is the revised agreed penalty an appropriate penalty?
129 The question is whether the revised agreed penalty of $750,000 is an appropriate penalty.
130 In approaching this question, I am mindful of the observations of the High Court in Director, FWBII (see [36] above), that it is "highly desirable" for a court to give effect to an agreed penalty in support of the public interest in contravenors and regulators being able to introduce an element of certainty into the resolution of litigation.
131 Nevertheless, the Court must be satisfied that the agreed penalty is an appropriate penalty. This does not mean that the amount of the penalty is necessarily to be the amount which the Court would have imposed had the parties not proposed an agreed joint penalty. In other words, there are a range of penalties which may be regarded as appropriate.
132 In considering an appropriate pecuniary penalty, the Court adopts an instinctive synthesis which takes into account all the relevant considerations, particularly, deterrence.
133 In this case, the contravening conduct was particularly serious. This is because the contravening conduct comprised the making of misleading statements about a staple food product purchased by a very large number of consumers. The fact that during the relevant period, Snowdale sold more than 60 million eggs as "free range" eggs is testimony to the extent to which Snowdale's contravening conduct affected consumers. Further, the affected consumers depended upon the integrity of Snowdale's conduct in representing the eggs as "free range" eggs because, practically speaking, consumers were not able to verify the truth of Snowdale's representations.
134 Further, the extent of the effect of Snowdale's contravening conduct on consumers is reflected in the fact that consumers in Western Australia, during the relevant period, paid a premium of between $5 million to $8.5 million for a product which they did not receive.
135 Not all of the premium paid by consumers, however, was paid to Snowdale. As mentioned, the increase in gross revenue which Snowdale derived from its contravening conduct, during the relevant period, was between $1.7 million and $1.9 million. The increase in Snowdale's gross revenue was probably even higher, but the agreed facts only refer to the premium derived from the sale of eggs as "free range" eggs to retailers, and do not expressly refer to the benefit which Snowdale may have derived by selling eggs as "free range" eggs directly to consumers.
136 In addition, it is necessary to have regard to the loss of opportunity which Snowdale by its contravening conduct has caused to its competitors by building up its market share in the free range egg market in Western Australia during the relevant period, which Snowdale now appears to have consolidated by more than doubling the volume of eggs it sells as "free range" eggs.
137 I have also found as an aggravating factor that from at least 28 March 2013, when the ACCC issued the substantiation notice, Snowdale was aware that its farming practices in relation to the production of eggs it sold as "free range" eggs, were subject to scrutiny by the ACCC, but it courted the risk that its conduct in describing the eggs it sold as "free range" eggs, was unlawful; and, in that sense, and, from that time, Snowdale's contraventions were deliberate.
138 Further, I have found that Snowdale's contraventions occurred with the knowledge and at the instance of senior management in Snowdale and that Snowdale did not operate a compliance program whether before, during, or after, the relevant period.
139 On the other hand, in Snowdale's favour, I take into account the agreed fact that Snowdale believed the farming conditions at the Swan Valley farm and the Carabooda farm, during the relevant period, were generally consistent with the practices of most other producers that sold and promoted for sale eggs as "free range" eggs. However, as I have mentioned, that fact must be modified by my findings that after March 2013 Snowdale courted the risk that its conduct in selling its eggs as "free range" eggs, was unlawful.
140 Another mitigating factor is that Snowdale has not been found to have contravened consumer legislation in the past.
141 In addition, Snowdale cooperated with the ACCC in relation to the question of penalties. However, as I have said, that cooperation came very late in the day and only a small amount of credit can inure to Snowdale's benefit in this regard. However, it is also the fact that Snowdale's failure to cooperate at an earlier stage has meant that in addition to its own legal costs in relation to this proceeding, Snowdale has also incurred a liability to pay $300,000 to the ACCC in respect of its legal costs.
142 Further, Snowdale is a private company which does business only in Western Australia, and does not have the resources of a public company. However, that fact must be considered in the context of the fact that its business operations are extensive in the Western Australian market and that Snowdale is a profitable company.
143 In deference to the parity principle, the parties referred me to nine different judgments in this Court during the period 2010 to 2016 in civil penalty proceedings brought by the ACCC in relation to the use of the term "free range" to describe either poultry meat products or eggs sold to consumers. The number of cases illustrate the extent to which, since 2010, this issue has been of concern to, and has been pursued by, the ACCC.
144 In most of these cases, the contravenor and the ACCC proposed an agreed penalty and the Court imposed that penalty as being an appropriate penalty in the circumstances. The amount of the agreed penalties imposed on the contravening corporations varied from $100,000 in Australian Competition and Consumer Commission v Turi Foods Pty Ltd (No 2) [2012] FCA 19, at the lowest, to $375,000 in Australian Competition and Consumer Commission v Pepe's Ducks Ltd [2013] FCA 570, at the highest. The highest penalty imposed, however, was not an agreed penalty. In Australian Competition and Consumer Commission v Turi Foods Pty Ltd (No 5) [2013] FCA 1109, Tracey J imposed a penalty of $400,000. All three of the cases mentioned above, involved a "free range" representation in relation to the sale of either chicken meat or duck meat products.
145 In relation to "free range" representations made in connection with the sale of eggs, I was referred to three cases in which penalties were imposed upon contravening corporations. In each of these cases, an agreed penalty was proposed by the contravenor and the ACCC and imposed by the Court. These cases were Pirovic (No 2), Australian Competition and Consumer Commission v RL Adams [2015] FCA 1016 and Australian Competition and Consumer Commission v Derodi Pty Ltd [2016] FCA 365. The agreed penalties imposed in those cases were $300,000, $250,000 and $300,000 respectively.
146 In support of its contention that the revised agreed penalty was an appropriate penalty, the ACCC contended that the penalty would be at the lowest end of the range of appropriate penalties. The ACCC went on to say that this case was the last in a number of cases which the ACCC had brought in relation to the use of the term "free range" by producers of poultry meat products and egg farmers.
147 The ACCC said that a "thread" in those cases was that the respondents had perceived themselves to be acting in accordance with the standards and practices which were common to many of their competitors. The ACCC said that something of an industry "norm" as to the meaning of "free range" had apparently been established, but this had now been dispelled by widespread compliance action taken by the ACCC.
148 The ACCC, correctly, accepted that for the purpose of determining an appropriate penalty, there were serious limitations in comparing penalties imposed in each of the "free range" cases to which the parties had referred. However, said the ACCC, the consistency question arose, in this case, in the context of the ACCC having taken regulatory action against similar businesses operating in a similar market. Those cases, said the ACCC, were run, and penalties agreed, having regard to a range of regulatory priorities and enforcement considerations which attended those cases. In those circumstances, the ACCC said that it was concerned that as a public regulator and model litigant, it did not press for penalties of an amount and in a way which may be viewed as inappropriately inconsistent. The ACCC pointed out that the revised agreed penalty was nearly double the previous highest "free range" representation penalty, and many times greater than the lowest penalty.
149 In support of the contention that the penalty at $750,000 was sufficiently high to satisfy the deterrence requirement, the ACCC submitted that as far as general deterrence was concerned, that was to be assessed in the context of a significant industry wide message about "free range" representations having been sent through the decisions, penalties and sanctions to which I have referred. Further, said the ACCC, it did not have any pending cases against participants in the poultry industry which involved "free range" representations. The revised agreed penalty in the amount of $750,000 would, said the ACCC, have the appropriate deterrent effect on participants in the poultry industry.
150 Insofar as specific deterrence was concerned, the ACCC contended that it was unlikely that Snowdale would contravene again as it was now operating in a market in which misconceived industry "norms" had been addressed through compliance action. Further, the ACCC contended that whilst the revised agreed penalty was less than Snowdale's increased revenue, it represented a sufficient proportion of that revenue as would deter Snowdale from further contravention.
151 The High Court in Director, FWBII at [60], acknowledged that one of the reasons why a regulator should be entitled to make submissions on penalty in a civil penalty proceeding was that it was expected that the regulator would be "in a position to offer informed submissions as to the effects of contravention on the industry and the level of penalty necessary to achieve compliance". It is, therefore, in my view, relevant to have regard to the matters referred to by the ACCC in its submissions in assessing an appropriate penalty.
152 In my view, the most troubling aspects of determining whether the amount of $750,000 is an appropriate penalty are the facts that by Snowdale's contravening conduct, consumers were induced to pay between $5 million to $8.5 million more, during the relevant period, for a product which they did not receive and that Snowdale's gross revenues was increased by between $1.7 million to $1.9 million and probably even more.
153 In Reckitt Benckiser at [174], the Full Court put the position in this way:
Giving effect to the requirements of specific and general deterrence, one of the challenges of this appeal is to ascertain what relationship, if any, should exist between that amount of additional revenue, and therefore additional cost to consumers, and the pecuniary penalty that Reckitt Benckiser should be ordered to pay.
154 As mentioned in Reckitt Benckiser, these considerations are dealt with in the context of specific and general deterrence. As the Full Court observed in Singtel Optus (see [128] above), the penalty must be set at a sufficiently high level that it is not such as to be regarded as an "acceptable cost of doing business".
155 Further, when as in this case, the contravenor has benefited financially from the contravening conduct, the penalty must be such as "to affect in a substantial way" the profitability of the contravenor's misconduct.
156 Whilst there is room for argument as to the boundaries of the range of penalties which would be regarded as affecting the profitability associated with Snowdale's additional gross revenue of at least between $1.7 million to $1.9 million and probably even more, I am prepared to accept the ACCC's submissions that the sum of $750,000 would fall within the boundaries, at the lowest end of that range, notwithstanding, that a penalty in that amount would still leave Snowdale as having benefited financially by reason of its contravening conduct. Further, I am of the view that the payment of that sum would not be regarded as an "acceptable cost of doing business".
157 I am persuaded, therefore, that, in the context of the other considerations referred to in the ACCC's submissions, a penalty of $750,000 would fulfil the requirement for specific and general deterrence.
158 Therefore, even though I would have imposed a penalty at a higher amount to reflect the extent of the loss caused to consumers and the attendant financial benefit derived by Snowdale's contravening conduct, as well as the element of deliberateness I have found, I find that the revised agreed penalty of $750,000 is an appropriate penalty.
159 I will, therefore, order that:
(a) Snowdale pay to the Commonwealth of Australia a pecuniary penalty in the amount of $750,000 pursuant to s 224 of the ACL. That pecuniary penalty is to be paid, commencing the month immediately following the issue of this order, in 24 equal instalments each due by the final day of each month. If any monthly instalment is not paid by the due date, the full balance of the pecuniary penalty is immediately due and payable to the Commonwealth of Australia.
(b) Snowdale pay the ACCC's costs of the proceeding fixed in the sum of $300,000 commencing the month immediately following the issue of this order, in 12 instalments of $25,000 each due by the final day of each month. If any monthly instalment is not paid by the due date the full balance of the costs is immediately due and payable to the Commonwealth of Australia.
I certify that the preceding one hundred and fifty-nine (159) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis.