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Federal Court of Australia |
Last Updated: 3 November 2003
Australian Competition & Consumer Commission v Bio Enviro Plan Pty Ltd [2003] FCA 1219
TRADE PRACTICES - misleading or deceptive conduct and false representations - worm farming schemes - orders to give effect to liability previously found - effect of death of respondent principally responsible for contraventions - effect of absence of financial and other resources in corporate respondents - whether corrective advertising or letters of notification appropriate in the circumstances - whether costs should be ordered in gross sum - whether order for representative proceeding presently appropriate or necessary - relevance of remaining respondents being unrepresented
Federal Court of Australia Act 1976 (Cth) ss 43(1)
Trade Practices Act 1974 (Cth) s 52, 80, 80A, 87(1A)
Federal Court Rules O 62 r 4(2)(c)
Makita (Australia) Pty Limited v Black & Decker (Australasia) Pty Limited (1990) 12 ATPR
41-030 applied
Hospitals Contribution Fund of Australia v Switzerland Australia Health Fund Pty Ltd (1988) 78 ALR 483 applied
David Golf & Engineering Pty Ltd v Austgolf Corporation Pty Ltd (1993) 15 ATPR 41-207 applied
Trade Practices Commission v Telstra Corporation Limited (1993) 15 ATPR 41-256 applied
Jones v T R Flanagan Smash Repairs Pty Ltd [2000] FCA 1232 approved
Beach Petroleum NL & Claremont Petroleum NL v Johnson (1995) 57 FCR 119 cited
Easterday v Australian Securities Commission (unreported, RD Nicholson J, 4 September 1996) cited
AUSTRALIAN COMPETITION & CONSUMER COMMISSION v THE BIO ENVIRO PLAN PTY LTD, BUYPLUS COMMODITIES BROKERS PTY LTD, GREENSTAR CO-OPERATIVE LIMITED, GREENSTAR MANAGEMENT PTY LTD, KEVIN ROBERT SMITH, PAUL ANTHONY HAIGH and TREVOR SAMPSON
W208 of 2001
RD NICHOLSON J
31 OCTOBER 2003
PERTH
IN THE FEDERAL COURT OF AUSTRALIA |
|
WESTERN AUSTRALIA DISTRICT REGISTRY |
1. DECLARES that between June 1998 and 29 February 1999 the first respondent, in connection with the promotion of an investment scheme known as the Bio Enviro Plan involving the purchase of worms and their use in waste management projects conducted by BEP or other entities pursuant to contractual arrangements under which BEP received payment for supply of worm stock (`BEP Scheme'):
1.1 engaged in conduct that was misleading and deceptive and that was likely to mislead and deceive, in contravention of s 52 of the Trade Practices Act 1974 (Cth) (`the Act') by falsely representing expressly and impliedly, that:
(a) investors in the BEP Scheme would receive a guaranteed return of $9500.00 after 36 months on payment of $1084.00, being an initial payment of $220.00 for 2 kg of compost worms and 36 monthly worm farming fees totalling $864.00; and
(b) the BEP Scheme would generate sufficient funds to enable the first respondent to meet the promised return to investors of $9500.00 after 36 months on an investment of $1084.00, being an initial payment of $220.00 for 2 kg of compost worms and 36 monthly worm farming fees totalling $864.00,
1.2 made a false and misleading representation concerning the existence, of a guarantee, in contravention of s 53(g) of the Act by falsely representing that investors in the BEP Scheme would receive a guaranteed return of $9500.00 after 36 months on payment of $1084.00,
1.3 made a false and misleading representation concerning the profitability of the BEP Scheme in contravention of s 59(2) of the Act by falsely representing that the BEP Scheme would generate sufficient funds to enable a return to investors of $9500.00 after 36 months on an investment of $1084.00, being an initial payment of $220.00 for 2 kg of compost worms and 36 monthly worming farming fees totalling $864.00.
2. DECLARES that from about March 1999 the second and fourth respondents in connection with the promotion and operation of a multi-level marketing program including membership in a group known as the Buyplus Co-operative (`Buyplus Scheme'):
2.1 induced persons to acquire services by representing that the persons would, after the contract for the acquisition of the services was made, receive benefit in return for giving the second and fourth respondents the names of prospective customers or otherwise assisting the second and fourth respondents to supply services to other consumers where receipt of the benefit was contingent on an event occurring after that contract was made in contravention of s 57 of the Act; and
2.2 promoted the Buyplus Scheme in which persons who were participants in the Buyplus Scheme, or had applied or been invited to become participants in the Buyplus Scheme, made a payment to or for the benefit of the second and fourth respondents being a payment that they were induced to make by reason that the prospect was held out to them of receiving payments or other benefits in respect of the introduction (whether by themselves or by another person) of other persons who became participants in the Buyplus Scheme, in contravention of s 61 of the Act.
3. DECLARES that from about August 2000 the third respondent, in connection with the promotion of an arrangement (`Greenstar Scheme') involving membership of the Greenstar Co-operative Limited and the acquisition of a product called the Greenstar International Debit Card (`Greenstar Card'):
3.1 engaged in conduct that was misleading and deceptive and that was likely to mislead and deceive in contravention of s 52 of the Act by falsely representing that:
(a) all Greenstar members would be provided with a Greenstar Car that could be used for making purchases anywhere that major credit or debit cards are accepted (including the Internet), withdrawing money from automatic teller machines (`ATM') world-wide, transferring money and making phone calls at cheap international rates;
(b) the Greenstar Card would be available for distribution to members from 19 August 2000;
(c) the Greenstar monthly membership fee of US$30.00 would be distributed by Greenstar as follows:
(i) US $5.00 paid to Global Card Pool (also known as the World Pool);
(ii) US $5.00 paid to projects in home country;
(iii) US $0.50 donated to international charitable projects; and
(iv) US $19.50 for the purchase of 1 kg worm stock (includes $5.00 contribution to Greenstar Members' Profit Share Pool);
(d) Greenstar had established a Global Card Pool and Greenstar Members' Profit Share Pool and income from the Greenstar Card was being paid into the Global Card Pool, such income being made up of a contribution from members' fees referred to in par 3.1(c)(i) and income from transaction charges for use of the Greenstar Card by members and non-members, including:
(i) US $0.05 from every Greenstar cardholder transaction;
(ii) US $0.25 from Greenstar Card ATM withdrawals; and
(iii) US $0.03 from every non-member card transaction;
(e) within 12 months of 19 August 2000, dividends and income for members of the BEP Scheme who converted to the Greenstar Scheme would exceed US $30.00 per month;
(f) it was feasible for members to earn in excess of US $20 000.00 per month from their membership;
(g) the Greenstar Scheme had been approved by the Western Australian Ministry of Fair Trading;
(h) Greenstar provided a full money back guarantee for members monthly fees after 36 months; and
(i) Greenstar owns 58 percent of Australian Environmental Technology Ltd (`AETL') and receives profits generated by its association with AETL;
3.2 made false and misleading representations in contravention of:
(a) s 53(aa) of the Act;
(b) s 53(c) of the Act;
(c) s 53(g) of the Act;
(d) s 59(2) of the Act; and
3.3 accepted payment for goods or services where, at the time of the acceptance, the third respondent intended to supply goods or services materially different from the goods or services in respect of which the payment or other consideration was accepted in contravention of s 58(a) of the Act.
4. DECLARES that the third and fourth respondents in connection with the promotion and operation of the Greenstar Scheme:
4.1 induced persons to acquire goods and services, being the Greenstar Card and the rights to the profit share associated with the Greenstar Scheme, from the third and fourth respondents in connection with the Greenstar Scheme by representing that the persons would, after the contract for the acquisition of the goods and services was made, receive a rebate, commission and other benefits in return for giving the third and fourth respondents the names of prospective customers or otherwise assisting the third and fourth respondents to supply goods or services to other consumers where receipt of the rebate, commission or other benefits was contingent on an event occurring after that contract was made in contravention of s 57 of the Act; and
4.2 promoted the Greenstar Scheme in which persons who were participants in the Greenstar Scheme, or had applied or been invited to become participants in the Greenstar Scheme, made a payment to or for the benefit of the third and fourth respondents, being a payment that they were induced to make by reason that the prospect was held out to them of receiving payments or other benefits in respect of the introduction (whether by themselves or by another person) of other persons who became participants in the Greenstar Scheme in contravention of s 61 of the Act.
5. DECLARES that the fifth respondent aided and abetted and has been directly or indirectly, knowingly concerned in or a party to the contraventions of the first, second, third and fourth respondents described in pars 1 - 4 above.
6. DECLARES that the sixth respondent aided and abetted and has been directly or indirectly, knowingly concerned in or a party to the contraventions of the third and fourth respondents described in par 4 above.
7. DECLARES that the sixth and seventh respondents aided and abetted and have been directly or indirectly, knowingly concerned in or a party to the contraventions of the third respondent described in pars 3 and 4 above.
8. RESTRAINS the first respondent by itself, its servants or agents or otherwise howsoever and by any means whatsoever including by utilising the Internet, in connection with the promotion of the BEP Scheme and any substantially similar scheme, from, in trade or commerce, making or permitting to be made any statement, expressly or impliedly, that:
8.1 a return of $9500.00 is guaranteed to investors in the BEP Scheme after 36 months on payment of $1084.00, being an initial payment of $220.00 for 2 kg of worms and 36 monthly management payments of $24.00 totalling $864.00; and
8.2 reasonable grounds exist for a belief that the BEP Scheme will generate sufficient funds to enable a return to investors of $9500.00 after 36 months on an investment of $1084.00, being an initial payment of $220.00 for 2 kg of worms and 36 monthly management payments of $24.00 totalling $864.00,
in contravention of ss 52, 53(g) and 59(2) of the Act.
9. RESTRAINS the second and fourth respondents by themselves, their servants or agents or otherwise howsoever including by utilising the Internet, in connection with the promotion of the Buyplus Scheme and any substantially similar scheme, from aiding and abetting, further and in the alternative, directly or indirectly, being knowingly concerned in or a party to the contraventions of:
9.1 inducing persons to acquire goods or services from the second and fourth respondents in connection with the Buyplus Scheme by representing that the persons would, after the contract for the acquisition of the goods or services was made, receive a rebate, commission or other benefit in return for giving the second and fourth respondents the names of prospective customers or otherwise assisting the second and fourth respondents to supply goods or services to other consumers where receipt of the rebate, commission or other benefit was contingent on an event occurring after that contract was made in contravention of s 57 of the Act; and
9.2 promoting the Buyplus Scheme in which persons who were participants in the Buyplus Scheme, or had applied or been invited to become participants in the Buyplus Scheme, made a payment to or for the benefit of the second and fourth respondents, being a payment that they were induced to make by reason that the prospect was held out to them of receiving payments or other benefits in respect of the introduction (whether by themselves or by another person) of other persons who became participants in the Buyplus Scheme in contravention of s 61 of the Act.
10. RESTRAINS the third and fourth respondents by themselves, their servants or agents or otherwise howsoever including by utilising the Internet, in connection with the promotion of the Greenstar Scheme and any substantially similar scheme, from:
10.1 making or permitting to be made any statement that, or from which it may reasonably be inferred that:
(a) All Greenstar members will be provided with a Greenstar Card that can be used for making purchases anywhere that major credit cards are accepted (including the Internet), withdrawing money from an ATM world-wide, transferring money and making phone calls at cheap international rates;
(b) The Greenstar Card is or will be available for distribution to members;
(c) Greenstar monthly membership fee of US$30.00 will be distributed by Greenstar as follows:
(i) US$5.00 paid to Global Card Pool;
(ii) US$5.00 paid to projects in home country;
(iii) US$0.50 donated to international charitable projects; and
(iv) US$19.50 for the purchase of 1 kg worm stock (includes US$5.00 contribution to Greenstar Members' Profit Share Pool);
(d) Greenstar has established a Global Card Pool and Greenstar Members' Profit Pool and income from the Greenstar Card is being paid into the Global Card Pool, such income being made up of a contribution from members' fees referred to in par 11.1(c) and income from transaction charges for use of the Greenstar Card by members and non-members, including:
(i) US$0.05 from every Greenstar cardholder transaction;
(ii) US$0.25 from Greenstar Card ATM withdrawals; and
(iii) US$0.03 from every non-member card transaction;
(e) it is feasible for members to earn in excess of US$20 000.00 per month from their membership;
(f) within 12 months of 19 August 2000, dividends and income for members of the BEP Scheme who converted to the Greenstar Scheme would exceed US$30.00 per month;
(g) the Greenstar Scheme has been approved by the Western Australian Ministry of Fair Trading;
(h) Greenstar provides a full money back guarantee for members monthly fees after 36 months; and
(i) Greenstar owns 58 percent of AETL and receives profits generated by its association with AETL;
in contravention of ss 52, 53(c), 53(g) and 59(2) of the Act.
10.2 accepting payment for goods or services, being the Greenstar Card, in connection with the Greenstar Scheme, where, at that time of the acceptance the third respondent intended to supply goods or services materially different from the goods or services in respect of which the payment or other consideration was accepted in contravention of s 58(a) of the Act;
10.3 inducing persons to acquire goods or services, being the Greenstar Card, in connection with the Greenstar Scheme by representing that the persons would, after the contract for acquisition of the goods or services was made, receive a rebate, commission or other benefit in return for giving the third respondent the names of prospective customers or otherwise assisting the third respondent to supply goods or services to other consumers where receipt of the rebate, commission or other benefit was contingent on an event occurring after that contract was made in contravention of s 57 of the Act; and
10.4 promoting the Greenstar Scheme in which persons who were participants in the Greenstar Scheme, or had applied or been invited to become participants in the Greenstar Scheme, made a payment to or for the benefit of the third respondent, being a payment that they were induced to make by reason that the prospect was held out to them of receiving payments or other benefits in respect of the introduction (whether by themselves or by another person) of other persons who became participants in the Greenstar Scheme in contravention of s 61 of the Act.
11. Pursuant to ss 80(1)(c) and (e) of the Act RESTRAINS the fifth respondent in connection with the promotion of the Buyplus Scheme or any substantially similar scheme, from in any way aiding and abetting, further and in the alternative, directly or indirectly, being knowingly concerned in or a party to the conduct described in par 2 above.
12. Pursuant to ss 80(1)(c) and (e) of the Act RESTRAINS the sixth and seventh respondents in connection with the promotion of the Greenstar Scheme or any substantially similar scheme, from in any way aiding and abetting, further and in the alternative, directly or indirectly, being knowingly concerned in or a party to the conduct described in pars 3 and 4 above.
13. RESTRAINS the first, second, third, fourth, fifth, sixth and seventh respondents by themselves, their servants or agents or otherwise howsoever, in trade or commerce, from publishing, distributing or in any other way disseminating:
13.1 the BEP Scheme or similar brochure containing any written record stating or implying that:
(a) BEP gave an unqualified guarantee to return to investors $9500.00 in 36 months following an aggregate payment of $1084.00, being an initial payment of $220.00 for 2 kg of worms plus 36 worm farming fee payments of $24.00 (ie 36 x $24.00 = $864.00); and
(b) it had reasonable grounds to believe that implementation of the BEP Scheme would generate sufficient funds to enable them to meet the promised return to investors of $9500.00 after 36 months on an investment of $1084.00.
13.2 The Buyplus Scheme Brochure or similar brochure containing any written record stating or implying that:
(a) Buyplus provided goods or services to members, including growing the membership of the Buyplus Scheme and maintaining financial records;
(b) BEP members could choose to become members of the Buyplus Scheme simply by continuing to pay BEP $24.00 per month;
(c) members of the public could become members of the Buyplus Scheme by completing and signing a Buyplus Co-operative member application and agreement in making a payment of $180.00 registration fee to Buyplus together with a monthly fee of $70.00 (plus GST) to Greenstar Management;
(d) the Co-op application form provided for the new member to identify a sponsor who was already a member of the Buyplus Scheme;
(e) on joining, the new member would obtain a profit centre, being a position down line in relation to he sponsor and the sponsor's buying (co-operative) managed by Buyplus; and
(f) a amount of money, being a proportion of $20.00 from the monthly fee paid by a person to become a member of the Buyplus Scheme would be paid by Greenstar Management to the sponsor or that person through a profit-sharing scheme.
13.3 the Greenstar Brochure or similar brochure containing any written record stating or implying that:
(a) Greenstar would provide goods or services to persons joining the Greenstar Scheme, including worm stock for use in waste management projects conducted by Greenstar and supplied to other entities pursuant to contractual arrangements under which Greenstar received payment for supply of the worm stock and the Greenstar Card;
(b) persons (other than members of the BEP Scheme and the Buyplus Scheme) could apply to become members of the Greenstar Scheme by completing and signing a member's application and agreement form (`Greenstar application form') and thereby apply for the Greenstar Card by completing and signing a member's order form'
(c) on payment of US $150.00 joining fee and US $30.00 monthly fees, thereafter, that new member would receive the Greenstar Card together with 1 kg of worms per month over 36 months;
(d) members of the BEP Scheme would join the Greenstar Scheme by:
(i) continuing to pay monthly fees of $26.40 (inclusive of GST) for 12 months to receive the Greenstar Card, and become Class `A' shareholders in the Greenstar Members Profit Pool; and
(ii) the difference between the US $30.00 monthly fees and the fees of $26.40 would be paid by Greenstar Management for 12 months after which time the monthly fee to BEP Scheme members would increase to US $30.00 per month, but that amount would then be paid out of anticipated dividends and income to be derived from participation in the Greenstar Scheme;
(e) the Greenstar application form provided for the joining member to identify a sponsor who was already a member of Greenstar;
(f) on joining, the new member would become a `Class A' member in relation to the sponsor and be placed in the sponsoring member's individual `down line';
(g) a proportion of the new members' monthly fee as referred to in par (c), would be distributed to existing members in amounts corresponding to one of 9 membership levels. The membership level occupied by an existing member was to be dependent upon the number of other members `down line' from the existing members' position as set out in the following table.
Particulars of Members Profit Share Pool profit sharing
Class of Share |
Dividend |
Bonus Dividend |
Total Dividend (Share of Profits) |
Activity |
Est. Monthly Return per Share per US$100 000 Profit |
A |
5% |
N/A |
5% |
1 |
$0.80 |
B1 |
5% |
1% |
6% |
4 |
$2.75 |
B2 |
5% |
1% |
7% |
13 |
$9.60 |
B3 |
5% |
1% |
8% |
40 |
$33.00 |
B4 |
5% |
1% |
9% |
121 |
$111.00 |
B5 |
5% |
1% |
10% |
364 |
$370.00 |
C |
5% |
2% |
12% |
1093 |
$1333.00 |
D |
5% |
3% |
15% |
3280 |
$5160.00 |
E |
5% |
13% |
28% |
9841 |
$28 000.00 |
(h) a proportion of the new members' monthly fee as referred to in par (c) would be deposited in a `Global Card Pool' (also known as a World Pool) and then distributed on a monthly basis to existing members in amounts calculated on the following basis:
Expenditure x Rank x Factor = Universal Points
where `expenditure' equated to the value of a member's monthly transactions using the Greenstar Card, `rank' equated to the level in the Greenstar Scheme and `factor' equated to a specific number allocated to each Greenstar Card in sequence based on length of membership in the Greenstar Scheme. The resulting calculation would determine a member's `universal points';
(i) all members' `universal points' would be added together each month and the total value of the `Global Card Pool' would be divided by the aggregate of all members' `universal points' for that month to determine the value of each point. The value of each point would then be multiplied by the number of `universal points' held by each individual member and the resultant amount would be credited to the member's Greenstar Card in US dollars.
13.4 on the Greenstar web site or similar web site any written record stating or implying that:
(a) Greenstar would provide goods or services to persons joining the Greenstar Scheme, including worm stock for use in waste management projects conducted by Greenstar and supplied to other entities pursuant to contractual arrangements under which Greenstar received payment for supply of the worm stock and the Greenstar Card;
(b) persons (other than members of the BEP Scheme and the Buyplus Scheme) could apply to become members of the Greenstar Scheme by competing and signing a Greenstar application form and thereby apply for the Greenstar Card by completing and signing a member's order form;
(c) on payment of US $150.00 joining fee and US $30.00 monthly fees, thereafter, that new member would receive the Greenstar Card together with 1 kg of worms per month over 36 months;
(d) members of the BEP Scheme would join the Greenstar Scheme by:
(i) continuing to pay monthly fees of $26.40 (inclusive of GST) for 12 months to receive the Greenstar Card, and become Class `A' shareholders in the Greenstar Members Profit Pool; and
(ii) the difference between the US $30.00 monthly fees and the fees of $26.40 would be paid by Greenstar Management for 12 months after which time the monthly fee to BEP Scheme members would increase to US $30.00 per month, but that amount would then be paid out of anticipated dividends and income to be derived from participation in the Greenstar Scheme;
(e) the Greenstar application form provided for the joining member to identify a sponsor who was already a member of Greenstar;
(f) on joining, the new member would become a `Class A' member in relation to the sponsor and be placed in the sponsoring member's individual `down line';
(g) a proportion of the new members' monthly fee as referred to in par 13.3(c), would be distributed to existing members in amounts corresponding to one of 9 membership levels. The membership level occupied by an existing member was to be dependent upon the number of other members `down line' form the existing members' position as set out in the following table.
Particulars of Members Profit Share Pool profit sharing
Class of Share |
Dividend |
Bonus Dividend |
Total Dividend (Share of Profits) |
Activity |
Est. Monthly Return per Share per US$100 000 Profit |
A |
5% |
N/A |
5% |
1 |
$0.80 |
B1 |
5% |
1% |
6% |
4 |
$2.75 |
B2 |
5% |
1% |
7% |
13 |
$9.60 |
B3 |
5% |
1% |
8% |
40 |
$33.00 |
B4 |
5% |
1% |
9% |
121 |
$111.00 |
B5 |
5% |
1% |
10% |
364 |
$370.00 |
C |
5% |
2% |
12% |
1093 |
$1333.00 |
D |
5% |
3% |
15% |
3280 |
$5160.00 |
E |
5% |
13% |
28% |
9841 |
$28 000.00 |
(h) a proportion of the new members' monthly fee as referred to in par 13.3(c) would be deposited in a `Global Card Pool' (also known as a World Pool) and then distributed on a monthly basis to existing members in amounts calculated on the following basis:
Expenditure x Rank x Factor = Universal Points
where `expenditure' equated to the value of a member's monthly transactions using the Greenstar Card, `rank' equated to the level in the Greenstar Scheme and `factor' equated to a specific number allocated to each Greenstar Card in sequence based on length of membership in the Greenstar Scheme. The resulting calculation would determine a member's `universal points';
(i) all members' `universal points' would be added together each month and the total value of the `Global Card Pool' would be divided by the aggregate of all members' `universal points' for that month to determine the value of each point. The value of each point would then be multiplied by the number of `universal points' held by each individual member and the resultant amount would be credited to the member's Greenstar Cared in US dollars.
14. ORDERS that the sixth and seventh respondents within 3 months from the date of this order, attend a Trade Practices Compliance Program seminar (`the Seminar') conducted by an independent external professional with expertise in trade practices law which addresses the provisions of ss 52, 53, 57, 58, 59 and 61 of the Act, within 1 week of attending the Seminar, notify the applicant of their attendance.
15. ORDERS that the first, second, third and fourth respondents pay any goods and services tax payable in accordance with the A New Tax System (Goods and Services Tax) Act 1999 on the items of claim or damages generally.
16. ORDERS that interest be paid pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) in the event that an order is made in response to a claim for compensation or loss or damage.
17. DIRECTS that the applicant's notice of motion for orders under s 87(1A) of the Trade Practices Act 1974 (Cth) and the issue of costs be held over pending compliance with the following directions;
(a) the notice of motion and the issue of costs be referred to the Registrar pursuant to O 80 r 4 of the Federal Court Rules for referral to a legal practitioner on the Pro Bono Panel for legal assistance by way of legal advice on:
(i) the issues raised by the notice of motion;
(ii) the issue of whether there are `special circumstances' to support an order varying joint and several liability to reflect the findings of fact concerning the culpability of the fifth respondent and the corporate respondents.
(b) within 21 days from appointment, pro bono counsel shall file and serve submissions in writing:
(i) a response to the applicant's written submissions in support of the notice of motion;
(ii) on whether the circumstances of the sixth and seventh respondents are such as would support a variation of the usual rule that liability for costs should be joint and several.
(d) within 21 days thereafter the applicant may file and serve on the sixth and seventh respondents any written submissions in response or reply;
(e) within a further 10 days the sixth and seventh respondents may file and serve submissions in reply on the issue of costs; and
(f) thereupon the motion and the issue of costs will stand reserved for judgment.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA |
|
WESTERN AUSTRALIA DISTRICT REGISTRY |
1 Reasons for judgment were delivered in this matter on 24 March 2003. Also published at that time were draft orders based upon the submissions of the parties to that date. Directions were made providing the opportunity to the parties to make further submissions and file further evidence relevant to the settling of final orders. As a consequence there has been filed with the Court on behalf of the applicant three further affidavits from Ms Futaesaku (sworn on 1 May 2003, 9 June 2003 and 2 July 2003) and an affidavit of Ms Marsich and Mr Cromwell. The sixth and seventh respondents also each filed an affidavit. These reasons address matters arising in connection with the settling of final orders involving issues of fact addressed in those affidavits.
EXTENT OF THE LIABILITY
2 From the affidavit of Mr Cromwell it appears that the potential amounts of refunds which the respondents would be liable to make to the members are as follows:
`
Scheme |
Memberships |
Membership Fee |
Potential Refund |
BEP Scheme |
1,207 |
$1,084.00 |
$1,308,388.00 |
Buyplus Scheme |
3,150 |
$24.00 per month |
Between $75,600.00 |
Greenstar Scheme |
14,833 |
US$36.00 per month |
Between $US$533,988.00 |
'
THE FIFTH RESPONDENT
3 In the reasons for judgment it was found that `the evidence of both collective and individual involvement of the fifth respondent with the corporate respondents is overwhelming.' It was found he was `intimately involved' in constructing, promoting and operating each of the schemes described in those reasons; was the controlling director of the corporate respondents; benefited personally from the promotion of the schemes in a number of ways; and was the driving force behind each of the schemes.
4 On 11 February 2003 an officer of the applicant was advised of the death of the fifth respondent in China. Such evidence as is available concerning his death is set out in the affidavit of Ms Futaesaku sworn 1 May 2003. For the purposes of this matter the applicant does not dispute that the fifth respondent has died.
FINANCIAL POSITION OF THE CORPORATE RESPONDENTS
5 The particulars of the financial position of the corporate respondents are set out in detail in Ms Futaesaku's affidavit sworn 9 June 2003. Tables in that affidavit summarised evidence provided by the fifth respondent concerning the assets of the third respondent as showing them to be in excess of $3 872 953 with liabilities of $344 819. In respect of the fourth respondent the total assets were shown as $65 246 with liabilities in the same amount. The same affidavit sets out such evidence as there is concerning any bank accounts in the name of any of the corporate respondents and the result that the existence of any capital sum is not known.
6 As stated in Ms Futaesaku's affidavit sworn 2 July 2003, the applicant suspects that the fifth respondent transferred a significant amount of money he obtained through the third and fourth respondents to overseas countries such as China. However at this stage the applicant lacks evidence to support this or to establish that the funds currently exist.
7 The submission for the applicant is that the most appropriate and effective means of pursuing the investigations would be through the winding-up of the corporate respondents and the appointment of a liquidator so that the liquidator may conduct an independent investigation into the transfer of funds outside Australia.
FINANCIAL POSITION OF THE SIXTH AND SEVENTH RESPONDENTS
INCOME
8 For the applicant it is submitted that both the sixth and seventh respondents earn regular income, namely $1000 and $2000 to $2500 respectively per month. Additionally it is contended that sixth respondent also earns approximately $900 per month from his part-time employment with Woofa Gourmet Dog Treats.
9 The affidavits of the respective respondents raise the issue, which remains uncontroverted, that neither of their incomes is `regular.' I so find. In my opinion the incomes of both these respondents are barely at the level sufficient for them to subsist.
ASSETS
10 The case for the applicant brings evidence that the sixth respondent holds a half-share in his family home, the property being valued at $136 000 and encumbered by a mortgage to a bank registered on 22 February 2002 and a caveat to a financial services company as equitable chargee pursuant to a lease agreement. I so find.
11 In the case of the seventh respondent the applicant accepts that prima facie he is asset-poor. However, it is submitted that there is an abundance of evidence that he alienated assets under circumstances which would make the alienation open to attack under s 89 of the Property Law Act 1969 (WA). Reference is made to evidence of the transfer by him on or about 26 July 2001 of his undivided half-share in the family home to his wife; of his Subaru Fiori to his son on 10 July 2001 (although the seventh respondent maintains it had been given on 10 June 2000); of his Nissan Civilian and Mitsubishi Starwagon into his wife's name on 10 July 2001.
12 The seventh respondent maintains that he did not alienate his assets to his family with an intention to defeat the applicant or the claims of others. I accept that matter is open to argument. However, the point relevantly here is that, on the face of the evidence, it is arguable and could be decided against the seventh respondent.
13 The applicant also relies on the seventh respondent having had notice of this proceeding. The affidavit of Mr Cromwell sets out the precise circumstances in which this is said to have occurred. The seventh respondent denies this, saying that the fifth respondent handled all such matters and kept him at a distance from knowledge of what was occurring. Mr Cromwell's affidavit tends to support the view that notice in relation to the proceedings was received and dealt with by the fifth respondent. It is not necessary to make a definitive finding of fact on this issue, which would fall to be decided if argued in connection with any application pursuant to s 89 of the Property Law Act. In general I am satisfied that the fifth respondent was the person responsible for the operations of the corporate respondents and that there is a prima facie probability that notice of the proceeding may not have come to the attention of the seventh respondent. That is entirely consistent with the findings of fact concerning the fifth respondent made in the reasons previously published.
14 The consequence is that for the purposes of formulating final orders I must approach them so far as the seventh respondent is concerned on the basis that he is asset-poor but that assets he has transferred may be able to be retrieved if proceedings under s 89 of the Property Law Act were successful. Even if that occurred, the seventh respondent is not a person with any wealth coming anywhere near the dimension of the liability. While having been found to share in the liability, he, like the sixth respondent, was not the moving force in the culpable conduct the responsibility for which rests on the fifth respondent.
ADVERTISING AND NOTICES
15 The conduct the subject of this proceeding occurred prior to the repeal of s 80A of the Trade Practices Act 1974 (Cth). That section provides the source of the power of the Court to make orders for corrective advertising. The orders proposed for newspaper advertising have been reduced to a requirement for advertising once in a local and a national newspaper. The cost of that, as appears from the affidavit of Mr Cromwell, is a maximum of $2316 and $2333 respectively. The concern is whether there is utility in ordering such advertising be carried out by the sixth and seventh respondents given their financial position as previously set out.
16 It is also proposed that orders be made in reliance on ss 80 and 80A requiring various of the respondents to write to members of the schemes informing them of the misleading or deceptive conduct and of the possibility that findings of fact made by the Court can be relied upon to recover the loss or damage from the respective respondents according to the nature of the applicable scheme. Two issues arise. The first is that some of the orders would be directed to the corporate respondents and the fifth respondent, in relation to whom the lack of utility in the order appears to be patent. The second is that so far as orders are directed to the sixth and seventh respondents as the only presently available respondent, there is a further question of lack of utility arising from their financial position and lack of any systems of business support.
17 The orders which would be addressed to the sixth and seventh respondents relate to the Greenstar scheme. The affidavit of Mr Cromwell establishes that there are 14 833 memberships in that scheme. That figure is reduced to 10 288 when taking into account the number of persons at the same address. A spreadsheet has been created of the addresses by an officer of the applicant. Of those addresses, 4100 are within Australia and 6128 are outside Australia. The cost of mailing letters to the addresses would be on average approximately $1.03 per letter making a total cost of $10 400. The applicant therefore proposes that the following method be adopted in complying with the proposed order:
`(a) one original letter be printed and signed;(b) 10,288 photocopies of that letter be made;
(c) the photocopied letters be sent to each of the addresses ... ; and
(d) the process of mailing out be conducted over a period of 3 months so as to spread the costs and thereby minimise financial burden to the Respondents, as follows:
(i) within Australia - 1st and 2nd weeks;
(ii) New Zealand - 3rd and 4th weeks;
(iii) United Kingdom - 5th and 6th weeks;
(iv) United States of America - 7th and 8th weeks;
(v) Europe - 9th and 10th weeks;
(vi) Asia - 11th and 12th weeks.'
18 There are other difficulties arising from the form of the proposed advertisement and letter. The advertisement, after identifying the misleading conduct and false representations, would invite consumers to contact the sixth or seventh respondents to request a refund. The letter simply would identify the conduct and representations but would be signed by those respondents. The difficulties are that neither of those respondents are equipped by resource or training to administer such requests and the letter would serve no purpose beyond advice. It is apparent that the reliance on the sixth and seventh respondents in these proposed documents has come about because of the absence of support resources for the corporate respondents and the death of the fifth respondent. However, that does not mean that the sixth and seventh respondents would fill that vacuum. It is equally apparent that they could not do so.
19 In Makita (Australia) Pty Limited v Black & Decker (Australasia) Pty Limited (1990) 12 ATPR 41-030 at 51 477 Wilcox J said that the question in any given case will always be whether advertising is an appropriate course to take having regard to the nature and likely effect of the advertisement and of the proposed corrective advertisement. Corrective advertising is to be used protectively and not by way of punishment: Hospitals Contribution Fund of Australia v Switzerland Australia Health Fund Pty Ltd (1988) 78 ALR 483 at 492 applied in David Golf & Engineering Pty Ltd v Austgolf Corporation Pty Ltd (1993) 15 ATPR 41-207 at 40 898. It is also relevant that there has been media attention so that corrective advertising would serve no real point: Trade Practices Commission v Telstra Corporation Limited (1993) 15 ATPR 41-256 at 41 457.
20 In the circumstance of the present proceeding substantial time has elapsed since the occurrence of the misleading conduct and the schemes have been defunct for some time. There has been media coverage in Australia of the outcome of the proceeding. The consequence is that any order for advertising or notification would not serve any protective purpose. To require the sixth and seventh respondents to place and administer the advertisements and notices would, in their particular circumstances, be punitive.
21 So far as orders are proposed against the corporate respondents and the fifth respondent for advertising and dispatch of letters, there is an apparent futility because there is no person properly responsible for those respondents nor any resources to enable the orders to be obeyed.
22 Accordingly I decline to make the proposed orders for advertising and dispatch of letters.
COMPLIANCE PROGRAMS
23 Likewise there is an obvious futility in orders directed to the third and fourth respondents to implement a Trade Practices Corporate Compliance Program or to order the fifth respondent to participate in such a program. There is no reason why such an order should not be made against the sixth and seventh respondents. Necessarily this may be disruptive to their work but that is unavoidable.
COSTS
24 The applicant seeks orders that the first to seventh respondents inclusive pay the applicant's costs of the proceedings. The power to award costs arises under s 43(1) of the Federal Court of Australia Act 1976 (Cth). Ordinarily costs follow the event and a successful litigant recovers his costs in the absence of special circumstances justifying some other order. Inability to meet a costs order or the fact that an unsuccessful party has limited financial means is not a sufficient reason to deny a successful party his costs: Jones v T R Flanagan Smash Repairs Pty Ltd [2000] FCA 1232. The nature of the resources of the sixth and seventh respondents and the other respondents is not therefore a reason to depart from the usual rule that cost follow the event.
25 For the applicant it is submitted that the Court should order gross sum costs pursuant to O 62 r 4(2)(c) of the Federal Court Rules. The purpose of such an order would be to avoid the expense, delay and aggravation involved in protracted litigation arising out of taxation: Beach Petroleum NL & Claremont Petroleum NL v Johnson (1995) 57 FCR 119; Easterday v Australian Securities Commission (unreported, RD Nicholson J, 4 September 1996). Accordingly the Court is asked to fix a gross sum for costs that would reflect the costs which would be allowed on a normal taxation as between party and party and, where appropriate, with the assistance of the applicable rules and scales. To this end the affidavit of Ms Marsich contains relevant evidence and estimates the costs in the vicinity of $400 000.
26 Order 62 r 4(2)(c) provides that a gross sum must be specified in the order. In my view, the affidavit of supporting the claim for costs should be referred to the Registrar for consideration in the light of his experience in taxing costs in the Court. While I favour making an order for a gross sum, as it cannot be now specified in the order I will refer the question of costs to the Registrar for determination.
DAMAGES
27 In the draft orders no provision is made for an order for payment of damages. However, the applicant has brought a notice of motion for orders under s 87(1A) of the Act. This seeks an order that the applicant may bring representative proceedings pursuant to that section on behalf of two named individuals. Written submissions in support vary the form of orders sought; argue the case for an order being made under s 87(1B) on the basis of the consents of the two named individuals rather than all the members of the schemes; and in the alternative seek relief as a representative party pursuant to the Pt IVA of the Federal Court of Australia Act 1976 (Cth). Additionally, the applicant has brought an application under that Part as a representative party as a fresh matter.
28 Two things concern me in particular about making any of the orders sought at this time. Firstly, the only known assets available to satisfy any orders which would be made are the assets of the sixth and seventh respondents. It is clear that if the costs order is made in the quantum sought and enforced against them, they would not have sufficient assets to even satisfy that liability. Therefore orders for compensation in absence of knowledge of available assets would have an air of hopeless futility about them. In short, unless and until the investigations by the applicant disclose the presence of funds of the corporate respondents, it would seem that no purpose would be served by the making of the orders sought. That at least is my present view, held subject to anything further I may hear. Secondly, the sixth and seventh respondents are unrepresented. The issues put against them involve issues of statutory construction of s 87(1A) and the interrelationship of the motion and the fresh proceeding. It would be highly unfair to proceed to judgment without giving them the opportunity to bring to the Court submissions from pro bono counsel. The issues are not such as should be decided without a contradictor.
29 On these matters I therefore propose to order that the notice of motion be held over and that the motion and applicant's submissions be referred to the Registrar pursuant to O80 r 4 for referral to a legal practitioner on the pro bono panel for legal assistance and advice on the issues raised by the submissions. Opportunity would then be given to the applicant to reply.
30 I add that the presence of the motion and the fresh proceeding is a further reason why corrective advertising and notification is inappropriate here because those issues may arise for consideration in relation to the representative group.
I certify that the preceding thirty (30) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson. |
Associate:
Dated: 31 October 2003
Counsel for the Applicant: |
Mr KJ Martin QC with Mr S Adams |
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Solicitor for the Applicant: |
Corrs Chambers Westgarth |
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No appearance for the First, Second, Third and Fourth Respondents | |
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The Fifth, Sixth and Seventh Respondents appeared in person | |
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Date of Hearing: |
24 - 28 June 2002 |
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Date of last written submissions: |
21 July 2003 |
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Date of Judgment: |
31 October 2003 |
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URL: http://www.austlii.edu.au/au/cases/cth/FCA/2003/1219.html