Australian Competition and Consumer Commission v Reckitt Benckiser

Introduction 1 The central issue in this interlocutory application is the extent to which the ACCC is required to plead facts upon which it relies in a penalty hearing. The issue arises because the ACCC seeks discovery of many documents by relying upon a basis which is not pleaded. The research of counsel, and my searches, suggests that this pleading issue has not previously arisen in any previous pecuniary penalty case in Australia. The reason why this issue may not have previously arisen is because a pragmatic and cooperative approach to a penalty hearing will usually avoid unproductive pleading disputes. However, in relation to the central issue in this case (although possibly not in others) the matter has real significance to how the penalty hearing will be conducted. 2 On 17 February 2016, following judgment concerning liability, the ACCC brought this application under r 20.15 of the Federal Court Rules 2011 (Cth) for interlocutory orders for discovery relating to the forthcoming penalty hearing. The ACCC seeks documents falling into eight different categories. The documents are sought for various reasons but a central reason for which all the documents in categories 1 to 6 are sought, influencing the basis upon which those categories have been shaped, is to establish the following matters relevant to the determination of the quantum of the penalty to be ordered: the "deliberateness" of the contravention; the conduct as "systematic", "deliberate", or "covert"; and whether Reckitt Benckiser "took the odds" or "courted the risk" of engaging in contravening conduct. Reckitt Benckiser refers to these asserted bases for the application collectively as "intentionality" issues. 3 It is unnecessary to set out the precise terms of the categories of discovery. This is because the primary question in this application is one of basic principle. It is whether discovery should be ordered of documents relevant to these unpleaded "intentionality" issues. The ACCC has filed substantial evidence in support of some of these allegations of intentionality. But until that evidence was filed on this discovery application no such issue arose between the parties. The ACCC essentially submits that discovery should be ordered concerning matters which are not in issue and that Reckitt Benckiser should be denied the opportunity even of making submissions concerning whether the ACCC can amend its case to raise new and extremely serious allegations which had not been alleged prior to, or in the months following, the determination of the proceedings in relation to liability. I reject those submissions by the ACCC. However, I accept the separate submissions by the ACCC that documents in categories 7 and 8 should be discovered.

These proceedings and the requirements of a fast track statement 4 These proceedings were commenced by fast track statement on 4 March 2015. On 8 May 2015, orders were made providing for separate trials of liability and of penalty. The trial of liability commenced on 9 December 2015. It concerned alleged contraventions of the Australian Consumer Law by Reckitt Benckiser in its packaging of various Nurofen products in the Nurofen Specific Pain Range, and the website description of those products. After an adjournment at the commencement of the trial Reckitt Benckiser admitted contraventions of the Australian Consumer Law. The parties consented to non-pecuniary orders including declarations, injunctions, corrective advertising, and administration of a compliance program. The matter is listed for a hearing on penalty to take place on 12 April 2016. Orders were subsequently made providing for matters including a statement of agreed facts and a timetable for evidence to be relied upon in relation to penalty. The parties would have been aware from 8 March 2015 that there might be a need for separate evidence on penalty. 5 The requirements of a fast track statement are set out in Practice Note CM 8. Although that Practice Note is still evolving, the concept is clear. The fast track statement was introduced to take the place of pleadings and to avoid undue formality. It was required only to state, in summary form, the nature of the dispute, the issues that the applicant believes are likely to arise in the proceeding, and the applicant's contentions. The applicant's contentions which were to be included were the material facts and particulars upon which the applicant intends to rely, the relief claimed, and the legal grounds for the relief. The parties were expected to cooperate to ensure that the real issues in dispute are identified as early as possible and are dealt with in the most efficient way possible. Discovery in such cases is confined to documents on which a party intends to rely and the documents that have significant probative value adverse to a party's case. 6 The fast track statement by the ACCC, which was obviously filed before liability and penalty were ordered to be heard separately, contained no suggestion that Reckitt Benckiser had systematically, deliberately, or covertly contravened the Australian Consumer Law or had "taken the odds". It is true that, as the ACCC submits, the test under ss 18 and 33 (which Reckitt Benckiser was found to have contravened) is an objective test. But the fast track statement by the ACCC also sought pecuniary penalty relief. 7 The ACCC submitted that this issue had been raised in Reckitt Benckiser's fast track response. It would be surprising to find an allegation that Reckitt Benckiser acted intentionally in Reckitt Benckiser's own pleadings. The ACCC pointed to paragraph 18(d) of Reckitt Benckiser's response. In that paragraph, Reckitt Benckiser responded to allegations concerning the sale of Nurofen Specific Pain Range products and their stocking in close proximity to each other. Reckitt Benckiser said that the packaging assisted consumers by indicating quickly and clearly the suitability of the product for the particular type of pain identified. Those matters do not raise, in any way, any of the intentionality issues. 8 A fast track statement is intended to ensure that the dispute is presented in an efficient, cost effective, and expeditious manner and without unnecessary formality. It is a move towards a transparent, simple, plain English legal procedure. But it does not abandon natural justice. A party remains entitled to be informed of the essential allegations made against him or her, including the material facts upon which the allegations are based: Federal Court Rules 2011 (Cth) r 16.02(1)(d). As French CJ, Gummow, Hayne and Kiefel JJ said in Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486, 503 [26], by reference to Gould and Birbeck and Bacon v Mount Oxide Mines Ltd (in Liquidation) [1916] HCA 81; (1916) 22 CLR 490, 517 (Isaacs and Rich JJ), "the fundamental principle that no man ought to be put to loss without having a proper opportunity of meeting the case against him" requires that "pleadings should state with sufficient clearness the case of the party whose averments they are". This includes both the cause of action and the relief sought: Wride v Schulze [2004] FCAFC 216 [25] (the Court). And, as I explain below, the more serious the allegation, the more important it is that a pleading is clear. Hence, the most serious allegations, in cases of fraud or dishonesty, are circumstances involving the greatest need for clear pleading, including particularised detail. This applies whether the fraud is alleged in relation to a cause of action or in response to a defence (such as limitation): Banque Commerciale SA v Akhil Holdings Limited [1990] HCA 11; (1990) 169 CLR 279, 286-287 (Mason CJ and Gaudron J). 9 The ACCC submitted that these pleading rules concern only causes of action and not remedies, particularly statutory remedies. Essentially, the ACCC submitted that when remedies are sought under the Australian Consumer Law the same concerns about clarity and particularity of serious allegations do not arise. No case was cited for this surprising submission. No principle was cited for it. It is contrary to basic principles of justice. A person's right to be informed of the nature of serious allegations made against him or her does not depend upon whether those allegations concern liability or remedy. This submission also depends upon an assumption that there is a clear schism between "liability" and "remedy" in relation to pecuniary penalties under the Australian Consumer Law. The relationship between those concepts is far from simple: see, eg, Zakrzewski R, Remedies Reclassified (Oxford University Press, 2004) 205-206.

The matters which the ACCC needed to set out in its fast track statement 10 In Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 326 ALR 476, 502 [103], Keane J said that in proceedings in relation to a civil penalty (under s 49 of the Building and Construction Industry Improvement Act 2005 (Cth) in that case), like any civil proceedings, it is the right and duty of the plaintiff to mark out the extent of its claim against the defendant. The plaintiff's claim establishes the scope of the controversy to be resolved by the judgment of the court. When a plaintiff asserts a claim to the grant of a particular remedy, it is not proffering an opinion on a matter of fact or law; it is stating the basis on which a controversy between it and the defendant may be quelled by the exercise of judicial power. 11 Many of the considerations relevant to penalty which give rise to controversy between the parties are extremely well known. In many cases it will be unnecessary, and may even be inappropriate, for some of those matters to be set out in a fast track statement. For instance, the ACCC was not required to plead matters concerning the issues to which the Court must have regard under s 224(2) of the Australian Consumer Law: (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 Reckitt Benckiser has previously been found by a court, in the proceedings described, to have engaged in any similar conduct. When a penalty was sought, Reckitt Benckiser was immediately on notice that these were issues which the Court would consider in relation to penalty. 12 The three specific matters above, to which particular reference is made in s 224(2) of the Australian Consumer Law, are only some of the matters relevant to the appropriate pecuniary penalty. The court must also have regard to all other relevant matters. Some matters, to which reference is not specifically made in s 224(2), will often be relevant and immediately apparent. One example is the extent to which senior management were involved in the contraventions. When a contravention is committed by a corporation, this is very commonly a matter considered in an assessment of penalty. Indeed, the persons involved in the contravention, whether or not they comprise senior management, are part of the circumstances in which the act or omission took place and therefore matters to which the Court must have regard in every case. 13 There are also numerous matters relevant to general and specific deterrence about which Reckitt Benckiser should reasonably be on notice. For instance, its financial resources (like those of any other contravening corporation) are clearly relevant to the size of the penalty required for specific and general deterrence: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330 [92] (Allsop CJ). 14 However, there is one exception which is perhaps the only exception. That exception is in relation to "intentionality" allegations, such as allegations that the contravention was deliberate (in the sense of known to be a breach), systematic, or covert, or whether Reckitt "took the odds" or "courted the risk" of engaging in contravening conduct. 15 Reckitt Benckiser submitted that these allegations of intentionality are equivalent to allegations of fraud. In Forrest v Australian Securities and Investments Commission [2012] HCA 39; (2012) 247 CLR 486, 501-502 [22], 502-503 [26], French CJ, Gummow, Hayne and Kiefel JJ characterised as fraud an allegation that a misleading statement was made knowingly or without an honest belief in its truth. The analogy with fraud is not precise. The ACCC's characterisations of the basis for its discovery application do not rise to that level. But they are not distant from it. An allegation that misleading or deceptive conduct occurred deliberately (if, by this, it is meant that it occurred with knowledge that it was a contravention), covertly, or by "taking the odds" are extremely serious allegations. As I explained above, the more serious the allegation the more important it is for there to be clarity and particularised detail in a pleading (see, for instance, allegations analogous to fraud, in Idoport Pty Ltd v National Australia Bank Ltd [2000] NSWSC 599 [43] (Einstein J); Young Investments Group Pty Ltd v Mann [2012] FCAFC 107; (2012) 293 ALR 537, 540 [9] (the Court)). 16 Unlike issues described above at [11]-[13], allegations such as those "intentionality" allegations in this case will not often arise. Unlike the other issues, they are not matters that Reckitt Benckiser could fairly assume would be generally enlivened simply by the bringing of a penalty proceeding. The very serious nature of these allegations, coupled with the fact that these issues do not always arise, means that they are matters that should be properly pleaded and particularised. 17 An analogy might be drawn with the approach taken for many years, and in many rules of court, in relation to aggravated damages. The principles concerning recovery of aggravated damages are extremely well known. They are simply aggravating circumstances which increase the amount of compensatory damages: Gray v Motor Accident Commission [1998] HCA 70; (1998) 196 CLR 1, 4 [6] (Gleeson CJ, McHugh, Gummow and Hayne JJ). The circumstances might even fall short of the extent of some of the allegations of "intentionality" in this case. Nevertheless, modern pleading requires that an applicant identify and characterise "the facts alleged to give rise to ordinary and aggravated damages respectively": Seabrook v Allianz Insurance Limited [2005] QCA 58 [42] (Fryberg J); see also Allen v State of New South Wales [2004] NSWSC 1243 [56] (Hulme J). An applicant should also specifically plead the matters that aggravate a penalty where a respondent is not immediately on notice of those matters. 18 The ACCC submitted that this conclusion was inconsistent with the approach taken in Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330. The short answer to this submission is that Coles, acting with contrition and pragmatism in the circumstances of that case, did not require the ACCC to plead these allegations with specificity. There is no need for specific pleading where the parties choose to disregard the pleadings and to fight the case on issues chosen at the trial: Dare v Pulham [1982] HCA 70; (1982) 148 CLR 658, 664 (Murphy, Wilson, Brennan, Deane and Dawson JJ).

Conclusion on categories 1 to 6 19 Categories 1 to 6 have been formulated by reference to "intentionality" considerations which had not previously been alleged and which, if they are to be alleged, must be the subject of an application by the ACCC to amend its fast track statement. 20 Without expressing a concluded view, it may be that there would be no prejudice to Reckitt Benckiser if the ACCC amended its fast track statement to allege some of the "intentionality" matters. For instance, it may be that any such amendment, if made prior to the trial concerning liability, could not have affected the concessions made by Reckitt Benckiser, or, more importantly, could not have affected my conclusion that the concessions were properly and correctly made. However, even if there were no prejudice to Reckitt Benckiser, the dismissal of this discovery application is not mere insistence upon a pleading formality before a new, identical application is brought. This is for three reasons. 21 The first reason is that the most basic considerations of natural justice require that Reckitt Benckiser have the opportunity to resist an application to amend which will shape the discovery that it is required to provide. 22 The second reason why insistence upon amendment is not a mere formality is because even if leave to amend is granted, an amended pleading which alleges these matters will only be possible if the ACCC has a proper basis to make some or all of these serious allegations. The evidence filed on this application might support some allegations which fall within the broad compass that I have described as "intentionality". But it might not support all of them. 23 A third reason for requiring the ACCC to amend its pleading if it intends to raise these serious allegations of "intentionality" is that the precise identification of these allegations will permit a discovery application which is closely tailored to the issues. In this case, there is a heightened importance of the precise identification of the allegations in relation to "intentionality". Reckitt Benckiser relies on sworn evidence that the time necessary to locate the documents in categories 1 to 3 would be more than one month, category 4 would be one month, and the costs of providing documents in all categories would be at least $150,000. 24 It may be that discovery of some of the documents in categories 3 and 4 could also be justified on a basis other than the "intentionality" allegations (see [14], [16] of the ACCC's written submissions). But a narrowing of one basis upon which discovery is sought should also narrow the description of the categories in which discovery is sought. To the extent that other bases are relied upon, those categories should also be capable of being further narrowed by cooperation between the parties.

Conclusion on categories 7 and 8 25 The ACCC does not rely upon allegations of intentionality in relation to categories 7 and 8. The documents sought by the ACCC in those categories concern the pricing of two Nurofen products which are not within the Nurofen Specific Pain Range. 26 The ACCC says that evidence of that pricing is relevant for two reasons. First, because it provides evidence of loss to consumers by the contraventions because consumers might have purchased a cheaper Nurofen product if they had apprehended the matters involved in the contraventions concerning the Nurofen Specific Pain Range (see [11] above). Secondly, the ACCC says that the price and profit margin differential with the Nurofen Specific Pain Range is relevant to whether Reckitt Benckiser engaged in the contravening conduct with an intention to profit. 27 Reckitt Benckiser submits that none of these documents is relevant. It says that the findings of contraventions involved consumers being misled because the Nurofen Specific Pain Range products were no more effective at treating types of pain specified than the other products in the Nurofen Specific Pain Range. 28 Although I accept that Reckitt Benckiser's characterisation of the contraventions (in broad terms) is correct, the documents are relevant. If a consumer had been misled into believing that one of the products in the range, say the Migraine product, was more effective at treating pain than other products in the range then that might have been a factor inducing the consumer to purchase the product. The process of decision making is complex, particularly when causal issues are involved (see, for example, Brosnan v Katke [2016] FCAFC 1 [122]-[124]). The misleading conduct, even although it is only conduct involving comparison of products in the same range, might be a factor inducing a purchase of the Migraine product. It might have been the case that no other product would have been purchased. It might also have been the case that a cheaper product would be purchased. 29 Senior counsel for Reckitt Benckiser effectively submitted that these imponderables of decision making mean that any documents in categories 7 and 8 would invite nothing more than speculation. There is considerable force in this submission. Further, it is likely that even if this speculation could be overcome it would be extremely difficult, if not impossible, to assess any actual effect without expert evidence on matters such as elasticity of demand, relative price elasticity and so on. The cost of any accurate assessment of these matters might be considerably more than the nature of the issue in these proceedings could justify. This was a concern that I raised with the parties at the conclusion of the liability hearing. However, and despite this reservation, at the level of an application for discovery and in circumstances in which Reckitt Benckiser accepts that the cost of providing these documents is not substantial (at least in comparison with the others) I consider that there is sufficient direct relevance to the documents sought that they should be discovered. Hence, I will order that the documents in categories 7 and 8 be discovered.

Overall conclusion 30 At the conclusion of the hearing on liability it did not appear to me that the penalty hearing was likely to raise many issues of the type of seriousness that is now alleged. The proposed amendments might alter dramatically the scope of the penalty proceedings. The most basic principles of fairness require the ACCC to apply for leave to amend its fast track statement and to give Reckitt Benckiser the opportunity to respond. However, before any such application is made the parties, by their counsel, should confer (in person or by telephone) on a fair and reasonable way in which such an application would be brought. My provisional view is that at this late stage it is difficult to see the justice in allowing an application which (i) raises sweeping allegations of "intentionality" using broad and vaguely formulated terms like "deliberate" without specifying what was the alleged deliberation, and (ii) expands the conduct of the post-trial penalty hearing to require more than $150,000 cost in producing potentially hundreds of documents and involving more than a month of delay which threatens the hearing date. On the other hand, it may be that there is little prejudice in a more narrowly confined amendment which involves precision and which, with the cooperation and assistance of Reckitt Benckiser, provides information which assists in the narrowing of categories for a more tightly confined discovery. 31 One final matter of broad impression is that it appears that the manner in which these penalty proceedings are being conducted by both parties is a matter of some concern. This might be a misconception based upon only a limited snapshot of the written correspondence between the parties. But it is to be hoped that an objective, and cooperative, approach will ensue by which the parties direct some effort at avoiding unnecessary and protracted interlocutory disputes. The matter will be relisted for directions in four days to allow the parties to confer on these reasons and the terms of any proposed amendment by the ACCC. I certify that the preceding thirty-one (31) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Edelman.