Australian Competition and Consumer Commission v Smash Enterprises Pty Ltd

Federal Court of Australia|2011-04-14|Before: Young P, Gordon J

INTRODUCTION 1 On 17 December 2010, the Australian Competition and Consumer Commission (the ACCC) commenced proceedings in Fast Track alleging contraventions of s 65C(1)(a) of the Trade Practices Act 1974 (Cth) (TPA) by Smash Enterprises Pty Ltd (ACN 091 134 708) (Smash Enterprises), Spotlight Pty Ltd (ACN 005 180 861) (Spotlight) and Fantastic Furniture Pty Ltd (ACN 003 688 855) (Fantastic Furniture). Each was alleged to have supplied bean bag covers intended to be used or were of a kind likely to be used by a consumer in respect of which there was a prescribed consumer product safety standard and which did not comply with that standard. 2 The ACCC and each of the respondents has settled the proceedings. These reasons for decision concern Fantastic Furniture. In particular, agreement has been reached between the ACCC and Fantastic Furniture as to the relief (including as to penalty) that in the parties' submissions ought to be granted. The parties expressly acknowledge that the question of relief remains in the ultimate discretion of the Court.

RELIEF SOUGHT BY CONSENT 5 The ACCC and Fantastic Furniture have jointly requested the Court: 1. to make declarations of contraventions; 2. to impose a pecuniary penalty pursuant to s 76E of the TPA in an amount of $300,000; 3. to grant an injunction pursuant to s 232 of Sch 2 of the Competition and Consumer Act 2010 (Cth) (the CCA) restraining Fantastic Furniture from engaging in similar conduct for a period of five years; and 4. to make an order that Fantastic Furniture pay costs of the ACCC fixed in the sum of $10,000.

Competition and Consumer ACT 2010 6 Before turning to consider the question of relief, it is necessary to set out the relevant statutory provisions. 7 Section 76E was added to the TPA by the Trade Practices Amendment (Australian Consumer Law) Act (No 1) 2010 (Cth) (No 44, 2010) (Amendment Act No 1), by provisions commencing on 15 April 2010: items 1 and 18 of Sch 2 to Amendment Act No 1 and s 2(1) table item 3 of Amendment Act No 1. The CCA commenced on 1 January 2011. Section 76E of the TPA was repealed. However, s 76E in its form prior to 1 January 2011, continues to apply to conduct after 15 April 2010 up to and including 31 December 2010: see cll 6 and 7 of Sch 7 of the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth) (Amendment Act No 2). 8 In relation to injunctions, pursuant to cl 7(2) of the Amendment Act No 2, as of 1 January 2011, the power of the Court to grant an injunction in relation to conduct in contravention of what was Pt V of the TPA is provided for under s 232 of Sch 2 of the Act (s 232 of the Australian Consumer Law) rather than s 80 of the TPA.

Orders By Consent: Applicable Principles? 9 The principles are well established. The Court must be satisfied that it has the power to make the orders proposed and that the orders are appropriate: Australian Competition and Consumer Commission v Real Estate Institute of Western Australia (1999) 161 ALR 79 and Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [1]. Once satisfied of those matters, the Court should be slow to impede final settlement of proceedings especially where the orders may have been different had it been the Court's task to draft them: Australian Competition and Consumer Commission v Target [2001] FCA 1326 at [24]. Next, in deciding whether consent orders conform with legal principle, the Court is entitled to treat a respondent's consent as involving an admission of all facts necessary or appropriate to the granting of the relief sought: Thomson Australian Holdings Proprietary Limited v Trade Practices Commission (1981) 148 CLR 150 at 164.

Declarations 10 The declaration sought by consent is to the effect that Fantastic Furniture contravened s 65C of the TPA by supplying 4,876 bean bag covers that were non-compliant with a consumer safety standard prescribed by reg 11 of the Regulations. 11 The Court has a wide discretionary power to make declarations under s 21 of the Federal Court of Australia Act 1976 (Cth) (the FCA). The pre-requisites to the making of a declaration are threefold: (1) the question must be real and not a hypothetical or theoretical one, (2) the applicant must have a real interest in raising it and (3) there must be a proper contradictor: Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-438. Each of those requirements is satisfied in the present case. 12 As a general principle, a Court does not make declarations on matters relating to public rights by consent or on admissions, unless it is satisfied by evidence: Australian Competition and Consumer Commission v Allergy Pathway Pty Ltd [2009] FCA 960 at [18] - [19]; Australian Competition and Consumer Commission v Skins Compression Garments Pty Ltd [2009] FCA 710 at [13]; Australian Securities & Investment Commission v Rich (No 2) (2004) 50 ACSR 500 at [10]; Williams v Powell [1894] WN (Eng) 141; Gramophone Co Ltd v Magazine Holder Co (1911) 28 RPC 221 at 225-227; Termijtelen v Van Arkel [1974] 1 NSWLR 525; Wallersteiner v Moir [1974] 3 All ER 217; Metzger v Department of Health and Social Security [1977] 3 All ER 444 at 451; BMI Ltd v Federated Clerks Union of Australia (NSW) Branch (1983) 51 ALR 401; Young P W, Declaratory Orders (2nd ed, 1984) [601]. In the present case, that is not an issue. Fantastic Furniture has signed the Agreed Statement: see [3] and [4] above. That statement, to which s 191 of the Evidence Act 1995 (Cth) applies, is evidence. 13 Finally, I consider that the declarations are appropriate: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organics Inc (No 2) (1993) 41 FCR 89 at 100 and Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 at [21] - [22]; Australian Competition and Consumer Commission v LG Electronics Australia Pty Ltd [2006] FCA 1118 at [8] - [9] and Australian Competition and Consumer Commission v The Construction, Forestry, Mining and Energy Union (2007) ATPR 42-140 at [6]. They are an appropriate vehicle to record the Court's disapproval of the contravening conduct. They may deter other corporations from contravening the CCA. There is, however, in the circumstances of this case, a further reason for granting the declarations. In the absence of them, the contravening conduct would not otherwise be clearly identified and there is at least some public benefit in that contravening conduct being clearly identified.

Injunctions 14 The parties seek an injunction. The terms are agreed. The effect of the injunction is to restrain Fantastic Furniture for a period of five years from supplying bean bag covers to consumers that do not comply with the Regulations or such other prescribed safety standard as may from time to time be applicable at the time of the supply. 15 Section 232 of the Australian Consumer Law is relevantly identical to s 80 of the TPA. The power of the Court to grant an injunction under s 232 is broad. It is, however, subject to at least three limitations: 1. the power is confined by reference to the scope and purpose of the TPA. The relief should be designed to prevent a repetition of the conduct for which the relief is sought; 2. because the jurisdiction to grant an injunction is enlivened by an alleged or actual contravention of Pt V of the TPA, there must be a sufficient nexus or relationship between the contravention and the injunction; and 3. the Federal Court exercises judicial power under Ch III of the Constitution in respect of "matters" and therefore the injunction must relate to the case or controversy, see Australian Competition and Consumer Commission v Z-Tek Computers Pty Ltd (1997) 78 FCR 197 at 203-4. 16 In the present case, the injunction proposed by the parties is appropriate. It satisfies the three limitations: it is directed at preventing the precise conduct the subject of the proceeding (supplying bean bag covers to consumers that do not comply with the Regulations or such other prescribed safety standard as may from time to time be applicable at the time of the supply). Moreover, the injunction is capable of being readily obeyed and does not require ongoing Court supervision: Real Estate Institute of Western Australia Inc at [26].

Penalties 17 The ACCC seeks, and Fantastic Furniture consents, to the Court imposing on Fantastic Furniture a pecuniary penalty of $300,000 pursuant to s 76E(1) of the TPA. 18 Section 76(1) empowers the Court, in respect of a contravention of Pt V of the TPA, to order the contravener to pay "such pecuniary penalty, in respect of each act or omission … as the Court determines to be appropriate". Section 76(3) of the TPA provides that the Court may impose a maximum penalty of 10,000 penalty units (or $1.1 million) for each act or omission. 19 The parties acknowledge that each supply of a non-compliant bean bag covers on or after 15 April 2010 may constitute a separate contravention of s 65C of the TPA. However, the parties submit it is appropriate to treat Fantastic Furniture's supply of non-compliant bean bag covers as a single course of conduct attracting one penalty: Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd (No 2) (2002) 190 ALR 169 at [38]; Australian Competition and Consumer Commission v Rural Press Ltd [2002] FCA 1065 at [19] and Australian Competition and Consumer Commission v CI & Co Pty Ltd [2010] FCA 1511 at [27]. 20 Section 76E(2) provides that in determining the appropriate pecuniary penalty, the Court is required to have regard to all relevant matters including: 1. the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; 2. the circumstances in which the act or omission took place; and 3. whether the contravener has previously been found by the Court in proceedings under Pt V or Pt VI to have engaged in similar conduct. 21 As noted above (see [7]), s 76E came into force on 15 April 2010. It has been the subject of recent consideration: see Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352 at [81] to [100]. As explained in those reasons for decision, the principles applied by the Court in considering penalties under s 76 of the TPA are of considerable assistance in assessing the issue of pecuniary penalties under s 76E. The underlying contraventions of the TPA dealt with by ss 76 and 76E are of a different nature but the general principles applied by the Court in determining penalties under s 76 can and should be relied upon to the extent relevant in setting a penalty under s 76E of the TPA. Such a conclusion is not surprising. Sections 76 and 76E are drafted in similar terms and the matters to which the Court must have regard under s 76E(2) are the same mandatory considerations under s 76(1) of the TPA. 22 In the context of an agreed penalty, such as the present case, the following propositions are applicable: 1. it is the responsibility of the Court to determine the appropriate penalty; 2. determining the quantum of a penalty is not an exact science; 3. the Courts have acknowledged that within a permissible range, a particular figure cannot necessarily be said to be more appropriate than another. Where the parties have jointly proposed a penalty, it is not useful to investigate whether the Court would have arrived at that precise figure. The figure will be appropriate if within the permissible range; 4. there is a public interest in promoting settlement of litigation, particular, where it is likely to be lengthy; 5. the view of the regulator, as a specialist body is relevant but not determinative. Its views on matters within its expertise will usually be given greater weight than its views on more "subjective" matters; 6. the Court examines all circumstances of the case. Where the parties have advanced an agreed statement of facts, the Court may act on it if it is appropriate to do so, see NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 and Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72 at [51]. 23 As a result, the essential question for the Court exercising power under s 76 (and s 76E) is whether the penalty agreed upon by the parties is "within the permissible range" in all the circumstances of the case? The Court addresses that question by considering first the proposed penalty and then determining whether it falls within the permissible range or by considering first the appropriate range and then determining whether the proposed penalty falls within that range: Mobil at [54].

Nature of contravening conduct and circumstances in which it took place 24 The contravening conduct was serious. It involved the supply of non-compliant bean bag covers to consumers and Franchisees. The contravening conduct for the purposes of s 76E is limited to the supply by Fantastic Furniture of 257 non-compliant bean bag covers from 15 April 2010 to 17 September 2010: see [4] above. 25 With minor exceptions, the supply of bean bag covers ceased three working days after Fantastic Furniture was informed of the non-compliance by the Queensland Office of Fair Trading on 7 May 2010. Fantastic Furniture implemented a recall of all non-compliant bean bag covers on 22 June 2010. Each bean bag cover had a tamper resistant slide fastener which was a prescribed safety standard. 26 There is no evidence to suggest that the contravening conduct was deliberate or that any consumer has been harmed as a result of the conduct. However, the risk of possible harm to consumers from the use of a bean bag cover without the prescribed warning label is a factor to be taken into account in assessing penalty. 27 Finally, the evidence discloses that Fantastic Furniture has cooperated in the ACCC's investigation. It responded to all notices and other enquiries by the ACCC. Since these proceedings were commenced, Fantastic Furniture has admitted the conduct alleged in the Fast Track Statement, fully cooperated with the ACCC, agreed to all forms of relief sought in the Fast Track Statement and thereby reduced the time and expense of the proceeding and saved public time and resources including those of the Court.

Whether Fantastic Furniture previously engaged and / or been found by the Court to have engaged in similar conduct 28 On 12 November 2008, Fantastic Furniture provided the ACCC with an undertaking pursuant to s 87B of the TPA in relation to the supply of bunk beds that did not comply with a prescribed consumer product safety standard. The contravening conduct breached that undertaking: see sub-paragraph [10] of [4] above.

Deliberateness of the Conduct 29 There is no evidence to suggest that the conduct was deliberate or undertaken covertly by officers of Fantastic Furniture. The fact that the bean bag covers were non-compliant was brought to the attention of Fantastic Furniture on 7 May 2010. Steps were taken shortly after 7 May 2010 to remove the bean bag covers from sale. However, Fantastic Furniture did not initiate a recall until 22 June 2010.

Whether the contravention arose out of conduct of senior management or at a lower level 30 Fantastic Furniture admitted that although the conduct was not deliberate, the contravening conduct arose out of a failure by its management to have systems in place to ensure that its staff were aware of and complied with the TPA. The evidence disclosed that Fantastic Furniture "had since taken steps to ensure that its staff [were] aware of the requirements of the TPA and the [CCA]". The evidence did not disclose the steps taken or when those steps were taken.

Size and financial position of Fantastic Furniture 31 Fantastic Furniture is a member of the Fantastic Holdings Limited (FHL) Group of Companies which had total sales in the financial year ended 30 June 2010 of $419.1 million.

Whether Fantastic Furniture has a corporate culture conducive to compliance with the TPA 32 The evidence disclosed that since the matter came to the attention of Fantastic Furniture's management on 7 May 2010, FHL and Fantastic Furniture took steps to review and strengthen their compliance processes.

Whether Fantastic Furniture has shown a disposition to cooperate with the ACCC in relation to the contraventions 33 Since the commencement of the proceedings, Fantastic Furniture cooperated fully with the ACCC. No evidence was adduced concerning the disposition of Fantastic Furniture before the proceedings were commenced.

CONCLUSION 34 In all the circumstances, I accept that a penalty of $300,000 falls within the permissible range that a Court, without any agreement between the parties, would consider appropriate. I certify that the preceding thirty-four (34) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gordon.

Trade Practices Act 1974(Cth)

ACCC (2000) 172 ALR 532 Metzger v Department of Health and Social Security [1977] 3 All ER 444 Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72 NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 Termijtelen v Van Arkel [1974] 1 NSWLR 525 Thomson Australian Holdings Proprietary Limited v Trade Practices Commission (1981) 148 CLR 150 Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organics Inc (No 2) (1993) 41 FCR 89 Wallersteiner v Moir [1974] 3 All ER 217 Williams v Powell [1894] WN (Eng) 141

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