Australian Competition & Consumer Commission v Kokos International Pty Ltd [2008] FCA 5 | Case summary

REASONS FOR JUDGMENT ON DECLARATORY RELIEF AND PECUNIARY PENALTIES AS AGAINST FIRST TO FOURTH RESPONDENTS Introduction 1 Kokos International Pty Ltd (Kokos) and IAE EDU Net Perth Pty Ltd (IAE) are companies which were both involved, in 2004 and 2005, in the provision of educational consultancy services in Perth to students of Korean origin. Essentially they acted as go betweens advising prospective students about educational institutions in which they could enrol and arranging for their enrolment and the payment of their tuition fees at such institutions. For their services, the companies were paid commissions by the educational institutions in which the students were enrolled. In 2004 these companies and others were competing with each other in the Perth market for education consultancy services by offering discounted tuition fees. A company offering such a fee would still pay the full tuition fee to the relevant educational institution. It would, however, retain only a proportion of its commission so as to achieve, from the student's point of view, a discounted tuition fee. 2 From about July 2004 Kokos and IAE and other participants in the market made and gave effect to agreements under which they would desist from offering or accepting discounted tuition fees from students. The Australian Competition and Consumer Commission (the ACCC) commenced these proceedings on 1 November 2006 against Kokos and IAE and their officers and other respondents alleging that making and giving effect to the agreements constituted contraventions of s 45 of the Trade Practices Act 1974 (Cth) (the Act) and the Competition Code of Western Australia (the Code). The ACCC, Kokos, IAE and their respective officers, Messrs Chul Woo Kim (Chad Kim) and Young Gil Pae, have reached agreement that a number of the contraventions asserted by the ACCC did occur. They have also reached agreement in relation to injunctive and declaratory relief. They differ as to the quantum of pecuniary penalties that should be applied. On 18 December 2007 I made the injunctive orders sought, subject to a time limitation of three years. The question of declaratory relief and the quantum of pecuniary penalties were reserved for decision until today. 3 Because the declaratory orders named certain other respondents against whom these proceedings have not yet been resolved, I will not make them at this time but will allow the ACCC liberty to apply for such orders later in these proceedings. I will impose pecuniary penalties on the first to fourth respondents in respect of all but one matter alleged against the second respondent. A total of $60,000 in the case of Kokos, $12,500 in the case of Mr Chad Kim, $34,000 in the case of IAE and $8,000 in the case of Mr Pae. The respondents will also be required to pay the ACCC's costs of these proceedings. Procedural background 4 The ACCC commenced these proceedings on 1 November 2006 alleging contraventions by various parties of s 45 of the Act and the Code. The alleged contraventions involved price fixing in the provision of educational consultancy services to overseas students of Korean origin. The proceedings were commenced against Kokos, Chad Kim, IAE, Young Gil Pae, Sang-Hong Jung and Rebekah Cabalt. Study Overseas Now Pty Ltd (Study Overseas Now) was joined as a respondent to the proceedings subsequently. On 17 August 2007 the ACCC was given leave to serve on Mr Seow Bing Yeo, a director of that company, a notice of motion seeking his joinder, such service to be effected out of the jurisdiction in Japan through a diplomatic channel. For thereasons set out inAustralian Competition & Consumer Commission v Kokos International Pty Ltd [2007] FCA 2035, that latter requirement was dispensed with and an order for substituted service made. 5 The corporate respondents and Sang-Hong Jung are each said to have been in the business of providing educational consultancy services to students of Korean origin. The services allegedly involved providing information to students about courses in secondary and tertiary education institutions in Western Australia and arranging for their enrolment at institutions of their choice. The corporate respondents and Ms Jung are said to have been remunerated by commissions paid by the institutions. 6 The corporate respondents and Ms Jung are said to have made oral and written agreements in 2004 and 2005 under which they agreed not to offer or accept discounted tuition fees. Any party to the agreements that offered or agreed to accept a discounted tuition fee would be referred to a 'Council of Korean Agency' comprising representatives of each of the parties to the agreement. Such parties would be banned from enrolling students in the relevant institutions for a period of three months. It was alleged that copies of the written agreement were sent to a number of educational institutions. The ACCC alleged that the conduct of the corporate respondents and Ms Jung was in contravention of s 45 of the Act and of the Code. The other natural person respondents were said to have been involved in the contraventions. 7 The first to fourth respondents have reached agreement with the ACCC as to the disposition of the proceedings save for the quantum of pecuniary penalties that should be imposed. Statements of agreed facts and joint submissions have been filed along with proposed consent orders. 8 On 18 December 2007 I made orders against the first to fourth respondents in terms of the injunctive relief agreed save for the imposition of a time limit of three years on the operation of each injunction. The quantum of pecuniary penalties to be imposed and the question whether any, and if so what, declaratory relief should be awarded was reserved until today. The agreed facts - the ACCC and the first and second respondents 9 A statement of agreed facts as between the ACCC, Kokos and Mr Chad Kim was filed on 27 November 2007. My findings of fact in relation to Kokos and Mr Chad Kim are based upon that statement. 10 Kokos is and was at all material times a trading corporation within the meaning of the Act and carrying on business in trade or commerce in Western Australia as a supplier of education consultancy services to students and prospective students of Korean origin intending to study at secondary and tertiary educational institutions (Schools). The services consisted of: (a) Providing information about available courses of study in Perth including information regarding fees. (b) Providing advice as to which of the available courses might be suitable for a prospective student's requirements. (c) Providing informal translation of promotional materials and course information published in English by the Schools. (d) Facilitating application to, and enrolment in, courses of study at Schools; and (e) Facilitating payment of fees by students or prospective students to Schools. Kokos had an annual turnover of $1.79 million for the 2004/2005 financial year and $2.3 million for the 2005/2006 financial year. In 2004/2005 its net profit was $15,000 and in 2005/2006 it was $18,000. The company has two offices in Australia. It has no office overseas. It employs four full-time staff. 11 Mr Chad Kim is a director, servant or agent of Kokos and is authorised by it to conduct business in its name and on its behalf. He was at all material times responsible for the day to day management of the company. He was paid a salary of $45,000 per annum during the relevant period and has net assets worth approximately $113,000. 12 At all material times Kokos and each of the following entities were competitive with each other in the supply of education consulting services: (a) IAE; (b) Nanuri Education Centre (Nanuri); (c) Study Overseas Now; (d) Jobbok International Pty Ltd (Jobbok) 13 Schools published details of fees payable for each course of study offered. Where a student enrolled in a course at a School through Kokos the student would pay the tuition fee to Kokos. Kokos would remit all or part of the tuition fee to the School and the School would pay a commission to Kokos for enrolling the student in the course. The commission was calculated as a percentage of the tuition fee and was paid in one or other of the following ways: (a) The School paid a commission to Kokos upon receipt of the full tuition fee; or (b) The School permitted Kokos to deduct its commission from the tuition fee and remit the balance to the School. The manner of payment and the amount of the commission paid by a School varied according to terms and conditions agreed between Kokos and each School. Kokos did not directly charge fees to students in respect of its education consulting services. 14 From time to time Kokos would offer discounted tuition fees for courses of study offered by Schools. In such cases it might accept from the student a tuition fee less than the full tuition fee published by the School. It would pay the School an amount equal to the full tuition fee and then receive from the School the commission for enrolling the student. The net amount gained by Kokos in such case was the commission less the discount offered on the full tuition fee. In other cases where the relevant School permitted Kokos to deduct commission from the tuition fee before the balance was remitted, Kokos would deduct the commission less the discount so that the School would still receive the full tuition fee less its commission. The practice of agreeing to accept discounted tuition fees was commonly engaged in by competitors in the Perth market for the supply of education consulting services. These competitors comprised Kokos, Nanuri, Jobbok and Study Overseas Now. Other actors in the market were the Schools themselves and an unknown number of smaller service providers. 15 In early to mid July 2004, IAE entered the Perth market. After its entry Kokos became aware that IAE was engaging in tactics intended to damage its competitors. One of Jobbok's contracts was terminated after a School was informed that Jobbok had offered and accepted discounted tuition fees from students. Mr Jacob Kim of Jobbok subsequently informed Mr Chad Kim of Kokos that he did not intend offering or accepting discounted tuition fees in the future. The respondents generally experienced an overall reduction in business. 16 Sometime after IAE's entry into the market, Mr Chad Kim on behalf of Kokos attended a number of meetings with education consultants including Young Gil Pae on behalf of IAE, Rebekah Cabalt on behalf of Nanuri and Jacob Kim on behalf of Jobbok. Mr Chad Kim was one of the principal organisers of these meetings. At those meetings an oral agreement (the Oral Agreement) was made by the parties to the effect that, in the supply of education consulting services to students or prospective students, they would refrain from engaging in the practice of offering or accepting or agreeing to accept a discounted tuition fee. 17 Following a further meeting or meetings Mr Chad Kim instructed an employee of Kokos to prepare a written agreement (the Written Agreement). The terms of the Written Agreement to which Kokos, IAE, Nanuri, Study Overseas Now and Jobbok were parties were to the effect that: (a) the parties would refrain from engaging in the practice of offering or agreeing to accept a discounted tuition fee; (b) the parties would monitor each other's conduct in relation to the practice of offering or agreeing to accept a discounted tuition fee; (c) the parties would report any discounted tuition fee to the so called 'Council of Korean Agency' which would comprise a representative of each of the parties; and (d) any party that engaged in the practice of offering or agreeing to accept a discounted tuition fee would be banned from enrolling students in the relevant School for a period of three months. About a week after signing the Written Agreement Mr Chad Kim sent a copy to a number of Schools. 18 Between 22 July 2004 and 1 November 2004 Kokos gave effect to the agreements for limited periods of time totalling approximately four weeks. For those periods it ceased offering or agreeing to accept a discounted tuition fee from students. During this period Kokos charged students approximately $13,000 more than the amount it would have charged them had it not put the agreements into effect. 19 Kokos was aware that one Joseph Woo was at all material times preparing to carry on business in Perth as, among other things, a supplier of education consulting services. On or about 24 September 2004 Mr Chad Kim sent an email to Joseph Woo. In that email he: (a) informed Joseph Woo that the education consultants had formed the so-called 'Council of Perth Overseas Study Agencies' (the Council); (b) informed Joseph Woo that members of the Council restrict providing discounts to students apart from special offers provided to education consultants by Schools; and (c) urged Joseph Woo to join the Council and comply with the rules. 20 On or about 18 February 2005 Kokos sent Jobbok a table containing information in relation to the terms and conditions of the Oral and Written Agreements including incentives and benefits agreed between Kokos and a number of Schools. 21 Neither Kokos nor Mr Chad Kim have contravened the Act or the Code in the past. Kokos did not have in place a corporate trade practices compliance program at the time the conduct took place. It is common ground that Kokos and Mr Chad Kim have cooperated with the ACCC both prior to and following the commencement of proceedings. Agreed facts as between the applicant and the third and fourth respondents 22 IAE is and was at all material times a trading corporation within the meaning of the Act, carrying on business and engaging in trade or commerce in Western Australia as a supplier of education consultancy services to students and prospective students of Korean origin intending to study at secondary and tertiary educational institutions. The consultancy services offered by IAE were the same as those offered by Kokos. 23 IAE had an annual turnover of $942,319.65 for the 2004/2005 financial year and $1,795,622.22 for the 2005/2006 financial year. It had a net profit of $112.64 for the 2004/2005 financial year and $14,281.21 for the 2005/2006 financial year. The company is a franchisee of Eduhouse Inc and is one of a number of at least 27 franchised businesses located in Australia and overseas. It operates independently and employs three full-time staff. Mr Pae was at all material times a director, servant or agent of IAE and authorised by it to conduct business in its name and on its behalf. He was responsible for the day to day management of the company. He was paid a gross salary of $40,000 for the 2005/2006 financial year. He did not receive a salary for the 2004/2005 financial year. 24 IAE was competitive with Kokos and the other actors mentioned in the agreed facts relating to Kokos. Its business operation, like that of Kokos, involved the collection from students of tuition fees and the transmission to the relevant Schools of such tuition fees subject to prior deduction or later payment of a commission. Like Kokos, IAE from time to time offered or agreed to accept discounted tuition fees for courses of study offered by Schools and, in the same way as Kokos, recovered a commission less the discount which it offered. 25 IAE entered the Perth market for education consulting services in early or mid July 2004 and through Mr Pae participated in the meetings which led to the formation of the Oral Agreement and the Written Agreement. It was a party to each of those agreements. It put the agreements into effect between July 2004 and November 2004 by refraining from offering or agreeing to accept a discounted tuition fee. The agreed statement of facts qualifies that statement by the statement that between July 2004 and November 2004 IAE gave effect to the agreements for limited periods of time and for those periods ceased the practice of offering or agreeing to accept a discounted tuition fee. It was accepted that during that period IAE charged students more than it would have charged had it not put the agreements into effect. The total amount by which it so overcharged students during that period could not be stated precisely. 26 Neither IAE nor Mr Pae have been found to have engaged in a contravention of the Act in the past. IAE did not have in place a corporate trade practices compliance program at the time the conduct took place. It was accepted that IAE and Mr Pae have cooperated with the ACCC both prior to and following the commencement of these proceedings. Statutory framework - The Trade Practices Act 1974 27 Section 45 of the Act provides, inter alia: (2) A corporation shall not: (a) make a contract or arrangement, or arrive at an understanding, if: (i) the proposed contract, arrangement or understanding contains an exclusionary provision; or (ii) a provision of the proposed contract, arrangement or understanding has the purpose, or would have or be likely to have the effect, of substantially lessening competition; or (b) give effect to a provision of a contract, arrangement or understanding, whether the contract or arrangement was made, or the understanding was arrived at, before or after the commencement of this section, if that provision: (i) is an exclusionary provision; or (ii) has the purpose, or has or is likely to have the effect, of substantially lessening competition. 28 Section 45A provides, inter alia: (1) Without limiting the generality of section 45, a provision of a contract, arrangement or understanding, or of a proposed contract, arrangement or understanding, shall be deemed for the purposes of that section to have the purpose, or to have or to be likely to have the effect, of substantially lessening competition if the provision has the purpose, or has or is likely to have the effect, as the case may be, of fixing, controlling or maintaining, or providing for the fixing, controlling or maintaining of, the price for, or a discount, allowance, rebate or credit in relation to, goods or services supplied or acquired or to be supplied or acquired by the parties to the contract, arrangement or understanding or the proposed parties to the proposed contract, arrangement or understanding, or by any of them, or by any bodies corporate that are related to any of them, in competition with each other. 29 Pecuniary penalties may be imposed pursuant to s 76 of the Act, which relevantly provided: (1) If the Court is satisfied that a person: (a) has contravened any of the following provisions: (i) a provision of Part IV; … (e) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; … the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate having regard to all relevant matters including the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission, the circumstances in which the act or omission took place and whether the person has previously been found by the Court in proceedings under this Part or Part XIB to have engaged in any similar conduct. 30 Section 76(1A) provides: The pecuniary penalty payable under subsection (1) by a body corporate is not to exceed: (a) for each act or omission to which this section applies that relates to section 45D, 45DB, 45E or 45EA - $750,000; and (b) for each other act or omission to which this section applies - $10,000, 000. (1B) The pecuniary penalty payable under subsection (1) by a person other than a body corporate is not to exceed $500,000 for each act or omission to which this section applies. 31 Section 76(1A) was substituted by Act No 131 of 2006 effective 1 January 2007 to allow the Court to impose a penalty greater than $10 million by reference to three times the value of the benefit obtained from the relevant contravention. Where the value of that benefit cannot be determined, then the maximum penalty will be the greater of $10 million or 10% of the annual turnover of the body corporate during the period of 12 months ending at the end of the month at which the relevant act or omission occurred. The substituted s 76(1A) and the substituted s 76(1B) do not apply to this case as they only came into effect on 1 January 2007. 32 Section 80 of the Act provides for the grant of injunctive relief. It is unnecessary further to refer to that here as the relevant injunctive relief has already been granted. Statutory Framework - The Competition Policy Reform (Western Australia) Act 1996 33 The Competition Policy Reform (Western Australia) Act 1996 (the Competition Policy Reform Act) is described in its long title: An Act to apply certain laws of the Commonwealth relating to competition policy as laws of Western Australia, and for other purposes. The Schedule to the Competition Policy Reform Act is a part of what is referred to in the Act as the Competition Code text. Section 4 provides: (1) The Competition Code text consists of - (a) the Schedule version of Part IV; (b) the remaining provisions of the Trade Practices Act (except sections 2A, 5, 6, and 172), so far as they would relate to the Schedule version if the Schedule version were substituted for Part IV of that Act; and (c) the regulations under the Trade Practices Act, so far as they relate to any provisions covered by paragraph (a) or (b). (2) For the purpose of forming part of the Competition Code text, the provisions referred to in subsection (1)(b) and (c) are to be modified as necessary to fit in with the Schedule version of Part IV and, in particular, references in them to corporations are to include references to persons who are not corporations. 34 The Competition Code text is applied as a law of Western Australia by s 5(1) of the Competition Policy Reform Act. It applies to persons carrying on business within Western Australia, bodies corporate which are incorporated or registered under the laws of Western Australia, persons ordinarily resident in Western Australia and persons otherwise connected with the State (s 8(1)). 35 Part 5 of the Competition Policy Reform Act provides for national administration and enforcement of the Competition Codes and confers functions under the State law upon the ACCC, the Australian Competition Tribunal and the National Competition Council. Its object is to ensure that the Competition Codes of participating jurisdictions throughout Australia are administered on a uniform basis in the same way as if those Codes constituted a single law of the Commonwealth (s 18). 36 Offences against the Code are to be dealt with by Courts of summary jurisdiction (s 55(1)). The present proceedings, which assert a contravention of the Code, are not brought in respect of an offence against it. For matters other than proceedings for offences, s 55(2) provides: Jurisdiction is conferred on the Supreme Court with respect to any other proceedings arising under the Competition Code of Western Australia. 37 Jurisdiction is not conferred on this Court by provisions of the State law, nor could it be, having regard to the decision of the High Court in Re Wakim; Ex parte McNally (1999) 198 CLR 511. That is not to say however, that claims for relief for contraventions of the Code cannot be brought in proceedings in which claims are sought for relief under the Commonwealth Act arising out of the same factual substratum. They can be dealt with in the exercise of federal jurisdiction as part of the one 'matter' arising under the Act even though they are brought under the Code. In my opinion, in this case, the Court has accrued jurisdiction to deal with the claim for relief against Mr Chad Kim for an attempt to contravene the Code. For reasons that appear below, however, I am not satisfied that the agreed facts will support a finding of such an attempt by him. The contraventions 38 The ACCC in its submissions identified the following contraventions by Kokos:

A contravention of s 45(2)(a)(ii) of the Act by making the Oral Agreement.
A contravention of s 45(2)(a)(ii) of the Act by making the Written Agreement. 3. A contravention of s 45(2)(b)(ii) of the Act by causing a copy of the Written Agreement to be sent to Schools and thereby giving effect to the Oral Agreement and the Written Agreement. 4. A contravention of s 45(2)(b)(ii) of the Act by refraining from engaging in the practice of offering or agreeing to accept a discounted tuition fee for a total period of approximately four weeks and thereby giving effect to the Oral Agreement and the Written Agreement. 5. A contravention of s 45(2)(b)(ii) of the Act by sending to Jobbok a table containing information in relation to the terms and conditions, including incentives and benefits agreed between Kokos and a number of Schools pursuant to the provisions of the Oral Agreement or the Written Agreement or both and for the purpose of assisting Jobbok to determine whether Kokos was adhering to the provisions of the Oral Agreement, or the Written Agreement, or both and thereby giving effect to the Oral Agreement and the Written Agreement. Mr Chad Kim was said to have been directly or indirectly knowingly concerned in, or party to, each of these contraventions. These contentions were not in dispute. 39 In addition, the ACCC alleged that by their conduct in sending an email to Mr Joseph Woo and attempting thereby to make an arrangement or arrive at an understanding with Mr Woo containing a provision to the effect that Kokos and/or Mr Woo would refrain from engaging in the practice of offering or agreeing to accept a discounted tuition fee, Kokos contravened s 76(1)(b) and 80(1)(b) of the Act and that Mr Chad Kim contravened the same provisions of the Code. 40 Section 76(1)(b) of the Act provides for imposition of a penalty where a person has attempted to contravene a provision of Pt IV. It does not itself impose a prohibition capable of contravention. It may be accepted for present purposes, however, that it is not disputed that Kokos attempted to contravene a provision of the Act as alleged. This is made clear from the terms of the declaratory relief sought by the ACCC which is accepted by Kokos and Mr Chad Kim in their written submissions. The acceptance by Mr Chad Kim of that aspect of the declaratory relief is however questionable having regard to the agreed facts. 41 The Code text applies, as a law of Western Australia, s 45 of the Act and applies it to natural persons. Natural persons are prohibited from making a contract or arrangement or arriving at an understanding a provision of which would have the purpose or be likely to have the effect of substantially lessening competition. Nor can they give effect to such a provision. Section 76 of the Act which is applied as a law of the State of Western Australia, allows for the imposition of pecuniary penalties on persons who attempt to contravene s 45. In this case in [29] of its statement of claim, after pleading the sending by Mr Chad Kim of the email to Mr Woo which is referred to in the agreed statement of facts, the ACCC said: By engaging in the conduct referred to in paragraph 28 above, Chad Kim, on behalf of Kokos, attempted to make an arrangement or arrive at an understanding with Joseph Woo containing a provision to the effect that Kokos and/or Joseph Woo would refrain from engaging in the practice of offering or agreeing to accept a Discounted Tuition Fee. 42 That pleading does not mark Mr Chad Kim as a person attempting to contravene a provision. For such an attempt to be made out it would be necessary to establish that if successful, he would have contravened the Code himself. It seems to me that a person cannot be said to attempt to contravene a provision of the Act or of the Code where the prospective contravention is that of another person. Such a case arises, under the Act, where a person endeavours to procure, on behalf of a corporation, the making of a contract, arrangement or understanding to which that person himself or herself is not a party. In this case the prospective contravention was the making of an arrangement or understanding by Kokos through Mr Chad Kim as its agents. This matter was not raised in the submissions of the parties nor raised with them by the Court. I will therefore give the parties liberty to file short supplementary submissions if they contend for a different conclusion. 43 The ACCC has identified, and Kokos has accepted, five contraventions of s 45 in each of which Mr Chad Kim accepted that he was directly or indirectly knowingly concerned in or a party for the purposes of s 76(1)(e). Kokos has also accepted for its part an attempt to contravene the Act arising out of the email to Mr Woo. 44 In their joint submissions to the Court the ACCC, IAE and Mr Pae identified the following contraventions of the Act by IAE:

Australian Competition & Consumer Commission v Kokos International Pty Ltd

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