Australian Competition & Consumer Commission v Redmond Holdings Pty Ltd [2003] FCA 98 (18 February 2003)

Last Updated: 3 March 2003

FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Redmond Holdings Pty Ltd [2003] FCA 98

Trade Practices Act 1974 (Cth)

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v REDMOND HOLDINGS PTY LTD (FORMERLY KNOWN AS FURNITURE DIRECT PTY LTD) TOOWOOMBA FURNITURE & ELECTRICAL PTY LTD (IN LIQUIDATION) (FORMERLY KNOWN AS FURNELECT PTY LTD) and MONTY KHOURY

Q 279 of 2001

KIEFEL J

BRISBANE

18 FEBRUARY 2003

IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY	Q279 OF 2001

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	REDMOND HOLDINGS PTY LTD (FORMERLY KNOWN AS FURNITURE DIRECT PTY LTD) ACN 095 077 035 FIRST RESPONDENT TOOWOOMBA FURNITURE & ELECTRICAL PTY LTD (IN LIQUIDATION) (FORMERLY KNOWN AS FURNELECT PTY LTD) ACN 095 979 874 SECOND RESPONDENT MONTY KHOURY THIRD RESPONDENT
JUDGE:	KIEFEL J
DATE OF ORDER:	18 FEBRUARY 2003
WHERE MADE:	BRISBANE

THE COURT ORDERS THAT:

1. By representing in trade or commerce between February 2001 and April 2001 by way of advertisements that the items of furniture it offered for sale were available at a price of "store cost plus one dollar", when the sale prices in fact substantially exceeded the amounts which it paid for the items, the first respondent has contravened sections 52 and 53( e) of the Act.

2. By representing in trade or commerce between late March 2001 and April 2001 by way of advertisements that the items of furniture offered for sale by the second respondent were available at a price of "store cost plus one dollar", when the sale prices in fact substantially exceeded the amounts which the second respondent paid for the items, the first respondent has contravened sections 52 and 53(e) of the Act.

3. The third respondent:

3.1 was knowingly concerned in or party to the contravening conduct of the first respondent referred to in paragraphs 1 and 2 above.

3.2 aided, abetted or procured the contraventions by the first respondent referred to in paragraphs 1 and 2 above.

THE COURT ORDERS THAT:

4. The first respondent be restrained, by its servants or agents or otherwise howsoever, in connection with the supply or possible supply of, or the promotion by advertising of the supply of, furniture from representing that items of furniture are offered for sale:

4.1 at "store cost plus one dollar", unless the sale price of the items in fact comprises only the purchase price paid by the store for the item of furniture (including any delivery costs), plus one dollar;

4.2 at a price based in a specified way upon "store cost", unless the sale price is in fact based in that specified way upon the purchase price paid by the store for the item;

4.3 at a price arrived at in a specified or described way, unless the sale price is in fact calculated as specified or described.

5. The third respondent be restrained from being directly or indirectly knowingly concerned in, or adding, abetting or procuring, conduct by a corporation involving the making of representations that items of furniture are offered for sale:

5.1 at "store cost plus one dollar", unless the sale price of the items in fact comprises only the purchase price paid by the store for the item of furniture (including any delivery costs), plus one dollar;

5.2 at a price based in a specified way upon "store cost", unless the sale price is in fact based in that specified way upon the purchase price paid by the store for the item;

5.3 at a price arrived at in a specified or described way, unless the sale price is in fact calculated as specified or described.

6. Within 6 months of the making of this order, the third respondent attend a Trade Practices Compliance Seminar ("the Seminar"), at his own expense, conducted by a person, or a person chosen from a panel, nominated by the Australian Compliance Institute (ACI). The Seminar will consist of presentations relating to Part V of the Trade Practices Act 1974 (Cth).

7. The third respondent, within one week of attending the Seminar, notify the applicant of his attendance at the Seminar, including the date and place of the Seminar and the name of the person who conducted it.

8. The first and third respondents pay the applicant's costs of these proceedings, including its costs of and incidental to this motion.

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	Q279 OF 2001

BETWEEN:	AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
AND:	REDMOND HOLDINGS PTY LTD (FORMERLY KNOWN AS FURNITURE DIRECT PTY LTD) ACN 095 077 035 FIRST RESPONDENT TOOWOOMBA FURNITURE & ELECTRICAL PTY LTD (IN LIQUIDATION) (FORMERLY KNOWN AS FURNELECT PTY LTD) ACN 095 979 874 SECOND RESPONDENT MONTY KHOURY THIRD RESPONDENT

JUDGE:	KIEFEL J
DATE:	18 FEBRUARY 2003
PLACE:	BRISBANE

REASONS FOR JUDGMENT

1 There has clearly been a default in compliance with orders of this court which required that the first and third respondents file verified lists of documents. The inaction on the part of the respondents followed on after the first respondent sold all its stock and ceased business in the course of these proceedings to another company of which Mr Khoury is also a director and shareholder. I draw no inference for present purposes about the sale. It would not seem to be relevant to the present motion. Mr Khoury has apologised to the court and says that it was an oversight. It seems to me that it was equally likely that he did not consider that the Commission was likely to continue to pursue the first respondent given that it was no longer trading. This somewhat overlooks his own position as a respondent to the proceedings and which has been the subject of much evidence and discussion today. Nevertheless, judgment will not be entered unless the cause of action pleaded is made out.

2 The essential facts about the advertisements upon which the Commission's action is based are admitted on the pleadings and the advertisements are before the court. The period over which the advertising was conducted is also agreed. In essence, the alleged misleading statement advertised stock at a price of "store cost plus $1." The advertising campaign was conducted over a period from mid February to the end of April 2001.

3 It was also alleged by the Commission, with reference to documents in the affidavits, that the applicant marked up goods, the subject of the sales in question, by sixty per cent plus GST to represent costs, outgoings and overheads. This is confirmed by an inter-office memo in the applicant's possession. That is to say that the figure it was actually sold at was not even reflective of store cost. The respondents however, say that they were a true reflection of overheads and something in the order of 32 or 33 per cent was the effective mark-up. It does not seem to me to be necessary to determine which of these versions is correct, at least in relation to a finding as to whether there has been misleading and deceptive conduct. It might be relevant to any discretionary aspect of orders which might later be made.

4 The statements made were capable of conveying that the furniture offered for sale was the purchase price paid for the item by the first respondent plus one dollar, or the purchase price paid for the item by the first respondent, plus the delivery cost to the store, plus one dollar. I do not think it at all likely that a person reading the advertisement would consider that "store cost" conveyed the whole cost to the store, including its overheads. That would, one would think, be a rather unattractive option even to the unsophisticated. It follows, in my view, subject to what I have to say about the disclaimer to the advertisements, that the statements made in them were misleading and deceptive and therefore likely to mislead and deceive.

5 It is arguable whether the disclaimer, which is in these terms, "Store cost includes all store outgoings", and which appeared on the television and newspaper advertisements but not the radio advertisements, is effective to cure what is otherwise conveyed by the statement. At this point it is not necessary to go into that because it appears in such fine print on the publications and for such a short period in the television advertisement, that I do not think it could possibly have been effective. I find that s 52 has been contravened by the advertisements published by the first respondent in the period mentioned.

6 Additionally, the first respondent is shown to be the contravener in relation to the conduct also attributed to the second respondent by acting on behalf of it in connection with the promotion of the Lawnton store.

7 The principal issue which occupied the court today was whether Mr Khoury, a director and the controlling mind of the first respondent, could be said to have been knowingly concerned in the contraventions by the first respondent. Mr Khoury has given evidence today. In essence, he seeks to attribute the small and short disclaimers to an employee. He admits that it was his idea to run the "store cost" plus $1.00 advertising campaign. He admits that he initiated the meeting with those who were to prepare the advertisements for production and publication. He says that he did believe, and still believes, that the statement was not misleading.

8 He had some years before, run advertisements with the statement, "Cost plus $1.00," and without a disclaimer and the Commission had brought proceedings against him. They resulted in injunctions being granted against him and his company. As a result, he says that he considered that if he added the adjective "store" before the word "cost" and added a disclaimer, that this would be sufficient to overcome the problems. He claims that an officer of the Commission at that time indicated to him that this would be sufficient. I regard that as most unlikely. It would be highly unusual for an officer of the Commission to do so and indeed for any lawyer to offer advice of that kind. Further, it was inherently incorrect and not likely to be something advanced by the Commission.

9 The essence of the misleading conduct is, of course, the reference to the store cost, and Mr Khoury knew about that and approved of it. As I understand his evidence, he says that if the disclaimer was larger it may have cured the statement. He did not know of the small size of the disclaimer or the length of time it was run on the television advertisement and had left the appropriateness of those matters to members of his staff.

10 Mr Khoury's evidence, it must be said, varied somewhat about his knowledge and his recollection of the facts surrounding the approval of the scripts and advertisements. He quite often said that he had "not necessarily" approved them. At other points in the earlier part of his evidence, he said that he had not seen the television advertisement, or the advertisements in the newspaper, and nor had he heard any of the radio advertisements. This is a little difficult to accept if the matter of the disclaimers was of importance to him.

11 Given his agreement that he had said at the meeting with the persons undertaking the advertisements that he would have to get a disclaimer from his solicitors and get back to them, it may be accepted that the disclaimer was something he was concerned about. Those witnesses say that his General Manager of the Retail Division, Mr Marlborough, rang back and provided the terms of the disclaimer. There is, however, no evidence at all to suggest that anyone raised the question of the prominence of the disclaimer. Certainly, and importantly, Mr Khoury, although apparently concerned about the efficacy of a disclaimer and conscious of the action which had been taken by the Commission against him in the past, took no steps to ensure that the disclaimer was printed in a large font or appeared prominent in the television advertisement. Nor was it, in any way brought to the attention of radio listeners. All he says he did was to give instructions to staff, and even then, those instructions are not particularly clear. It is not suggested by him that he required a particular size or emphasised that the disclaimer should be large. He says he would not have approved the advertisements without a clear disclaimer, but he apparently made no attempt to check how the disclaimer was to appear. Realistically, in my view, if the disclaimer was to be published in a prominent way, there would not have been much point to the advertisement.

12 Tellingly, in the amended defence which was filed when Mr Khoury had legal representatives, it is admitted that the first respondent ordered advertisements and approved scripts through Mr Khoury. It is inconceivable that his legal representatives did not know of the importance of this to him, given the orders sought based upon accessorial liability.

13 This approach is consistent with how the defence was run at that point. His defence was not that he had believed that the disclaimers would be published in some larger form, which might overcome what was conveyed by the statements. Rather, his defence and that of the first respondent was that the disclaimers in the form in which they were published were sufficient. It is for the first time now that he raises the question of the prominence of them and his understanding about that.

14 In cross-examination, it was drawn to his attention that the Commission had written to him on two occasions, on 26 February 2001 and 19 March 2001. He acknowledges receiving the first and acknowledges the likelihood of receiving the second letter. Those letters draw to his attention the concerns of the Commission about the advertisements and the statement made in them. There was another conversation between him and an officer of the Commission on 20 March 2001 which he recalls, at some level. He said, in response, that he checked the television tape. Even so, advertisements continued to run on the television. He did not stop them when he must have seen that the disclaimer was run for a very short period. He did not check the radio advertisements. He did not stop newspaper advertisements for promotion of the Lawnton store nor did he check these newspaper advertisements. The television advertisements continued from this period through to 28 April 2001.

15 I do not accept Mr Khoury's evidence. I regard it as most unsatisfactory. His initiation of the advertisement and the part that he plays within the company renders it likely that he simply wanted a disclaimer to appear. He would not, in my view, have wanted it to be prominent. The likelihood is, as the defence admits, that he actually approved it. If he did not, in my view, he must have ensured that it would not come to his attention whilst expecting the absolute minimum of a disclaimer to have been printed.

16 I am satisfied that there is a real likelihood that Mr Khoury knew, not only of the terms of the statement to be published in the advertising campaign but also that he appreciated the disclaimer, such as it was, was to appear in fine print. The disclaimer, as I have said, is ineffective. There will, in these circumstances, be orders in terms of paragraphs 1, 2 and 4 of the application.

17 With respect to the injunction sought in paragraph 5, this is the second occasion on which Mr Khoury has run an advertising campaign, which, although different in some respects, is essentially the same. He controls a number of companies. He has sold the stock of the first respondent and has control of the company which now has that stock. I am satisfied that, unless restrained, the likelihood is that he will repeat his behaviour. Mr Khoury's failure to accept that there is anything misleading in the advertisements, would, in my view, confirm this. The injunction will be granted in the terms sought.

18 The Commission also seeks an order under s 80 that he attend a seminar. The order sought is that, within six months of the making of this order, he attend a Trade Practices Compliance seminar at his own expense, conducted by a person or a person chosen from a panel nominated by the Association for Compliance Professionals of Australia Incorporated. The seminar is to consist of presentations relating to Part V of the Trade Practices Act 1974 and the order would also require the third respondent, within one week of attending the seminar, notify the applicant of his attendance, including the date and place of the seminar and the name of the person who conducted it. Mr Khoury resists the making of such an order. If I had any doubt about the need for the orders I am satisfied, on the basis of his evidence, that he suffers from an almost complete lack of understanding of his obligations, under the Trade Practices Act, to consumers with respect to advertisements of his products for sale. An educational program could only assist him. There will be orders in the terms I have outlined.

19 There will also be an order in terms of paragraph 8 of the short minutes of order and orders in terms of the short minutes of order which reflect those I have already indicated.

I certify that the preceding nineteen (19) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kiefel.

Associate:

Dated: 18 February 2003

Counsel for the Applicant:	Mr K Wilson QC
Solicitor for the Applicant:	Australian Government Solicitor
For the Third Respondent:	In Person
Date of Hearing:	18 February 2003
Date of Judgment:	18 February 2003