Court puts section 155 recipients on notice for non-compliance
The Federal Court has sentenced Robert Paul Davies to 200 hours of community service for aiding, abetting, counselling or procuring a failure by Natural Food Vending Pty Ltd (NFV) to comply with a section 155 notice. This case is one in a series of recent cases that form part of the ACCC’s crackdown on non-compliance with such notices.
In November 2010, a section 155 notice was issued to NFV. The notice was served on Mr Davies (NFV’s sole director and shareholder) and required NFV to provide certain information and documents within 21 days.
A few weeks later, Mr Davies appointed a liquidator of NFV, without informing them of the existence of the section 155 notice. The liquidator’s appointment took effect early on the morning that production was due under the notice. Although the liquidator eventually learned of the notice and demanded Mr Davies provide the information and documents necessary for compliance, Mr Davies repeatedly failed to do so.
As at October 2014, Mr Davies had not provided the required information and documents to the liquidator or the ACCC, and as a result the ACCC commenced proceedings in the Federal Court.
Under section 155(5) of the Trade Practices Act 1974 (Cth) (TPA) (and currently the Competition and Consumer Act 2010 (Cth)), a person who refuses or fails to comply with a section 155 notice is guilty of an offence. The maximum penalty for individuals is currently $3,600 or 12 months’ imprisonment. At the time of Mr Davies’ offence, the maximum financial penalty was $2,200.
On 11 September 2015, the Federal Court convicted Mr Davies of an offence under section 155(5) for aiding, abetting, counselling or procuring NVF’s non-compliance. To date, NFV has not been charged with, or convicted in respect of, its non-compliance with the notice.
Decision on penalty
On 20 November 2015, the Federal Court in Brisbane delivered its decision on penalty. In assessing the appropriate penalty, the Court had regard to a number of factors, including that:
- Mr Davies took no action to cause NFV to comply;
- as sole director of NFV, Mr Davies “expressly, tacitly or impliedly” permitted its non-compliance; and
- Mr Davies’ conduct had the effect of undermining the ACCC’s investigation into NFV.
The Court did, however, accept that there is less culpability in cases where a person fails to comply with a section 155 notice, rather than cases where a person provides false or misleading evidence in response to a notice.
In ordering Mr Davies to perform 200 hours of community service, the Court explained that:
“This penalty will serve to reflect the Court’s condemnation of Mr Davies’ conduct and serve as a general deterrence for any other members of the public who may consider taking the same approach as Mr Davies when served with a notice under s 155(1) of the TPA, or any similar legislative provisions.” (at )
Mr Davies currently resides in Queensland, where courts may not impose community service orders that exceed 240 hours. In NSW, however, the maximum order is 500 hours.
The Court determined that a financial penalty was not appropriate due to Mr Davies’ financial status and unemployment, and also considered that imprisonment was not warranted.
Mr Davies is the second person this year to be sentenced for an offence under section 155(5), and only the eighth person (including companies) to have been sentenced since 2002.
Community service orders have previously been used to penalise non-compliance with a section 155 notice. In October 2007, the Federal Court ordered that John Neville pay a fine of $2,160 and engage in 200 hours of community service for knowingly giving misleading evidence in response to a section 155 notice. That penalty would have been 20% greater had Mr Neville not given an early guilty plea.
Similarly to Mr Davies, one of the main reasons a community service order was imposed in Mr Neville’s case was his lack of financial capacity, although it was noted that Mr Neville’s “serious and persistent” contraventions demonstrated that he treated the ACCC’s process “in a cavalier and offhand manner”.
In addition, when Michael Boyle was recently sentenced for giving false and misleading evidence in response to a section 155 notice, the Court noted that it would have imposed a community service order, but for the fact that Mr Boyle was residing in NSW at the time, and for procedural reasons the orders would have to have been made under Queensland legislation. Read our previous post on Mr Boyle’s sentencing here.
The ACCC’s crackdown
In a media release announcing Mr Davies’ penalty, ACCC Chairman Rod Sims stated that “the ACCC takes compliance with compulsory notices very seriously, and will take appropriate action where non-compliance occurs”.
Considering that 25% of all sentences for non-compliance have been imposed this year, the ACCC is ramping up its crackdown on non-compliance. This is not surprising given the ACCC issued over 300 notices in 2014-15 (up from 290 in the previous reporting year), illustrating that they continue to be a “critical tool” in ACCC investigations.
Harper on the horizon
As we noted in a previous post this year, the ACCC made a number of submissions to the Harper Review seeking greater penalties for non-compliance and the power to seek civil court orders compelling compliance. Although the final report of the Harper Review recommended that the penalties for corporations be increased, it was silent on the question of penalties for individuals and civil court orders.
Nevertheless, the Federal Government has proposed to introduce orders compelling compliance, with the Competition and Consumer Amendment (Deregulatory and Other Measures) Bill 2015 (Cth) (Bill) introduced into the House of Representatives in March 2015. The Bill seeks to permit a court (on application by the ACCC) to make an order directing compliance with a notice. See our previous post on the issue here. We will keep you updated as to the progress of the Bill.
While there had been some delay due to the change in Prime Minister, the Government’s long-awaited response to the Harper Review was released on 24 November 2015, and confirmed that the Government supports the following recommendations in the Harper Review:
- increasing the fine for non-compliance in line with similar notice-based evidence gathering powers in the ASIC Act 2001 (Cth);
- extending the section 155 power to cover the investigation of alleged contraventions of court enforceable undertakings; and
- amending section155 so that companies who can demonstrate they undertook a reasonable search in order to comply with the notice will have a defence to an offence under section 155(5).
The Government will proceed to develop exposure draft legislation for consultation with the public and states and territories. In addition, the Government’s response noted that it is expecting the ACCC to review its guidelines on section 155 notices having regard to the increasing burden imposed by notices in the digital age.
We will separately publish a post that considers the balance of the Government’s response.
Photo credit: Flickr / bourgeoisbee