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[2021] FCA 712
Federal Court of Australia
2021-06-29
Kerr J
Original judgment source is linked above.
KERR J: 1 In this matter the parties to a proceeding initiated by the Australian Competition and Consumer Commission (ACCC) have sought the Court's approval of mutually proposed orders for declarations, penalties and statutory compensation. The Court is asked to undertake that task having regard to a Statement of Agreed Facts and Admissions (SAFA) which the parties have filed, and which records an agreement that has been reached by the ACCC and the Respondent, Sumo Power Pty Ltd (ACN 601 199 151) (Sumo). 2 In very crude summary the ACCC's case against Sumo (in respect of which relevant admissions have been made) is that in the period between 4 June 2018 and 31 December 2018, Sumo conducted what in colloquial English is referred to as a bait and switch scheme. Potential customers were solicited by tele-marketing agents on Sumo's behalf. Potential customers were encouraged to purchase retail power from Sumo on an understanding, provided they paid their bills on time, that substantial discounts were to apply for 12 months. This was in circumstances where, contrary to that representation, Sumo had already determined that within a relatively short period thereafter such new customers as its tele-marketing campaign attracted would be "migrated" to a higher cost base - as would deny them the effective benefit of those discounts. 3 Also in crude summary Sumo admits that some of those marketing agents held themselves out as not being affiliated with Sumo when soliciting new customers on its behalf. They had held themselves out as providing independent price information when that was not the fact. 4 The Court has been advised that approximately 37,027 consumers signed up with Sumo between 4 June and 31 December 2018 for the provision of residential electricity services. 5 It is an agreed fact that Sumo obtained $1.9m in additional revenue from the undisclosed but planned rate increases it then imposed.
Declarations 6 The Declarations that are sought by the ACCC and which Sumo has consented to being made draw on the SAFA more precisely as follows: 1 In the period from 4 June 2018 to 31 December 2018 (the Relevant Period), the respondent, in trade or commerce: (a) engaged in conduct that was misleading, deceptive and likely to mislead or deceive in contravention of s 18(1) of the Australian Consumer Law at Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the ACL); and (b) in connection with the promotion and supply of electricity retail services to residential electricity consumers in Victoria, made false and misleading representations with respect to the price of electricity retail services in contravention of s 29(1)(i) of the ACL, by: (c) representing to consumers, in unsolicited sales calls and written offer summaries in relation to its pay on time discount plans, that it would maintain or not materially increase the rates offered to consumers on those plans for a period of approximately 12 months, when in fact: (d) the respondent offered cheap rates to consumers to entice them to switch to contracting with the respondent, when it planned to and did, during the Relevant Period, migrate customers between its "books" with the effect of materially increasing the rates paid by customers who had received at least 1 to 3 (monthly) bills from the respondent. 2 During the Relevant Period, the respondent, in trade or commerce: (a) engaged in conduct that was misleading, deceptive and likely to mislead or deceive in contravention of s 18 of the ACL; and (b) in connection with the promotion and supply of electricity retail services to residential electricity consumers in Victoria, made false and misleading representations with respect to the price of electricity retail services in contravention of s 29(1)(i) of the ACL, by: (c) representing to consumers, in unsolicited sales calls and written offer summaries, that if they accepted the offer of pay on time discount plans, the respondent would provide the customer with the benefit of the particular pay on time discount off their quoted electricity usage charges for a period of approximately 12 months, or that the benefit would not substantially change, when in fact: (d) during the Relevant Period, the respondent planned to and did increase the rates charged to customers who accepted the offer and had received at least 1 to 3 (monthly) bills such that the benefit of the pay on time discount off the quoted electricity usage charges would be and was substantially eroded or eliminated. 3 During the Relevant Period, the respondent, in trade or commerce, and by the conduct of its marketing agents: (a) engaged in conduct that was misleading, deceptive and likely to mislead or deceive in contravention of s 18 of the ACL; and (b) in connection with the promotion and supply of electricity retail services to residential electricity consumers in Victoria, made false and misleading representations that its marketing agents had an affiliation they did not have in contravention of s 29(1)(h) of the ACL, by representing to consumers that the marketing agents were: (c) from an independent company that was not affiliated with the respondent; (d) affiliated with an independent energy consultancy; and (e) engaging in services of independent price comparison, when in fact the marketing agents were: (f) from a company engaged by the respondent to make (and did make) unsolicited sales calls to consumers on behalf of the respondent which involved the representations set out in paragraphs 1 and 2 above and received commission fees for each new such customer contracted by reason of this conduct; (g) not affiliated with an independent energy consultancy; and (h) not engaging in services of independent pricing comparison. 4 During the Relevant Period, the respondent, in trade or commerce: (a) engaged in conduct that was misleading, deceptive and likely to mislead or deceive in contravention of s 18 of the ACL; and (b) in connection with the promotion and supply of electricity retail services to residential electricity consumers in Victoria made false and misleading representations with respect to the price of electricity retail services in contravention of s 29(1)(i) of the ACL, by: (c) representing to consumers, in letters in or about October 2018 and in a statement on the respondent's website, that price increases were solely attributable to generation costs caused by factors such as climate change, the closure of Hazelwood power station, the cost of upgrading networks and the fees the respondent must pay to distributors, when in fact: (d) the price increase to occur during the Relevant Period was attributable to the respondent's planned rate increases, to be implemented via its internal "book migration" process.
Consideration 7 The parties by their consent cannot require the Court to make a declaration. The Court will make a declaration of law only if it is satisfied that the terms of a proposed declaration resolve an actual legal controversy and that, having regard to the terms proposed the actual declaration states the law and applies to proven facts. Further a declaration is of its nature a discretionary remedy - and there are many circumstances that can justify its refusal. That stated, having had the benefit of written submissions from the parties in those regards I am satisfied, having regard to the terms the SAFA as engages with the relevant law, that the factual and legal requirements as fully justify the Court making declarations in the terms set out above exist. 8 The proposed declarations not only precisely identify the conduct that Sumo admits contravened the Australian Consumer Law at Schedule 2 of the Competition and Consumer Act 2010 (Cth) (the ACL) they also include a sufficient indication of how and why its relevant admitted conduct is a contravention of the ACL: BMW Australia Ltd v Australian Competition and Consumer Commission [2004] FCAFC 167 at [35]. 9 I am satisfied that the declarations in the terms proposed will have utility not only by their recording the Court's disapprobation of Sumo's contravening conduct but also by serving the public interest in publicising certain types of conduct that the Court is entitled to find, having regard to Sumo's admissions, to have constituted a breach of the ACL. 10 I am aware of no discretionary considerations which would require the Court to refuse making those declarations. Subject to the other terms of the proposed orders being appropriate to be made the Court will so declare.
Penalties 11 I now direct attention to the proposed agreed penalties. The ACCC has proposed, and Sumo has submitted, to the Court making orders for the payment of an aggregate penalty applying without disaggregating the amounts in respect of Sumo's various offending in the sum of $1,200,000.00 to be paid in instalments over a number of years. The formal order sought by consent is as follows: 1. The respondent pay to the Commonwealth of Australia the sum of $1,200,000 by way of pecuniary penalty under s 224(1) of the ACL in relation to Sumo's contraventions of ss 29(1)(h) and 29(1)(i) of the ACL referred to in the declarations above. Such pecuniary penalty is to be paid in the following instalments: (a) $200,000 on 1 July 2022; (b) $250,000 on 1 January 2023; (c) $250,000 on 1 July 2023; (d) $250,000 on 1 January 2024; and (e) $250,000 on 1 July 2024. 12 The submissions that are advanced jointly by the parties accurately outline the terms of the statutory scheme with respect to penalties as follows: 66. Under s 224 of the ACL, the Court may, in respect of contraventions of provisions of Part 3-1 of the ACL (which relevantly includes s 29), order the contravener to pay such pecuniary penalties in respect of each act or omission "as the Court determines to be appropriate". 67. The maximum penalty for each contravention is specified in ss 224(3) and (3A). For the period before 1 September 2018, the maximum penalty applicable for a body corporate for each act or omission that related to a contravention of s 29 was $1.1 million. For the period from 1 September 2018, the maximum penalty applicable for each act or omission that relates to a contravention of s 29 is the greater of: a. $10 million; b. if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission - 3 times the value of that benefit; c. if the court cannot determine the value of that benefit - 10% of the annual turnover of the body corporate during the 12 month period ending at the end of the month in which the act or omission occurred or started to occur. 68. Section 224(2) of the ACL requires the Court, in determining the appropriate pecuniary penalty, to have regard to all relevant matters including: 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 the person has previously been found by a court in proceedings under Chapter 4 or Part 5.2 to have engaged in similar conduct. 69. Section 224(4)(b) provides that where conduct constitutes a contravention of two or more provisions, a person is not liable to make more than one penalty in respect of the same conduct. 13 The joint submissions of the parties then set out their contentions as to the correct approach the Court should take to the setting of penalties understood in light of the relevant case law. What they advance in those regards is broadly uncontentious. I discern no utility in setting out those submissions in detail. It is sufficient to observe that the parties are agreed that the primary objective for the imposition of civil penalties is deterrence. That encompasses the need to deter repetition of the contravening conduct by the contravener (specific deterrence) and to deter others who might be tempted to engage in similar conduct (general deterrence). 14 The parties rely on the observation of Goldberg J at [39] in Australian Competition and Consumer Commission v Leahy Petroleum (No 3) (2005) 215 ALR 301, 309 for the proposition that in considering the extent a penalty will achieve deterrence it is relevant for the Court to have regard to the contravener's size and financial position. 15 The parties identify the decision of French J in Trade Practices Commission v CSR Ltd (1991) ATPR 41-076 at [42] as the leading authority with respect to the factors a court should take into consideration in the setting of penalties, in addition to those made mandatory by the provisions of s 224(2) of the ACL. Accepting the parties' submissions that that list of factors is not to be approached as a checklist to be mechanically applied in every case, there is no utility in referring to the to the submissions of the parties in all of those regards. I will confine my references to those I take, in the specific facts of this case, to be critical to the disposition of this matter. 16 The first matter I should refer to is the parties' submissions with respect to the relevance of maximum penalties and the "totality principle". In those regards the parties submit: 82. The former penalty regime applied to each of Sumo's contraventions that occurred prior to 1 September 2018. Consequently, a $1.1 million maximum penalty could be applied to each contravening Representation made by Sumo in the period from 4 June 2018 to 31 August 2018 inclusive. 83. The post 1 September 2018 penalty regime applied to each of Sumo's contraventions in the period 1 September 2018 to 31 December 2018. The applicable maximum penalty under the new regime is $10 million per contravention.1 Consequently, a $10 million maximum penalty could be applied to each contravening Representation made by Sumo in the period 1 September 2018 to 31 December 2018. 84. A contravention of s 29 occurs each time a false representation is made: Australian Competition and Consumer Commission v Hillside (Australia New Media) Pty Ltd trading as Bet365 (No 2) [2016] FCA 698 (Bet365) at [12]. Consequently, each occurrence of the Cheap Offer, Discount and Affiliation Representations constitutes a separate contravening act that each attract a maximum penalty of $1.1 million (for acts occurring prior to 1 September 2018) or $10 million (for acts occurring on or after 1 September 2018). Each occurrence of the Price Change Representation, which occurred under the new penalty regime, constitutes a separate contravening act that each attract a maximum penalty of $10 million. 85. It is not possible to determine the precise number of times each of the Representations were made. Nevertheless, it is clear that the number of contraventions was substantial. Approximately 7,692 consumers entered into a contract with Sumo during the Relevant Period and were migrated from the FB to the MB pursuant to the November Book Migration.2 Of these, 5,955 of these were signed up prior to 1 September 2018 and 1,737 after 1 September 2018. An unknown but likely significant number of consumers experienced the Cheap Offer, Discount, and Affiliation Representations without subsequently contracting with Sumo. 86. Ordinarily, there must be some reasonable relationship between the theoretical maximum and the final penalty imposed: Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (2016) 340 ALR 25 (Reckitt Benckiser) at [156]. However, the parties submit that this is a case where there is no meaningful maximum penalty, having regard to the course of conduct and totality principle. In this case, false representations have been made to a large number of consumers. In such circumstances, "it is an arid exercise to engage in a mere arithmetical calculation multiplying the maximum penalty by the number of contraventions even if one could theoretically quantify that latter number": Bet365 at [19]. Moreover, the difficulties in identifying the precise number of contraventions means that it is not possible, nor would it be meaningful or helpful, to seek to calculate the precise notional maximum penalty that might apply to the individual contraventions on either side of the change in the statutory penalty regime: iSelect at [32]. The theoretical maximum arising from Sumo's many thousands of contraventions would not provide a useful yardstick and would significantly exceed what is required for deterrence. 87. The parties submit that, in the circumstances of this case, the appropriate penalty is best assessed by reference to other relevant factors. This is consistent with the approach taken by the Court in Reckitt Benckiser at [157] and in Australian Competition and Consumer Commission v STA Travel Pty Ltd [2020] FCA 723 at [33]-[35]. 17 I should now identify what the parties submit to be the relevance of Sumo's size in the market, and the conduct of its then and present management. In those regards they submit: The size and degree of market power of the contravening company 112. Sumo is a small company within the context of the energy retail market. During the Relevant Period, Sumo comprised less than 0.5% of the National Electricity Market by number of customers, and less than 0.2% of the National Electricity Market by customer load.17 The deliberateness of the contravention 113. The contravening conduct was not deliberate in the sense that Sumo made the false or misleading representations believing they were unlawful, or with reckless indifference to the truth, or flouting the law.18 Nevertheless, the conduct was deliberate in that Sumo's history of the Book Migrations, and the scripts, Welcome Pack and Planned Book Migration were all part of planned corporate conduct. The ACCC draws the Court's attention to Tabs 1 to 10 of the bundle of admitted documents. Whether the contravention arose out of the conduct of senior management or at a lower level 114. Sumo's senior management was directly involved in the contravening conduct.19 For example: a. The pricing strategy and Planned Book Migration appears in Sumo's pricing strategy documents, product committee meeting minutes (attended by senior management) and emails. b. The November Book Migration was approved by Sumo's COO. c. The customer letters were approved by Sumo's COO.20 Whether the company has a corporate culture conducive to compliance as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention 115. Sumo's new management have taken steps to strengthen Sumo's compliance culture and the personnel primarily responsible for authorising the contravening conduct have since departed Sumo.21 Whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement in relation to the contravention 116. Sumo cooperated with the ACCC throughout the investigation process, including by providing information and documents on a voluntary basis when requested. It also agreed to a resolution of the proceeding prior to the commencement of trial. The parties are in agreement that Sumo is entitled to credit for this co-operation because it has saved the ACCC, the Court and the community the cost and burden of fully litigating the dispute. 18 With respect to Sumo's financial position, the parties submit that the Court should proceed in setting penalties having regard to the following: The financial position of the contravener 119. Sumo's financial position is precarious, and it has limited financial liquidity or cash reserves.22 Sumo has experienced large net losses each year since its establishment through to the end of the financial year ending 30 June 2020. It was forecast to break even for the first time in the financial year ending 30 June 2021, and to record its first profit in the financial year ending 30 June 2022 (achieving a very modest profit of $900,000 against forecast revenue of $125 million). These results may not be achievable given the proposed penalty and remediation program, as well as other external risks arising out of COVID and market conditions. 120. Sumo has significant loans outstanding with a high cost of debt, and limited capacity to access additional funds. Sumo's cash flow is further constrained by seasonal fluctuations in working capital and short-term cash flow risks arising from operating in the wholesale energy markets, requiring it to retain a minimum of $2-3 million in cash. As discussed in paragraphs 127 to 128 below, the parties note potential liquidity issues are not relevant to penalty but are relevant to the appropriateness of an order for payment of penalty in instalments. (Footnotes omitted) 19 I think it fair to observe that notwithstanding the parties in oral argument disavowing the relevance of potential insolvency or difficulty in Sumo paying an appropriate penalty, the parties accepted that at least some attention had been given to shaping the penalty in a manner that might permit Sumo to survive. I do not think it possible to avoid the inference that the amount of the penalty proposed and allowing payment by instalment was at least in part influenced by that consideration. I mean no disrespect to the ACCC by observing that the ACCC did not seek to disavow that it perhaps had somewhat conflicting interests in the present circumstances: in its role as a regulator it was required to be satisfied that the penalties it was proposing to the Court reflected the seriousness of Sumo's conduct and provided sufficiently to serve the purpose for both general and specific deterrence: whereas in its role of monitoring competition policy it would not regard Sumo's loss as a (albeit small) competitor in the electricity market as other than unfortunate. 20 Having referred to the parties' submissions in those several regards I turn to what they jointly advance in respect of justification for the proposed agreed penalty order: 122. The parties submit that the proposed total agreed penalty of $1.2 million is appropriate having regard to all relevant matters as required by s 224(2) of the ACL and other relevant factors and in order to achieve the objective of deterrence. This total penalty comprises: a. $900,000 for Sumo's contraventions arising from the Cheap Offer and Discount Representations; b. $200,000 for Sumo's contraventions arising from the Affiliation Representations; and c. $100,000 for Sumo's contraventions arising from the Price Change Representation. 123. The Cheap Offer and Discount Representations enticed consumers to switch energy retailer in circumstances when Sumo planned to increase rates and erode discounts. The Affiliation Representations are likely to have given comfort to consumers that the Cheap Offer and Discount Representations were truthful and could be relied upon. The Price Change Representation may have had the effect of dissuading consumers from switching energy retailer when they otherwise might have in response to increases in their energy bills. However, the parties agree that the Affiliation and Price Change Representations are likely to have had a less direct impact on consumer decision-making than the Cheap Offer and Discount Representations and, for that reason, should receive smaller penalties. 124. The larger penalties for the Cheap Offer and Discount Representations in comparison to the Affiliation and Price Change Representations reflect the greater seriousness and extent of the conduct (particularly their effect of diminishing informed choice for an essential household service), the circumstances in which they were made (in connection with the Planned Book Migration) and to achieve general and specific deterrence. The parties agree that it is appropriate to combine penalties for the Cheap Offer and Discount Representations on the basis that these arise from the same conduct. 125. The parties submit that a total penalty of $1.2 million is effective to achieve general deterrence. It will send a clear message to other participants in the energy retail business that misleading marketing will not be tolerated. The energy retail market is large, and energy is something required by all Australians. As such, the potential impact of misrepresentations in that industry, and the potential benefit from them, are substantial. The proposed penalties would not be considered a mere "cost of doing business". They are substantial enough to deter other businesses from engaging in similar conduct: Click Energy at [44]. General deterrence is particularly vital in the context of discount marketing of energy retail plans, which has become the dominant form of competition among energy retailers and already creates significant confusion for consumers.26 126. The proposed penalty would also achieve specific deterrence. Having regard to Sumo's particular circumstances, it could not be seen as a mere disgorgement of profits or the "cost of doing business", but would serve to secure Sumo's future compliance. This is particularly so in circumstances where Sumo's financial position is precarious and the proposed penalty is higher than its entire forecasted profits for the year ending 2022. Sumo has not achieved a profit since commencing operations in 2015. The impact of the proposed penalty is that Sumo's first forecasted profit will unlikely be achieved. 127. The prospect of insolvency or difficulty in paying the penalty should not subvert the primary objective of achieving deterrence, including general deterrence: see e.g. Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) [2005] FCA 254; Australian Competition and Consumer Commission v High Adventure Pty Ltd [2005] FCAFC 247; Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd [2007] FCAFC 146. 128. For that reason, Sumo's financial circumstances do not justify a reduction in penalty that would defeat the public interest in deterring other energy retailers from engaging in similar conduct. Rather, Sumo's cash flow problems have been taken into account in the parties' proposal that Sumo pay the pecuniary penalty amount of $1.2 million in instalments over a period of approximately three years. The Court has the power to allow the 36 month payment period pursuant to s 224(1) of the ACL on the basis that it empowers the Court to make civil penalty orders "as the court determines appropriate". Alternatively, it is an implied consequential power by reason of the power to impose a pecuniary penalty: see Olesen v Eddy [2011] FCA 13 at [34]. There are numerous examples of courts imposing penalties on an instalment basis under s 224 and its predecessors: see e.g. iSelect. 129. The parties submit that, applying the totality principle, the proposed penalty of $1.2 million is appropriate because it reflects both the extent and nature of the contravening conduct. It strikes the right balance and reflects the need for deterrence, both specific and general, having regard to Sumo's particular circumstances. It would also signify the Court's disapproval of the conduct and reflect the serious impact of the contraventions on Affected Customers.
Consideration 21 The principles upon which the Court acts in relation to the imposition of agreed pecuniary penalties have been discussed in many cases including NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 and Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd [2004] FCAFC 72. The subject was recently the subject of careful attention by a Full Court of this Court in Australian Competition and Consumer Commission v Volkwagen Aktiengellschaft [2021] FCAFC 49. Those authorities stand for the proposition that, while it is for the Court to determine the penalty in a given case, in the absence of significant countervailing considerations it is available to the Court to give effect to the parties' agreement, and in particular an agreed penalty, so long as the proposed penalty is within the permissible range. To do so is consistent with recognising the public interest in promoting the settlement of litigation and the importance of the views of a regulator such as the ACCC on matters within its expertise. 22 The authorities have emphasised however that the Court is not to act as a mere rubber stamp of the parties' agreement. 23 At the outset I should indicate that I accept the parties joint submissions as to the relevance of the maximum penalties and the "totality principle" referred to at [16] above. In a circumstance such as is presently before the Court, to proceed on the basis that the task of setting a penalty should begin by multiplying the maximum penalty for the most serious possible contravention of the ACL that the statute provides for by the number (in this case in the thousands) of individual contraventions logically capable of being identified having regard to the SAFA, and then working backwards from that point, would lead to absurdity. The astronomically large sum so produced could have no conceivable relevance to what is, or is not, within the permissible range of penalties. 24 I accept the parties' submission that the relatively small size of the contravener is material. 25 Nonetheless, those submissions accepted, as the Court observed in oral argument the level of penalties which the parties are seeking appears to be low. In response to that observation Mr De Young QC, counsel for Sumo, drew the Court's attention to two cases counsel submitted might assist it to reach a state of satisfaction that the penalty sought, even if the Court was to conclude it to be low, was not so low as to be outside of the permissible range. 26 The first in time was Australian Competition and Consumer Commission v AGL South Australia Pty Ltd [2015] FCA 399. The facts of that case had involved AGL South Australia Pty Ltd, by means of letters sent between 9 July 2012 and 16 August 2012, making misleading representations to the effect that the many customers to whom they were sent would continue to receive agreed discounts, when that was not the case. In that case White J had imposed an (agreed) penalty in the sum of $700,000. 27 The second was Australian Competition and Consumer Commission v amaysim Energy Pty Ltd (trading as Click Energy) [2019] FCA 430. In that matter Click Energy had falsely and misleadingly represented on its website (over a period of some 7 months) inter-alia that consumers in Victoria and Queensland could save up to a specified dollar amount on their annual energy charges if they switched to a plan with Click Energy and, over a period of some 5 months, if they also paid their bills on time. This occurred in circumstances where in fact the specified dollar amounts were estimated annual savings that a Click Energy market offer consumer would obtain by paying on time compared with paying after the due date, rather than the estimated savings that a consumer would obtain by switching to Click Energy from another retailer. It had made other misleading representations about discounts on its website which I need not particularise. In that case Middleton J had imposed a penalty of $900,000.00. 28 Mr Young submits that those two examples, notwithstanding time had elapsed in each instance and the facts were not precisely analogous, should provide the Court with comfort that the penalties jointly proposed by his client and the ACCC in the present case fell within the permissible range. 29 The penalties in one matter cannot determine the adequacy of those in another - each case must be considered on its own facts but I accept the gravamen of Mr De Young's submission. I am entitled to take comfort from those examples that the proposed penalty in this proceeding is not so obviously low as to be outside the range of that which is permissible even if regard is had to a trend towards higher penalties over the intervening years. My comfort in that regard is reinforced when regard is given to the circumstance that both AGL and Click Energy were owned by far larger corporations with access to far greater financial resources than is Sumo Power Pty Ltd. In the AGL case, AGL South Australia Pty Ltd was part of a corporate structure with revenues in excess of $9.5b and with an underlying profit of over $500m. 30 In this instance some additional leniency has been extended to Sumo by reason of the provision that the penalty is be paid by instalments. However the aggregate amount of $1,200,000, even if discounted for that reason, remains comparable with those imposed in the AGL and Click Energy cases. 31 I am accordingly satisfied that the penalty Sumo and the ACCC have jointly proposed, when regard is had to Sumo's size and financial resources, although low is not outside of the permissible range. 32 In respect of the parties' agreement that that sum be paid in instalments I confess to some residual scepticism that the quantum of what has been proposed has been agreed solely on the basis of the size and financial position of Sumo and without regard to the prospect that otherwise Sumo might become insolvent. The latter the parties accept, on the basis of authority, to be an impermissible consideration. However the line between the two inherently overlaps and I do not think such doubt as I have is a sufficient basis for standing in the way of the Court approving the proposed penalty in this particular instance. The amounts to be ordered will consume all of the profits that Sumo anticipates making in the near future - they are more than adequate for the purpose of specific deterrence and not so small as not to meet the purpose of general deterrence. 33 I may have been differently minded in that evaluation had I not been reassured by the SAFA and by the submissions advanced by Ms Forsyth QC, counsel for the ACCC, that Sumo is under new management and has fully committed itself to a programme designed to ensure that there will be no repetition of its past offending. However in that circumstance, where the Company might otherwise not survive, there can be little said in favour of orders which would risk placing a small but viable competitor in the energy market unnecessarily into insolvency. 34 Otherwise as discussed above I have discerned no arguable reasons not to make the orders sought. 35 Subject to what remains to be decided I conclude that am entitled to make an order for penalty as the parties have sought.
Non Party Consumer Redress 36 The parties have proposed detailed orders for non-party consumer redress pursuant to s 239 of the ACL. Shorn of their complexity those orders involve the payment of compensation summing to a total of approximately $800,000 to customers who were led to accept Sumo's misleading offers. Each will receiving an amount of money which equates to 3 months discounts at the level they had been led to understand they were to benefit from for a year. The parties in their oral submissions argued that is not inappropriate for the redress to be limited to that lesser period on the basis that Sumo's customers were not tied to it and, after their becoming aware of having been switched to a higher billing structure, were able without penalty, to have secured their retail power from another provider at any point of time. 37 They submit as follows: 131. Section 239 is a remedial provision directed to undoing loss or damage caused by contravening conduct. Compensatory damages under the ACL may be calculated on a reliance basis, putting the consumer in the position they would have been in had the misrepresentation not occurred: Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494. However, the manner in which the loss or damage is to be undone must be tailored to the facts of the case: Australian Competition and Consumer Commission v Clinica Internationale (No 2) [2016] FCA 62. Consistently with that purpose, s 239 confers the Court with a broad discretion to make such order or orders that are appropriate in the circumstances: Australian Competition and Consumer Commission v Lifestyle Photographers [2016] FCA 1538 at [41]. 132. The Court's discretion in effecting the remedial purpose of s 239 extends to making redress orders in circumstances where the Court is satisfied that loss has been caused to a class of consumers, but where that loss is not able to be precisely quantified. Section 239 does not impose any requirement for a precise correspondence between the redress that might be received by a particular member of the class, and the actual loss suffered by that member: Australian Competition and Consumer Commission v Geowash Pty Ltd [2020] FCA 23 at [181]-[186]. Provided that the redress is compensatory rather than punitive, it is sufficient that the Court is satisfied of the appropriateness of the orders given the nature of the conduct and the consequential loss or damage. 133. Sumo admits that the Cheap Offer and Discount Representations misled Affected Customers about the rate Sumo would charge them and the overall benefits that they would receive. Affected Customers paid between 28 to 43% more than Sumo represented they would pay at the time they entered their contracts with Sumo. 134. The parties accept that in this particular case it is impossible to undertake a reliance loss calculation. In the circumstances, the parties have agreed to a redress program which: a. would return Affected Customers to the position they would have been in had Sumo honoured the Cheap Offer Representations; and b. is calculated by reference to the three month period following the November Book Migration. This also takes into account the fact that Affected Customers did receive warning of the price rise and had the ability to switch provider in relation to an essential service. 135. As set out in paragraph 64 of the SoAFA, some Affected Customers owe outstanding debts to Sumo. The proposed redress order would not require Sumo to pay redress to Affected Customers to the extent of any such outstanding debt by allowing Sumo to offset redress payments against these accounts in arrears. 136. The parties' proposed methodology for calculating and paying the non-party consumer redress is set out in Annexure A to the parties' proposed form of orders filed in this proceeding. This methodology includes a mechanism for Sumo to report on its compliance with the non-party consumer redress order. This will enable the ACCC to have oversight of Sumo's efforts to redress Affected Customers. 38 Section 239 of the ACL is in the following terms; 239 Orders to redress etc. loss or damage suffered by non‑party consumers (1) If: (a) a person: (i) engaged in conduct (the contravening conduct) in contravention of a provision of Chapter 2, Part 3‑1, Division 2, 3 or 4 of Part 3‑2 or Chapter 4; or (ii) is a party to a contract who is advantaged by a term (the declared term) of the contract in relation to which a court has made a declaration under section 250; and (b) the contravening conduct or declared term caused, or is likely to cause, a class of persons to suffer loss or damage; and (c) the class includes persons who are non‑party consumers in relation to the contravening conduct or declared term; a court may, on the application of the regulator, make such order or orders (other than an award of damages) as the court thinks appropriate against a person referred to in subsection (2) of this section. (2) An order under subsection (1) may be made against: (a) if subsection (1)(a)(i) applies - the person who engaged in the contravening conduct, or a person involved in that conduct; or (b) if subsection (1)(a)(ii) applies - a party to the contract who is advantaged by the declared term. (3) The order must be an order that the court considers will: (a) redress, in whole or in part, the loss or damage suffered by the non‑party consumers in relation to the contravening conduct or declared term; or (b) prevent or reduce the loss or damage suffered, or likely to be suffered, by the non‑party consumers in relation to the contravening conduct or declared term. (4) An application under subsection (1) may be made at any time within 6 years after the day on which: (a) if subsection (1)(a)(i) applies - the cause of action that relates to the contravening conduct accrued; or (b) if subsection (1)(a)(ii) applies - the declaration is made. 39 In oral argument the Court drew attention to two matters it wished to be satisfied of. First whether to confine redress to a period of three months was relevantly "appropriate" and, second whether to permit Sumo to offset redress against arrears was justifiable. 40 In response to the Court's first query, after reiterating and reinforcing the submissions noted at [36] as to the ease of customers changing their suppliers, counsel referred the court to the fact that the program that Sumo had undertaken, because it was a minor market operator, had increased its turnover by only $1.9m. That was not Sumo's profit. With that understanding, requiring Sumo to pay $800,000 as redress to the affected customers ought to be accepted to be adequate compensation for the purposes of s 239 of the ACL. As to the Court's second query both the ACCC and Sumo submitted, while authorising that such an offset would also benefit Sumo (by allowing it to recover some part of its bad debts) that those customers had had the benefit of the supply of power without paying for it. Although not stated in terms I understand that submission also to involve the proposition that redress should not provide a windfall to a group of consumers who had received a supply of power but not paid for that supply over those customers who had paid their accounts. The offset was justified.
Consideration 41 I accept the parties submission that this is not a proceeding in which any precise quantification of each customer's individual's loss is readily capable of being established - and that the method the parties have proposed represents a reasonable, if rough and ready, method of addressing what is appropriate for redress in that circumstance. I accept, with the benefit of counsels' oral submissions, that each of the affected consumers had available to them the opportunity, once advised of the price rises Sumo was imposing, of immediately switching, without any penalty, to another supplier. I accept that balanced against the economic gain Sumo secured, the redress measures will almost certainly (albeit I have no precise evidence - I conclude only by inference) wholly consume any profit Sumo may have made by reason of its increased turnover. For that reason I accept that confining redress to a period of 3 months does not take the redress proposed outside of the bounds of that the Court might "think appropriate". Finally, although during oral argument the Court expressed some doubt, I accept that it would not be unjust for those customers who have received power supplies from Sumo without paying for it, to have that portion of any redress less than their arrears, allocated to that purpose. 42 I am satisfied that I should not resist the orders the parties jointly seek on the basis of those considerations. To express that affirmatively I am satisfied that what the parties have proposed in respect of Non Party Consumer Redress can be approved.
Compliance Programme and Costs 43 I will not spend any time on those matters. It is sufficient to observe that the compliance orders proposed will impose substantial obligations on Sumo to conform its behaviour to the law and are in a form consistent with usual practice.
Conclusion 44 Having regard to the above, I am satisfied that the Court is entitled to proceed as the ACCC and Sumo have jointly proposed. I will make orders accordingly. I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Kerr.
Australian Competition and Consumer Commission
Sumo Power Pty Ltd
(2005) 215 ALR 301
(1996) 71 FCR 285
(2016) 340 ALR 25
(1998) 196 CLR 494