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[2003] FCA 1454
Federal Court of Australia
1997-12-05
Sperling J, Gyles J
Original judgment source is linked above.
REASONS FOR INTERLOCUTORY JUDGMENT 1 This is an application by the Minister for Industry, Tourism and Resources (the Minister) against Mobil Oil Australia Pty Ltd (Mobil) for contravention of s 10 of the Petroleum Retail Marketing Sites Act 1980 (Cth) (the Sites Act). I have been informed that this is the first proceeding in which the Court has been required to consider pecuniary penalties for contravention of the Sites Act. The Sites Act and the Petroleum Retail Marketing Sites Regulations 1981 (the Regulations) are designed to control the number of retail outlets which the major petroleum refiners - Mobil, The Shell Company of Australia Ltd, BP Australia Ltd and Caltex Oil (Australia) Pty Ltd - can operate. Each is a prescribed oil company. Each is bound to not operate, during a month, a number of retail sites exceeding a specified number (s 10). There are various direct and indirect ways in which a prescribed oil company might operate a site (s 7). There is an obligation to file monthly returns as to the sites operated (s 11). There is also provision for the compulsory production of books and records (s 14). 2 Section 12 provides for the grant of injunctions and, so far as is relevant, is as follows: '12. (1) Where, on the application of the Minister or any other person, the Court is satisfied that a prescribed corporation has engaged, or is proposing to engage, in conduct that constitutes or would constitute a contravention of section 10, the Court may grant an injunction in such terms as the Court determines to be appropriate. … (5) The power of the Court to grant an injunction restraining a corporation from engaging in conduct may be exercised - (a) whether or not it appears to the Court that the corporation intends to engage again, or to continue to engage, in conduct of that kind; (b) whether or not the corporation has previously engaged in conduct of that kind; and (c) whether or not there is an imminent danger of substantial damage to any person if the corporation engages in conduct of that kind.' 3 Pecuniary penalties are dealt with by s 13 which, so far as is relevant, is as follows: '13. (1) If the Court is satisfied that a prescribed corporation has contravened a provision of section 10 or 11, the Court may order the corporation to pay to the Commonwealth such pecuniary penalty, not exceeding - (a) in the case of a contravention of sub-section 10(2) or (3) - $10,000 for each retail site exceeding the number of retail sites specified in the regulations in accordance with that sub-section; … as the Court determines to be appropriate having regard to all relevant matters, including the circumstances in which the contravention took place and whether the corporation has previously been found by the Court in proceedings under this section to have contravened that provision. … (2) The Minister may institute a proceeding in the Court for recovery on behalf of the Commonwealth of a pecuniary penalty referred to in sub-section (1). … (5) Criminal proceedings do not lie against a person in respect of a contravention of a provision of section 10, 11 or 16. …' 4 The parties have tendered a Statement of Agreed Facts. For the purposes of that Statement the period January 1998 to January 2000 was defined as 'the relevant period'. The contravening conduct is described in the Statement of Facts as follows: '15. During the Relevant Period Mobil was a Prescribed Oil Company pursuant to the Regulations. 16. During the Relevant Period, the Regulations specified that the number of retail sites which could be operated by Mobil, pursuant to section 10(2) of the Sites Act, in one calendar month was 87. 17. During the Relevant Period, Mobil was entitled to operate a maximum of 2175 monthly quota sites (87 quota sites per month by 25 months). 18. During the Relevant Period, Mobil actually operated 2,738 monthly quota sites - a total of 563 monthly quota sites over Mobil's entitlement. The additional 563 monthly quota sites were referable to 61 service stations, comprising 29 service stations in New South Wales, 14 in Queensland, 7 in Tasmania, 5 in Victoria, 5 in South Australia and 1 in the Australian Capital Territory. Details of the sites operated in excess of quota each month are contained in Annexure "A" [not set out here]. 19. Mobil operated 13 of the 61 service stations directly as part of its retail network. The remainder of the sites were operated by a Mobil subsidiary. 20. Mobil distributors operated the remaining 48 service stations. These sites became quota sites when Mobil increased its equity holdings in those distributors to a level above 50 per cent. This increase in equity resulted in the site becoming related corporations as defined in the Sites Act. The names of the distributors involved and the periods for which they were "related corporations" are at Annexure "B" [not set out here]. 21. For each month during the Relevant Period, Mobil lodged returns with the Applicant pursuant to section 11 of the Sites Act (the "Returns"). Each return stated the number of retail sites operated by Mobil or its subsidiaries during that month. During the Relevant Period, Mobil stated in its Returns that it operated 2119 monthly quota sites, but failed to report an additional 619 monthly quota sites. 22. Mobil's failures to report the additional monthly quota sites were due to inadequate management oversight, poorly designed and maintained management information and compliance systems, and changes in personnel responsible for preparing and lodging the Returns. The failure of Mobil's compliance system to identify the additional sites was the primary factor in Mobil's continuing contravention of the Sites Act during the Relevant Period.' 5 The Statement of Facts deals with the preparation of incorrect returns lodged during the relevant period and explains in some more detail the precise details of infringement. There is then a section dealing with what was described as 'Mobil's co-operation with the Department's investigation' which traces the course of the investigation. There is then a section dealing with steps taken by Mobil to ensure future compliance. There is then a section dealing with the effect of breaches which, after referring to inferred damage to competition and both consumers and small business, proceeds: '70. In addition to the public effects of its conduct, Mobil may have gained an advantage from operating the 13 additional sites in its retail network and from its increased equity in its distributors. The potential advantage was that Mobil operated those sites on a commission agency basis rather than as franchises. Mobil may have obtained higher revenue from those sites than if they were franchised because while commission agents may at times obtain essentially the same retail margin on each litre of petrol sold, the franchisee theoretically can make a greater margin and has the additional advantage of being able directly to set retail prices. 71. Mobil may have also obtained an advantage by moving to 100% control of its equity distributors (other than Chippen Holdings) in that this enabled Mobil to directly control the retail pricing at sites operated by those distributors. 72. Importantly, contrary to the intention of the Sites Act, Mobil has been able to set retail prices at all of the additional sites it operated, an advantage not otherwise available in respect of these additional sites. Mobil does not have sufficient or sufficiently detailed information on sales volumes and retail margins at each site to enable the parties to quantify this advantage.' 6 The parties have agreed upon the form of declaration of contravention and of the orders to be made pursuant to s 12. I am satisfied that these are appropriate and require no further discussion. 7 The parties have also put forward an agreed penalty to be imposed pursuant to s 13 of the Sites Act and have provided a joint set of submissions in support of the appropriateness of that penalty. The agreed amount is $844,500 which is calculated as follows: (1) there were 563 contraventions; (2) the maximum penalty for each contravention is $10,000; (3) the appropriate level of penalty is 15% of the maximum for each offence, or $1,500 per offence. 8 The threshold issue is to decide what is the proper approach to be taken to a joint submission as to penalty in these circumstances. It is submitted that authoritative guidance is to be obtained from the decision of the Full Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 290-291 per Burchett and Kiefel JJ (Carr J generally agreeing at 799): 'The Act places on the shoulders of the Court the responsibility to determine the "appropriate" penalty in each particular case, having regard to "all relevant matters" including the matters specified in the section. But effects upon the functioning of markets, and other economic effects, will generally be among the most significant matters to be considered as relevant, so that the Court is likely to be assisted greatly by views put forward by the Australian Competition and Consumer Commission, or by economists called on behalf of the parties. Since the decision in Trade Practices Commission v Allied Mills Industries Pty Ltd, it has been accepted that both the facts, and also views about their effect, may be presented to the Court in agreed statements, together with joint submissions by both the Commission and a respondent as to the appropriate level of penalty. Because the fixing of the quantum of a penalty cannot be an exact science, the Court, in such a case, does not ask whether it would without the aid of the parties have arrived at the precise figure they have proposed, but rather whether their proposal can be accepted as fixing an appropriate amount. There is an important public policy involved. When corporations acknowledge contraventions, very lengthy and complex litigation is frequently avoided, freeing the courts to deal with other matters, and investigating officers of the Australian Competition and Consumer Commission to turn to other areas of the economy that await their attention. At the same time, a negotiated resolution in the instant case may be expected to include measures designed to promote, for the future, vigorous competition in the particular market concerned. These beneficial consequences would be jeopardised if corporations were to conclude that proper settlements were clouded by unpredictable risks. A proper figure is one within the permissible range in all the circumstances. The Court will not depart from an agreed figure merely because it might otherwise have been disposed to select some other figure, or except in a clear case.' [emphasis added]
9 The approach laid down in NW Frozen Foods had its genesis in the decision of Sheppard J in Trade Practices Commission v Allied Mills Industries Pty Ltd (No 4) (1981) 60 FLR 38 at 41-42; 37 ALR 256 at 259 and was applied in a number of decisions leading up to NW Frozen Foods. It has since been followed by a number of single judges. It has also been followed in relation to proceedings other than proceedings brought by the Australian Competition and Consumer Commission (and its predecessor) eg contravention of the Excise Act 1901 (Cth) in Kingswood Distillery Pty Ltd v Comptroller-General of Customs (NSW) (unreported, 5 December 1997, Sperling J, Supreme Court of New South Wales) and contravention of the Corporations Lawin Australian Securities and Investments Commission v Forge [2002] NSWSC 760 at [155]-[158]. 10 However, several judges have recently expressed reservations about the effect of the decision in NW Frozen Foods - see Finkelstein J in Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd [2001] FCA 383; [2001] ATPR 41-815 at [4]-[11], Weinberg J in Australian Competition and Consumer Commission v Colgate-Palmolive Pty Ltd [2002] FCA 619; [2002] ATPR 41-880 at [32]-[35], Heerey J in Australian Competition and Consumer Commission v The Tasmanian Salmonid Growers Association Ltd [2003] FCA 788 at [24] and Lindgren J in Australian Securities and Investments Commission v Southcorp Ltd (No 2) [2003] FCA 1369 at [52]-[58]. 11 These public reservations involve matters of principle which, in my opinion, require that the issue of agreed civil penalties be revisited by a Full Court, particularly as such agreements are apparently becoming widespread amongst various Commonwealth regulators under various statutes. This may lead to a perception that for all practical purposes the Court is the enforcement arm of the particular Commonwealth regulator concerned. There are other potentially important statutes which may be affected eg Workplace Relations Act 1996 (Cth). It should not be overlooked that, where penalties are agreed as part of a wider settlement or compromise, the Court is not in a position to know or appreciate the effect of all that might be involved, including the effect upon third parties. By sanctioning one part of a settlement between a regulator and a party the Court might, in truth, be facilitating an arrangement which would not stand scrutiny if fully disclosed. Even if disclosed, the Court may be ill-equipped to understand its ramifications, particularly with no contradictor. On the other hand, the reasoning in NW Frozen Foods has considerable force, and it represents a settled practice. 12 There is a practical difficulty in the issue reaching a Full Court. It is not easy to distinguish s 76 of the Trade Practices Act 1974 (Cth) from the civil penalty provisions in other statutes. Single judges are bound by NW Frozen Foods. It is inherently unlikely that an agreed penalty will be so far out of the range as to entitle a single judge to disapprove it pursuant to the applicable principles. The agreed penalty will therefore be imposed. There is no aggrieved party to bring an appeal to the Full Court. 13 At the hearing, having indicated to counsel that I was satisfied that the proposed penalty was within the range and so meets the NW Frozen Foods test, I raised with counsel for the parties the question as to whether this threshold issue should be referred to a Full Court. That course was opposed by both counsel. It was submitted that the parties had proceeded to a settlement upon the understanding of the law as laid down in NW Frozen Foods which should not be disturbed. Further, they should not be put to the expense of a hearing in the Full Court, particularly in a case where I had expressed the view that the amount was within the appropriate range. I appreciate the force of those considerations, but, in my view, they must yield to the public interest. This is the first case in which this penalty provision in this statute has been considered by the Court. The contraventions of the Sites Act which have been admitted are numerous and serious. The agreed amount of the proposed penalty is substantial. The reservations expressed by several judges of the Court in published judgments should be set at rest one way or the other. This case is as good a vehicle as any other to raise the point, as the agreed penalty is within the range if the matter is approached as laid down in NW Frozen Foods but may be more or less than an amount which might be fixed by an entirely independent exercise of discretion. 14 I have therefore recommended to the Acting Chief Justice pursuant to s 20(1A) of the Federal Court of Australia Act 1976 (Cth) that the following question be referred to a Full Court: 'Where the parties propose an agreed amount to be imposed as a penalty pursuant to s 13 of the Petroleum Retail Marketing Sites Act 1980 (Cth), is the Court bound by the decision in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 to consider whether the proposed amount is within the permissible range in all of the circumstances and, if so, impose a penalty of that amount?' It should not be taken that by making this recommendation I have formed an opinion as to the correct answer to the question. 15 The proceeding will stand over to a date to be fixed. I certify that the preceding fifteen (15) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.
Associate: Dated: 11 December 2003 Counsel for the Applicant: M Painter
Solicitor for the Applicant: Australian Government Solicitor
Counsel for the Respondent: T North SC and MR Speakman
Solicitor for the Respondent: Blake Dawson Waldron
Minister for Industry, Tourism and Resources
Mobil Oil Australia Pty Ltd
[2003] FCA 1369
(1996) 71 FCR 285
(1981) 60 FLR 38