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Federal Court of Australia |
COURT
IN THE FEDERAL COURT OF AUSTRALIACATCHWORDS
Trade Practices - Prosecutions for breaches of the provisions of Part V of the Trade Practices Act - the corporate defendant (aided and abetted by its principal officer) offered advertising services in an advertising scheme at a time when it knew that it could not, with any degree of commercial realism, assure the supply of the advertising scheme - S55A - meaning of "public" considered - "liable to mislead" - consideration of the use of the word "liable" in s.55A and the word "likely" in s.52 - held that "liable" means that the Crown must prove an actual probability that the public would be misled.HEARING
ADELAIDECounsel for applicant: Mr G. Hackett-Jones QC Mr M. Loftus
Solicitor for Applicant: Director of Public Prosecutions
Counsel for Mrs. Rowden: Mr G. Hemsley
Solicitors for Mrs. Rowden: White Berman and Co.
ORDER
That the defendant J and R Enterprises Pty. Ltd. be convicted of the following contraventions of paragraph 79(1)(a) of the Trade Practices Act 1974 ("the Act") that is to say:-Information laid in Action No. G138 of 1989following charges relating to the alleged contraventions of paragraph 79(1)(a) of the Act that is to say:-
1.2 The breach of paragraph 53(c) of the Act as specified in the
Information laid in Action No. G135 of 1989
1.3 The breach of paragraph 53(g) of the Act as specified in the
Information laid in Action No. G136 of 1989
1.4 The breach of paragraph 53(g) of the Act as specified in the
Information laid in Action No. G134 of 1989
1.5 The breach of paragraph 58(b) of the Act as specified in the
Information laid in Action No. G137 of 1989
1.6 The breach of paragraph 58(b) of the Act as specified in the
Information laid in Action No. G142 of 1989That the defendant J and R Enterprises Pty Ltd. be acquitted of the
2.1 The alleged breach of paragraph 53(e) of the Act ascontraventions of paragraph 79(1)(b) of the Act, that is to say:-
specified in the Information laid in Action No. G141 of 1989
2.2 The alleged breach of paragraph 53(e) of the Act as
specified in the Information laid in Action No. G140 of 1989That the defendant Janet Rose Rowden be convicted of the following
3.1 The breach of s.55A of the Act as specified in therelating to the alleged contraventions of paragraph 79(1)(b) of the Act that is to say:-
Information laid in Action No. G132 of 1989
3.2 The breach of paragraph 53(c) of the Act as specified in the
Information laid in Action No. G133 of 1989
3.3 The breach of paragraph 58(b) of the Act as specified in the
Information laid in Action No. G127/89
3.4 The breach of paragraph 58(b) of the Act as specified in the
Information laid in Action No. G130/89That the defendant Janet Rose Rowden be acquitted of the following charges
4.1 The alleged breach of paragraph 53(g) of the Act asNote: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
specified in the Information laid in Action No. G125 of 1989
4.2 The alleged breach of paragraph 53(g) of the Act as
specified in the Information laid in Action No. G129/89
4.3 The alleged breach of paragraph 53(e) of the Act as
specified in the Information laid in Action No. G126 of 1989
4.4 The alleged breach of paragraph 53(e) of the Act as
specified in the Information laid in Action No. G145 of 1989
DECISION
J. and R. Enterprises Pty. Ltd. ("the company") was incorporated in South Australia on 28 May 1985. The subscribers upon its incorporation, Janet Rose Rowden ("Mrs. Rowden") and her husband Mr Alan Rowden, remain the only shareholders of the company; furthermore, they have been the only directors of the company since its incorporation.2. The company is charged with having committed, on various dates between October 1987 and March 1989, eight breaches of the provisions of paragraph 79(1)(a) of the Trade Practices Act 1974 (Cth) ("the Act"); that paragraph states that a contravention of certain of the provisions of Part V of the Act constitutes an offence. Mrs. Rowden faces eight charges under paragraph 79(1)(b) of aiding, abetting, counselling or procuring the commission of those offences by the company. The details of the charges will be summarised later in these reasons; it is sufficient, at this stage, to say that they all relate to the marketing by the company of certain advertising services. Mrs. Rowden, who pleaded "not guilty" to all charges, was represented by Mr Hemsley. As the company did not appear and was not represented, leave was granted to the prosecution to proceed against it ex parte. But with Mr Hemsley's agreement, all charges against the company and Mrs. Rowden were heard together.
3. Shortly following its incorporation, the company obtained the South Australian franchise to market and distribute the "Easyfind" Planner, a yearly calendar that was delivered, free of charge, to a large number of households in the metropolitan area of Adelaide. The company derived its revenue by selling advertising space on the Planner to business houses which, in the main, were local suburban tradespeople. It was said, and I accept, that the witness for the defence, Mr Glen Ion, (or, perhaps, a company controlled by him) then held the world-wide rights to the "Easyfind" Planner and that this type of calendar was distributed throughout other parts of Australia and a number of other countries.
4. In November 1986, Mrs. Rowden and other "Easyfind" franchise holders from Australia and elsewhere were invited to attend a conference convened by Mr Ion and his associates in Monaco. That conference was the occasion of the launch of a new marketing concept that came to be known as "System 2000" or the "System 2000" advertising scheme.
5. Central to the "System 2000" advertising scheme was a product described as an "Infocenter". Exhibit R58 was an example of one such "Infocenter" and Ex.P10 was an example of some of the marketing material that was intended to be used when promoting "System 2000". The contents of these two exhibits were not entirely compatible because they represented different stages in the evolution of the "Infocenter". Nevertheless the primary objectives of the "Infocenter" were two-fold; first, it sought to attract the interest of the householder by offering a neat package that included various aids and facilities that I will shortly mention; secondly, it sought to attract the attention of business houses because part of its design highlighted the provision for advertisements and advertising material. The "Infocenter" was intended to be mounted on a wall in the home - probably in the kitchen. Exhibit R58 measures approximately 540 x 360 cm and has two panels which open outwards. These panels, when closed, display a year planner (or calendar) on one side and a weekly planner on the other. The year planner was basically the same as the year planner that formed an integral part of the "Easyfind" Planner.
6. When the panel that displays the weekly planner is opened there is, on the reverse side, a small year planner (for the subsequent year) and hard plastic pockets for business cards, theatre tickets, bus tickets and other similar sized material. When the other panel is opened there is first, a "wipe-board" for writing messages, then, below that, there are two note pads and below the note pads a telephone index card. When both panels are opened the centre section comprises a magnetised board (with some small magnets supplied to hold papers and letters etc); finally, below that, there are some larger hard plastic pockets to hold larger papers.
7. Part of the marketing material comprising Ex. P10 was a brochure that
showed in words and pictures what "System 2000" was and
how the unit (that is,
the "Infocenter") would operate for the benefit of the advertiser. The
following extract from the first and
second pages of this brochure, although
lengthy, conveniently sets out the claims that were made for the unit:-
"The System 2000 Household Organizer is a new, copyrighted8. It was intended that advertising space in the business directory section of the "Infocenter" and advertising endorsements on the note pads would be sold to business houses in much the same way as advertising space on the "Easyfind" Planner had been sold. But it was also intended that the "Infocenter" would be sold to householders whereas the "Easyfind" Planner had been distributed free. The grand plan was that over a period of years the "Easyfind" Planner would be phased out and ultimately replaced entirely by "System 2000".
Danish home organizing concept, graphically designed by
Bruno Hansen, mgk, and all functionally fitted into a
patented wall unit designed by the famous award-winning
Danish designer, Bjarne Bo Andersen.
The marketing and distribution of this new System 2000
Household Organizer is built around the Easyfind
Planner/Directory, which is distributed worldwide and was
founded by Glen Ion, who today is also the Chairman of
System 2000.
In securing Mr Ion's participation, System 2000 gained the
right to use Easyfind's copyrighted and highly successful
yearly planner format, and in addition, the ability to take
advantage of the proven marketing and distribution skills of
his worldwide network of franchisees.
Although the System 2000 Household Organizer was created to
appeal to homeowners on an international basis, the system
is designed to provide businesses with a means of acquiring
more customers and less competition on a local basis. As
you will see as you read on, System 2000 fulfills a real
consumer need, and in so doing, provides a real and solid
opportunity for the local businesses trying to reach them.
Worldwide Homeowner Survey
Before the System 2000 Household Organizer was designed,
homeowners were asked, in a worldwide survey, to name the
items that they found most necessary to the efficient
running of a household. In no particular order, this is
what they required:
(1) A board where various items can be posted
(usually with pins).
(2) An erasable surface for messages and family
communications.
(3) A calendar that shows the whole year at a
glance.
(4) A calendar for planning monthly activities.
(5) A means of storing bills apart from other
correspondence.
(6) A convenient pad for making up shopping lists.
(7) A separate pad for notes.
(8) A truly local directory of services and
suppliers .
(9) A separate list of private and personal
telephone numbers.
(10) A separate list of prominently displayed
emergency phone numbers."
9. Mrs. Rowden was impressed by the concept of the "System 2000" advertising scheme when she saw it at the Monaco conference; she there and then made the decision that she would involve her company in marketing it in South Australia.
10. Upon her return to Australia, Mrs. Rowden engaged the services of Mr Neil Mahood; he commenced employment with the company in March 1987 and was subsequently appointed sales manager, a position that he held until his dismissal around Easter 1988. Mr Mahood explained in evidence that his responsibilities included the hiring and firing of sales staff together with their training and supervision. The training of sales staff was a highly sophisticated procedure which lasted three days; manuals had been compiled and were the bases of the training. These manuals were not merely for local South Australian use. The clear evidence was that every attempt was made, both at the national and international level, to maintain common standards. A particular feature of the training of sales staff was the manner in which they were to present the product. It was essential that they follow the written script that had been prepared for a presentation to a potential client. According to the evidence of Mr Mahood, his training of the sales staff, and the application by them of their training, was directed towards them selling advertising space to business houses: it had nothing to do with the presentation of the "Infocenter" to householders and consumers.
11. The allegations that have been made against the company and Mrs. Rowden include the allegation that the company's sales staff approached business houses, offering for sale advertising space in "System 2000", at a time when "System 2000" had not been established in South Australia and there was no reasonable prospect of it being established in the foreseeable future. In general terms, it was alleged that business houses were induced to take advertising space in the "System 2000" scheme upon the understanding that the fees paid by them for such advertising would also give to them, as a "bonus", conventional advertising in the established scheme of the "Easyfind" Planner. This allegation was vigorously denied by Mrs. Rowden. It was her claim that, in the 1987 calendar year, the company's representatives were merely selling advertising space in the "Easyfind" Planner for 1988 - and in doing this they were, with one exception, only repeating that which had been done by the company and its predecessors for many years beforehand. The exception said Mrs. Rowden was that intending advertisers in the "Easyfind" Planner were told of the forthcoming "System 2000" and, as an inducement to take advertising space in the "Easyfind" Planner, the traders were told that they would enjoy the "bonus" of having their advertisement placed in the "System 2000 Infocenter" when it came onto the market. Before proceeding to consider the specific charges it is necessary to state my findings with respect to this particular issue. Those findings will not conclude the matter but they will form a factual base or foundation for the further consideration of the evidence that dealt with each separate charge.
12. I have concluded, without hesitation, that the company's sales staff were
trained to sell and were instructed to sell and that
they endeavoured to sell
and did sell to business houses advertising space in "System 2000". Mr
Mahood's evidence was that he was
engaged for the purpose of training the
staff in the sales presentation for "System 2000".
"We were selling advertising on a new system which was13. Miss Priscilla Thomas and Mrs. Thirza Thomas, two former members of the company's sales staff corroborated this evidence; each said that she was trained to sell and that she endeavoured to sell "System 2000" and that she offered advertising in the "Easyfind" Planner as the bonus. There are several references to this subject in the evidence of both ladies. One example from the cross-examination of Priscilla Thomas was this straight-forward statement at p 341:-
called System 2000 which was to be launched world wide in
conjunction and with the help of the Easyfind organization".
(p 96)
"I was hired to sell advertising space on a householdThirza Thomas' evidence about the circumstances of her employment with the company appears at p 395:-
organizer called System 2000".
"Having responded to the advertisement, were you given an14. At an early stage of the trial the question arose whether Mr Mahood should be regarded as an accomplice of the company and of Mrs. Rowden in the commission of any act that led to the laying of the charges now under consideration. If it is claimed that a witness is an accomplice whose evidence requires corroboration, it is for the accused to establish that fact on the balance of probablities (Turnbull and Davidson (1985) 17 A Crim R 370; Cox (1986) 24 A Crim R 434). I am not troubled by this issue. Without embarking upon an examination of the evidence in detail, it is sufficient to state, on the one hand, that there was evidence on which a reasonable jury could find that Mr Mahood was an accomplice of the company and of Mrs. Rowden but that on the other hand, his evidence about the training programming and the identity of "System 2000" as the advertising service that was being sold by the company was corroborated by Priscilla and Thirza Thomas.
interview?... Yes
Who interviewed you?... Mrs Rowden
Did she give you a description of the job that you were
going to be employed to do?... She showed me a brochure on
System 2000 and described System 2000 to me and then - I
think the interview took only about five minutes - I was
asked to go away and consider whether I would like to be
involved in actually selling advertising on System 2000. I
rang back later in the day and said yes, I would.
You mention that she described System 2000 to you. Do you
recall the elements that she mentioned in...? Just that it
was a new product that was going to be - I should not use
the word, 'product' perhaps, but it was a new system that
was going to be offered to householders and that there would
be places for advertising on it for various companies and
that I would be going out selling those places for
advertising.
Was there any mention at this stage of the Easyfind
calendar?... No."
15. The case for the Crown included the evidence of four ladies, Miss Koltunow, Mrs. Stamatelopoulos, Mrs. Scott and Mrs. Vlahakis. Each carried on a business at some stage in 1987 or 1988; each told of the approach that had been made to her by a representative of the company and the manner in which "System 2000" had been introduced and discussed. It is an accepted fact that each of these ladies signed a contract for the supply by the company of advertising services in respect of each ladies' business. The case for the Crown was that they were sold advertising space in the "System 2000" advertising scheme; Mrs Rowden's answer is that each contract, by its express terms, referred to the supply of advertising services in the "Easyfind" Planner.
16. I turn first to the evidence of Miss Koltunow; she said:-
"I was told I was paying for System 2000 and that I would17. Mrs. Stamatelopoulos' evidence was to the same effect. She had previously advertised in the "Easyfind" Planner but did not regard it as successful. However she was most interested in "System 2000". At p 274 she was asked whether she had made her interests known to the company's representative, Thirza Thomas. Her answer was:-
have the bonus advertising going on the Easyfind Planner.
So that was put in as a bonus."
(p 233)
"Yes. I made it plain because we have done the Easyfind18. Mrs. Scott's cross-examination at p 303 showed her understanding on the position:-
before, I mentioned to her. I wanted to get straight on to
what the System 2000 meant, what it entailed, what type of
system it was. She had information leaflets there which I
looked through and I wanted just to know exactly what the
System 2000 entailed."
"Well, let me ask you: what did you think you were19. Mrs. Vlahakis' evidence was at variance with that of the other three ladies. It was put to her in cross-examination that the company's representative had approached her, selling advertising space in the "Easyfind" Planner "with System 2000 as a bonus". Her answer at p 254 was:-
contracting for?... A Systems 2000.
And it is your belief that Easyfind was the bonus, was
it?... Yes.
Or was it the case that you were contracting for a Systems
2000 and Easyfind?... No. Easyfind was like a bonus.
...
What I would be suggesting is that what she actually said is
that what was being sold was Easyfind with Systems 2000 as a
bonus?... That was not how it came across."
"No. What he suggested to me was that I was going to get20. Her rejection of that proposition might, without more, have been taken to convey the opposite - that is, that the "Easyfind" Planner was the bonus. But in her next answer she referred to "a package deal" explaining that she "could not have one without the other".These passages from her evidence suggest that the sales representative was offering both the Planner and the "System 2000" as a package. That contradicts the evidence of the other three ladies that what was being offered to traders was "System 2000" but it also contradicts Mrs. Rowden's evidence that it was the "Easyfind" Planner that was being offered. On the subject of what advertising services were offered to her, I feel it would be best to treat the evidence of Mrs. Vlahakis as neutral - it did not assist the Crown's case that representatives of the company were selling advertising space in "System 2000" exclusively but it did not support Mrs. Rowden's claims that they were only selling the "Easyfind" Planner. However, I should make it clear that in all respects I regard Mrs. Vlahakis as a witness who gave her evidence to the best of her ability and with complete honesty. I do not see any reason to reject other aspects of her evidence just because her evidence on this subject does not tally with that of the other witnesses for the Crown.
the Easyfind as well as the System 2000".
21. The defence relied heavily upon the fact that the advertising contracts which the four ladies each ultimately signed stated that they were signing up for advertising services in the "Easyfind" Planner. However, each of those contracts contained an enigmatic endorsement (made by use of a rubber stamp) which read "plus System 2000". None of the four ladies was able to give any meaningful evidence about that endorsement or about the terms of the contract; none of them was able to give a satisfactory explanation about why they signed a contract for advertising in the "Easyfind" Planner when they believed that they were embarking on some new advertising campaign through the use of "System 2000". Miss Koltunow did not think that she read the contract (p 236). Mrs. Scott read it but paid no attention to it (p 304) whilst Mrs. Stamatelopoulos thought it meant that she "was buying the Easyfind plus the System 2000" (p 276). Mrs. Vlahakis said at p 245 that the company's representative, a Mr Fotopoulos, had said "that's an all package deal".
22. Each of Mesdames Koltunow, Stamatelopoulos and Scott was a witness of complete honesty and integrity; I accept without question that they were telling the truth when they said that they had a belief that they were purchasing advertising in "System 2000". I further find that in each case, that belief was reasonably formed as a result of the oral representations that had been made to them by sales representatives of the company.
23. Those oral representations were made by sales staff as a result of what they had been taught to say when undergoing their sales training; it was Mr Mahood who had taught them but he had taught in accordance with Mrs. Rowden's instructions and with her knowledge. Furthermore, Mrs. Rowden played a direct role in the teaching process - she was actually present at various stages of the three day training course and she regularly attended the subsequent weekly briefings of the sales team.
24. I reject Mrs. Rowden's claims that her company's sales force was only selling advertising space on the "Easyfind" Planner. Her evidence is overwhelmed by the weight of the evidence of the other witnesses. Mrs Rowden called, as witnesses for the defence, Mr Glen Ion and Mrs. Phyllis Dunn. Mrs. Dunn was, at the time that is relevant to these proceedings, employed by the principal organization (or "head office") as the International Sales Director. But neither Mr Ion nor Mrs. Dunn was able to offer material assistance to Mrs. Rowden. To the extent to which they or either of them said in evidence that franchisees (such as Mrs. Rowden) should, or should not, have done certain things neither of them was able to give direct evidence that Mrs. Rowden did or did not do those things. Apart from a visit by Mr Ion to Adelaide in December, 1987, both Mr Ion and Mrs. Dunn were overseas - either in London or Monaco or elsewhere - during the whole of the period with which these proceedings are concerned.
25. On the subject of what the company's sales staff were selling, Mrs. Rowden stands alone. She is confronted by her company's former sales manager and two of its sales staff positively stating that the company was selling advertising space in "System 2000"; her answer was that each was deliberately lying - she says that she instructed Neil Mahood and that he, in turn, instructed potential sales people (including, no doubt, Priscilla and Thirza Thomas) in how to sell advertising space in the "Easyfind" Planner; she further says that her company's sales force (including, no doubt Priscilla and Thirza Thomas) sold the "Easyfind" Planner - they were not selling advertising space in "System 2000". It was Mrs. Rowden's evidence that Neil Mahood lied because he was sacked for unsatisfactory service, Thirza Thomas lied because she was a friend of Neil Mahood's and Priscilla Thomas lied because she and Mrs. Rowden had a disagreement over Miss Thomas' earnings.
26. I am compelled to say that it was Mrs. Rowden who was lying when she gave this evidence. There is a flaw in her accusations which presumably was not apparent to her when she engaged in this stupid exercise of falsely branding these three witnesses as liars. If Mr Mahood had, in truth, trained the company's sales force to sell "Easyfind", and if the sales representatives had, in truth, only sold advertising space in the "Easyfind" Planner, then, bearing in mind that all Mrs. Rowden's disagreements with the witnesses occurred at the end of their time with the company, how was it that the Crown was able to find the four business ladies who gave evidence about "System 2000"? Believing these ladies as I do, why was it that representatives of the company were offering them advertising services in "System 2000". The answer is, quite clearly, because Neil Mahood and Priscilla and Thirza Thomas have told the truth. Mrs. Rowden must be branded a deliberate liar - she instructed Neil Mahood to train the staff in selling "System 2000".
27. Independently of the matters that I have already mentioned, Mrs. Rowden
was most unimpressive when giving her evidence. She
was, at times, either
evasive or deliberately obtuse, at other times argumentative - even to the
point of rudeness. I found her
most unconvincing. Many of her answers were
given with scorn - "you know what is inside my head, do you?" (p 775); some
random examples
from the transcript are:-
"You can suggest if that is what you wish, but that is not28. As part of the regular activities of the sales staff there was a meeting each Friday afternoon to review the successes and failures of that week. According to Thirza Thomas (p 407) Mrs. Rowden was "mostly" present at those meetings. Miss Thomas was asked to comment on Mrs. Rowden's behaviour at those meetings:-
correct" (p 778)
"False is it? Why is it false?" (p 779)
"So you followed that instruction?... Of course. Why would
not I?" (p 780)
"Can you tell His Honour anything about Janet Rowden's29. Mrs. Rowden well knew and understood what it was that the sales staff were selling to the company's customers. I accept, as an accurate summary, the following passage from Mr Mahood's evidence:-
attitude towards the System 2000 advertising system?... She
was always very enthusiastic and very positive, very
aggresive, and generally very excited about it all I would
say." (p 407)
"Do you recall discussions with trainee salespeople at which30. But there is more] Mrs Rowden's evidence on this subject is also overwhelmed by the documentary evidence.
Mrs Rowden was present in which the question of the relative
prominence that should be given to Easyfind and System 2000
in the course of sales presentations was raised?... A great
number.
Yes.
And what was the view that she expressed in these?... The
view that Mrs Rowden expressed in response to that
particular question was quite simple and forceful. System
2000. Look at your business card. What does it say?
System 2000. Who do you work for? System 2000. Who makes
the Info Centre? System 2000. In short, and I quote: We are
not Easyfind. We are System 2000." (p 114)
31. One of the exhibits in the trail was a document of three pages; it comprised part of Ex.JRR6 to an affidavit of Mrs. Rowden that had been filed during the course of the proceedings (that affidavit and its exhibits become Ex. P38 in the trial). The document was expressed to be a "Memo" to "All Franchisees" from "Phyllis Dunn International Sales Director". It was dated Friday 30 January 1987 and it carried the heading "Sales Training Technique". It is apparent from an examination of this document that it was intended to be a synopsis for a three day course in sales presentation and technique.
32. In cross-examination, Mrs. Rowden agreed that the document was a replacement for "an earlier document in the company's sales training manual", adding that "prior to this training we were only training on Easyfind" (p 746). Bearing in mind that, at all times, the case for the defence was that the company's sales staff were not, in 1987 and 1988, selling advertising space in "System 2000" - they were selling advertising space in the "Easyfind" Planner with "System 2000" as a bonus - it is a matter of importance to have regard to the written material that was being used by the company as early as January 1987 in the training of the sales staff. A copy of the "Sales Training Technique" therefore appears as an appendix to these reasons.
33. Despite the protestations of Mrs. Rowden and her witnesses, I have no difficulty in concluding beyond reasonable doubt that the "Sales Training Technique" was composed for and was intended to be used for training staff in the sale of advertising space in "System 2000". Indeed Mrs. Rowden's evidence became farcical as she repeatedly claimed that the emphasis and thrust of the document was towards the "Easyfind" Planner.
34. It is, of course, apparent from reading the document that the first six steps include several references to the Planner. But there are obvious explanations for this once it is accepted that the true purpose of the document was to lay down the guidelines for selling "System 2000". In the first place, the Planner had an existing exposure to the business community; it was already well known to many traders. Therefore, it was important that sales staff should know and understand the Planner so that they could explain that "System 2000" incorporated all the benefits of the Planner and had many added and attractive features as well. Then again, it had never been suggested that the Planner was to cease circulation immediately. On the contrary, its continued short-term existence was assured because its distribution would carry the order form for "System 2000" (see step 15 of the document). Hence it was essential that anyone attempting to sell "System 2000" would have to know and understand the "Easyfind" Planner. I do not believe Mrs. Rowden's evidence about the manner and means by which this document was used. It was not used for the purpose of training staff in how to sell advertising space in the "Easyfind" Planner. I find that its primary objective was to train staff in how to sell advertising space in the new "System 2000".
35. The contents of Ex.R52 are also most significant; they further contradict
Mrs. Rowden's evidence that advertising in "System
2000" was to be offered
only as a bonus to the "Easyfind Planner". Exhibit R52 is entitled "NEW
BUSINESS SALES PRESENTATION STEPS
FOR SYSTEM 2000". Mrs. Rowden said that she
received it from Phyllis Dunn in late January or early February 1987 (p 782),
that is,
about two months or so after the Monaco conference and at about the
same time as Mrs. Dunn distributed the "Sales Training Technique"
to which
reference has just been made. Mrs. Rowden's evidence about the use of Ex. R52
was as follows:-
"And are you able to recognise that sales presentation?...36. Later, she described it as a "guideline" (p 785) for the oral sales presentation that a representative should make when attempting to make sales of advertising services.
Yes
And where in time does that sales presentation fit?... That
would be the first presentation that we did in training.
That was the presentation that you taught to Neil Mahood?...
Yes.
...
And where did you get that sales presentation?... From head
office, from Phyllis." (pp 689-690).
37. Once more Mrs. Rowden was forced, for the sake of consistency, to
maintain that this document was used only for the purpose of
training staff in
how to make a sales presentation for the "Easyfind" Planner. But in the case
of this document even the title suggests
that the contents will be directed
towards the selling of "System 2000". The first of ten numbered paragraphs
was headed "Self Introduction";
that paragraph directed the salesperson to
identify himself or herself by name and as being "from System 2000".
Paragraph 4 is listed
as the "System 2000 Product Story". The salesperson is
directed in this paragraph to address the customer by name, adding these
words: "... as I told you my product is System 2000...". At this stage in
the presentation there has been no reference to the "Easyfind"
Planner. That
does not occur until paragraph 6 which is entitled "Marketing". The
salesperson has then reached that stage of the
presentation when he or she is
explaining to the potential advertiser how the company's product and,
therefore, the trader's advertisement
will be marketed; the proposal is
described as "direct mail brochure". The salesperson is then directed to say
these words:-
"Firstly however, the only way a direct mail brochure will38. If thereafter there remains any doubt that Ex.R52 is a sales presentation for advertising services in the "System 2000" scheme, then that doubt must be dispelled by the contents of the last page of Ex.R52. Under the heading Contract Terms there appears these words:-
work properly, is if you can get it into the home from the
letter box.
This is where we use the product of the organisation we
recently bought out.
The Easyfind planner, distributed throughout 15 countries to
57 cities, in fact 23,000,000 homes worldwide.
Our survey prior to our takeover showed over 80% of people
keep their Easyfind for a full year.
Now it's this product that will enable us to get our
brochure for the sale of System 2000 into the home."
"Because we have guaranteed to System owners to supply39. The reference to the supply of merchandise cannot possibly relate to the "Easyfind" Planner; by its nature, it is a single sheet of paper that is distributed, free of charge, annually. But the "System 2000" project called for the use of notepaper and its replenishment from time to time: it was intended that the "System 2000" unit would contain order forms so that consumers could order more note pads or shopping lists. I have no difficulty in finding that the reference to the "supply (of) merchandise free of charge for 5 years" is a reference to "System 2000"; and likewise I have no difficulty in concluding that Ex.R52 was compiled for the purpose of and was, in fact, used for the purpose of training sales men and women in how to sell advertising services in "System 2000". I have come to these conclusions beyond reasonable doubt notwithstanding a wholly contradictory statement that appears on the fifth page of Ex.R52. It is as follows:-
merchandise free of charge for five years, we ask you to
(accept the conditions thereafter specified)."
"Now, as I have said before, your name is guaranteed to go40. Exhibit R.52 comprises six pages of typing. The first three and the last pages are in italic type but the fourth and fifth pages are in conventional upright type. It is hard to accept that Ex.R52 is now in its original form; one is tempted to think that someone may have removed the original fourth and fifth pages and replaced them with other pages. But even if that not be the case, the reference on the fifth page to "System 2000" being the bonus is so at variance with the contents of the remaining pages that it can not take away the true nature and effect of this document. Having regard to the sections that I have identified and having regard to the document as a whole, Ex.R52 corroborates the evidence of Mr Mahood, Priscilla Thomas and Thirza Thomas that the company was teaching its representatives to sell and that those representatives were selling to business houses advertising services in "System 2000".
in all homes on Easyfind in the areas of your choice, but as
a bonus to you at no additional charge, your name will go
into all the homes that has a System 2000, in your area(s).
We are going to have a "Plumber" on Easyfind as well as
System 2000. Who's name would you prefer, your's or your
competitor?"
41. The first of the alleged breaches by the company of s.79 was said to be a
contravention of s.55A of the Act. That section provides as follows:-
"S.55A. A Corporation shall not, in trade or commerce,42. There was no obligation on the part of the Crown to prove any intention to mislead. Darwin Bakery Pty. Ltd. v Sully (1981) 3 ATPR 40-230 was an appeal to a Full Court of this Court against convictions for breaches of s.53(e) (making a false or misleading representation with respect to the price of goods or services). Even though I am presently considering a charge that relates to an alleged breach of s.55A, it seems to me that the remarks of the Full Court have an equal application. At p 43,102, the Court said:-
engage in conduct that is liable to mislead the public as to
the nature, the characteristics, the suitability for their
purpose or the quantity of any services."
"But we are of the opinion that the existence of sec.85 in43. Mr Hackett-Jones QC counsel for the Crown pointed to the presence of the words "liable to mislead" in s.55A, noting that s.52 of the Act proscribes conduct that is "likely to mislead"; it was his argument that the presence of words "liable" and "likely" in the two provisions meant that different tests were to be applied when assessing whether challenged conduct amounted to a breach of either or both of these provisions. Based on some English authorities to which I will shortly refer, Mr Hackett-Jones argued that the use of the word "liable" in s.55A meant that the provisions of that section would be breached if the conduct that was the subject of the complaint was such that there was a possibility of misleading the public. On the other hand, it was necessary, so he argued, to establish that there was an actual probability of a party being misled before the impugned conduct would amount to a breach of s.52.
regard to contraventions of Pt.V of the Act points to a
policy on the part of the legislature that in the absence of
one of the defences there mentioned the liability imposed by
sec.53 is strict."
44. The first of the cases upon which the Crown relied was the decision of
the House of Lords in The Heron II (1967) 3 All ER 686 where Lord Reid said at
p 694:-
"Liable is a very vague word, but I think that one would45. The second authority comes from the judgment of Shaw L.J. in Squibb UK Staff Association v Certification Officer (1979) 2 All ER 452 at p 459:-
usually say that when a person foresees a very improbable
result he foresees that it is liable to happen."
"The phrase 'liable to' when used otherwise than in relation46. However, these interpretations rest uneasily with views expressed by members of a Full Court of this Court in Westpac Banking Corporation v Northern Metals Pty. Ltd. (1989) 11 ATPR 40-953. In their joint judgment Davies and Spender JJ. said that "of ss.52 and 55A the former has the wider scope" (p 50,413). Northrop J., in coming to the same conclusion in his dissenting judgment, said at p 50,410:-
to legal obligations has an ordinary and well-understood
meaning, namely 'subject to the possibility of'."
"... it is fair to say that any conduct which is 'liable to47. In a consideration of the provisions of Pt.V of the Act, I have concluded that a court would find that conduct was "likely to mislead" more readily than it would find that conduct was "liable to mislead". I believe this to be the effect of those passages that I have quoted from the decision in Westpac Banking Corporation v Northern Metals (supra). Not only do I consider myself bound to follow the interpretation of the Full Court in preference to the authorities from the United Kingdom, I also believe that there is a strong and compelling reason why Mr. Hackett-Jones' argument should be rejected. Conduct that amounts to a breach of s.55A constitutes the commission of an offence - that is, a breach of s.79 - attracting, in the case of a corporation, a fine not exceeding $100,000. On the other hand, no penal consequences attach to conduct that amounts to a breach of s.52 - only civil consequences flow. It stands to reason therefore that the "risk" (to use a neutral word) of the public being misled must be the greater, not the lesser, to constitute a breach of the provisions of s.55A. Having regard to the context in which the word "liable" appears in s.55A and bearing in mind the nexus between that word and the word "likely" in s.52, I am of the opinion that the onus that the Crown must face in proving the commission of a breach of s.55A is explained by saying that the Crown must satisfy the Court beyond reasonable doubt that the company's conduct was such that there was an actual probability that the public would be misled. It is with that test in mind that I will consider the state of the evidence.
mislead' of necessity, must be conduct which is 'likely to
mislead'."
48. The particulars supplied by the Crown with respect to the alleged breach of s.55A state that, in the period between October 1987 and April 1988, the company approached members of the public urging them to advertise their businesses in the "System 2000" advertising scheme. It was further claimed that the company represented that the "System 2000" advertising material would reach approximately 10,000 homes in each "area" that the trader nominated and paid for and that there would be a substantial increase in the turnover of a participant's business. The Crown further specified that the representations that were made in the name of the company contained, by implication, a promise that the company was in a position to implement "System 2000" "on a substantial scale and would in fact do so within a reasonable time".
49. Finally, the Crown pleaded that at the time when these representations
were made they were liable to mislead the public in that
-
"(i) the (company) had not at the time of the50. In order to prove a breach of s.55A of the Act each of six essential elements must be proved beyond reasonable doubt; first, the accused must be a corporation and secondly the offence must have been committed in the course of conduct that can properly be labelled "trade or commerce". The third element is the identification of the impugned conduct whilst the fourth is the actual probability that the relevant conduct would mislead. The fifth element is proof that it would be the public that were "liable" to be misled; the sixth and final element calls for the Crown proving that the relevant conduct was liable to mislead in one or more of the four areas specified in the section - that is, as to the nature of any services, or as to the characteristics of any services, or as to the suitability for their purpose of any services or finally as to the quantity of any services.
promotion campaign implemented the System 2000
advertising scheme on any significant scale and
did not have, at that time, reasonable grounds
for an expectation that it would be in a
position to do so within a reasonable time;
and
(ii) implementation of the System 2000 advertising
scheme on a substantial scale was necessary if
the advertising services to be obtained through
participation in the scheme were to be suitable
for the purposes referred to in paragraph (c)
above."
51. Some of those elements are not contentious and can be disposed of summarily. For example the Crown tendered the certificate of incorporation of the company and there is no doubt that the company was engaged in trade or commerce in that it was engaged in selling some form of advertising services; the first two elements are therefore proved. As to the third element, I am satisfied that the conduct that is relevant for the purpose of this charge and which has been proved beyond reasonable doubt is the selling by the company of advertising services in "System 2000". It now becomes necessary to examine what was otherwise happening while the company was engaging in this conduct for the purpose of assessing whether there was an actual probability that the public would have been misled about one or more of the specified aspects of some service - the fourth, fifth and sixth elements.
52. According to Mrs. Rowden's evidence (p 699) she left the Monaco
conference in November 1986 with the belief that the "System
2000" units that
she had ordered at the conference on behalf of the company would be available
in Australia for distribution by way
of sales to householders prior to
Christmas 1987. It was her intention that order forms for the units would
accompany the 1988
"Easyfind" Planner when it was distributed, free,
throughout the metropolitan area late in 1987; it was her expectation that the
public's interest in the units would be particularly generated because of
their suitability as Christmas presents. Although Mrs.
Rowden claimed that
nothing occurred in the first half of 1987 to give her any cause for concern,
it was apparent on her own evidence
that towards the middle of that year she
began to have some misgivings or doubts. For example, at p 699 she said in
answer to a
question from her counsel that she had, at first, "no reason to
disbelieve" the information that was coming to her from head office
in Monaco.
She was then asked:
"What then occurred to make you perhaps change that view?...53. Exhibits R.72 and P.43 were examples of some of those "hiccups"; these were identical letters dated 1 May 1987 from the head office of "System 2000" addressed to Mrs. Rowden and Mr. Biamis (Mr. Biamis, who gave evidence for the Crown, held a franchise for the "Easyfind" Planner in Victoria; he also attended the Monaco conference but ultimately decided against any form of involvement with "System 2000"). It is not necessary to recount the contents of these letters; they purport to explain that some "method" for the production of the "System 2000" units had to be abandoned but that a "new solution" had "already been produced as a prototype". Even so, the letter continued "(as) the final completion date coincides with the beginning of the Danish annual holiday season early July, we cannot expect to have actual production samples until the beginning of August".
There was letters coming in later, faxes coming in later,
saying that we could not have a sample unit or that art work
was not coming through. Just a few hiccups in there,
really, but nothing really dramatic that again said there
was any problems."
54. But Mrs. Rowden received further advices in the form of facsimile
transmissions dated 17 September 1987 and 4 November 1987,
(each said to be
distributed from Glen Ion to "all franchisees"), telling of more production
difficulties and stating, in the earlier
of the two, that production "will
begin late October" (Ex.P.38 JRR6). Mrs. Rowden conceded that this
information was contrary to
her expectations:-
"In Monaco they were supposed to be in the country in55. However, it is the second of the two transmissions that warrants closest attention. It reveals the true character of Mr. Ion; its contents confirm the most unfavourable impression that I formed of him when he gave evidence for the defence. After informing the franchisees that "Infocenters" would not now be available until 25 January 1988, his transmission then instructed franchisees to make contact with their customers in a manner which I classify as a program of planned deception. The following extract from the transmission illustrates the point that I am making:-
October. Now we have the fax saying that there are hold-ups
and they were going to be later. I contacted Glen, or
contacted head office about the hold-ups, but they assured
me at that stage that it was only a slight delay and nothing
to really worry about." (p 701).
"Now this will call for a little expertise in your marketing56. The reference to a "standard letter" to explain any delay, the advice to use vague expressions such as "soon" and the warning against specifying a date were all deliberate and designed so that franchisees would be the better able to fob off any complaints from advertisers about the delay in the arrival and distribution of the "System 2000" Infocenter units.
of which fortunately I have had experience.
(a) You should deliver wherever possible the second
week in January (Easyfind). (If you have
promised earlier please request our standard
letter on this subject to go to all clients,
which works every time._
(b) Your System 2000 mailer should not be dated.
(c) It should say allow 4 - 6 weeks for receipt of
order, packaging and delivery.
(d) After 3/4 weeks of receiving order from your
filing system (by date of order) a standard
letter which basically
(i) thanks them
(ii) tells them we have their order
(iii) all initial stock went first
few days (air shipment
remember?) and new stock arrives
'soon' - (no date and will be
rushed to them.
This will buy you the few weeks you need to get stock and
box it locally etc. and despatch."
57. Bearing in mind my earlier findings that representatives of the company had, for some months, been selling advertising services in "System 2000", originally in the belief that the units would arrive in Australia in October 1987, the contents of this transmission were so serious that any reasonable person would have seen the need to stop selling immediately. Whatever may have been the position earlier in 1987, the company could not have had, following the receipt of that transmission, any reasonable grounds for believing that the "System 2000" advertising scheme would be implemented on any significant scale within a reasonable time. By that stage there had been too many delays and too many broken promises. As subsequent events established, nothing thereafter happened to justify the company making any sales of advertising services in "System 2000".
58. In the period October 1987 to January 1988, the company wrote several
letters to its clients on the letterhead of "System 2000".
Most of them were
based on drafts that had been sent by Mr. Ion or Mrs. Dunn. When asked to
identify, with more particularity, the
persons to whom such letters were
written, Mr. Mahood replied "purchasers of advertising on the "System 2000
Infocenter" (p 118).
These letters which were signed by Mr. Mahood, painted a
highly exaggerated, and at times, false picture of the progress of the
development of "System 2000" in South Australia. For example, the first of
these letters dated 16 October 1987 (Ex.R19) stated:-
"Regarding System 2000 we have held numerous meetings with59. Exhibit R61 is a draft letter composed by Mr. Ion; it was sent by him to Mrs. Rowden on 1 October 1987. It supplied the information that was substantially reproduced in Mr. Mahood's letter of 16 October 1987 to clients (Ex. R19). It is abundantly clear that neither Mrs. Rowden nor any other representative of the company had held any meeting with any advisers either overseas or in Australia. If the use of the word "we" was intended to include Mr. Ion or any other person who was resident overseas, there was no justification for any such inclusion.
our various marketing advisers overseas..."
60. The next such letter, Ex. P16 was dated 30 November, 1987. Bearing in
mind Mrs. Rowden's clear evidence that it had been intended
to distribute the
1988 "Easyfind" Planner and the order form for the "System 2000 Infocenters"
in late 1987, it is interesting to
note that in the letter of 30 November 1987
(Ex.P16) Mr. Mahood wrote of receiving the results of a survey. The survey
according
to the letter, had been commissioned "to establish the difference in
retention rates for our Easyfind Planner Directory distributed
before or after
Christmas throughout Australia and New Zealand". According to the letter, the
retention rate was higher by 3% if
the Planner was distributed after
Christmas. The clients were therefore told:-
"although all of our plans for distribution will be61. Mr. Mahood admitted that he had no knowledge of any such survey. When asked why he had included such a reference in his letter, he replied that it was "the best method of placating irate customers" (p 117). Mrs. Rowden's short answer was that she authorised this letter because Phyllis Dunn instructed her that such a letter should be sent to clients. Exhibit R64 is a copy of a draft letter to customers in which reference is made to "the retention rate" and a "3% increase". I accept that this document is in the handwriting of Mrs. Phyllis Dunn, and that it was faxed to Mrs. Rowden as an outline of the type of letter that should be sent to clients.
thoroughly disrupted, the extra 3% "Retention and Usage"
achieved with post-Christmas delivery must obviously take
priority."
62. The next letter that Mr. Mahood sent to clients was dated 23 December
1987 (Ex.P17). It opened with these words in capital letters:-
"SYSTEM 2000 IS HERE]"63. In view of previous correspondence, one would be excused for reading that as meaning that the units had arrived in South Australia. In this letter clients were offered the opportunity of ordering "System 2000 Infocenters" and there was a reference to a price of $59.95. The actual wording of the letter was as follows:-
"As an introductory bonus to all of our clients we are now64. The next letter to clients, dated 18 January, 1988 (Ex.P18) commenced with these words:-
pleased to offer a complimentary System 2000 Infocenter to
you], and also offer you up to 10 Infocenters for your
friends, family, clients etc, at the special price of
$59.95. To order your complimentary Infocenter, and also
your gift Infocentres, please forward a cheque for No. of
units req. (at $59.95 each.), along with your order for
COMPLIMENTARY INFOCENTER to P.O. Box 488, Norwood, 5067.
(Allow 14-28 days for delivery.)"
"Thank you for the massive response to our Special65. Mr. Mahood admitted that it was not correct to say that there had been a "massive response" for units at $59.95 each; but he did say that there had been a "massive response" from clients who, in my opinion with complete justification, had read Ex.P17 as offering them a "free" (i.e. complimentary) "System 2000 Infocenter". No such free units were ever distributed because there were none then in Australia. I classify the company's letter of 18 January 1988 as outrageously deceitful. It was written at a time when the Infocenters had not yet arrived and when earlier promises of production deadlines and deliveries had not been fulfilled.
Introductory Offer of up to 10 units at $59.95 with your
complimentary System 2000 Infocenter. These units will be
dispatched to you A.S.A.P.
I would like to explain, at this point, the reason for our
Introductory Offer to our valued clients. The whole thrust
of this campaign is to flood your market as quickly as
possible, with as many System 2000 Infocentres as possible,
thereby increasing your exposure in as many homes as
possible. Hence our request for your co-operation in
marketing our System 2000 Infocentre to the best effect; to
your customers your competitors, customers, and as many
potential customers in your chosen area(s) as we can]
I feel confident that, having explained the strategy behind
our special offer to you, that we can expect an even better
response from you, our valued clients in the immediate
future.
Once again thank you for your continued support, and we look
forward to meeting all of your order requirements."
66. According to Mrs. Rowden, she was "devastated" when, finally, in March
1988, she received a small shipment of about 100 "Infocenters".
Many of these
were damaged or defective; Mr. Mahood thought only about half of them were fit
for distribution (p 114). Mrs. Rowden
said at p 709:-
"I mean, I just could not believe, with all the hold ups at67. In a facsimile transmission dated 11 March 1988 Mrs. Rowden complained to Mr. Ion about the quality of the units, listing a litany of defects. He replied on the same day, virtually agreeing with all that she had said, adding "... but believe me everything is in itself a small detail, requiring only minimal change...". Nevertheless, Mr. Ion felt compelled to conclude his transmission with these words:-
that stage that they had had with System 2000 and all the
assurances, which I never doubted for one moment were going
to eventuate, that these units arrived and they were in the
condition that they were. It left me in an awful position."
"For God's sake don't continue selling Janet until we have68. Mrs. Rowden was not the author of those words; they appear in a facsimile transmission directed to her from Mr. Ion. But the transmission was exhibited to her affidavit and she referred to it in her evidence in chief (p 709). Neither in her affidavit nor in her evidence did she identify the subject matter that Mr. Ion was referring to when he issued his instruction to stop selling. But I have no difficulty in drawing the inference that he was referring to sales of advertising services in the "System 2000" advertising scheme.
it all right."
69. Later in the same month, March 1988, Mrs. Rowden received a new sample of
the "Infocenter" which she accepted and approved.
Based on that sample she
placed an order for a further 6000 units. On 28 March Mr. Ion acknowledged
the order and advised that "the
System 2000 Infocenter units will be arriving
in Australia on May 19, 1988"; they did not arrrive on that date and in
response to
an inquiry from Mrs. Rowden, Mr. Ion advised her of further delays
and his inability "to give you an exact date when they will be
arriving in
Australia". On 25 May 1988 Mrs. Rowden sent the following facsimile
transmission to Mr. Ion.
"Dear Glen,70. This then was the climate in which a letter was written to clients on the letterhead of System 2000 on 18 May 1988 (Ex.P26). This letter was signed by Mrs. Rowden because, by this stage, Mr. Mahood had been dismissed. Having regard to the history of this matter one can only marvel at Mrs. Rowden's ability to commence the letter with these words:-
I feel that I can no longer take any further delays of these
units. I must inform purchasers of System 2000, that there
is going to be a indefinite delay of these units, and I must
refund their money.
Glen, I would also like to put on hold the order I made for
6,000 units of the 11/3/88, until further notice.
When you have fully established a firm delivery date, with
no further delays please inform me.
Regards, Janet Rowden."
"It is with much enthusiasm I write these few lines to keep71. But of greater significance is the appearance, in this piece of correspondence of the reference to a "bonus".
you up to date on recent developments."
"This year Easyfind included the brochure for the sale of72. As I have said it was Mrs. Rowden's case that letters had been sent to clients because of instructions that she had received from either Mr. Ion or Mrs. Dunn. In fact, she claimed that not only was the information that was contained in those letters composed in accordance with directions from head office, but also that she was under instructions to forward to head office a copy of her correspondence with clients. Exhibit R76 was tendered as an example; it was a copy of a facsimile transmission dated 20 October 1987 from Mrs. Rowden to Mr. Ion's personal secretary and it said:
System 2000, Infocenter. Marketing for System 2000 to date
has been done through direct mail and Television.
I am pleased to report we are delighted with results and are
eagerly awaiting a further shipment to enable us to fulfil
orders. As you are aware because System 2000 Infocenter is
new we were unable to guarantee numbers that would be sold
during the first 1-2 years, therefor for the price of
Easyfind we offered you free as a bonus, your name in all
System 2000, Infocenters sold in your exclusive Easyfind
areas. We believe based on reaction todate this will turn
out to be the best freebee you have ever had."
"Here is a copy of the letter we have sent to our clients,73. Exhibit R76 did not have attached to it the copy letter to which it referred and Mrs. Rowden was "not 100 per cent certain" which of the letters it referred to. However, it seems to me to be reasonably obvious that, on her case, it could only have been the letter of 16 October 1987: Ex.R19. I accept her evidence that she regarded herself as part of a larger world-wide organisation, answerable to head office and amenable to the directions that were issued from time to time by Mr. Ion and Mrs. Dunn.
as per your instructions."
74. Exhibit R51 is a very significant document; first, it supports Mrs.
Rowden's claim that most of the information that was passed
on by or in the
name of the company to the clients emanated from head office. But then it is
also highly significant for it supports
that part of the case for the Crown
which alleges that it was advertising space in "System 2000" that was being
offered to the public.
Exhibit R51 was a facsimile transmission from Phyllis
Dunn to Janet Rowden dated 30 May 1987. It commenced with these words:-
"Enclosed is a letter that should go out to all clients to75. The enclosed draft letter contained these statements:-
reinforce the sale, just in case they are getting cold
feet."
"I am writing to keep you up to date with developments of76. Mrs. Rowden's evidence was that she used Ex. R51 to compose Ex. R77. Exhibit R77 was a letter dated 22 July 1987 that she despatched to all clients. When the two letters are compared it can be seen that they are identical in their content save in one area - the words "we are informed that" were inserted by Mrs. Rowden in her letter immediately before the words "Manufacturing of the moulds is right on schedule"; as I understand her evidence at pp 716-718, Mrs. Rowden was claiming that the additional words "we are informed that" were intended to qualify every statement of fact that thereafter appeared in the letter. She agreed that neither she nor her company had originally ordered one set of moulds nor commenced a second set; she also agreed that neither she nor her company had been "overwhelmed by the reaction of business people world-wide". It was her claim that her clients would know that she and her company were part of a world-wide organisation and that she was referring, in the letter, to the whole organisation. I regard that as pure fantasy; but what is more, I am satisfied that Mrs. Rowden knew that her evidence was pure fantasy. She was compelled to find some explanation for the false statements that were contained in the letters that her company sent to its clients. Her answer was to fall back on head office and saddle it with all the responsibility; so long as head office was supplying her with drafts or outlines of letters or so long as she inserted some words of qualification such as "we are informed that" she felt she was immune from any responsibility; nothing could be further from the truth.
System 2000...
Manufacturing of the moulds is right on schedule; we
originally ordered 1 set of moulds to produce 40,000 units
per month; we have, as a result of successful marketing,
already commenced a second set of moulds, lifting capacity
to 80,000 per month, or 1,000,00 per year.
We have been overwhelmed by the reaction of business people
world-wide; department and chain store buyers and the
general public."
77. If information is disseminated and it is misleading or is liable to mislead, then the person or the persons who are responsible for that dissemination can, in appropriate circumstances find themselves in breach of various provisions of the Trade Practices Act. The fact that they were not the authors of the information is of no consequence when questions of guilt fall to be determined; the fact that they felt constrained to act because of orders from their superiors is likewise immaterial when considering questions of guilt. Those matters may, in appropriate circumstances, become issues of importance when considering questions of penalty but they can not allow anyone to avoid the responsibilities that are imposed by the legislation.
78. Section 85 of the Act affords a defence when the defendant establishes that the contravention was due to a reasonable mistake or to reasonable reliance on information supplied by another person or when the defendant establishes that the contravention occured because of some third party's conduct or because of an accident and the defendant took reasonable precautions and exercised due dilligence to avoid the contravention. To receive, as Mrs. Rowden and the company received, information from head office, and to regurgitate that information without making any attempt to verify its accuracy puts them, at the least, at risk. When that information is received along with a series of postponed dates of delivery and with advice on how best to placate irate customers, the position becomes grave.
79. If the company and Mrs. Rowden wish to invoke any of the defences afforded by s.85 they have the onus of satisfying the Court on the balance of probabilities that they have acted reasonably. I am far from satisfied; the evidence before the Court establishes positively, in my opinion, that they acted, on occasions, unreasonably. In coming to that conclusion I have not overlooked the evidence that established that Mrs. Rowden expended substantial sums of money on or with respect to "System 2000". For example, she had to pay for the printing of "System 2000" brochures. That cost a substantial sum of money and her evidence appears on this subject at p 727. It is not now clear from a reading of the transcript whether that cost was $34,776 or $56,700 but even the lesser figure is a very substantial sum of money. At p 823, she suggested that her total expenditure on the project was "probably more than" $80,000.
80. I have no doubt that Mrs. Rowden maintained a personal belief throughout 1987, that the "Infocenters" would ultimately arrive and that "System 2000" would eventually be a great success. But the Crown does not have to prove that she engaged in calculated fraud, well knowing that there were no Infocenters in existence. It is sufficient if the Crown proves, as a matter of objective fact, that a certain type of conduct was liable to mislead the public in a specified manner. It could even be that the offence was committed unwittingly - by accident. However, it is clear that there was no question of "accident" in this case. Although I absolve the company and Mrs. Rowden from any accusation of deliberate fraud I nevertheless hold that the company deliberately continued to sell advertising space in "System 2000", expecting that the "Infocenters" would probably arrive at some time in the future but not knowing when that would be; but what is worse, it was prepared to make false claims and tell lies about the progress of the "Infocenters".
81. According to Mrs. Scott, she was told that "System 2000" was already
"working in other parts of Australia" (p 292), that the
"Infocenter" would go
on sale at "around $45 to $50", that the scheme would "increase the amount of
customer account" and there would
"definitely" be small increases in the
turnover of her business. At the same page Mrs. Scott said that she was told
that the scheme
was:
"... going to be advertised very heavily so everyone would82. As Mrs. Scott had "bought" three areas and received a fourth as a bonus she expected that about 40,000 homes would somehow be involved in the scheme to her potential advantage (p 294). At the same page she also said that she was told that the "Infocenters" would be promoted in women's magazines and that "they were going to push it fairly hard on television as well".
get to know about it and it was affordable for many
householders...."
83. The most insidious aspect of the sales presentation was the method
whereby the customer was induced to take responsibility for
projecting some
increase in his or her business. After the sales person had explained that
the order form for "System 2000" would
be delivered to about 10,000 homes per
area, the customer was asked to estimate what he or she thought that might
mean by way of
increased turnover. Priscilla Thomas explained that if the
customer made a guess of any percentage increase, the sales person was
required, as part of the presentation, to mark the proposed increase down to
one per cent. In her evidence she said at p 322:-
"We are going to work on a 1 per cent increase. So having84. This type of evidence shows a planned campaign to prey upon the gullible and the unsuspecting. It assists materially in assessing the standards upon which the company operated its business. This in turn has made it easier to make an objective assessment about how persons might react to the company's conduct.
established that it was a million dollar marketplace, if you
increased your business within that million dollar
market place by merely 1 per cent, then you would increase - you
have a potential increase of $10,000 and that was in one
area, given that only one person from each household used
your service, so in fact households might have two or three
members which used your services. Now, in amongst all this
were obviously questions about, you know, how many people
would own this System 2000 thing anyway. How many people
would actually have this unit in their homes, and of course
we could not guarantee that every single home would have a
System 2000. However, we were very clearly told that there
was a major marketing campaign that would take place and
that that marketing campaign would include magazines, all
sorts of print media, magazines, newspapers and so on,
television and television included not only commercials."
85. The facts of this case have led me to the conclusion that the conduct of the company was such that there was an actual probability that those affected by the conduct would be misled. Business houses were being sold advertising services in a scheme that was not then established in this country; a review of the evidence, and in particular, the documentary evidence, shows quite clearly that towards the end of 1987 there was no reason to expect, with any confidence, that the scheme would be established in the foreseeable future. In fairness to Mrs. Rowden and her company, they probably commenced their sales campaign in about April or May 1987, honestly believing that "System 2000" would be established in South Australia by late 1987. However, when it should have been apparent to them that they could no longer rely on the promises that Mr. Ion and his associates were making they failed to act. They failed to withdraw their sales force. On the contrary they continued selling "System 2000". I hold that, at least from 4 November 1987 (the date of the facsimile transmission from Mr. Ion) the company was engaging in conduct that was liable to mislead.
86. I turn then to consider whether it was "the public" that was affected by the company's conduct.
87. The Crown has proved to my satisfaction that the activities of the
company's sales staff was sufficiently broad and extensive
to establish the
required public element. The word "public" is not to be taken as meaning the
world at large or the whole community.
There will be a sufficient approach to
the public if first, the approach is general and at random and secondly, the
number of people
who are approached is sufficiently large. In dealing with
the phrase "invitation to the public", Barwick C.J. said in Lee v Evans
[1964] HCA 65; (1964)
112 CLR 276 at p 285:-
"... the basic concept is that the invitation, though maybe88. The evidence of Mr. Mahood shows that the company's activities were based on a random approach; it was an approach that was both general and indiscriminate:-
not universal, is general; that it is an invitation to all
and sundry of some segment of the community at large. This
does not mean that it must be an invitation to all the
public either everywhere, or in any particular community."
"We operated a telephone sales room from the office at89. This "public" aspect was supported by the evidence of both Priscilla and Thirza Thomas. According to Priscilla Thomas, (p 315) her task, each Monday night, was to compile 200 business names; these could be drawn from any source and became the base from which approaches would be made to sell the company's services. At pp 406-407, Thirza Thomas referred to the objective of 5 appointments per day explaining why, in some cases this might not be achieved. Her estimate was that in the six months, from October 1987 to Easter 1988, in which she worked for the company, she achieved 25 to 30 sales.
Payneham Road, Stepney where either the salespeople
prospected by means of yellow pages or local newspapers.
Anybody who was advertising in local newspapers or people
that they had known, referrals that they had dug up, or we
then at various stages tried employing telephone canvassers
to produce appointments for us." (p 97)
90. To implement its selling program to business houses, the company divided Metropolitan Adelaide into a number of areas - Mr. Mahood thought the number was 36. Each area was said to represent approximately 10,000 homes. A trader, such as a plumber, was approached and he was offered the opportunity of exclusive advertising in "System 2000" for as many areas as he cared to designate; the approximate cost to a trader for such advertising was about $1,900 per annum per area. The first objective of a sales person was to induce a trader to take four areas in which case the company would give him a fifth area as a bonus. If the trader could not be induced to expend the necessary amount of money ($7,600 per annum in the example that I am discussing) the offer would be dropped to three areas with the company offering a fourth bonus area. Exclusivity of advertising was emphasised by pointing out to the trader that he would be the only plumber listed in the business directory section of the "Infocenter" in all the homes within the area or areas chosen by him.
91. By reference to his commission sheets (exhibit P15) Mr. Mahood was able to say that, during his period of association with the company sales of areas in respect of which he was entitled to receive a commission totalled 285 (p 109). There were, he pointed out, other sales of other areas in which he had no involvement; in the main they would have been sales that were effected directly by Mrs. Rowden. His assessment was that 285 areas would have represented approximately 175-200 traders or clients of the company. The contents of his commiss ion sheets justify the inference that the company was selling advertising space in "System 2000" and receiving revenue from such sales from May 1987 until March 1988.
92. The strength of the company's sales force varied from time to time. Mr. Mahood thought that it might have averaged 5 persons - Mrs. Rowden thought it could have been higher. Assuming that there were, on average, 5 persons operating in the sales section, and accepting Mr. Mahood's evidence that, as a matter of policy, each sales representative had to strive for 5 appointments with potential advertisers per day, it meant that "System 2000" was being placed before about 125 business houses weekly.
93. Having arrived at the required state of satisfaction that there was an actual probability that the public would be misled, it becomes necessary to consider the sixth element in the charge. Was the misleading in respect of one or more of the four stated aspects "of any services"? The word "services" is given a very expansive and inclusionary definition in s.4 of the Act; for example, it can include "facilities that are, or are to be, provided... in trade or commerce" under a contract for or in relation to the performance of work. Even without the aid of the definition, I would have held that the word "services" extended to the company's sales of advertising in the "System 2000" advertising scheme. What then was the particular aspect of the scheme in respect of which the issue of misleading conduct arose? I do not think that it could be said that the nature or characteristics of the scheme were, in any meaningful way mis-stated or misrepresented. But what of the scheme's suitability for its purpose and its quantity? Upon the basis that only 50 or so Infocenters were distributed in about March 1988, it is impossible to contemplate that the "System 2000" advertising scheme was suitable for its intended purpose. But a determination of this matter is not to be made in hindsight by having regard to what happened at a later stage. Whether the Crown succeeds in proving its case depends of what the company did or did not do at the time that it engaged in the relevant conduct. My finding in this area is that, the company through its agents were making statements to business houses that unequivocally implied that a new advertising scheme, ultimately to take the place of the "Easyfind" Planner, was imminently about to be established in South Australia on a substantial scale. Those statements always had the potential to mislead but from early November 1987 there can be absolutely no doubt about the matter. Prior to that time, Mrs. Rowden conceded that she had begun to have misgivings: the promised October date of delivery had passed: the plan to distribute order forms for "System 2000" with the "Easyfind" Planner pre Christmas had to be changed: and finally there was the company's letter of 30 November 1987 (Ex.P16) to its clients. That was a shocking deception which, even though it originated from Mr. Ion's facsimile transmission of 4 November 1987, clearly showed that the company well knew that the earlier promises were not going to be fulfilled.
94. I hold that from early November the company actually knew that it could
not, with any degree of commercial realism, assure the
supply of the "System
2000" advertising scheme. Its conduct then and thereafter in permitting its
sales staff to continue to sell
advertising space in the scheme amounted to a
flagrant breach of the provisions of s.55A of the Act. The inability to
ensure supply meant that the company's conduct was "liable to mislead the
public as to... suitability for their
purpose or the quantity" of the
advertising service.
Representing that services had benefits that they did not have - s.53(c)
(Miss Koltunow); Making a misleading representation concerning the
effect of any right - s.53(g) (Miss Koltunow)
95. The second and third charges that the company faces relate to the events
of 8 October 1987 as they affected Miss Koltunow. The
provisions of the two
relevant paragraphs of s.53 are as follows:-
"53. A corporation shall not, in trade or commerce, in96. For the reasons that I gave when discussing the breach of s.55A I am satisfied that, in respect of these - and indeed in respect of all charges - the company was a corporation that was engaged, in trade and commerce, in connection with the supply or possible supply of services.
connection with the supply or possible supply of goods or
services or in connection with the promotion by any means of
the supply or use of goods or services -
...
(c) represent that goods or services have sponsorship,
approval, performance characteristics, accessories, uses or
benefits they do not have;
...
(g) make a false or misleading representation concerning
the existence, exclusion or effect of any condition,
warranty, guarantee, right or remedy."
97. I find that on 8 October 1987 Priscilla Thomas called on Miss Koltunow at her place of business; Miss Koltunow was then carrying on business as a beauty therapist. I further find that the object of that visit was to sell to Miss Koltunow advertising space in the System 2000 advertising scheme (Miss Koltunow at p 222; Miss Thomas at p 374).
98. The case for the Crown was that the company, through its agent, Priscilla Thomas represented that System 2000 advertising material "would reach a substantial proportion of the homes in each of three target areas" and that Miss Koltunow's turnover "would increase by a minimum of $30,000.00 per year". The Crown further alleged that it was represented to Miss Koltunow that she would "obtain the right to have the beautician business advertised through the System 2000 advertising scheme" whereas "the contract was in its terms a contract for advertisement of the beautician business in the Easyfind calendar merely bearing an endorsement "Plus System 2000"." The latter charge can be quickly disposed of - I find it proved beyond reasonable doubt. Miss Koltunow was offered and accepted an offer for advertising in System 2000 but the contract that she was induced to sign gave her no such right. It was a contract that was expressed to be for advertising services in the "Easyfind" Planner. These findings of fact are sufficient to lead to the further finding that the relevant representation was made. As the offence is one of strict liability, it is unnecessary to examine the state of mind of the company, of Mrs. Rowden or of Priscilla Thomas. However, as it is material for other purposes, I indicate that the evidence has led me to conclude that the particular printed forms were used, partly as a result of laziness and partly as a result of ineptitude. The truth of the matter is that the "Easyfind" contracts with the "Plus System 2000" endorsement were used because no-one bothered to have new (and appropriately worded) contracts prepared.
99. The charge relating to the increase of turnover of up to $30,000 arises
out of the manner in which Priscilla Thomas delivered
her sales presentation.
Miss Koltunow's evidence was quite succinct:-
"... eventually she worked out a formula that said that I100. I am satisfied that Miss Koltunow accurately recounted the effect of the conversation that she had with Priscilla Thomas on the day in question. Even though those who were responsible for the preparation of the sales presentation were careful not to make false promises or to give false hopes if, by their choice of language in the presentation, the sales person conveyed a belief or an expectation that was not unreasonable in the circumstances, then the "fine print" will be no defence. Whilst I am satisfied from Priscilla Thomas' evidence that she was taught not to "guarantee" anything (p 322), I am also equally satisfied that Miss Koltunow was a thoroughly reliable witness. If she had a belief that she "could have earnt an extra $30,000 income for that year", it was because the presentation had been designed, notwithstanding the language used, to inculcate that belief. The figure of $30,000 derived from the fact that Miss Koltunow contracted to advertise in three areas, each of which was said to have 10,000 people. The proposition was to allow for 1% of the people in the three areas being so affected by the advertising as to each spend $100 per annum in Miss Koltunow's business (3 x 10,000 x 1% x $100.00 = $30,000). Asked whether these calculations were presented to a customer as "a bit of a pie in the sky that might or might not be real", Mrs. Thomas answered:
could have earnt an extra $30,000 income for that year."
(pp 222-223)
"No, no. It was very much a feasible thing. I mean, it101. The law does not exist to protect fools from themselves. If people act irresponsibly, they have, in most cases, only themselves to blame. But Miss Koltunow was not such a person. What she was told reasonably led her to believe that there would be, within the foreseeable future, an advertising scheme for "System 2000" that would be heavily advertised and available for distribution throughout the areas that she had "bought". Once it is accepted that her beliefs were reasonable, then, as Priscilla Thomas said, the scheme looked feasible and logical.
looked so logical on the paper. You could not argue with
the figure." (p 324)
102. As the company failed to establish the "System 2000" advertising scheme on any significant scale, the advertising services did not, in the events that transpired, have the benefits that had been held out to Miss Koltunow. Unlike the breach of s.55A, the absence of a reasonable expectation was not included by the Crown when specifying the particulars of the alleged breach of s.53(g). However, Mrs. Rowden maintained that she and her company relied, as I have earlier explained, upon the information that was fed to them by Mr. Ion, Mrs. Dunn and others in head office. In assessing that defence, I came to the conclusion that the facsimile transmission from Mr. Ion on 4 November 1987 was its death knell. But the representations to Miss Koltunow about her increased turnover were made on 8 October 1987, a month or so earlier. Does this therefore mean that, as a matter of consistency, I should give to the company the benefit of the doubt when considering this charge?
103. Mr. Hackett-Jones argued that the representation that the advertising material would reach a substantial proportion of the homes in each of the three target areas and, more importantly, that the turnover of the business would increase by a minimum of $30,000 per annum, were representations that were capable of assessment by the company and by Mrs. Rowden independently of what they may have been told by head office. The truth or the falsity and the certainty or the uncertainty of those representations and the likelihood or unlikelihood of those representations eventuating were, so he said, as much known to the company and Mrs. Rowden as they were known to Mr. Ion and others ar head office. I am satisfied that this analysis is correct. There was absolutely no justification for making such a representation.
104. In fact the state of the evidence was such that it established that it would have been most unwise, in early October, to speculate on the likely benefits from "System 2000". It is one thing for head office to advise on the results of some survey and for the company or Mrs. Rowden to pass on those results, not knowing whether the results are true or false; it is an entirely different matter for one of the company's sales force to make a sales presentation that reasonably led a trader to believe that her business would increase by 1%. That specific presentation to that specific trader cannot be attributed to head office. Nor was it sufficient that in cross-examination Miss Koltunow conceded that no "guarantee" had been given to her that her business would increase by 1%. Indeed those responsible for the preparation of the sales presentation were too clever to make such an obvious mistake.
105. But in a consideration of the nature of the representations that were
made to Miss Koltunow, one is concerned with matters of
substance - not
matters of form. If what was said - and the way in which it was said - was
calculated to make a reasonable person
believe that the turnover of her
business would increase and she reasonably believed that it would so increase,
it does not matter
what words were actually used. There is, in my opinion,
evidence from Miss Koltunow and from Priscilla Thomas that is sufficient
to
prove that the relevant representations were made and that they were false. I
therefore find the company guilty of this charge.
Making a misleading representation with respect to the price of goods
goods-s.53(e) (Mrs. Scott); Making a misleading representation
concerning the
effect of rights - s.53(g) (Mrs. Scott)
106. These two charges against the company relate to the events of 6 November
1987 as they affected Mrs. Scott. I have already set
out the provisions of
s.52(g). Section 53(e) prohibits a corporation from making "a false or
misleading representation with respect to the price of goods or services".
The second
of the two charges (i.e. the charge dealing with the advertising
rights as set out in the contract) can be disposed of peremptorily
for the
same reasons as those affecting Miss Koltunow - I find that charge proved.
However, I find that the evidence relating to
the price of the intended
advertising services is uncertain. Mrs. Scott was asked in evidence in
chief:-
"Did she (Thirza Thomas) give you any idea of how much theHer answer to this question was -
retail price of the Infocentre (sic) was likely to be?"
(p 292)
"Yeah, it was under $50 - so around $45 to $50."107. The case for the Crown, as contained in its particulars in support of the charge was that:-
"The defendant through its agent, the said Thirza Gay108. In my opinion, to "give an idea" of a likely retail price falls short of "representing" that the retail price would be a specific sum. Furthermore, Mrs. Scott's reference to "$45 to $50" appears to be her conclusion rather than the reiteration of Thirza Thomas' statement. Her further evidence in cross-examination on the subject of price at pp 300 and 306 suggests that Thirza Thomas may have said words to the effect that the price would be between $45 and $50 but this was in answer to leading questions and must be contrasted with the evidence of Thirza Thomas who said that at all relevant times the figure that she quoted to customers was "approximately $55" (p 425: see also p 410 where she said that "the System 2000 was going to be under $55...").
Thomas, represented to the business proprietor that Info
Centres (sic) would be offered for sale to the public at a
price of $45.00 to $50.00 per unit."
109. The doubts in my mind about what was said by Thirza Thomas to Mrs. Scott
on 6 November 1987 on the subject of retail price are
exacerbated by the fact
that evidence on this topic was not led from Miss Thomas - she was merely
asked whether she was told at some
stage the price at which the Infocenters
would be sold to the public (p 410). I have no doubt that the possible or
probable retail
price was discussed: but whether those discussions amounted to
a representation - and if so, what representation - is far from clear.
I find
the company not guilty of this charge.
Making a misleading representation with respect to the price of goods-s.53(e)
(Mrs. Vlahakis)
110. As was the case with Mrs. Scott, the prosecution alleged that the company represented that the Infocenters would be offered for sale to the public at a nominated price - in this case at $49.95 per unit - and that the representation was misleading in that the ultimate price was $69.95. But also, as was the case with Mrs. Scott, I am not satisfied that what was said by the salesman (Mr. Fotopoulos) could properly be classified as a representation. Although his evidence was not essential, the case for the prosecution was not made easier by the absence of Mr. Fotopoulos and there is the further difficulty caused by Mrs. Vlahakis' evidence that "System 2000" and the Easyfind Planner was a "package". When giving her evidence, Mrs. Vlahakis was unsure whether Mr. Fotopoulos had said that the retail price was $49.99 or $45.99 (pp 244 and 254). I regard that as a trivial discrepancy. However the particular charge that has been laid against the company is centred exclusively upon and relates only to the intended retail price of the Infocenters in the "System 2000" advertising scheme. Mrs. Vlahakis' evidence does not match that charge. It was her belief that she was acquiring advertising space in both "System 2000" and the Easyfind Planner.
111. Arguably, it could be said that it does not matter whether Mrs. Vlahakis was to get advertising space in the one scheme with the other as a bonus or in both schemes because the particular charge relates to what was said to her about the intended retail price of an identifiable piece of equipment: viz:- an Infocenter. I think that there are two answers to that proposition: the first is that it would not be fair to the defendant to take such a liberal view; both the company and, indirectly, Mrs. Rowden prepared their defences upon the premise that the Crown was alleging that advertising space was being sold only in the "System 2000" scheme of which the "Infocenter" was the physical manifestation. To permit the Crown, through the evidence of Mrs. Vlahakis, to say, at a late stage in the proceedings that the "Infocenter" was part of a broader advertising package involving the Easyfind Planner would be unfair.
112. Even if this should be an overly lenient attitude to adopt there remains
the reality of the evidence about price and whether
it could, properly amount
to a "representation". For example the topic of price was first addressed by
Mrs. Vlahakis when answering
a question about the composition or layout of the
"Infocenter" (which she described as a "type of diary" - p 243). She said at
p
244:-
"I remember specifically asking Mr Fotopoulos whether I113. I find this passage of the evidence to be vague and uncertain; it lacks the incisiveness and detail that was alleged by the prosecution in its Particulars - viz: that on 20 November 1987 Mr. Fotopoulos offered to supply to Mrs. Vlahakis advertising services through an advertising scheme which scheme "involved the sale to the public of devices described as "System 2000 Info Centres ... in large quantities" and that he represented to her that "Info Centres would be offered for sale to the public at a price of $49.95 per unit". As particularised, the issue of price was resolved and certain on 20 November 1987: there was no room for doubts nor need for verification: but according to Mrs. Vlahakis, the salesman had explained that the units were not yet available, that he could not state a specific date on which they would be available and "we let it go at that". All this suggests to me that the discussion about price should more properly be labelled "predictions" or "estimates" rather than "representations". For these reasons I find the company not guilty of this charge.
could keep it in my shop and I thought, well, it may be a
very good idea for Father's Day and for gifts of that
nature, and Mr. Fotopoulos said, 'Oh, yes, of course, that
could be quite easily arranged. How many of these would you
want?' 'Well,' I said, 'I can't tell unless I know how much
it would cost', et cetera, and he - I asked him and he said
it would be about $49.99 or $45.99.
Did that have any particular significance to you?... Yes, I
thought that was a rather reasonable price and I said,
'Look, I would be very interested. It sounds like an
interesting gadget and if I am going to be advertising my
own business, why not from my own business as well?' So we
left it at that and he said he would let me know when
these - when this particular System 2000 was going to become
available.
So do I understand from that - is it correct from that that
Mr Fotopoulos was saying, in effect, System 2000 is not yet
available but...? ... But, yes, it was going to become
available.
When was it to become available? Did he give you an
indication of that?... No, not really, not a specific date
but we - we let it go at that and he said there was going to
be a lot of advertising in connection with this diary or
this System 2000, as he called it, but..."
114. Section 58(b) of the Act provides:-
"58. A corporation shall not, in trade or commerce, accept115. It is alleged that on 16 February 1988, through the agency of Thirza Thomas, Mr. and Mrs. Stamatelopoulos signed a contract with the company for the supply by the company of advertising services through the "System 2000" advertising scheme. These allegations have been proved beyond reasonable doubt. I accept the evidence of Mrs. Stamatelopoulos and Miss Thomas on this subject in preference to that of Mrs. Rowden. It is further alleged that on 16 February 1988 and, thirteen months later, on 16 March 1989 the company accepted from Mr. and Mrs. Stamatelopoulos payments under the advertising contract of $1,462.50 and $487.00 respectively. These two payments were proved to my satisfaction. In para (f) of the "Particulars" in each of the two Informations there is the following averment:-
payment or other consideration for goods or services where,
at the time of the acceptance -
(a) ...
(b) there are reasonable grounds, of which the corporation
is aware or ought reasonably to be aware, for
believing that the corporation will not be able to
supply the goods or services within the period
specified by the corporation or, if no period is
specified, within a reasonable time."
"At the time of accepting the payment there were reasonable116. Bearing in mind my earlier findings that were based on the facsimile transmission from Mr. Ion on 4 November 1987, it is apparent that each averment has been made out. As from November 1987 and at all times thereafter, the company - and also Mrs. Rowden - knew that it was unable to rely on information about delivery dates from head office. Mr. Hemsley argued that the reference to the corporation being "aware" meant that "mens rea" was an element in the commission of a breach of s.58(b). I think not. The fact that the section goes on to add a reference to reasonable grounds of which the corporation ought reasonably to be aware shows that what is required is an objective assessment of the factual material that was before the corporation.
grounds of which the defendant was aware or ought reasonably
to have been aware for believing that the defendant would
not be able to supply the advertising services within a
reasonable time in that it was then apparent or ought to
have been apparent to the defendant that there was no
reasonable prospect of implementing the System 2000
advertising scheme within a reasonable time."
117. That assessment might show positively that the corporation was aware but
it will be sufficient if it shows that the corporation
ought reasonably to
have been aware. But in this particular case I find it unnecessary to examine
this issue in any greater detail.
I am well satisfied that both the company
and Mrs. Rowden had an actual awareness first in February 1988 and secondly in
March 1989
that there were reasonable grounds for believing that the company
would not be able to supply the advertising services through the
"System 2000"
advertising scheme within a reasonable time. I find both these charges
proved.
Summary
118. The results of my findings are that I have found J and R Enterprises
Pty. Ltd. guilty of six breaches of s.79(1)(a) of the Act - misleading the
public - s.55A - representing to Miss Koltunow that services had benefits that
they did not have - s.53(c) - two counts of making misleading representations
to Miss Koltunow and Mrs. Scott concerning the effect of rights under
contracts
- s.53(g) and two counts of accepting payments from Mr and Mrs
Stamatelopoulos - s.58(b). I have found the company not guilty of the two
charges that related to representations to Mrs. Scott and to Mrs. Vlahakis as
to the
retail price of "Infocenters".
Mrs. Rowden
119. It is now necessary to give consideration to the charges that have been laid against Mrs. Rowden. It goes without saying that the two that relate to aiding, abeting, counselling or procuring the company to contravene the provisions of s.53(e) (making a misleading representation with respect to the price of goods) must be dismissed. But what of the other six?
120. In each case, the statement of offence alleged that Mrs. Rowden "aided, abetted, counselled or procured a person, namely J and R Enterprises Pty. Ltd." to contravene a particular provision of the Act. In McDermott v The Queen (1987) 45 SASR 335, the Full Court rejected the proposition that the prosecution was obliged to prove all four of those aspects of secondary participation, accepting rather that they were four alternative ways of committing a particular offence and that proof of any one of those ways would suffice for a conviction.
121. The particulars of offence, as contained in the six informations may be conveniently referred to in two groupings. In the two informations that related to the receiving by the company of money from Mr. and Mrs. Stamatelopoulos, it was averred in each case that the payment was accepted in accordance with instructions given by the company and that Mrs. Rowden "procured the company to give those instructions or had knowledge of, acquiesced in, and encouraged the giving of those instructions". As to the remaining informations, each of which had, as its genesis, the making of some representation, it was pleaded that the relevant representation was made in accordance with instructions given by the company and that Mrs. Rowden "procured the company to give those instructions or had knowledge of, acquiesced in, and encouraged the giving of those instructions".
122. In the words of Viscount Haldane L.C., Mrs. Rowden was "the directing mind and will of the corporation, the very ego and centre of the personality of the corporation... (she) was the life and soul of the company" (Lennard's Carrying Company Ltd. v Asiatic Petroleum Company Ltd. (1915) AC 705 at p 713). It is true that her husband was also a director but the evidence established that he took no active part in the operation of the company let alone its day to day management: that, so I find, was the exclusive province of Mrs. Rowden.
123. The High Court has made it clear that "... a person cannot aid, abet, counsel or procure the commission of an offence, even a statutory offence involving strict liability, without intent based upon knowledge of the essential facts which constitute the offence..." (Giorgianni v The Queen [1985] HCA 29; (1984-1985) 156 CLR 473 per Wilson, Deane and Dawson JJ. at p 503). And as their Honours later pointed out (at p 506) "it is not possible to speak of recklessness as constituting a sufficient intent" when considering the offences of aiding and abetting and counselling and procuring.
124. I will proceed now to consider the six charges; I will deal with them in
the same order as the charges against the company.
Misleading the Public - s.55A
125. My findings of fact with respect to the charge against the company, lead
me, inexorably, to the conclusion that Mrs. Rowden
actually knew as from about
4 November 1987 and at all times thereafter that the company could not match
its promises. Prior to
that date, she had begun to have misgivings and
perhaps it could even be said of her that prior to that date she permitted the
company
and its sales force to proceed with reckless indifference. But when
she read the facsimile transmission from Mr. Ion that was dated
4 November
1987 she knew then that the company would not be able to honour the
representations that its sales force had earlier made
and that they continued
thereafter to make. I find Mrs. Rowden guilty of this charge. The
discrepancy in the date specified in
the information (i.e. the reference to
October) and my finding that actual knowledge was not obtained until 4
November or sometime
shortly thereafter is of no consequence because the date
was not an essential part of the offence: R v Dossi (1918) 13 Cr App R 158
Representing that services had benefits that they did not have - s.53(c) (Miss
Koltunow); Making a misleading representation concerning the effect of any
right - s.53(g) (Miss Koltunow)
126. When Priscilla Thomas made her sales presentation to Miss Koltunow and convinced Miss Koltunow that her business turnover could increase by "an extra $30,000", Miss Thomas was following the instructions that she had been given by Mr. Mahood when she underwent her sales training program. The training manual may have originated overseas but its contents were known to Mrs. Rowden and it was she who had, in the first place, taught Mr. Mahood how to teach other members of the sales force. I find that Mrs. Rowden procured the company to give its sales persons (including Priscilla Thomas) the instructions to make the representations with which I am presently concerned; I further find that she had knowledge of, acquiesced in and encouraged the giving of those instructions. As I said when discussing the primary charge against the company, Mrs. Rowden cannot shelter behind Mr. Ion and the others at head office. I am satisfied that Mrs. Rowden well knew the dangers, in October 1987, attendant upon the company's sales force making the representations that were made to Miss Koltunow. I find Mrs. Rowden guilty of this charge.
127. I intend to give to Mrs. Rowden the benefit of the doubt with respect to
the breach by the company of s.53(g). It is true that the company
misrepresented to Miss Koltunow that she would receive advertising services in
the "System 2000" scheme
when the contract that she was induced to sign was
limited to advertising in the "Easyfind" Planner. However I do not believe
that
Mrs. Rowden intended these consequences. I have concluded that she
instructed the sales force to "sell" the "System 2000" scheme
and that, for
that purpose, either through laziness or ineptitude, she was instrumental in
having the sales people use "Easyfind"
contracts. I am not satisfied that the
necessary intent was present.
Making a misleading representation concerning the effect of any right -
s.53(g) (Mrs. Scott).
128. For the reasons that I have set out above, I likewise give to Mrs.
Rowden the benefit of the doubt and find her not guilty of
this charge.
Accepting payment where there are reasonable grounds for believing that the
corporation were not liable to supply the services - s.58(b) (Two charges: Mr.
and Mrs. Stamatelopoulos).
129. In setting out my reasons for finding the company guilty of each of the
primary charges I also stated my findings about Mrs.
Rowden's state of
knowledge. I am further satisfied that each payment was accepted by the
company in accordance with instructions
given by the company and that Mrs.
Rowden procured the company to give those instructions. It remains to say
that the evidence
was sufficient to draw inferences that Mrs. Rowden knew, in
each case, of the receipt and acceptance of each sum of money. I therefore
find her guilty of each charge.
Summary
130. The results of my findings are that I have found Mrs. Rowden guilty of four breaches of s.79(1)(b) of the Act - procuring J and R Enterprises Pty. Ltd. to mislead the public s.55A - procuring the company to represent to Miss Koltunow that services had benefits that they did not have - s.53(c) and two counts of procuring the company to accept payments from Mr. and Mrs. Stamatelopoulos. I have found her not guilty of the remaining four charges - two dealt with the intended price of "Infocenters" and two dealt with the use of the "Easyfind" advertising contract.
131. I stand these proceedings adjourned to a date to be fixed in consultation with counsel and on that date I will hear submissions on penalty.
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/1991/21.html