Bringing contempt to ACCCount

Published On 27/10/2020 | By Nivedha Krishnan | Cartels, Consumer protection, Enforcement, Litigation

The ACCC has demonstrated once again that it will pursue contempt actions in a range of contexts.

Contempt of court, often involving a failure to comply with a court order or undertaking, is a legal realm into which the ACCC does not often travel. But when it does, the consequences can be severe.

In the most serious cases, a finding of contempt can lead to imprisonment, as it did in 2017 when the Federal Court sentenced the former company director of a parcel distribution business to five months’ jail for failing to comply with court orders against him, following contempt proceedings brought by the ACCC. Also in 2017, the Federal Court sentenced the former operator of certain online electronics stores to three months’ imprisonment for failing to comply with court orders, again following ACCC enforcement proceedings.

At the conclusion of the latter contempt proceedings, ACCC Commissioner Sarah Court stated that the ACCC “regularly seeks court orders to prevent the same detrimental conduct from happening again and to protect consumers from future harm”, and that it “rigorously pursues compliance with these court orders by taking contempt action where we consider there has been a breach”.

Since 2017, however, the contempt landscape in ACCC-land had been somewhat quieter. Until recently…

Two cases this year – relating to airline PT Garuda Indonesia Ltd (Garuda) in one, and a solicitor who acted for educational provider Empower Institute (Empower) in the other – serve as reminders that the ACCC will pursue contempt actions in a range of contexts, albeit not always successfully.

The case against Garuda

In May this year, Yates J of the Federal Court dismissed the ACCC’s application for contempt findings to be made against Garuda for failing to pay an earlier penalty order without justification.

By way of background:

  • on 30 May 2019, the Federal Court handed down a penalty of $19 million to Garuda for engaging in price fixing conduct in respect of air cargo services on flights from Indonesia and Hong Kong to Australia. This was the second highest penalty to be handed down by the Federal Court in the international airline cartel cargo cases following the $20 million penalty ordered against Qantas;
  • Garuda appealed the penalty on 25 June 2019 and, in the meantime, did not pay the penalty which was due by 27 June 2019. As the matter transpired, Garuda sought an order to have the pecuniary penalty order stayed due to financial incapacity. The primary judge extended Garuda’s time for compliance to 23 August 2019, but Garuda still did not pay the penalties or renew its application for a stay within this timeframe.

The ACCC then filed an interlocutory application seeking a stay of Garuda’s appeal, submitting (amongst other reasons) that Garuda was in contempt of court by failing to pay the penalty and providing no plausible justification for this failure.  Yates J dismissed the ACCC’s application, finding that:

  • although Garuda had not complied with the order, a failure to comply with an order to pay money is not itself sufficient to make out a finding of contempt; and
  • to establish contempt, the party alleging the contempt must show that there was “wilful disobedience” of the order (i.e. the disobedience was not casual, accidental or unintentional), and the party subject to the order had the capacity to comply with it.

Of particular relevance, His Honour found that the ACCC had failed to prove that Garuda had the capacity to comply with the order as Garuda had provided explanations for non-compliance (financial incapacity and being subject to Indonesian Government control, meaning that it had to await the direction of the Indonesian Ministry for State Enterprises).

The Court stated that although the evidence of these matters may not have been sufficiently persuasive to warrant the Court granting the initial stay of the order on Garuda’s application, it could not be said that Garuda did not provide a plausible explanation. It was also important that it was for the ACCC to establish the fact of contempt and, therefore, Garuda could not be criticised for failing to discharge an onus it did not bear.

The case involving Empower

Although no longer on foot, the contempt claim involving Empower was particularly unique as it was brought not against the company or its directors, but against its former lawyer, Alistair McKeough.

The backstory is that in September 2018, the Federal Court found that Empower (in liquidation) contravened the Australian Consumer Law (ACL) in multiple respects, chiefly in the form of unconscionable conduct by inducing vulnerable customers to enrol in educational courses which they often could not afford and which they almost uniformly did not complete. In September 2019 Empower was ordered to pay $26.5 million – the largest fine ever handed out for breaches of the ACL (until that record was shattered by the $125 million penalty meted out against Volkswagen last December, as we have previously reported).

Until May 2017, Empower was represented by Whittens & McKeough, of which Alistair McKeough was a principal. During the proceedings, Empower gave an undertaking to the Court. The terms of this undertaking have not been outlined in the various judgments handed down during the proceedings, but it appears that it may have related to a commitment by Empower to only incur reasonable legal expenses in defence of the ACCC’s claim, in light of the fact that Empower was in liquidation.

In December 2019, the ACCC filed a statement of charge (containing an allegation of contempt) against Mr McKeough, supported by three affidavits. One affidavit was prepared by a legal costs specialist who opined that five lump sum invoices rendered by Mr McKeough to Empower included costs which could not be considered as “reasonable expenses in defence of the proceeding”. The contempt of court alleged by the ACCC  therefore appears to be that Mr McKeough, in rendering these invoices, caused Whittens & McKeough to act in breach of Empower’s undertaking to the Court.

In June 2020, Gleeson J granted the ACCC leave to file additional affidavits in support of its application for a finding of contempt against Mr McKeough. In the course of doing so, her Honour expressed some concern about the ACCC’s particulars of contempt that “it is not obvious that they are sufficient to support a conclusion beyond reasonable doubt that the invoices ‘were not reasonable legal expenses in defence of [the] proceedings’”.

Interestingly, it appears that these proceedings have been discontinued by the ACCC. Nevertheless, the case is a reminder to lawyers about their obligations in connection with undertakings provided by their clients.

Takeaways

The willingness of the ACCC to pursue contempt actions in a range of contexts should serve as a reminder to companies and individuals (and, indeed, their lawyers) which have been found to have breached Australia’s competition and consumer laws that their subsequent actions will be closely monitored for compliance with court orders.

While these cases demonstrate that contempt proceedings brought by the ACCC have not always been successful, the potentially severe consequences of a contempt finding heighten the importance of acting strictly in accordance with court orders or undertakings.

This article was written by Nivedha Krishnan and Lyndon Goddard.

Photo credit: 3D Judges Gavel by ccPix.com (resized and colour changed) / CC BY 2.0 / Creative Commons

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About The Author

Nivedha Krishnan is a Solicitor in the Sydney office at King & Wood Mallesons.

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