Director of Consumer Affairs Victoria v Hocking Stuart

MIDDLETON J: 1 I delivered reasons for judgment in this proceeding on 6 October 2016 (Director of Consumer Affairs Victoria v Hocking Stuart (Richmond) Pty Ltd [2016] FCA 1184). I will refer to those reasons as the principal reasons. These reasons should be read with the principal reasons and I adopt the descriptions of the parties and documents in the principal reasons. 2 As suggested by the Court in the principal reasons, the parties have conferred in relation to the appropriate instalment regime to apply for the payment of the penalties ordered by the Court and the payment of costs agreed to by the parties. The parties have been unable to agree as to the appropriate regime. 3 At the outset it can be accepted that for a company the size of Hocking Stuart Richmond, the penalty imposed by the Court of $330,000.00 is a substantial penalty. It was on this basis that the Court indicated that Hocking Stuart Richmond should have the opportunity to pay the pecuniary penalty by instalments (see principal reasons at [86]). 4 Hocking Stuart Richmond is a corporation, although this description should not obscure the fact that Hocking Stuart Richmond is a small, local real estate agency run by Mr Peter Perrignon. The Court should take into account the nature, size and financial resources of Hocking Stuart Richmond when making an order regarding an instalment plan for the payment of the penalty. An instalment order that Hocking Stuart Richmond is unable to satisfy will have significant consequences for the employees of Hocking Stuart Richmond, particularly if the order has the consequence that Hocking Stuart Richmond becomes insolvent. 5 Hocking Stuart Richmond has consulted with its accountants as to its ability to pay the penalty and the agreed contribution to costs in the amount of $80,000.00. It is on the basis of the advice from its accountants that the submissions as to an instalment regime of Hocking Stuart Richmond were made to the Court. 6 Consumer Affairs seeks payment of the penalty imposed by the Court over a 24-month period. Hocking Stuart Richmond submits that an order that the penalty and costs be required to be paid within this timeframe is beyond its means and that it does not have prospects of making those payments within that timeframe. It submits that an order to this effect would render Hocking Stuart Richmond insolvent, and would be oppressive. 7 Hocking Stuart Richmond has filed evidence of its financial position. In addition to the matters mentioned in the principal reasons, the following matters can be observed. 8 Hocking Stuart Richmond's legal costs to date were mostly financed through an external funding arrangement, which requires ongoing repayments to be made. The matrimonial home of Mr Perrignon has been sold in order to keep the business solvent. A substantial amount of the proceeds of sale have been loaned to Hocking Stuart Richmond's business to ensure its viability. If these loans had not been made to Hocking Stuart Richmond's business, then the business would have probably not been able to continue to operate. Hocking Stuart Richmond submits that the ability of Hocking Stuart Richmond to obtain further loan funds for the business has been exhausted, although this has not been substantiated. 9 On the basis of Hocking Stuart Richmond's precarious financial position, Hocking Stuart Richmond seeks that the penalty of $330,000.00 and costs of $80,000.00 be paid by Hocking Stuart Richmond in accordance with the following instalment arrangement:

Penalty: (1) A payment of $50,000 on or before 30 December 2016. (2) A payment of $50,000 on or before 1 August 2017. (3) A payment of $50,000 on or before 31 January 2018. (4) A payment of $50,000 on or before 1 August 2018. (5) A payment of $50,000 on or before 31 January 2019. (6) A payment of $50,000 on or before 1 August 2019. (7) A payment of $30,000 on or before 31 January 2020.

Costs: (8) A payment of $50,000 on or before 1 August 2020. (9) A payment of $30,000 on or before 31 January 2021. 10 Consumer Affairs submits that instalments of the penalty should be as follows: (1) A payment of $90,000 on or before 30 December 2016. (2) A payment of $80,000 on or before 31 May 2017. (3) A payment of $80,000 on or before 30 November 2017. (4) A payment of $80,000 on or before 31 May 2018. 11 Further, Consumer Affairs has agreed, provided that Hocking Stuart Richmond is making the penalty payments in accordance with its proposed instalment arrangement, that Hocking Stuart Richmond should be allowed extended time to pay the costs contribution until 30 December 2018. 12 Whilst mindful of the position of Hocking Stuart Richmond, as a matter of general principle, the potential incapacity of a contravener to pay a pecuniary penalty should not limit the principal objective of general deterrence. I discussed the importance of general deterrence relevant to this proceeding in the principal reasons. 13 It is also important to recall the nature and extent of the contravening conduct as I observed in the principal reasons at paragraphs [57]-[58]: The contravening conduct was serious. Price is an essential piece of information about the property being offered for sale for prospective buyers. Buyers should be able to rely on correct information to make an informed decision. Failure to provide the correct range of price by engaging in underquoting is misleading. The conduct involved the creation of an enticing (but illusory and fictitious) marketing web for the sale of 11 different residential homes over an 18 month period from approximately 1 January 2014 to 30 June 2015. The price representations made by Hocking Stuart Richmond in respect of each of the properties were intended to and apt to create a particular mental impression in the representee, namely the "illusion of a bargain". Hocking Stuart Richmond's business stood to benefit from creating such an impression, although the exact calculation of such a benefit in monetary terms is difficult. 14 In Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 at [9], Merkel J observed: The size of the contravening companies and their respective capacities to pay a penalty were relied upon as factors in mitigation in the present case. Plainly, such factors can be relevant to the penalty that is necessary to deter the company from contravening the Act in the future. Size may also be relevant to general deterrence because other potential contraveners are likely to take notice of penalties imposed on companies of a similar size. However, a contravening company's capacity to pay a penalty is of less relevance to the objective of general deterrence because that objective is not concerned with whether the penalties imposed have been paid. Rather, it involves a penalty being fixed that will deter others from engaging in similar contravening conduct in the future. Thus, general deterrence will depend more on the expected quantum of the penalty for the offending conduct, rather than on a past offender's capacity to pay a previous penalty. I therefore respectfully agree with the observation of Smithers J, referred to by Burchett and Kiefel JJ in NW Frozen Foods, to the effect that, a penalty that is no greater than is necessary to achieve the object of general deterrence, will not be oppressive. 15 In Australian Competition and Consumer Commission v High Adventure Pty Ltd [2006] ATPR 42-091 at 44,564, the Full Court observed: The second observation is that by focusing on the detriment to the respondents the judge ignored both the seriousness of the contravention as well as the need to fix upon an appropriate penalty by reference to the need to deter future contraventions. As the cases to which the judge was referred show, the principal, if not the sole, purpose for the imposition of penalties for a contravention of the antitrust provisions in Part IV is deterrence, both specific and general. This rule is so well entrenched that citation of authority is unnecessary. 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. 16 Justice Goldberg in Australian Competition and Consumer Commission v SIP Australia Pty Limited [2003] ATPR 41-937 at 47,077-47,078 said: The fact that SIP is in liquidation and that an order has been made for its winding up is no bar to an order being made against it for the payment of penalties. However consistently with the order I made on 10 July 2002, no proceeding can be taken for the recovery of that penalty without further order of the Court. Even though SIP is in liquidation, it is still appropriate to order that it pay penalties for its contraventions of the Act as a measure of the Court's disapproval of the contraventions established and as a measure of the seriousness with which the Court regards those contraventions. If the principal object of the imposition of penalties is deterrence, not only of the participants, but also others who might be influenced to contravene the Act, then it is quite appropriate to order that a company in liquidation pay pecuniary penalties for contraventions of the Act. If general deterrence is to have any meaning, a company in liquidation which has contravened the Act must be ordered to pay an appropriate pecuniary penalty as a deterrent to others who might be tempted to engage in similar conduct: Australian Competition and Consumer Commission v The Vales Wine Company Pty Ltd (1996) ATPR 41-528 at 42,776. 17 In Australian Competition and Consumer Commission v EDirect Pty Ltd (in liq) (2012) 206 FCR 160, Reeves J imposed a total penalty of $2.5 million on a contravener notwithstanding his Honour's satisfaction that the contravener was unlikely to have any capacity to pay such a penalty. His Honour said at [70]: I consider that while EDirect is unlikely to have any capacity to pay the pecuniary penalty that is imposed upon it, general deterrence requires that a sufficiently high level of penalty should be imposed to deter others from even contemplating taking a risk of contraventions of a similar kind. 18 Justice Yates in Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq) (No 7) [2016] FCA 484 referred to these authorities and applied them in the circumstances before him. 19 Hocking Stuart Richmond seeks an instalment plan as to the penalty extending to 31 January 2020. This is an excessively long period of time. In my view, an instalment arrangement over such a long period risks diminishing the general deterrent effect of the imposition of a penalty. Further, it is undesirable to impose substantial penalties over a lengthy period because this imposes a continuing hardship on the contravener, which is generally undesirable. In addition, in the case of a company in the nature of Hocking Stuart Richmond, if the payment of instalments spans a lengthy period, there is always the possibility of the company avoiding payment by restructuring or being wound up. 20 In this proceeding, it is important for the Court to impose a penalty that has a general deterrent consequence. Allowing the instalment plan sought by Hocking Stuart Richmond would not impose a sufficient penalty having particular regard to this important consideration. Whilst it is proper to focus on the detriment to Hocking Stuart Richmond in the imposition of a penalty, the Court must not overlook the seriousness of the contravention, as well as the need to fix upon an appropriate penalty by reference to the need to deter future contraventions. The instalment plan prepared by Consumer Affairs seems reasonable and achieves a proper balance, taking into account the financial position of Hocking Stuart Richmond and the need for general deterrence. 21 As to the date for the payment of costs, I am not prepared to allow any further period than that sought by Consumer Affairs, which is not until 30 December 2018 in any event. If Consumer Affairs is persuaded hereafter that, in all the circumstances, payment of the costs be waived or the time for payment be extended further, this can be agreed between the parties without referral back to the Court. 22 I will make those orders agreed to by the parties, and orders otherwise in accordance with the principal reasons and the above reasons. I certify that the preceding twenty-two (22) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.