Good news on TPC penalties Law Reporter

Relief in sight for breaches of the Trade Practices Act? Not too likely but there is some good news on penalties.

Breaches of the Trade Practices Act (TPA) carry with them the potential for very heavy penalties. Maximum fines that may be imposed under the current law are $10 million for companies and $500,000 for individuals if the breaches concerned Part IV of the legislation (the competition provisions). Smaller but not insignificant fines apply to breaches of Part V (the consumer protection provision). In situations where breaches do occur the parties have the chance of fighting the Australian Competition and Consumer Commission (ACCC) or agreeing to a penalty order to be made by the court. Often the parties will not necessarily fight cases but will challenge the ACCC's view as to what penalties may be imposed. In situations where the parties have fought the case on its merits they will also usually fight the ACCC on the issue of penalties. This was the position facing the defendant company Rural Press Ltd (Rural Press) in the litigation brought by the ACCC against it and its subsidiary for breaching section 46 of the TPA (misuse of market power).

Now, the Federal Court (Mansfield J) has neither given the ACCC what it wanted in terms of penalties in the penalty proceedings brought by the ACCC against Rural Press and certain persons who were officers of Rural Press and its subsidiary for personal liability, nor has it agreed to impose a strict compliance program on the company. In ACCC v Rural Press Ltd ((2001) ATPR 41-833) the ACCC sought the imposition of certain pecuniary penalties on each of the relevant parties. The penalties sought in this case were as follows: against Rural Press $6.5 million (the ACCC putting to the court that its operating profits for the relevant year was $99 million and its net assets $410 million) and its relevant subsidiary company $1.5 million (the operating profits put to the court were $8.6 million and net assets $2.3 million). The ACCC also sought penalties against another company which had been found to be in breach of the law forbidding anti-competitive arrangements (we will not deal with that particular part of the decision). The penalties sought by the ACCC in respect of the individuals concerned were $300,000 and $200,000 against the officers of Rural Press and a similar amount against the officer of the third company.

The ACCC also sought orders from the court which would require each of the three companies to implement a nominated trade practices compliance program based largely upon the standard issued by the Australian Standards Organisation. The ACCC also sought an order that the parties would report annually to the ACCC on their compliance. Rural Press and its subsidiary resisted the imposition of this order because they already had a compliance program in place and it was unnecessary, in their view, for the court to impose that obligation on it. On the question of the monetary penalties Mansfield J held that the size of the two Rural Press companies and the deliberate nature of the contraventions by them weighed in favour of imposing significant penalties. In his view Rural Press was the holding company and had the ability to guide and control the actions of its subsidiary. He also felt that the relevant size of the market and activities surrounding the contravention were factors that needed to be taken into account. Although neither company had ever previously breached the TPA, the judge held that neither company possessed what he described as a "positive culture of compliance" nor had they taken steps to instill such a culture.

Nevertheless, both were in the process of implementing trade practices compliance programs and making a genuine effort to develop a compliance culture to prevent further contraventions of the Act and all of these matters were taken into account by the judge. He felt that the ACCC's claims were too extreme in all of the circumstances. Instead of imposing the penalties that were sought by the ACCC he imposed quite minor monetary penalties – $400,000 was ordered against on Rural Press and $200,000 against its subsidiary. Similarly, pecuniary penalties of $40,000 and $30,000 were imposed on the relevant officials of the Rural Press organisation. The nature of the pecuniary penalties imposed on the other company and its officer were also significantly less than those sought by the ACCC. Not only was the ACCC unsuccessful in obtaining the large pecuniary penalties that it sought, but the judge refused to accede to their request that its version of what the compliance should be had to be endorsed. In his view the compliance program that the ACCC sought to have recognised (the Australian standard) did not have statutory recognition. It was a guide only. The court could not assume that it was superior to any other program and therefore it was not prepared to endorse the ACCC's request. In his view the programs that Rural Press and its subsidiary were putting in place had to be given an opportunity to be pursued and if necessary the issue could be revisited at a later time. Because of the limited evidence that was available to the court it was impossible to form any clear view as to whether what the ACCC wanted to put forward as the standards was in fact one that should be endorsed.

The judge also had severe reservations about ordering as an element of any compliance program that the person notify the ACCC of the steps being taken. "The need for such a direction highlight that the court is being asked to make an order which requires ongoing or regular supervision to ensure [that a compliance program] is being complied with, as there will be ... no external indication of its compliance. Implementation of a trade practices compliance program does not require the injuncted party to do, or to refrain from doing, something in relation to a third person. The reporting process which the ACCC suggests is clearly aimed at providing a mechanism by which an external third party may measure the performance of the primary obligations proposed. Presumably, then, if it were not satisfied that the trade practices compliance program was being properly implemented, the ACCC would then move the court for an order that the non-complying party would be dealt with for contempt of court. It should not be a means of empowering the ACCC to negotiate privately about the proper means of implementing the order of the court. I am not confident that it is appropriate for the court, which has directed a party to undertake certain conduct such as a trade practices compliance program over a number of years, which conduct may be in part exhortatory and in part only generally described, to impose the ACCC in effect as a supervisor of compliance with that order." (see para 33)

There is a clear message to the ACCC that it has only a limited role to play in ensuring compliance with the legislation. The court remains the body that will review these issues from time to time as necessary. The ACCC will almost certainly appeal this decision because it does in fact interfere with a clear pattern of compliance that the ACCC is seeking to have enforced. It will be interesting to see how that appeal is dealt with in due course. Rural Press is also appealing the original finding by the judge that it breached section 46 of the TPA.

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