V. Matters which are to be considered in assessing the penalty
48 Section 42Y(3) requires that the Court must have regard 'to all relevant matters, including':
(a) the nature and extent of the contravention; and
(b) the nature and extent of any loss or damage suffered as a result of the contravention; and
(c) the circumstances in which the contravention took place; and
(d) whether the person has previously been found by the Court in proceedings under this Act to have engaged in any similar conduct.
49 In addition to those four statutory matters it seems to me that the following are also relevant to the formulation of a penalty under s 42Y:
(e) the size of the contravening company;
(f) the deliberateness of the contravention and the period over which it extended;
(g) whether the contravention arose out of the conduct of senior management of the contravenor or at some lower level;
(h) whether the contravenor has a corporate culture conducive to compliance with the Act as evidenced by educational programmes and disciplinary or other corrective measures in response to acknowledged contravention;
(i) whether the contravenor has shown a disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to a contravention;
(j) whether the contravenor has engaged in similar conduct in the past;
(k) the financial position of the contravenor, including any benefits derived;
(l) whether the contravening conduct was systematic, deliberate or covert;
(m) the maximum penalty; and
(n) whether any forfeiture order has been made.
50 These factors are largely drawn from decisions concerned with s 76 of the formerly entitled Trade Practices Act 1974 (Cth): Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 at 52,152-52,153 per French J; NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 292-294 per Burchett and Kiefel JJ, Carr J agreeing; J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 at 574 [150] ff per Black CJ, Lee and Goldberg JJ. There is nothing in the scheme of that Act when compared to the scheme of the present Act which would require a different attitude to be taken to these matters. I have, however, excluded from the list above the matters of the degree of market power and the effects on a functioning market which are referred to in those decisions but which appear to have little relevance in the current field of discourse. So far as (m) is concerned: see Markarian v the Queen (2005) 228 CLR 357 at 372 [31] per Gleeson CJ, Gummow, Hayne and Callinan JJ. So far as the benefit referred to in (k) is concerned, it might be noted that its relevance arises because of the need to ensure that the payment of civil penalties does not come to be seen merely as a cost of doing business: Australian Competition and Consumer Commission v ABB Transmission and Distribution Ltd [2001] ATPR 41-815 at 42,938 [13] per Finkelstein J; Australian Competition and Consumer Commission v McMahon Services Pty Ltd [2004] ATPR 42-031 at 49,228 [15] per Selway J; Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301 at 309 [39] per Goldberg J. In that context it is important to keep in mind that a civil penalty is not an allowable deduction against assessable income: s 26.5 of the Income Tax Assessment Act 1997 (Cth). It might be noted that (j) is somewhat broader than (d).
51 Turning to the matters to be considered: as to (a), the contraventions and their extent appear in Schedules 1 and 2 of these reasons. I return below to the question of how they should be characterised. As to (b), no loss was suffered by anyone in consequence of the contraventions.
52 As to (c) (the circumstances in which the contraventions took place), I have already indicated the fact that all of the contraventions occurred as a result of a misunderstanding which, given the state of the evidence, I have assumed to have been a reasonable one. Further, insofar as the goods contained undeclared substances Export Corporation had been told that this was not the case by its suppliers. That will raise in the minds of some the question of whether it is an adequate compliance arrangement to rely upon the word of suppliers as to the content of goods which are being imported. There is no direct evidence as to whether that is so. There is no way directly to discern, therefore, in relation to the question of undeclared ingredients whether what took place was an inadequate compliance arrangement suffering an entirely predictable failure or whether, instead, what was involved was an adequate compliance arrangement which suffered an unforeseeable bout of bad luck. The evidence does, however, disclose that Export Corporation has subsequently acknowledged that it did not take sufficient steps to ensure compliance with the Act. I infer from that, therefore, that its earlier procedure of relying upon the suppliers' explanations of the contents of the various products was not adequate.
53 As to (d), the parties accepted that Export Corporation has not been found to have contravened this Act before.
54 As to (e) (the size of the contravening company): Export Corporation's gross turnover in the two years ending 30 June 2007 and 2008 was $14.2 million and $19.5 million respectively. The parties agreed it was one of the eight-10 major wholesalers in Australia. The evidence does not disclose the number of staff it employs, the number of its shareholders or its profitability. Proceeding by inference from the turnover figures I conclude that Export Corporation is a medium size business; in all likelihood at the larger end of that spectrum.
55 As to (f) (the deliberateness of the conduct), as I have said already the conduct was not deliberate.
56 As to (g) (the management level at which the conduct arose): the evidence only disclosed that the conduct occurred as a result of the misunderstanding to which reference has already been made. The identity of the person who formed that misunderstanding was not disclosed (nor, indeed, the nature of the misunderstanding). The evidence does disclose that the misunderstanding arose from a failure to grasp the true impact of advice obtained from consultants. It can be inferred, in a medium size business such as Export Corporation, that the function of receiving such advice would have been towards the top of the management structure. The only other evidence which may be relevant is the fact that Export Corporation has a single director, Mr Pavlovich. Although it is possible that Mr Pavlovich may have been the person with the misunderstanding I do not feel that the material is sufficient enough for me to draw that conclusion.
57 It is, however, sufficient to permit the drawing of the inference that someone at, or just under, Mr Pavlovich's level was responsible: it was an error made at a high level. This, of course, increases its seriousness.
58 As to (h) (the extent of a compliance culture) the following should be observed: at the time of the contraventions such a culture does not appear to have been in place. As mentioned above, Export Corporation admitted that it had not taken sufficient steps to ensure compliance with the Act prior to February 2008. Further, prior to the present matter there were some events which took place between the TGA and Export Corporation which signal a degree of nonchalance on its part at that time towards compliance. In 2006 the TGA expressed concerns about the extent of Export Corporation's compliance with the regulatory scheme. Export Corporation now agrees that its response to those matters was inadequate and based upon a mistaken belief that the TGA's concerns could be addressed by taking certain steps which it now accepts were not sufficient. These steps included the hiring of a full-time employee tasked with ensuring compliance. Based on these matters my conclusion is that, at the relevant times, Export Corporation did not appreciate the seriousness of the requirements which lay upon it and was inclined not to incur the expense necessary to ensure appropriate compliance. This, to my mind, is a serious matter particularly when combined with the level of seniority at which the difficulties arose.
59 A further matter bears this out. In relation to the nine supply contraventions arising after June 2008 it is to be noted that these occurred even after the TGA had written to Export Corporation informing it that the supply of the goods should desist. The further supply occurred in circumstances where Export Corporation failed to arrange for the proper quarantining of the goods the subject of the TGA's letter. The conduct was not deliberate but it exemplifies the deficiencies in the compliance culture.
60 As to (i) (the degree of co-operation) one should observe the fulsome degree of cooperation which has been offered and the earliness at which it was made. Export Corporation's officers, employees and contractors cooperated with the TGA's investigation by:
(a) providing assistance to the TGA during the execution of search warrants at its premises including provision of supply records which, the parties agree, may not otherwise have been readily obtainable by the TGA. Those records have formed the basis upon which the supply contraventions were brought and particularised;
(b) with the TGA's knowledge and at no charge, storing the goods seized by the TGA for a period of about four months;
(c) making full and frank admissions about a range of matters;
(d) filing a defence admitting the Amended Statement of Claim in its entirety together with agreeing upon an agreed statement as to facts. There are two aspects of this which deserve particular emphasis. First, it did so at the first available opportunity when the Secretary desisted from pursuing a number of other allegations. Secondly, it did these things without having reached agreement with the Secretary as to penalty. It did not seek to parley its ability to put the Secretary to proof for advantage. By agreeing the facts in that way it has exposed itself to the full consequences of its admissions. This demonstrates a willingness to confront the consequences of its actions and to accept responsibility for them. The same action has averted the expenditure of money and time which would have been required to pursue the matter at a trial. So viewed there has been a significant social saving. Furthermore, in response to the present proceeding Export Corporation has put in place an adequate compliance system. From October 2008 it has undertaken a reorganisation and upgrading of its compliance department. It now has 1.8 full time employees dedicated to its regulatory and compliance requirements. New work procedures were introduced to address all compliance measures during the process of developing new products including, importantly, reviews of ingredients, labels and promotions. The present head of compliance is a person with 18 years experience in the Australian pharmaceutical, foods and consumer goods industries and with 12 years experience in the pharmaceutical and medical device industries. Following this rearrangement, Export Corporation now spends about $280,000 per annum on its compliance staffing costs. It would be fair to say that Export Corporation now has in place appropriate arrangements.
61 As to (j), there is nothing to suggest the Export Corporation has done anything similar in the past.
62 As to (k) (the financial position of the contravenor), the agreed facts showed that in the period January 2007 to May 2008 the goods the subject of the proceedings constituted 15% of Export Corporation's total imports and 14% of its total supplies. These figures do not include the nine supply contraventions arising after June 2008 about which there is no evidence. This resulted in net earnings of $694,539.00. I infer from those figures that Export Corporation's net total earning for the same 17 month period were about $5 million.
63 As to (l) (whether the conduct was systematic, deliberate or covert), I have already recorded my view that it was not deliberate. And, whilst it may be described as an error of systems control, I do not think it deserves to be characterised as systematic.
64 As to (m), in the view that I have taken of the matter there are in existence 10 contraventions - five for supply and five for importation. That being so, the theoretical maximum penalty is, as I have already noted, $55 million.
65 As to (n) (whether any forfeiture order has been made) no such order will be made. However, it is relevant to note that Export Corporation has surrendered all of the goods in question to the Secretary, making such an order unnecessary. There is no evidence as to the value of the goods but since they may not be sold or exported they are likely to be of little value.