Appropriate penalty - Dimmeys
30 Counsel for the Director submit that the appropriate range of penalty for Dimmeys is $2.86 million to $3.30 million. This figure is based on a contention that Dimmeys was engaged in eight courses of conduct. However, for the purposes of assessing the range, the Director condensed the eight courses of conduct, in effect, into four courses of conduct. Counsel for the respondents submit that the appropriate range of penalty for Dimmeys is $400,000 - $800,000.
31 A penalty at the highest end of the range proposed by counsel for the respondents for Dimmeys is far too low. Dimmeys is a repeat offender. Deterrence is the primary consideration in fixing penalties in matters of this type. Indeed, as counsel for the Director submit, it may be described as the prism through which the Court should observe the other relevant factors referred to in Singtel Optus at [37]. Those factors are:
the size of the contravening company;
the deliberateness of the contravention and the period over which it extended;
whether the contravention arose out of the conduct of senior management of the contravener or at some lower level;
whether the contravener has a corporate culture conducive to compliance with the Act or its successor as evidenced by educational programmes and disciplinary or other corrective measures in response to an acknowledged contravention;
whether the contravener has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention;
whether the contravener has engaged in similar conduct in the past;
the financial position of the contravener;
whether the contravening conduct was systematic, deliberate or covert.
32 After taking into account the questions of general and specific deterrence and the matters raised at [37] in Singtel Optus and applying the instinctive synthesis involved in the totality principle, the Court considers that a penalty of $750,000 for each course of conduct is appropriate. The total penalty to be imposed on Dimmeys is $3 million.
33 The Court is satisfied that general deterrence, in the context of the breach of provisions dealing with the safety of products used by children, demands a significant penalty.
34 The most critical factor for current purposes of those identified at [37] in Singtel Optus is:
Whether the contravener has engaged in similar conduct in the past.
35 It would be an understatement to say that Dimmeys has a poor record of compliance with its consumer protection obligations. Cases where Dimmeys' failure to fulfil its legal duties in that regard are discussed below.
36 On 26 August 1999, in Australian Competition and Consumer Commission v Dimmeys Stores (1999) ATPR 41-716, the Court convicted Dimmeys of breaching s 65C of the TPA by offering bicycles for sale which did not comply with the relevant safety standard. At [11], Weinberg J observed that:
…the offences were not committed wilfully or with any intention to deceive. Their commission was the product of carelessness and lax management. [Emphasis supplied].
37 Justice Weinberg noted the importance of enforcing consumer product safety standards and at [18] referred to Gardam v Splendid Enterprises Pty Ltd (1987) ATPR 40-779 where at 48,503, French J (as his Honour then was) said "the sections of the [TPA] which provide for the declaration of consumer product safety standards and their enforcement are plainly of the highest importance".
38 At [22], Weinberg J described the conduct of Dimmeys and Starite (which had obtained the goods for Dimmeys) as "simply inexcusable". At [23], his Honour said:
Mr Zappelli, who acted on behalf of Starite as the importer of the goods into Australia, was not entitled simply to assume that bicycles of this type, purchased in China for next to nothing, would comply with Australian product safety standards merely because he had been told they had been made for the Australian market, and were part of a cancelled order. Dimmeys took no steps to ensure that the bicycles imported by Starite on behalf of Dimmeys complied with any such standards. That was an act of gross irresponsibility on its part. It was a breach of the Act which was separate and distinct from the breaches of the Act committed by Starite [emphasis added].
39 On the question of general deterrence, at [24], Weinberg J said that the imposition of substantial penalties which are well publicised have the ability to "heighten the business community's awareness of the need to comply with product safety standards and the dire consequences of any failure to do so".
40 At [26], his Honour said:
The offences committed by Starite and Dimmeys must, in my opinion, be regarded as being extremely serious. The conduct of the defendants has resulted in a significant number of defective bicycles being supplied to children, among the most vulnerable members of our community. The appearance of these bicycles is calculated to entice those who use them into still more danger. It may fairly be said that each of the bicycles supplied was, and is, an accident waiting to happen.
41 There were mitigating circumstances in the matter before Weinberg J. The guilty pleas were entered at the earliest opportunity, Dimmeys (and Starite) co-operated with relevant authorities and Dimmeys took steps to recall the bicycles as soon as their dangerous condition was drawn to its attention. At [38], his Honour said:
In my view, Dimmeys has taken reasonable steps to ensure that the conduct which is the subject of this proceeding is not repeated. I noted the presence of Mr Zappelli on behalf of Starite, and of Mr Swersky on behalf of Dimmeys, in Court during the course of the proceedings. I accept Mr Wheelahan's submission that each defendant is remorseful for its actions. I propose to take that remorse into account in reducing the penalties which would otherwise have been imposed.
42 Despite the hopes of counsel for Dimmeys and of Weinberg J, the conduct was repeated in respect of other dangerous goods.
43 In March 2001, Drummond J published his reasons for judgment in Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [2001] FCA 299. The 2001 matter concerned the sale by Dimmeys of children's night wear. The clothing did not comply with a safety standard concerning fire hazards.
44 At [27], Drummond J took into account Dimmeys' co-operation with authorities and the action it took "to minimise the potentially harmful consequences of its conduct". His Honour also noted "the diminished profitability of Dimmeys in recent times" but observed that "it is apparent that it is able to afford to pay substantial penalties, so that no further reduction in penalty is warranted".
45 At [37], Drummond J referred to "a systemic management failure throughout [the relevant period]" and "a lack of any serious commitment by Dimmeys' senior management to implementing procedures likely to ensure compliance with [the TPA]".
46 On 8 April 2011, Gordon J published reasons for judgment in Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [2011] FCA 372. That proceeding concerned children's dressing gowns which did not comply with a relevant safety standard.
47 At [37], Gordon J described the contravening conduct as "serious". Her Honour observed at [38] that Mr Zappelli is the "controlling mind of Dimmeys". At [42], her Honour noted the lack of evidence that the contravening conduct was deliberate, observing that:
There was therefore a critical failure at the warehouse and at the retail level in failing to identify that the garments did not comply with the Standard.
48 At [43], her Honour observed that there was no evidence of any injury or loss or damage but that there was a risk of possible harm which should be taken into account in assessing penalty.
49 At [46], Gordon J said:
Finally, the evidence discloses that since these proceedings were commenced, Dimmeys has admitted the conduct alleged in the Fast Track Statement, fully cooperated with the ACCC, agreed to all forms of relief sought in the Fast Track Application (other than the quantity of the penalty) and thereby reduced the time and expense of the proceeding and saved public time and resources including those of the Court.
50 Justice Gordon, at [48], referred to the matters before Weinberg J in 1999 and Drummond J in 2001 and also to a prior conviction of Dimmeys in the Magistrates' Court for the supply of candles in breach of a safety standard. At [51], her Honour noted that "(t)he systems in place for ensuring compliance with the consumer safety standards were unsatisfactory."
51 At [53], her Honour referred to the financial position of Dimmeys as being relevant to penalty but emphasised at [54] that:
…as deterrence is the primary objective of penalties, the financial capacity of a respondent to pay must not prevent the Court from doing its duty even if in some cases, the penalty is so high that the offender will become insolvent…
52 In the 2011 proceeding, Dimmeys submitted that its financial position was precarious. At [58], Gordon J accepted that Dimmeys "as a stand-alone entity, is in financial hardship". Her Honour went on to say:
However, given the financial support (direct and indirect) that it receives from related entities and individuals including Starite, the beneficiaries of the Dimmeys Unit Trust (of which Dimmeys is the trustee) and Forges of Footscray Properties Pty Ltd, it is not possible on the evidence available to conclude that the imposition of a penalty in or near the range sought by the ACCC would have the "crushing" effect contended for by Dimmeys. That conclusion is fortified by three facts and matters. First, the ACCC proposed that the penalty be paid by instalments. Secondly, as was discussed during the course of argument, no evidence was led by Dimmeys as to the financial position of these and other related entities. Finally, there was no evidence to suggest that the support provided by these entities and individuals in the past would not continue in the near future.
53 At [59], Gordon J noted that Dimmeys had a "Trade Practices Compliance Program" but that it failed to prevent the contraventions.
54 Her Honour referred to the importance of compliance with safety standards, especially those concerning goods designed to be used by children at [63]. Justice Gordon there said:
For those reasons, deterrence (specific and general) must be given significant weight. In the context of Dimmeys, the penalty for specific deterrence must be substantial - this is not the first time: see the 1999 and the 2001 Dimmeys' Decisions. The only saving grace, if there be one, is that the previous episodes were 10 years ago.
55 Now, some two years later, Dimmeys is back before the Court in respect of similar contraventions.
56 It is beyond doubt that Dimmeys has engaged in similar conduct in the past. It received a stern warning from Gordon J in 2011 but finds itself back before the Court in 2013. Specific and general deterrence demands a high range penalty be imposed on it. Dimmeys' previous non-compliant conduct accentuates the importance of a high range penalty.
57 Although the size of Dimmeys is a matter of small significance when viewed through the prism of specific and general deterrence in the context of its prior transgressions, it is appropriate to now turn to that issue. Counsel for Dimmeys contend that the penalty not be so high as to be oppressive.
58 Counsel for the Director respond that if the penalty, objectively considered, deserves to be a high one, the Court should not shrink from imposing such a penalty. The Court agrees with the submission of counsel for the Director. It is also consistent with the approach taken by Gordon J in the 2011 proceeding concerning Dimmeys. See also Australian Competition and Consumer Commission v High Adventure Pty Limited [2005] FCAFC 247 where the Full Court said at [11]:
Moreover, as deterrence (especially general deterrence) is the primary purpose lying behind the penalty regime, there inevitably will be cases where the penalty that must be imposed will be higher, perhaps even considerably higher, than the penalty that would otherwise be imposed on a particular offender if one were to have regard only to the circumstances of that offender. In some cases the penalty may be so high that the offender will become insolvent. That possibility must not prevent the Court from doing its duty for otherwise the important object of general deterrence will be undermined.
59 Counsel for the respondents submit that it would not be in the public interest to have a penalty imposed on Dimmeys which is so crushing that it affects its viability. However, they observe that the penalty could be structured so that it can be paid off over time. This submission runs counter to the view of the Full Court in High Adventure and the approach of the Full Court in Singtel Optus. A substantial fine is required to be imposed notwithstanding that it may threaten the viability of Dimmeys. That outcome may be assuaged by permitting payment of the fine by instalments.
60 The limited evidence before the Court on Dimmeys' financial position shows that it is part of a group of interlocking companies which has Starite at the centre of the web. Mr Zappelli is the controlling mind of Dimmeys and Starite. The better view of the evidence is that Dimmeys is not a wealthy or particularly profitable company but, contrary to the position as it appeared to Gordon J in 2011, it can hardly be described now as a stand-alone company. In reality, Dimmeys is one of Mr Zappelli's corporate alter egos.
61 The Director accepts that Dimmeys did not deliberately set out to contravene the ACL. Counsel for Dimmeys contend that the contravention arose from mistakes made by persons engaged by Mr Zappelli. Errors of that kind have been claimed going back to the 1999 proceeding before Weinberg J and thereafter. The fact that the conduct arose from incompetence rather than deliberateness is of little weight.
62 The contraventions arose from insufficient action being taken by Mr Zappelli to prevent them occurring. They also appear to have arisen from the actions of buyers. However, Mr Zappelli was responsible for the order and purchase of the non-compliant goods on behalf of Starite and the supply of them to Dimmeys. This factor accentuates the need for a high range penalty and reinforces the importance of the disqualification referred to at [20] to [26] above.
63 The next factor referred to at [37] in Singtel Optus is whether the contravener has a corporate culture conducive to compliance with the ACL. To the extent that Dimmeys has attempted to implement remedial measures over the years, they have not borne fruit. This factor does not assist Dimmeys.
64 Dimmeys has shown a disposition in the past to co-operate with authorities. However, its co-operation was mixed in this proceeding. The unsuccessful application to the Court to dismiss the proceeding based on the standing of the Director did not reveal co-operation but rather an attempt to stultify the proceeding. So much is especially so when one considers that the respondents' initial fast track response dated 10 January 2013 raised no such impediment to the matter being heard. The same applied to the next fast track response filed on 5 February 2013. The position changed with the filing of an amended fast track response on 13 June 2013, which raised the question of the standing of the Director to commence the proceeding.
65 The above matters complete the range of considerations which the Court has taken into account in assessing that the conduct of Dimmeys in its fifth contravention of provisions of the type as contained in s 106 of the ACL. In particular, the possible effect of its actions on the safety of children demands a high range penalty. A three million dollar penalty is justified in the circumstances. This represents a penalty of $750,000 for each of the four courses of conduct as discussed at [32] above.