Civil Penalties Can Be Costly – Civil Law

To print this article, all you need to do is be registered or log in to Mondaq.com.

The recent Federal Court decision in Australian Competition and Consumer Commission v Trivago NV (#2) (ACCC v Trivago) confirmed that the courts will not hesitate to order heavy civil penalties, if necessary.

The Court was required to consider whether an appropriate marker of “benefit” – a well-established penalty factor in civil proceedings – was income or profit. Noting that both are relevant, the Court confirmed that it is not limited to a consideration of profit. Instead, it can (and should) turn to the (often much larger) revenue measure.

A reminder – how are civil penalties calculated?

In addition to establishing a framework for establishing the maximum penalty, the legislation often refers to the imposition of a monetary penalty that the court considers “appropriate”.1 The primary relevance factor is general and specific deterrence; and promoting the public interest in compliance.2 The penalties must be of such magnitude that they dissuade a wrongdoer “from making the cynical calculation involved in assessing the risk of sanction against the profits to be made from the contravention”.3

In the context of deterrence, courts must consider several other factors: the nature and extent of the conduct, the circumstances in which it occurred, the resulting losses and harms, and the benefits offenders shoot for driving, among other things.4

ACCC versus Trivago

The ACCV v. Trivago decision relates only to repair. The liability decision was issued in February 2020, which itself was unsuccessfully appealed by Trivago in the course of 2021.

The Court awarded a total of $44.7 million in monetary penalties for Trivago’s breaches of Sections 29(1)(i) and 34 of the Australian Consumer Law (ACL).5 This makes it one of the highest penalties imposed for ACL violations and certainly one of the highest following a contested liability and remedies hearing. It follows from recent decisions in Australian Competition and Consumer Commission v Australian Institute of Professional Education Pty Ltd (In Liq) (No. 5)(2021)6 (where $153 million was ordered and the amount of the penalty was not contested by the liquidators), and
Volkswagen Aktiengesellschaft v Australian Competition and Consumer Commission (2021)seven ($125 million, in circumstances where the parties had submitted a joint penalty of $75 million was appropriate, which the Court found manifestly insufficient).

The tickets related to the misleading advertising campaign and presentation of Trivago’s website over a period of more than two and a half years. In short, Trivago’s conduct related to the use of misleading advertisements – that its website makes it easy for consumers to “find the perfect hotel at the best price” – and the misleading design of the website – including the fact that consumers consider the “first position offer” on its website to be the lowest priced offer, among other offences. The Court was highly critical of Trivago’s tickets, finding his conduct to be extremely serious.

In awarding $44.7 million in civil penalties, the Court said “monetary penalties totaling this amount are appropriate in the circumstances of this case and are necessary to achieve the objectives of specific and general deterrence,” underscoring the importance deterrence in civil penalty proceedings.

In weighing the relevant factors, the Court observed that under the ACL, the maximum penalty under the statutory framework was in the hundreds of millions of dollars, if not more; means loss or substantial damage of at least $30 million to consumers caused by Trivago’s breaches; noted that Trivago had derived substantial revenue from its offending conduct and referenced the revenue detailing Trivago’s size and financial condition.

In assessing Trivago’s benefit from the tickets, the Court observed that there was a difference between the parties to the lawsuit as to whether “revenue” or “profit” was the appropriate marker of “the ‘advantage “. The ACCC focused on revenue and argued that there was no authority for the proposition that the only measure of benefit was profit (as Trivago put it).

This was an important question, as Trivago’s total revenue for calendar years 2017 to 2019 was between €839 million and €1.035 billion,8 while the global business operated with negative or very thin profit margins during the same periods. In terms of revenue generated in Australia, Trivago made approximately $206.8 million between 2017 and 2019, with between 73% and 80% of that revenue spent on advertising over the same periods.

In the ACCC’s view, Australian revenue was a relevant consideration going to benefit as well as the size of Trivago (and supporting the ACCC’s analysis that a penalty of at least $90 million was appropriate); while Trivago argued that its low profit justified a much lower penalty (arguing for $15 million).

In the particular circumstances of this case, the main expense reducing the Australian profits generated by Trivago was advertising: the same advertising that the Court found to be seriously misleading. In the ACCC’s view, it would have been inappropriate to view Trivago’s “profit” as coming solely from profits, when it had made a business decision to spend its earnings on a misleading advertising campaign.

Justice Moshinsky concluded that revenue and profit were relevant, observing that “to the extent that Trivago argues that revenue figures are irrelevant for purposes of assessing benefits, I do not accept that proposition”.

His Honor has felt it necessary to say more about the intersection between Trivago’s revenues, profits and penalties. The judgment states:

“…the aggregate of the above penalties is several multiples of Trivago’s profit from the infringing conduct, and numerous multiples of its net income from its Australian operations for calendar years 2017, 2018 and 2019. However, in the circumstances of the present case, I find it necessary, for the purposes of specific and general deterrence, to set penalties well in excess of the profit that Trivago derived from its offending conduct. total amount of the order proposed by Trivago (up to $15 million) would not reflect the seriousness of the violations and would be considered an “acceptable cost of doing business”. I note that the penalty proposed by Trivago only represents the half of the estimated losses and damages suffered by consumers (approximately $30 million)”.

The calculation of profit by Trivago during the relevant period has not been the subject of discussion in these proceedings. However, profit figures may depend on business and accounting decisions made by the organization under regulatory scrutiny or intervention. The methods used to calculate profits and the figures presented to the Court – and the importance of the overall context that must be considered when visualizing profits – have been questioned in other Federal Court decisions.9

Where does that leave businesses?

The courts clearly continue to consider general and specific deterrence as a key factor when ordering a civil penalty. In the context of the ACL at least, the ACCC v. Trivago confirmed that, when considering the “benefit” accruing to an entity as a result of adverse conduct, each of the revenues and profits will be relevant to the Court’s determination.

When companies with large revenues make business or accounting decisions that result in low reported profit figures or possibly low reported Australian profit figures, this is unlikely to lead to a lower assessment of a penalty. appropriate civil.

This leaves companies in no doubt that significant penalties will be sought by regulators and may be imposed by the courts.

If your business is under investigation and civil penalty proceedings by a regulator, you should be aware of the regulator’s ability to leverage your revenue (rather than profit) as a relevant factor. when you plead for a particular sanction.

Footnotes

1 See, for example, Annex 2 of the
Competition and Consumer Act 2010 (Cth), ss. 76, 224.

2 Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 252 CLR 482,
[55]

3 Unique Optus Pty Ltd v ACCC (2012) 287 ALR 24, [63]cited with approval by the High Court in ACCC v TPG Internet Pty Ltd (2013) 250 CLR 640,
[64] – [66]

4 See, for example, the modified “French factors” in Unique Optus Pty Ltd v ACCC (2012) 287 ALR 24, [63]

5 Who is appendix 2 of the Competition and Consumer Act 2010 (Cth).

6 397 AL 208

seven 284 FCR 24

8 before declining significantly in 2020, largely due to the COVID pandemic

9 See, for example, volkswagen at
[147] – [166]

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.





Lawyers Weekly Law Firm of the Year 2021

Gender Equality Employer of Choice (WGEA)

Comments are closed.