Australian Competition & Consumer Commission v World Netsafe Pty Ltd [2000] FCA 33 (27 January 2000)

Last Updated: 28 January 2000

FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v World Netsafe Pty Ltd [2000] FCA 33

TRADE PRACTICES - application for interlocutory injunctions and mareva orders for alleged representations made and pyramid selling - whether there is a serious question to be tried and where the balance of convenience lies.

Trade Practices Act 1974 (Cth)

Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 162 ALR 294 Foll

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v WORLD NETSAFE PTY LTD AND TERANCE BUTLER

NO Q297 OF 1999

COOPER J

BRISBANE

27 JANUARY 2000

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q297 OF 1999

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	WORLD NETSAFE PTY LTD FIRST RESPONDENT TERANCE BUTLER SECOND RESPONDENT
JUDGE:	COOPER J
DATE OF ORDER:	27 JANUARY 2000
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. Until trial of the action or earlier order, the first respondent and the second respondent, by themselves, their servants or agents or otherwise, are restrained from :

(a) attempting, in the promotion and operation of a scheme carried on under the name or style of "World Netsafe" being the scheme as pleaded and particularised in paragraph 7 of the amended statement of claim ("the Scheme"), to induce persons to become members of the Scheme by paying to the first respondent US$1,500 or AUD$2,389 by holding out to those persons the prospect of receiving payments or other benefits of the type particularised in sub-paragraphs 7(i) and 7(j) of the amended statement of claim by the introduction of other persons who become members of the Scheme;

(b) representing for the purpose of inducing a person to make a contract to acquire membership of the Scheme or to acquire a card described as a "World Netsafe ATTM Card" or other goods or services upon becoming a member of the Scheme, that after making such a contract to acquire membership or to acquire the said card or other goods or services upon becoming a member, the person in return for assisting the first respondent to supply goods or services to other persons would be paid a commission payable on the event of those other persons acquiring goods or services from the first respondent.

2. Without prejudice to the right of the first respondent to communicate to present members of the Scheme promoted and operated by the first respondent under the style or name of "World Netsafe" on the development of a card called the "World Netsafe ATTM Card", the first and second respondents, until the trial of the action or earlier order, are restrained by themselves, their servants or agents or otherwise from representing that the first respondent presently has available for supply, whether alone or as part of the said Scheme, a card and that in respect of the use of the card :

(a) the card is of any assistance in making telephone calls;

(b) records of teleminutes (or any similar concept) is kept in relation to the card;

(c) any record of any currency is kept in relation to the card;

(d) any arrangement has been made with any bank or other financial institution in relation to the card;

(e) a deposit can be made to the credit of any card;

(f) any arrangement has been made with a third party for the certification of any software associated with the card;

(g) the card is of any assistance in making purchases by way of utilising an electronic communication network;

(h) the card possesses any debit card facilities;

(i) the card is of any assistance in obtaining cash from an automatic teller machine;

(j) the card has any association with Visa, Mastercard, Maestro or Cirrus cards or debit platforms, or with any other network utilising electronic communication in relation to banking or commerce;

(k) it is possible for a member of the Scheme to earn money from their membership.

3. The costs of the notice of motion seeking injunctive relief filed on 22 December 1999 be reserved.

4. The notice of motion filed 20 December 1999, in so far as it seeks further interlocutory orders pending trial of the action, is dismissed.

5. The applicant pay the respondents' costs of and incidental to the notice of motion filed 20 December 1999.

6. The application be adjourned to 25 February 2000 at 9.30 am before Spender J for further directions.

7. Liberty to apply.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q297 OF 1999

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	WORLD NETSAFE PTY LTD FIRST RESPONDENT TERANCE BUTLER SECOND RESPONDENT

JUDGE:	COOPER J
DATE:	27 JANUARY 2000
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1 On 20 December 1999 the applicant commenced proceedings against the respondents alleging conduct in contravention of the Trade Practices Act 1974 (Cth) ("the Act"). The alleged conduct concerns the marketing of an electronic card with claimed features as part of a scheme whereby participants are offered financial reward by introducing new participants to the Scheme.

2 The particular matters complained of are that there does not presently exist any card with the claimed attributes, and that to make the representations that such a card exists constituted in the past, and will constitute in the future, conduct that is misleading and deceptive or likely to mislead or deceive contrary to s 52 of the Act, and further, that particular representations made relevantly contravene s 53(aa), s 53(c) and s 53(d) of the Act. It is claimed also that the Scheme, as in fact represented and implemented, contravenes s 57 and s 61 of the Act which prohibit respectively referral selling and pyramid selling.

3 The case against the second respondent is that he is the sole director and secretary of the first respondent, and was knowingly concerned in the contraventions of the Act by the first respondent.

4 The applicant obtained interim relief on 23 December 1999. The applicant now seeks interlocutory injunctive relief and orders in the nature of mareva orders pending trial. The granting of any relief is opposed by the respondents.

5 The evidence establishes to my satisfaction that the first respondent does not have a card which has all of the claimed attributes, and is unable to presently supply such a card to anyone who is induced to pay money in any amount for it. Indeed, on the material there is a serious question to be tried whether the first respondent has a card which has any of the attributes claimed. The respondents contend that it was disclosed to members that the card did not exist but was in the development stage and there is some evidence from members to this effect. However, the promotional material carries no such disclosure and objectively represents that such a card is presently available.

6 The Scheme alleged by the applicant is pleaded in paragraph 7 of its amended statement of claim. The allegations are :

"7. The Scheme was structured as follows :

(a) World Netsafe provided goods or services, including the Card, and access to methods and techniques of leaders in business and personal development.

(b) Persons applied to become members of World Netsafe by completing and signing a members application and agreement form (`the application form').

(c) Persons applied to become members of World Netsafe:

(i) as a result of promotion of the Scheme by World Netsafe;

(ii) as a result of their being canvassed by existing members of World Netsafe.

(d) The application form provided for the applicant to identify a sponsor who was already a member of World Netsafe. On joining, the applicant became a `first generation' member in relation to the sponsor.

(e) the cost of becoming a member of the Scheme was US$1,500, or AUD$2,389.

(f) The goods or services provided by World Netsafe to a new member were supplied to that new member under the transaction constituted by the applicant becoming a member of the Scheme.

(g) That transaction was arranged or effected:

(i) in the case of some applicants, by World Netsafe;

(ii) in the case of some applicants, by sponsors.

(h) In the premises of the preceding sub-paragraphs, the Scheme was a trading scheme within the meaning of s61(4) of the Act.

(i) An amount of money (`commission') which was equal to a proportion of the amount paid by a person to become a member was paid by World Netsafe to the sponsor of that person.

Particulars

The best particulars which the applicant can presently provide is that the amount was either 20% of 20% of the joining fee, or was 20% of 20% of $2,200, or was 20% of 20% of $2,290.

(j) The applicant repeats and relies on paragraphs 6.21 - 6.24 hereof.

[6.21 (at all times) when the subsequent member used their Card at an automatic teller machine, the prior member would receive at the time of the transaction a percentage (paid in teleminutes) paid directly into their account;

6.22 (at all times) depending on the number of subsequent members introduced by an original member and generations subsequent to the original member, the original member would earn income in respect of up to 10 generations from the original member;

6.23 (at all times) an amount of money which was equal to a proportion of the amount paid by a person to become a member was paid by World Netsafe to the sponsor of that person.

6.24 (at all times) that it was feasible for members to earn in excess of $230,000 per month from their membership.]

(k) The representations referred to in paragraphs 6.21 6.24 constituted a prospect held out to a prospective member of receiving payments or other benefits in respect of the introduction of other persons who become members of the Scheme.

(l) Prospective members were induced to pay the sum of $2,389 by reason of that prospect being held out to them.

(m) In the premises of the preceding sub-paragraphs, World Netsafe contravened s61(1) of the Act.

(o) In the alternative to sub-paragraphs (l) and (m) hereof:

(i) World Netsafe, by holding out the prospect referred to in sub-paragraph (k) hereof, attempted to induce prospective members to pay the sum of $2,389;

(ii) In the premises of the preceding sub-paragraphs (excluding sub-paragraphs (l) and (m) hereof), World Netsafe contravened s61(2) of the Act."

7 The respondents dispute that the first respondent operated a scheme as alleged and contend it was engaged in supplying a range of goods and services under network marketing arrangements which did not offend either s 57 or s 61 of the Act. The respondents contend that no payments were made to become a member of the Scheme and that no promises of payment were made to induce persons in the first instance to make contracts to acquire goods or services. The payments made, or to be made to members, were in the nature of loyalty payments, or commissions earned on the sale of goods and services to third parties where the existing member had introduced the third party to the first respondent and the person made payments which attracted a commission or the earning of teleminutes.

8 I am satisfied that there is evidence which, if accepted on trial, would make out each of the material allegations pleaded in paragraph 7 of the amended statement of claim. In those circumstances the applicant has made out a serious question to be tried that the first respondent has engaged in conduct in breach of s 57 and s 61 of the Act.

9 There being a serious question to be tried that the first respondent has engaged, and unless restrained will continue to engage in conduct in breach of the pleaded sections of the Act, the issue of the balance of convenience arises.

10 The respondents submit that injunctions in the form which the applicant seeks will restrain conduct which it is not alleged to contravene any provision of the Act and which will have the effect of closing down the first respondent's business. Further, they submit that there is a significant degree of demonstrable support by the membership of the Scheme to its continued operation and an appreciation by the membership that the card did not exist and was in the developmental stage. Until the interim orders were made, refunds were given to any member who sought to withdraw from the Scheme.

11 The respondents submit that such card as presently exists has some of the claimed features enabling its use as a telephone card, and, that once testing is complete in the United States of America, which it is claimed is imminent, the card will have all the facilities. In these circumstances, and having regard to the impact of injunctive relief, the respondents contend that the balance of convenience is against the making of interlocutory injunctive orders.

12 In my view the evidence of Professor Caelli casts serious doubt as to whether the first respondent presently has a card with the claimed attributes as a telephone card. That the respondents continue to claim that the card has such attributes leads me to conclude that they will continue to make the representations that it does have such attributes.

13 Further, the respondents have produced no material, and in particular no material from the Bank of South Louisiana, that the bank is aware that one of its account holders is proposing to issue to thousands of Australians, Cirrus or Maestro cards predominantly but not exclusively for use in Australia and has agreed to such a course. The failure to call such evidence in circumstances where there are allegations of misrepresentations as to the affiliation with Visa and another bank and where the evidence is that those organisations were unaware of the first respondent or the American companies with which it is dealing in the supply of the card, is relevant and weighs against any balance of convenience in favour of the respondents.

14 In my view the public interest is against the making of any representations that the first respondent has a card which presently has all or any of the features pleaded in the amended statement of claim.

15 I am also of the view that the balance of convenience is against allowing the respondents to promote a scheme whereby to induce a person to join the Scheme and to pay the first respondent the sum of $2,389, in return for membership of the Scheme and receipt of certain goods and services, including the card, the person is offered financial benefits by introducing persons who also pay $2,389 to become a member of the Scheme.

16 In all the circumstances, a case has been made out for some interlocutory injunctive relief. The question is the width of such relief.

17 The respondents submit that any injunctive relief touching on the attributes of the card should be self-limiting, so that when the first respondent has such a card, or when the card acquires certain characteristics, the injunction should to that extent cease to exist. I am not persuaded to follow such a course. The dispute on the evidence as to what the present card as a phone card does, or is capable of doing, indicates that there would likely be ongoing disputes as to whether or not the injunction continued to operate and whether or not it had been breached.

18 When the first respondent has a card which it alleges satisfies all that is claimed in respect of it the first respondent may apply to the Court for removal of the injunction either in whole or in part.

19 I turn to the question of the availability of mareva type orders in the present case. The application fails because the applicant cannot make out the circumstances which would justify the making of such orders as explained by the High Court in Cardile v LED Builders Pty Ltd [1999] HCA 18; (1999) 162 ALR 294. There is no evidence that the respondents have dissipated, or are likely to dissipate, their assets in order to render worthless any judgment which may be recovered against them. The applicant merely wishes to secure a fund for the satisfaction of any judgments obtained by consumers flowing from a judgment or finding in the present proceedings. That is not a sufficient reason to make mareva type orders: Cardile v LED Builders at 310 - 311.

20 The notice of motion filed 20 December 1999 seeking mareva orders will be dismissed with costs.

I certify that the preceding twenty (20) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Cooper.

Associate:

Dated: 27 January 2000

Counsel for the Applicant:	Mr P O'Shea SC
Solicitor for the Applicant:	Corrs Chambers Westgarth
Counsel for the Respondent:	Mr P Dutney QC
Solicitor for the Respondent:	Gadens Lawyers
Date of Hearing:	25 January 2000 and 27 January 2000
Date of Judgment:	27 January 2000