FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Jutsen (No 4) [2012] FCA 503
IN THE FEDERAL COURT OF AUSTRALIA | |
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant | |
AND: | First Respondent TINA AROHA BROWNLEE Second Respondent DAVID GRAEME SCANLON Third Respondent |
DATE OF ORDER: | |
WHERE MADE: |
THE COURT DECLARES THAT:
1. The first respondent participated in a pyramid selling scheme within the meaning of s 65AAD of the Trade Practices Act 1974 (Cth) (the Act), in contravention of s 65AAC(1) of the Act between 15 April 2010 and 14 May 2010, by:
(a) maintaining her membership in the TVI System described in Schedule A to these orders (TVI System);
(b) controlling, operating and contributing to or being otherwise involved with the Internet websites at the following URLs that referred to, linked to or otherwise promoted the TVI System:
(i) http://www.vortexmom.com/ (Vortexmom Website);
(ii) http://tedditudes.wordpress.com/ (Wordpress Website); and
(iii) http://tviteamoz.com/ (TVI Team Oz Website);
(c) controlling, operating and contributing to or being otherwise involved with the group named TVI Team Oz and TVI Team Oz Group within the website located at the URL: http://www.facebook.com/ (Facebook Website) that referred to, linked to or otherwise promoted the TVI System;
(d) distributing via the internet and email promotional material, including presentations, slides and newsletters about the TVI System;
(e) arranging by use of email and publication on the internet of the TVI Team Oz Website live seminars to promote the TVI System;
(f) receiving and accepting payments through electronic transfers from members or prospective members of the TVI System; and
(g) making payments to or for the benefit of the promoter of the TVI System by electronic transfer in respect of the membership of new participants.
2. The second respondent participated in a pyramid selling scheme within the meaning of s 65AAD of the Act, in contravention of s 65AAC(1) of the Act between 15 April 2010 and 14 May 2010, by:
(a) maintaining her membership in the TVI System;
(b) controlling, operating and contributing to or being otherwise involved with the TVI Team Oz Website and the website at http://www.tbrownlee.com;
(c) controlling, operating and contributing to or being otherwise involved with the group named TVI Team Oz and TVI Team Oz Group within the website located at the Facebook Website that referred to, linked to or otherwise promoted the TVI System;
(d) distributing via the internet and email promotional material, including presentations, slides and newsletters about the TVI System;
(e) arranging by publication on the internet of the TVI Team Oz Website live seminars to promote the TVI System; and
(f) receiving and accepting payments through electronic transfers from members or prospective members of the TVI System.
3. The third respondent participated in a pyramid selling scheme within the meaning of s 65AAD of the Act, in contravention of s 65AAC(1) of the Act between 15 April 2010 and 14 May 2010, by:
(a) maintaining his membership in the TVI System;
(b) controlling, operating and contributing to or being otherwise involved with the TVI Team Oz Website;
(c) controlling, operating and contributing to or being otherwise involved with the group named TVI Team Oz and TVI Team Oz Group within the Facebook Website that referred to, linked to or otherwise promoted the TVI System;
(d) distributing via the internet and email promotional material, including presentations, slides and newsletters about the TVI System;
(e) arranging and participating via the internet in webinars for prospective participants in the TVI System; and
(f) receiving and accepting payments through electronic transfers from members or prospective members of the TVI System.
4. By publishing on the TVI Team Oz Website a representation that each person who became a member of the TVI System would receive accommodation for a vacation of six nights and seven days in a 3 to 5 star hotel or resort at no charge other than taxes (Vacation Representation), in circumstances where:
(a) if a member of the TVI System sought the benefit of the offer of six nights and seven days vacation, the participant was issued by the TVI Website with a redemption certificate of no value;
(b) when a member who had received such a redemption certificate sought to redeem it, the TVI Website published to that participant a notice stating that “bookings are temporarily on hold”; and
(c) no other practical mechanism existed for a participant in the TVI Team Oz Scheme to claim or receive the vacation,
the respondents in trade or commerce engaged in conduct by use of telephonic services that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act.
5. By publishing the Vacation Representation on the TVI Team Oz Website when the offer was of no value in circumstances where:
(a) if a member of the TVI System sought the benefit of the offer of six nights and seven days vacation, the participant was issued by the TVI Website with a redemption certificate of no value;
(b) when a member who had received such a redemption certificate sought to redeem it, the TVI Website published to that participant a notice stating that “bookings are temporarily on hold”; and
(c) no other practical mechanism existed for a participant in the TVI Team Oz Scheme to claim or receive the vacation,
the respondents by use of telephonic services falsely represented, in contravention of s 53(c) of the Act, that membership of the TVI System had a benefit it did not have.
6. By publishing on the TVI Team Oz Website a representation that TVI Express had an affiliation or association with the following brands:
(a) Hertz;
(b) Carnival, The Cruise Line; and
(c) Malaysia Airlines,
(Channel Partner Representation) when TVI Express did not have such affiliation or association, the respondents in trade or commerce engaged in conduct by use of telephonic services that was misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Act.
THE COURT ORDERS THAT:
7. The respondents by themselves, their servants or agents, or otherwise howsoever, be restrained for a period of 5 years pursuant to s 232 of the Australian Consumer Law (ACL) from advertising, promoting, taking part in or otherwise participating in the TVI System by:
(a) doing so in Australia; or
(b) doing so in the course of or in relation to trade or commerce between Australia and places outside Australia; or
(c) doing so in the course of or in relation to trade or commerce within a Territory or between a State and Territory or between two Territories; or
(d) doing so by use of any postal, telegraphic or telephonic services within Australia (including but not limited to the internet).
8. The respondents by themselves, their servants or agents, or otherwise howsoever, be restrained for a period of 5 years pursuant to s 232 of the ACL:
(a) doing so in the course of or in relation to trade or commerce between Australia and places outside Australia; or
(b) doing so in the course of or in relation to trade or commerce among the States; or
(c) doing so in the course of or in relation to trade or commerce within a Territory or between a State and Territory or between two Territories; or
(d) doing so by use of any postal, telegraphic or telephonic services within Australia (including but not limited to the internet)
from establishing, promoting, taking part in or otherwise participating inside or outside of Australia in any other scheme in which:
(i) to take part in the scheme, some or all new participants must make a payment (“participation payments”) to another participant or participants in the scheme; and
(ii) participation payments are entirely or substantially induced by the prospect held out to new participants that they will be entitled to a payment in relation to the introduction to the scheme of further new participants.
9. The respondents by themselves, their servants or agents, or otherwise howsoever, be restrained for a period of 5 years pursuant to s 232 of the ACL from publishing, or otherwise making in trade or commerce any statement to the effect that a person who becomes a member of the TVI System would receive accommodation for a vacation.
10. The respondents by themselves, their servants or agents, or otherwise howsoever, be restrained for a period of 5 years pursuant to s 232 of the ACL from publishing, or otherwise making in trade or commerce any false statement to the effect that TVI Express has any affiliation or association with the following for the purposes of promoting the TVI System:
(a) Hertz;
(b) Carnival, The Cruise Line; and
(c) Malaysia Airlines.
11. The first respondent pay a civil penalty to the Commonwealth in respect of the matters referred to in Declaration 1 in the amount of $90,000 pursuant to s 76E of the Act.
12. The second respondent pay a civil penalty to the Commonwealth in respect of the matters referred to in Declaration 2 in the amount of $80,000 pursuant to s 76E of the Act.
13. The third respondent pay a civil penalty to the Commonwealth in respect of the matters referred to in Declaration 3 in the amount of $30,000 pursuant to s 76E of the Act.
14. The respondents are to pay the applicant’s costs of the proceeding.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011
Schedule A
The TVI System operates and is structured as follows:
1. It was held out to potential new participants in the TVI System that in return for the Fee, a person would become a member of a system operated on the website www.tviexpress.com (TVI System) through which they would be provided with the following:
(a) a gift of a 6 night/7 day stay in a 3-5 star hotel/resort (excluding taxes);
(b) a gift of a free flight ticket to a domestic destination (excluding taxes) if one flight ticket is purchased;
(c) a virtual back office;
(d) an on-line travel portal accessible through the virtual office;
(e) a free self-replicating website;
(f) free access to business tools;
(g) lifetime access to promotional deals and programs;
(h) the opportunity to participate in the “Traveller Board” and “Express Board”;
(i) the opportunity to earn US$250 commission and an eVoucher worth US$250 by progressing through the levels of the Traveller Board and exiting the Traveller Board;
(j) the opportunity to earn US$10,000 commission multiple times by progressing up the levels of the Express Board and exiting the Express Board;
(k) the opportunity to earn greater commissions by advancing through the levels in the compensation plan;
(l) the opportunity to participate in the “Power Pool”; and
(m) the opportunity to earn incentives.
2. The value of the services referred to at 1(a) – (g) was nugatory.
3. In promotion of the TVI System emphasis was given to the services referred to at 1(h) – (m) and emphasis was not given to the services at 1(a) – (g).
4. Participants in the TVI System enter at level one of the “Traveller Board”. The “Traveller Board” has four levels in the following configuration:
(a) the bottom level, level one, consists of 8 positions;
(b) the second level consists of 4 positions;
(c) the third level consists of 2 positions; and
(d) the fourth, or top level, consists of 1 position.
5. To obtain entry to a Traveller Board, US$250 was payable to or for the benefit of a promoter of the TVI System.
6. Existing participants progress up the levels as new participants join the Traveller Board. The positions fill from left to right. When the Traveller Board is full, the Board splits into two Traveller Boards and the participant at the fourth or top level exits the Traveller Board and enters at the bottom of an Express Board.
7. For a new participant to qualify to exit the Traveller Board and receive US$250 and an eVoucher said to be worth US$250, there must have been introduced to the TVI System further new participants.
8. The Express Board is structured the same as the Traveller Board with four levels in the following configuration:
(a) the bottom level, level one, consists of 8 positions;
(b) the second level consists of 4 positions;
(c) the third level consists of 2 positions; and
(d) the fourth, or top level, consists of 1 position.
9. Existing participants progress up the levels as participants who exit the Traveller Board join the Express Board. The positions fill from left to right. When the Express Board is full, the Board splits into two Express Boards and the participant at the fourth or top level exits the Express Board and enters at the bottom of another Express Board.
10. For existing participants to qualify to exit the Express Board and receive US$10,000, at least 2 participants “downline” from the participant have to join the Express Board.
11. The structure for the compensation plan and commissions referred to in paragraph 1(k) is as follows:
(a) a participant becomes a Gold Associate by exiting their first Express Board, qualifying the participant to receive 5% of group sales;
(b) a participant becomes a Diamond Associate when two participants in their “organisation” become Gold Associates, qualifying the participant to receive 7% of group sales;
(c) a participant becomes an International Diamond Associate when two participants in their “organisation” become Diamond Associates, qualifying the participant for 8.5% of group sales;
(d) a participant becomes a Platinum Associate when two participants in their “organisation” become International Diamond Associates, qualifying the participant for 10% of group sales;
(e) a participant becomes a Presidential Associate when two participants in their “organisation” become Platinum Associates, qualifying the participant for 10% of group sales.
12. Group sales referred to in paragraphs 11(a) – (e) are the total of amounts payable as referred to in paragraph 5.
13. The Power Pool referred to in paragraph 1(l) is 2% of the global revenue which is distributed amongst Presidential Associates.
14. The incentives referred to in paragraph 1(m) and the qualification criteria for the incentives are as follows:
(a) Laptop – when 3 people in your “group” exit the Express Board;
(b) Europe trip or diamond jewellery – when 10 people in your “group” exit the Express Board;
(c) Luxury car – when 10 people in your “group” exit the Express Board;
(d) Villa – when 10 people in your “group” exit the Express Board; and
(e) Jet or yacht – when 100 people in your “group” exit the Express Board.
NEW SOUTH WALES DISTRICT REGISTRY | |
GENERAL DIVISION | NSD 529 of 2010 |
BETWEEN: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant
|
AND: | LUALHATI JUTSEN First Respondent TINA AROHA BROWNLEE Second Respondent DAVID GRAEME SCANLON Third Respondent
|
JUDGE: | NICHOLAS J |
DATE: | 18 may 2012 |
PLACE: | SYDNEY |
REASONS FOR JUDGMENT
Background
1 On 28 November 2011 I gave my reasons for finding that each of the respondents contravened s 65AAC and s 52 and s 53 of the Trade Practices Act 1974 (Cth) (the Act): Australian Competition and Consumer Commission v Jutsen (No 3) [2011] FCA 1352. I stood the proceeding over for the purpose of hearing submissions in relation to relief. The applicant (the ACCC) has sought declaratory and injunctive relief. It also seeks pecuniary penalties against each of the respondents under s 76E of the Act. Before turning to the issues to be considered, I should say something about the further hearing that occurred.
2 Shortly after my earlier judgment was published I ordered that the proceeding be fixed for a further hearing in relation to the appropriate form of relief later in the year. The first respondent, Ms Jutsen, informed the Court that she was overseas and unable to return to Australia on the date fixed. The proceeding was then adjourned until 9 February 2012 for the purpose of enabling Ms Jutsen to appear, make submissions and, to the extent she might be permitted, to call further evidence. The Court was later informed by Ms Jutsen that she was unable to return to Australia because of a death in her family. The proceeding was then relisted for directions. At that directions hearing (which she participated in by telephone) she informed me that she was still overseas and was unable to say when she would be able to return to Australia. She asked for a further adjournment of the hearing. Her application was refused. I indicated, however, that I would permit her to appear by way of telephone which she has done. Ms Brownlee, the second respondent, and Mr Scanlon, the third respondent, appeared in person.
3 All three respondents relied upon written submissions which they supplemented by oral submissions at the hearing. In addition, Mr Scanlon relied on two affidavits, one of which was made by him. The ACCC relied upon findings and evidence referred to in my principal judgment. It also relied upon a further affidavit of Ms Choucair.
The Proposed Declarations
4 None of the respondents suggested that this was not a case in which it was appropriate to make declarations in appropriate terms. It is apparent that there are many members of the community who have been drawn into the pyramid selling scheme known as “TVI Express” (the Scheme). Many are likely to have been introduced to the Scheme by the respondents or other members of the public who were introduced to it by them. The making of declarations, coupled with the pecuniary penalties which will be imposed, should send a clear message to the public that it is unlawful to participate in the Scheme under the laws of this country and that anyone who participates in it in breach of those laws may incur substantial penalties.
The proposed Injunctions
5 None of the respondents raised any issue concerning the form of the injunctions proposed by the ACCC. A number of issues as to the form of the injunctions were raised by the Court during the course of the hearing. The ACCC accepted that the proposed injunctions need to be modified in various respects. The form of the injunctions to be made reflect the terms of those proposed by the ACCC subject to amendments that, for the most part, take into account issues raised by the Court during argument.
Pecuniary Penalties
6 In my earlier judgment (at paras [94]-[100]) I referred in detail to the relevant statutory provisions. It is accepted by the ACCC that the conduct engaged in by the respondents prior to 15 April 2010 did not involve any contravention by them of s 65AAC of the Act.
7 Under the relevant transitional provisions, s 76E of the Act continues to apply to this proceeding. Section 76E authorises the Court to impose a pecuniary penalty against a person who it is satisfied has contravened, relevantly, a provision of Div 1 or Div 1AAA of Part V (other than s 52 of the Act). The Court does this by ordering such a person to pay the amount of pecuniary penalty to the Commonwealth. Because each of the respondents is an individual, the maximum penalty that may be imposed on him or her is $220,000: see s 76E(3), Item 2, and s 4AA(1) of the Crimes Act 1914 (Cth).
8 Section 76E(2) provides:
In determining the appropriate pecuniary penalty, the Court must have regard to all relevant matters including:
(a) the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and
(b) the circumstances in which the act or omission took place; and
(c) whether the person has previously been found by the Court in proceedings under Part VC or this Part to have engaged in any similar conduct.
9 Section 76E(2) requires the Court to have regard to all relevant matters when determining an appropriate penalty. As part of that exercise, the Court must consider each of the specific matters identified in paras (a), (b) and (c). In determining what penalties should be imposed on the respondents I have had regard to all relevant matters including those specifically identified in s 76E(2).
10 The nature of the acts or omissions that have been considered by me are referred to in my earlier judgment as well as these reasons. In this regard, my earlier reasons are to be read in conjunction with these reasons.
11 It has not been possible for me to quantify the loss and damage that was suffered as a consequence of the respondents’ contraventions of the Act during the relevant period. The evidence does not permit me to do so. Nevertheless, for reasons which will appear, I am of the opinion that the total loss and damage likely to have been suffered by new participants who were induced to join the Scheme during the relevant period was substantial, and likely to have been somewhere in the order of several hundred thousand dollars.
12 It is well settled that the principal object of a pecuniary penalty under s 76E is deterrence. There are two aspects to the concept of deterrence in this context. The first is specific deterrence; in imposing a pecuniary penalty the Court aims to deter the person upon whom it is imposed from engaging in prohibited conduct of the same or a similar kind. The second is general deterrence; in imposing a pecuniary penalty the Court also aims to deter others from engaging in prohibited conduct of the same or a similar kind.
13 While the Act has long prohibited corporations from participating in pyramid selling schemes, it was not until amendments to the Act took effect in April 2010 that it also became unlawful, under the Act, for individuals to participate in such schemes. Even then, the scope of the statutory prohibition, insofar as it extends to individuals, was determined by s 6(3) of the Act. In the present case the respondents were found to have participated in the Scheme by the use of postal, telegraphic or telephonic services: see, in particular, paras [96], [99]-[100] and [118] of my previous judgment.
14 For the purpose of determining an appropriate penalty, so far as the particular acts which were found to give rise to contraventions of s 65AAC are concerned, I shall confine my attention to what occurred between 15 April 2010 and 14 May 2010. On the latter date a judge of the Court made an ex parte order which, by its terms, restrained the respondents from participating in the Scheme. I am mindful that this order was not extended when the matter was before the Court on 20 May 2010. However, different orders were made restraining the respondents from taking further steps to establish or promote the Scheme, restraining them from arranging, conducting or participating in any seminars or webinars promoting the Scheme, and preventing them from knowingly receiving or accepting participation payments from members or prospective members of the Scheme.
The first respondent
15 The ACCC at first argued that the maximum penalty should be imposed on Ms Jutsen. It moderated its position somewhat during the course of argument, but still maintained that a pecuniary penalty should be imposed against Ms Jutsen at the higher end of the range.
16 The ACCC argued that the evidence showed that after 15 April 2010, and for a period of about a month, Ms Jutsen continued to be heavily involved in promoting the Scheme, and during that time, she received significant sums of money by way of participation payments from the public.
17 It is apparent from the evidence that the Scheme operates in various other countries in addition to Australia. The evidence suggests that those responsible for establishing the Scheme reside overseas. Where Ms Jutsen stood in relation to the operation of the Scheme in other countries is not known. So far as Australia is concerned, which is all that is relevant for present purposes, it is clear that Ms Jutsen was a very significant participant.
18 There was evidence which I referred to in para [56] of my earlier judgment of Mr Scanlon describing Ms Jutsen in the course of his “webinar” as the “founder of TVI”. Regardless of what one might say of the international operations, or her role in the establishment of the Scheme, I am satisfied that Ms Jutsen was heavily involved in the development and promotion of the Scheme in Australia during the relevant period and that she was instrumental in recruiting large numbers of new members to the Scheme after 15 April 2010.
19 At para [106] of my principal judgment I made the following findings relating to the receipt and transfer of funds by Ms Jutsen:
It is clear that prospective members of the TVI Express System are required to make payments to other participants in the scheme if they are to take part in it. The evidence is sketchy as to what has happened to money received by the respondents when signing up new members but there is no doubt that large amounts of money have been received. Some of the money received by the respondents has almost certainly been transferred overseas. In particular, there was unchallenged evidence that between 16 February 2010 and 17 May 2010, Ms Jutsen transferred $296,985 to a bank account in Hong Kong. I infer that this represented the proceeds of membership fees collected from new members who also wished to participate in the scheme.
20 Ms Choucair’s affidavit indicates that of the $296,985 transferred into the bank account in Hong Kong, $175,344 was transferred into that account between 16 April 2010 and 17 May 2010.
21 The evidence also establishes that in the period 18 May 2010 to 8 September 2010 a total of $175,000 was transferred from the Hong Kong bank account to the trust accounts of Baker & McKenzie and McLachlan Thorpe. Each of those firms acted for the respondents in this proceeding at different stages prior to the trial.
22 It is likely that at least some part of the money transferred to the respondents’ solicitors was used to pay legal fees but there is nothing apart from the evidence of the transfers themselves to indicate whether that is what occurred.
23 Ms Jutsen submitted that there was no evidence to establish who was the true owner of the Hong Kong account. However, it is not necessary for me to decide who the true owner of the Hong Kong bank account was. It is quite possible that the moneys were transferred to the Hong Kong account for the benefit of other promoters of the Scheme apart from Ms Jutsen. The significance of the transfers is that they show that Ms Jutsen obtained significant sums of money as a result of her involvement in the Scheme which she then transferred overseas.
24 The ACCC submitted that Ms Jutsen’s participation in the Scheme resulted in a loss to the Australian public of at least A$528,000. It pointed to statements made on Ms Jutsen’s MeetPlanB website that indicated she was recruiting between 300 and 400 members per week. The ACCC argued that this showed that in the period 15 April 2010 and 13 May 2010 the loss caused to the public could be estimated as not less than:
4 weeks x 400 per week x A$330 = A$528,000
If the figure of 300 members per week is used for the purpose of this calculation, then the total figure is A$396,000.
25 It is quite possible that something approaching these amounts was received by Ms Jutsen in the relevant period, though whether it was as great as $528,000 or even $396,000 I cannot say. No doubt Ms Jutsen is aware of how much money she received during the relevant period, but she did not give any evidence relating to that matter or any other matter relevant to the issues now under consideration. Whatever the exact position, the amount received by Ms Jutsen during the relevant period was substantial. In particular, I am satisfied that she received in excess of $175,000 during the month in question.
26 It is not possible to say with any precision how much loss or damage was caused by the respondents as a consequence of their participation in the Scheme during the relevant period. I am satisfied, however, that many people were induced by Ms Jutsen, and the other respondents, to pay A$330 in order to participate in a scheme in which, for all practical purposes, they could not lawfully participate without contravening s 65AAC as extended by s 6(3) of the Act. No doubt some of these people, including Ms Jutsen, received substantial financial benefits as a result of their participation in the Scheme. However, most of the participants who the respondents induced to join during the relevant period are unlikely to have received anything of value in return for their A$330.
27 Ms Choucair’s affidavit also includes details of searches she carried out earlier this year in relation to the respondents’ self-replicating websites. I referred to these briefly in my earlier judgment. All three respondents had what are referred to in the evidence as self-replicating websites. Ms Choucair’s affidavit explains that she conducted various searches on 24 January 2012 which revealed that these self-replicating websites established by each of the respondents in 2010 are still operative. It was argued by the ACCC that this evidence showed that all three respondents still participate in the Scheme.
28 There are difficulties with this argument. While there was no evidence from Ms Jutsen to satisfy me that she was no longer participating in the Scheme, I do not propose to determine a pecuniary penalty on the basis that she was. This is because I am not satisfied on the evidence before me that Ms Jutsen, or any other respondent, continued to participate after 14 May 2010.
29 Ms Jutsen made submissions to the effect that she herself was a victim of the Scheme. She submitted that she would not knowingly have become a member of the Scheme had she known that it was a true pyramid selling scheme. She also submitted that she was not aware that she had any option other than to defend proceedings brought against her by the ACCC.
30 Neither of these submissions is supported by evidence. The idea that Ms Jutsen should be regarded as a victim is difficult to accept. So too is her submission that she had no alternative but to defend the proceeding.
31 I am satisfied that Ms Jutsen made substantial profits out of her involvement in the Scheme during the relevant period. What became of them has not been satisfactorily explained. On the best possible view of the facts from her standpoint, a large part of the profits that were made were eaten up in legal fees incurred in defending this proceeding.
32 I am satisfied that Ms Jutsen was at all relevant times aware that it was open to her to withdraw her defence, and to make submissions and call evidence in relation to any relevant matter including pecuniary penalty and costs. She is not entitled to the special consideration usually given to a respondent who admits his or her liability at an early stage of the proceeding or, at least, before commencement of the trial.
33 There is no evidence before me to indicate what financial capacity Ms Jutsen has to pay a pecuniary penalty. While the other respondents claimed to lack the financial means to pay a substantial pecuniary penalty, no such submission was made by Ms Jutsen. A respondent’s capacity to pay is a relevant matter for the purpose of determining the amount of a pecuniary penalty. However, Ms Jutsen has not put anything before me to suggest that she lacks the financial capacity to pay a substantial pecuniary penalty.
34 I do not accept the ACCC’s submission that the maximum penalty should be imposed on Ms Jutsen. Her involvement is not the worst possible contravention that is likely to come before the Court in proceedings brought by the applicant against individuals for contravention of s 65AAC or a like provision. In Markarian v The Queen (2005) 228 CLR 357 at para [31] the High Court said (albeit in the criminal law context):
… careful attention to maximum penalties will almost always be required, first because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all of the other relevant factors, a yardstick.
35 Although I accept that Ms Jutsen’s contravention of s 65AAC of the Act was not in the category of case which justifies imposition of the maximum penalty, her contravention was serious and a substantial penalty is warranted. She was well placed to know by 15 April 2010, if not before, that the travel related benefits promised to members of the Scheme were wholly or substantially illusory, and that she was engaged in the promotion of what she would have understood to be a pyramid selling scheme that provided participants with nothing of any real value apart from the opportunity to receive commissions in return for recruiting new members.
36 I am satisfied that there is a clear need to impose a pecuniary penalty on Ms Jutsen that will deter her from engaging in any further contraventions of the relevant statutory provisions: see now, Div 3 of Pt 3-1 in Sch 2 of the Competition and Consumer Act 2010 (Cth) (“Australian Consumer Law”) (ACL). This is a consideration which I think must be given significant weight in her case.
37 I take into account that, entirely by reason of the ACCC’s quick action, Ms Jutsen’s participation in the Scheme was brought to an end within a month or so after the relevant amendments to the Act took effect, so that the period in which she acted in contravention of s 65AAC was relatively short. This is a consideration which I think should be given considerable weight.
38 I also take into account that Ms Jutsen has not previously been found to have contravened any provision of the Act or the ACL. This is another consideration which I think should be given considerable weight.
39 Taking all relevant matters into consideration, including the need for the Court to impose a pecuniary penalty that will act as a general deterrent, I consider Ms Jutsen should be ordered to pay a pecuniary penalty of $90,000.
The second respondent
40 The ACCC submitted that Ms Brownlee should also receive a penalty at the higher end of the range. In particular, its proposed short minutes of order suggested that a pecuniary penalty of $180,000 be imposed in her case. I do not accept that this would be an appropriate penalty.
41 Like Ms Jutsen, Ms Brownlee did not give evidence. She did, however, tender various documents relevant to an assessment of an appropriate pecuniary penalty. These documents included a number of character references and some documents relevant to her financial circumstances. She also provided me with detailed written submissions.
42 Ms Brownlee’s written submissions addressed her personal circumstances in some detail. I am mindful that she has not deposed to the truth of the factual material set out in her written submissions, but there is a considerable amount of information provided in them which I accept as accurate in spite of that fact.
43 Her submissions indicate that she is in full time employment as a secretary earning approximately $1200 per fortnight, that her husband is unemployed, and that she and her husband, along with her step-daughter and her step-daughter’s young son, live in a four bedroom home which she rents for $700 per week. She says that two of the rooms in the house are let by her to overseas students to help her make ends meet. She also says, and this is accepted by the ACCC, that the family home in Earlwood, first acquired by Ms Brownlee and her husband in 2001, was sold in August 2011, and that most of the proceeds of sale went to pay out the secured mortgagees. Other personal information is provided in Ms Brownlee’s submissions which is unnecessary to set out in these reasons.
44 There are two major problems with what Ms Brownlee has placed before the Court by way of submission and evidence. None of her material provides a proper account of her asset position. Nor does it provide any meaningful explanation of how much money was received by her as a result of her participation in the Scheme, or what became of that money.
45 That Ms Brownlee’s family home was sold in August 2011 with most of the proceeds of sale being paid to secured mortgagees, may or may not reflect some measure of financial hardship or distress. It is also possible that the sale of the Earlwood property represented a step along a path of financial reorganisation intended to put her assets beyond the reach of the ACCC.
46 There is evidence before the Court that provides some insight into the financial circumstances of Ms Brownlee and her husband in January 2010 at about the time they refinanced the Earlwood property. In their loan application to Westpac, Ms Brownlee and her husband were said to own (inter alia) personal effects and household items with a market value in January 2010 of $250,000. Referring to this application, Ms Brownlee made the following oral submission to me concerning those items (T 37):
And in regards to the submissions that Mr White has made in respect to my ability to pay any penalty, going back to the application, the bank application, in there he referred to 250,000 in personal assets; that was for purposes of insurance and at that time I did have art, jewellery, antiques and different personal assets to that value, but that’s not to say, your Honour, that that is what I can sell them for today. In fact I have attempted to sell some pieces of art that I have which go to that 250,000 that’s been spoken about, and have not been able to get anywhere near the value that I initially paid for them.
47 I raised with Ms Brownlee during the course of her submissions (T 38) the lack of information as to her net asset position and the absence of any sworn evidence as to her financial situation. It is clear she understood that it was open to her to give sworn evidence as to her net asset position if she chose to do so. As with Ms Jutsen, Ms Brownlee has made a considered decision not to provide any sworn evidence as to that or any other relevant matter.
48 A respondent’s lack of financial capacity may provide a sufficient reason not to impose a substantial pecuniary penalty or, at least, to impose a pecuniary penalty in a lesser amount than might otherwise be imposed. What weight the respondent’s financial capacity should be given when assessing all of the considerations relevant to fixing a pecuniary penalty must depend on the circumstances of the given case. Even if the respondent is lacking capacity to pay, other considerations may still warrant the imposition of a substantial, perhaps even a maximum, pecuniary penalty. The fact that the penalty imposed gives rise to insolvency does not in itself make it excessive.
49 In Ms Brownlee’s case, I am not satisfied that she lacks the financial capacity to pay a substantial pecuniary penalty. Nor am I satisfied that any deterioration in her financial affairs that may have occurred since January 2010 was not the result of a deliberate reorganisation of her assets so as to put them beyond the reach of the ACCC and the Commonwealth.
50 The ACCC submitted that the evidence showed that Ms Brownlee attained a higher rank than Ms Jutsen in the Scheme and that, therefore, it may be inferred that she earned as much, if not more, than Ms Jutsen. Whether or not there is evidence to that effect, the finding made by me was that they both held the rank of “International Diamond Associate”. That finding, and the residual income entitlements associated with that rank, are set out at paras [22]-[27] of my earlier judgment.
51 The ACCC also submitted that Ms Brownlee did not dispute that she received no less than $170,000 by way of membership fees on and after 15 April 2010. In fairness to Ms Brownlee, I did not understand her to accept that she earned this amount. It is necessary to look at the evidence for some indication of how much she earned.
52 There was evidence given by Ms Wetere at the trial, referred to at paras [78]-[80] of my earlier judgment, that indicated Ms Wetere was recruited to the Scheme by Ms Brownlee in February 2010 and that Ms Wetere thereafter “exited the travel board” seven times, thereby earning $70,000 (excluding residual income). According to Ms Wetere, although Ms Brownlee was her introducing member, Ms Wetere had out earned Ms Brownlee. By how much Ms Wetere out earned Ms Brownlee is not apparent from the evidence. Nor is it apparent what portion of those earnings, whatever they may have been, would have been earned by either Ms Wetere or Ms Brownlee during the relevant period.
53 Ultimately, the evidence does not permit me to say how much money Ms Brownlee earned during the relevant period. I cannot say whether she earned $170,000 during the relevant period as was submitted by the ACCC or whether she earned more or less than that amount. Nevertheless, I infer that, during the relevant period, Ms Brownlee earned significant amounts of money (including by way of residual income) through her own efforts and the efforts of others, including Ms Wetere, who she recruited. In the absence of countervailing evidence from Ms Brownlee, I infer that the amount earned by her would have in all probability exceeded $100,000 perhaps by a substantial margin.
54 Much of what I have said concerning the pecuniary penalty sought against Ms Jutsen applies to the $180,000 pecuniary penalty that the ACCC submitted should be imposed upon Ms Brownlee. As with Ms Jutsen, I do not consider Ms Brownlee should be visited with a penalty in the upper end of the range.
55 As with Ms Jutsen, Ms Brownlee’s active participation in the Scheme appears to have ended about a month after the relevant amendments took effect. And, as with Ms Jutsen, Ms Brownlee has not previously been found to have contravened any relevant provision of the Act or the ACL.
56 Still, there is a need to impose a significant penalty in Ms Brownlee’s case. Her contravention of the relevant provisions of the Act was serious and resulted, directly or indirectly, in large numbers of people putting their money into a scheme in which they could not lawfully participate.
57 Ms Brownlee submitted that, had she known that it was unlawful to participate in the Scheme, she would not have done so. Like Ms Jutsen, she sought to blame the ACCC for not warning her that participation in the Scheme was unlawful. And she submitted that the ACCC should not have commenced legal proceedings against her without prior notice. I do not give any weight to these particular submissions in circumstances where they are not supported by any evidence from Ms Brownlee.
58 In the result, taking all these matters into account, I am satisfied that it is appropriate to impose a pecuniary penalty against Ms Brownlee of $80,000. This is somewhat lower than that imposed upon Ms Jutsen reflecting what, all things considered, seems to me to be a relatively minor difference in their respective levels of culpability.
The Third Respondent
59 In the case of Mr Scanlon, the ACCC submitted that a pecuniary penalty in the amount of $80,000 should be imposed. Again, I do not accept the ACCC submission. In my view, the penalty sought by the ACCC is excessive.
60 Mr Scanlon gave evidence at the further hearing by affidavit. The ACCC did not cross-examine him.
61 It was Mr Scanlon’s evidence that he was made bankrupt in April 2009 as a result of property investments that, in his words, “took a big hit” in 2008, and that he has not yet been discharged from bankruptcy. He also gave the following evidence:
I joined TVI EXPRESS for the discount travel benefit and to pay off my Bankrupt Estate by paying back ITSA who would in turn pay back my creditors with interest. While I was evaluating the TVI EXPRESS opportunity as a viable Part-Time business for myself, 3 weeks later on 21st October 2009 I rang the ACCC HOTLINE twice on 1300 302 502 (scam watch) to see if there was any reported problem with TVI EXPRESS and I was told that there wasn’t.
62 Importantly, Mr Scanlon also gave evidence, which I accept, that he made approximately $27,000 (after tax) as a result of his participation in the Scheme. I take into account Mr Scanlon’s candour in disclosing the amount of money made by him as a result of his participation in the Scheme. It is something which I consider should tell in his favour when considering what pecuniary penalty to impose upon him. Relative to what is likely to have been earned by the other respondents during the relevant period, Mr Scanlon’s earnings were quite modest.
63 There is nothing to suggest that Mr Scanlon has previously been found to have contravened the Act or the ACL.
64 I am satisfied that the pecuniary penalty that I propose to impose on Mr Scanlon provides adequate deterrence, both specific and general, when it is viewed in the context of his particular circumstances as established by unchallenged evidence.
65 Taking all relevant matters into consideration, I am satisfied Mr Scanlon should be ordered to pay a pecuniary penalty of $30,000.
SECTION 83 OF the ACT
66 The applicant sought an order that my earlier reasons for judgment be sealed pursuant to s 83 of the Act. Whatever else might be said about the appropriateness of such an order, the applicant in this proceeding did not seek any relief under ss 82, 87(1A) or 87AAA(1) of the Act and, consequently, s 83 of the Act cannot apply.
Costs
67 There is no reason why costs should not follow the event. Accordingly, the respondents will be ordered to pay the ACCC’s costs of the proceeding.
68 There will be orders accordingly.
I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas. |
Associate:
