The Federal Court today imposed penalties of $35 million against Harvey Norman Holdings Ltd and $20 million against Latitude Finance Australia for misleading conduct and false or misleading representations they made in a national advertising campaign promoting a 60-month interest free and no deposit payment method for goods purchased at Harvey Norman stores.

The combined penalty is the highest obtained by ASIC for misleading conduct and false or misleading representations relating to financial products and services.

In respect of the penalties, the Court considered the parties compliance processes

I have concluded that Harvey Norman and Latitude were equally responsible for the misleading advertisements. All other things being equal, it would be appropriate to impose the same penalty on each defendant. It must be determined whether there is sufficient reason to impose differential penalties on the defendants. [201]

I consider that a higher penalty should be imposed on Harvey Norman in comparison to Latitude. A higher penalty is warranted to deter repetition and to motivate Harvey Norman to improve its compliance processes … I consider that penalties in those amounts will be sufficient to ensure that neither defendant regards the penalties as merely the cost of doing business. [211]

The proceeding concerned a national advertising campaign run by Harvey Norman and Latitude between 1 January 2020 and 11 August 2021 promoting “no deposit” and “60 months interest free” purchases of goods from Harvey Norman franchise stores.

The advertisements were widespread (newspapers, radio, TV) and did not disclose that to access the promotion consumers had to enter a continuing credit contract linked to a credit card account (the “GO Mastercard”) and pay fees (including an establishment fee and monthly account service fees.

Compliance and contrition

In delivering his Honour’s reasons, Justice O’Bryan said Harvey Norman and Latitude ‘put sales and their commercial interests above the interests of consumers, and also distorted the markets in which competing goods and finance are offered.’ The Court said that ‘the compliance processes of both defendants were wholly inadequate to prevent the contravening conduct.’ Justice O’Bryan further said, ‘Given the scale and sophistication of both defendants, that is an extraordinary state of affairs’ and ‘is particularly striking in the case of Harvey Norman’.

Justice O’Bryan said that ‘Harvey Norman and Latitude were equally responsible for the contravening advertisements’, however, his Honour ordered Harvey Norman to pay a higher penalty because ‘the defendants have…exhibited a different level of contrition’, ’public statements made by Harvey Norman’s Chairman show a disregard for the potential harm suffered by consumers from Harvey Norman’s misleading conduct’, and ‘A higher penalty is warranted to deter repetition and to motivate Harvey Norman to improve its compliance processes’.

Compliance culture

The Court made a number of findings in respect of the parties culture of ensuring compliance with the ASIC Act:

Harvey Norman

• the evidence adduced with respect to its compliance systems and training can be described as paltry. No witness was called to give evidence about Harvey Norman’s compliance systems and training during the relevant period or presently [166]
• 2 training presentations were provided at the ‘relief’ hearing. Neither presentation makes any reference to the ASIC Act. There is no evidence as to the persons who attended either presentation. [167]
• The second presentation included an image of a “GP Advertising Compliance Checklist”. The Head of Television and Radio, during a compulsory examination pursuant to s 19 of the ASIC Act conducted on 22 November 2021. [xxx] confirmed that she had never used a “GP Advertising Compliance Checklist” in the course of her work. [xxx] also did not recognise a “Generic Publications Procedures & Compliance Manual” when shown and stated that she had never seen a compliance manual at work. [168]
• Overall, Harvey Norman failed to establish that, during the relevant period, it had an effective system for seeking to ensure compliance with the consumer protection laws. That is a very serious matter for a company the size and scale of Harvey Norman, the principal business of which is the franchise of retail stores selling furniture, domestic appliances and computing and software products to the Australian public at large [176]
• I accept ASIC’s submission that Harvey Norman’s compliance culture appears to be particularly weak. [178]

Latitude

On the evidence before me, I am not satisfied that, during the relevant period, Latitude had a satisfactory process in place to ensure that advertisements complied with the relevant consumer protection laws. However, [xxx] evidence satisfies me that, at least in relation to interest free advertisements, Latitude has now implemented a procedure to ensure compliance. [183]

Contrition

a contravener who has displayed no contrition or remorse, and no insight into their contravening conduct, would generally expect a higher penalty than would a contravener who has shown genuine contrition and remorse. That is because the requirement of specific deterrence is generally considered to be greater in the case of a contravener who has shown no contrition or insight into their offending behaviour. [188]

Harvey Norman

• At the relief hearing, Senior Counsel for Harvey Norman made an apology on behalf of Harvey Norman for its unlawful conduct. The apology was expressed to be to the Court and to Harvey Norman’s customers. [189]
• In the circumstances of this case, which involved a lengthy trial and appeal on the issue of liability, an apology from the bar table during the hearing on relief is not persuasive evidence of Harvey Norman’s contrition and remorse for its unlawful conduct. [191]
• Indeed, a striking feature of this case is Harvey Norman’s unwillingness, through a senior executive, to give evidence about Harvey Norman’s compliance procedures during the relevant period, why the procedures were inadequate to prevent the contravening conduct, and the steps that have been taken to prevent future contraventions. In the absence of such evidence, the apology from the bar table rings hollow. [192]

Latitude

[xxx] expressed Latitude’s contrition for contravening the ASIC Act, deposing:

I confirm that Latitude acknowledges and accepts responsibility for what has occurred in relation to its unlawful conduct that gives rise to contraventions of ss 12DA, 12DB and 12DF of the ASIC Act. Latitude apologises unreservedly to its customers and anyone else who was misled by this conduct.

ASIC submitted that little weight should be given to Latitude’s apology as it was provided only at this late stage in the proceedings, is perfunctory, and demonstrates no insight into the nature or wrongfulness of the conduct. For the reasons given earlier, I do not accept that submission. Although Latitude has not, in public communications with its customers, voluntarily acknowledged its involvement in misleading conduct or offered any form of remediation, I do not consider that the apology proffered through [xxx] affidavit is merely “performative”, as submitted by ASIC. [198]

Taking the evidence as a whole, I consider that Latitude has demonstrated a strong intention to avoid future contraventions of the consumer protection laws in the ASIC Act [199]

Summary of principles – appropriate penalty for contraventions of the consumer protection laws

The Court provided a summary of the principles applicable to the assessment of an appropriate penalty for contraventions of the consumer protection laws. [30-39]

1. The Court may impose a penalty in respect of each contravention, subject to the maximum penalty which is stated to apply to each act or omission that constitutes a contravention.
2. the penalty to be imposed is a penalty that the Court considers appropriate.
3. s 12GBB(5) of the ASIC Act requires the Court to take into account four specific matters and all other relevant matters. The four specific matters are: (i) the nature and extent of the contravention; (ii) the nature and extent of any loss or damage suffered because of the contravention; (iii) the circumstances in which the contravention took place; and (iv) whether the person has previously been found by a court (including a court in a foreign country) to have engaged in any similar conduct
4. As to ‘all other relevant matters’, in Trade Practices Commission v CSR Ltd [1990] FCA 762; ATPR 41-076 (CSR), in the context of a contravention of provisions of Pt IV of the Trade Practices Act 1974 (Cth), French J listed a number of other matters potentially relevant to the assessment of penalty under s 76 of that Act. Those matters have become known as the ‘French factors’ and relevantly include: (a) the size and financial position of the contravening company; (b) the deliberateness of the contravention and the period over which it extended; (c) whether the contravention arose out of the conduct of senior management or at a lower level; (d) whether the company has a corporate culture conducive to compliance with the Act as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and (e) whether the company has shown a disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention.
5. in considering the sufficiency of a proposed civil penalty, regard must ordinarily be had to the maximum penalty. However, where the theoretical maximum penalty is in the billions or trillions of dollars, the overall maximum penalty is not likely to be a meaningful factor and the appropriate penalty must be assessed by reference to other factors
6. in determining the appropriate penalty for a multiplicity of civil penalty contraventions, the Court may have regard to two common law principles that originate in criminal sentencing: the ‘course of conduct’ principle and the ‘totality’ principle. Under the ‘course of conduct’ principle, the Court considers whether the contravening acts or omissions arise out of the same course of conduct or the one transaction, to determine whether it is appropriate that a ‘concurrent’ or single penalty should be imposed for the contraventions. The ‘totality’ principle operates as a ‘final check’ to ensure that the penalties to be imposed on a wrongdoer, considered as a whole, are just and appropriate and that the total penalty for related offences does not exceed what is proper for the entire contravening conduct in question
7. the principal object of imposing pecuniary penalties in civil proceedings is deterrence, both to deter repetition of the contravening conduct by the contravener (specific deterrence) and to deter others who might be tempted to engage in similar contraventions (general deterrence)

The penalty should therefore be fixed with a view to ensuring that the amount is not such as to be regarded by the contravener or others as an acceptable cost of doing business

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