Australian Competition & Consumer Commission v GIA Pty Ltd

REASONS FOR JUDGMENT 1 The Australian Competition and Consumer Commission (the Commission) has brought charges against GIA Pty Ltd (in liquidation) (the Company) and Mr Eric Ian Thompson alleging contraventions of ss 53(eb) and 155(5)(b) of the Trade Practices Act 1974 (Cth) (the Act). 2 The charges allege that the defendants made a false or misleading representation concerning the place of origin of certain polo shirts by removing "Made in China" labels and attaching labels indicating that the shirts were made in Tasmania. These charges are the subject of proceeding T 35 of 2001. 3 It is further alleged that when responding to a notice under s 155 relating to these matters the defendants gave false or misleading information. Those charges are the subject of proceeding T 34 of 2001. 4 The Company has since gone into liquidation and was not represented at the hearing. Mr Thompson was represented by counsel who on his behalf agreed to a statement of facts tendered by the Commission. As against the Company, that statement of facts is supported by affidavits formally read by counsel for the Commission. Accordingly I find all charges proved against both defendants. 5 The Company for many years carried on business under the name Tamar Knitting Mills. It manufactured knitted garments which it sold by wholesale and to a limited extent by retail and mail order from its premises in Launceston. The Tamar name and logo, which depicted a lamb, were well respected in the textile industry and the Company's products had a good reputation for quality. Mr Thompson was a shareholder and the Managing Director of the Company and in charge of its day to day operations. 6 In October 1998 Mr Thompson spoke with Mr Craig Bishop, the manager of Baily Agencies which is a wholesaler and distributor of imported and Australian made goods. Mr Thompson said that he was interested in buying polo shirts. Mr Bishop told him that Baily Agencies could supply Tamar with imported polo shirts under the "Johnny Bobbin" label. 7 Between October 1998 and July 2000 the Company faxed orders to Baily Agencies which duly despatched shirts together with invoices. The shirts had collar labels bearing the words "Johnny Bobbin Made in China". Mr Thompson instructed Company staff to remove the original labels and replace them with labels containing the word "TAMAR" and the Tamar logo. 8 In addition, one or both of the following swing tags were attached to the shirts. One tag was triangular in shape and bore the word "TASMANIAN" with a drawing of a Tasmanian tiger. The other was shaped as a map of Tasmania and contained on the front the words, "This is a quality Tamar Knitting Mills product", along with the Tamar lamb logo and on the back the words "Made in Tasmania by Tamar Knitting Mills PO Box 256 Launceston 7250, 21 Hobart Road, Tel (03) 6344 8255". Mr Thompson admits that during the period 1 April 1999 to 12 April 2000 he knew such tags were attached to polo shirts supplied by the Company and that the presence of such tag or tags would mislead consumers. He denies, however, that he instructed employees of the Company to attach the tags. 9 In the period 1 April 1999 to 12 April 2000 the Company sold approximately 619 shirts of which at least 400 had swing tags of the types mentioned. The value of the shirts when offered for sale by the Company was $23.25. The price to the Company was approximately $11.00. 10 Some of the shirts were supplied to the Lions Australia organisation after being embroidered by the firm Statewide Embroidery with the Lions logo. The Company placed an advertisement in the Lions Australia newsletter which invited readers to "(p)urchase direct from the Australian manufacturer". 11 The Company's conduct was only exposed by chance. Before making arrangements with Baily Agencies, Mr Thompson had spoken to Ms Rachael Turley, the proprietor of Blue Horizons Outdoor Clothing Company, about acquiring polo shirts from her firm. He said that the Company was submitting a tender to supply Lions International Clubs in Australia with polo shirts incorporating the Lions logo. Ms Turley supplied some samples but Mr Thompson subsequently told her that he had decided to source cheaper shirts elsewhere. Some time later Ms Turley happened to be at the premises of Statewide Embroidery and noticed what appeared to be Tamar polo shirts embroidered with the Lions logo. Ms Massey of Statewide Embroidery told her that she thought the polo shirts were actually "Johnny Bobbin" polo shirts made in China with the label removed. As a consequence Ms Turley made a comparison of the two herself and reached the same conclusion. She then complained to the Commission. 12 On 12 April 2000 the Commission issued a notice under s 155 of the Act. In purported compliance with that notice the Company provided a response dated 26 April 2000, in which response Mr Thompson was directly or knowingly concerned. The response was false in the following respects: (a) The notice asked for details of the quantities of polo shirts purchased by the Company over " the period" (defined as 1 January 1998 to 12 April 2000). The response was that from 1 January 1998 to 26 April 2000, 1093 shirts were purchased. This was false in that the Company had ordered 1873 shirts. The Company subsequently admitted that 1676 shirts were purchased. (b) The notice asked, in respect of the period, for details of the dates on which, the quantities of which and the prices at which the Company supplied polo shirts with the swing tags already referred to. In its response the Company stated that, "As far as can be ascertained this conduct occurred during the period between Easter 1999 and July 1999". This was false in that: (i) between Easter 1999 and April 2000, polo shirts with the relevant swing tags were despatched from the Company's warehouse; (ii) on 7 March 2000 and in early April 2000, polo shirts with swing tags were observed on sale at the Company's retail outlet; and (iii) on 5 September 2000, 348 shirts with at least one swing tag attached were located at the Company's warehouse. (c) In response to the same question the Company stated that the number of shirts supplied with the swing tags attached was "exactly unknown as some of the garments may have filtered through with swing tags up to 2-3 months after, our estimate is 40-50 garments". This was false in that during the period the Company had placed the tags on hundreds of shirts supplied between 1 April 1999 and 14 April 2000. 13 Counsel for Mr Thompson made submissions in relation to his client's personal circumstances. The accuracy of these was accepted by the Commission. Mr Thompson is aged 65. He lives with his partner in rented premises in a Launceston suburb. He has four adult children. He is not employed and ceased his employment with the Company on 30 June 2001. His only form of income is an age pension of approximately $398 per fortnight. He has approximately $1500 in the bank but otherwise does not own any significant assets. As a guarantor of the Company's debt to the ANZ Bank Mr Thompson owes the bank $20,600. He has had hip replacement operations in October last year and July this year. He has no prior convictions. 14 Counsel pointed out that by virtue of s 206B of the Corporations Act 2001 (Cth) Mr Thompson will be disqualified from managing corporations for a period of five years. He will therefore not be in a position to engage in similar conduct. It might be said also that, having regard to his age, health and lack of assets, it is in any event unlikely in the extreme that he will hereafter engage in any entrepreneurial activity. 15 Under the Act as in force at the time of the contraventions the maximum penalty for a breach of s 155(5)(b), in the case of a company, is a fine not exceeding $10,000 and in the case of an individual a fine not exceeding $2,000 or imprisonment for twelve months. It was accepted by counsel for the Commission that in the circumstances of this case s 79(2) is applicable. The fines imposed in the aggregate should not exceed that which would be imposed for one offence. For a breach of s 53(eb) the maximum penalty for a company is $200,000 and for an individual $40,000. 16 As far as the Company is concerned it is submitted, and I accept, that I should follow the approach of O'Loughlin J in Australian Competition & Consumer Commission v Vales Wine Co Pty Ltd [1996] ATPR 41-528 at 42,776 and impose what is an appropriate penalty notwithstanding that the Company has been wound up and will not have any assets to pay that liability. 17 However, the position in relation to Mr Thompson is rather different. If he does not pay a fine he is liable to imprisonment in default: s 79A(5). The Commission accepts that Mr Thompson's offences, serious though they are, do not in the circumstances warrant imprisonment and therefore it would not be correct to impose a monetary penalty so far beyond his ability to pay that imprisonment could result. 18 Section 79A(3) allows the Court to make an order for payment by instalments. Counsel for the Commission accepts that such an order would be appropriate and has not quarrelled with the amount of $100 per month proffered by counsel for Mr Thompson. 19 For the s 155(5)(b) offences counsel for the Commission submitted a range of $5,000 to $7,500 for the Company and $1,000 to $1,500 for Mr Thompson. I accept that the provision of false or misleading information in response to a s 155 notice is a serious offence. It hinders and obstructs the administration of the Act and thus the protection of consumers and the interests of fair trading. However, in the present case the conduct of the defendants was more a matter of minimisation and evasion than denial or the laying of a false trail. I think the offence falls somewhere in the middle range of seriousness and therefore I would adopt the bottom figure of the range suggested by the Commission, namely $5,000 for the Company and $1,000 for Mr Thompson. 20 For the s 53(eb) offence Counsel for the Commission submitted a range of $20,000 to $30,000 for the Company and $4,000 for Mr Thompson. 21 I regard the conduct constituting this offence as deplorable. There was deliberate and dishonest conduct designed to trick consumers. It was conduct that went on for a substantial time and might have continued indefinitely if not accidentally discovered. It is not possible to say what gain was made. The gross profit per shirt was about $11, but the true gain presumably was the difference between that figure and the profit that would have been made had the shirts been manufactured in Tasmania as represented. There is no evidence as to this. The evidence as to the actual number of shirts sold is not clear. The agreed figure is at least 400 but there may have been considerably more. In any event, it is reasonable to infer that the defendants only engaged in such blatant conduct because they anticipated some worthwhile financial advantage. I think the range proposed by the Commission does not sufficiently reflect the seriousness of the offence. Public deterrence of such unpardonable commercial conduct calls for a penalty of $50,000 on the Company. 22 As for Mr Thompson, the personal factors mentioned result in me concluding that the figure proposed, $4,000, is appropriate. Were it not for those factors, I think a penalty substantially greater should be imposed. The net result for Mr Thompson is that these penalties will total $5,000 and there will be an order that he pay the amount at the rate of $100 per month. There will also be an order that the defendants pay the Commission's costs. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Heerey.