senior management and its solicitors have participated in a series of discussions with the ACCC to bring an agreed resolution of the matter before the Court. The ACCC submits that Metricon Qld is entitled to real credit for its contrition and cooperation. 39 Finally, I consider it appropriate that Metricon Qld should bear the costs of the ACCC in respect of this proceeding, and consider it appropriate to order payment of costs in the sum submitted by the parties. I certify that the preceding thirty-nine (39) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Collier.