FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Dateline Imports Pty Ltd [2015] FCAFC 114

THE COURT ORDERS THAT:

1.    The appeal be allowed in part as to paragraph (1) of the declarations made on 18 November 2014 in the manner set out in Order 4 hereunder.

2.    Otherwise the appeal be dismissed.

3.    The parties confer on the question of the costs order on the appeal with a view to agreeing a proposed order and filing a minute of proposed consent orders as to costs. Failing agreement, the parties are to file submissions on the costs of the appeal not exceeding two pages on the following timetable:

(a)    appellant’s submissions to be filed on or before 7 September 2015;

(b)    respondents’ submissions to be filed within a further 7 days thereafter;

(c)    appellant’s reply submissions, if any, to be filed within a further 7 days thereafter.

4.    Paragraph 1 of the declarations made on 18 November 2014 be varied as follows:

(a)    by inserting “(i)” after the words “first respondent” in the second line;

(b)    by adding at the end of the declaration the following “and (ii) that the first respondent had reasonable grounds for making representations that:

    (a)     Keratin Complex did not contain formaldehyde;

    (b)     persons using the product could not be exposed to formaldehyde;

    (c)     Keratin Complex was safe for its recommended use;

    (d)     Keratin Complex complied with all health and safety regulations in the world; and

    (e)     Keratin Complex contained no harmful chemicals.

5.    The question of penalty, if any, in respect of the contraventions the subject of the amended declaration set out in Order 4 be remitted to Rangiah J for hearing and determination.

6.    The cross-appeals be dismissed.

7.    The cross-appellants pay the cross-respondent’s costs of the cross-appeal to be taxed if not agreed.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

THE COURT:

1    Between late 2009 and October 2010, the first respondent (Dateline) published various representations, concerning a hair-straightening product that it imported for sale called Keratin Complex Smoothing Therapy (Keratin Complex). The principal representation was that Keratin Complex did not contain formaldehyde (formaldehyde representation).

2    The primary judge concluded that the appellant (the ACCC) had not proved that the formaldehyde representations contravened ss 52(1) and 53(a) of the Trade Practices Act 1974 (Cth) (TPA): Australian Competition and Consumer Commission v Dateline Imports Pty Ltd [2014] FCA 791. It followed that the claim that Mr David Taylor (Dateline’s managing director) was knowingly involved in those alleged contraventions necessarily failed. These conclusions are challenged in the appeal.

3    Dateline has advanced a Notice of Contention seeking to have the order of dismissal affirmed on grounds other than those relied upon by the primary judge. It also cross-appeals from the finding that it contravened s 52(1) of the TPA by making a representation in a letter of 20 September 2010 that a ban on the sale of Keratin Complex in Ireland would be overturned and that it had no reasonable grounds to make that representation.

4    Mr Taylor cross-appeals from the finding that he was knowingly concerned in this breach of s 52 by Dateline.

5    We have concluded for the reasons which follow that the appeal should be allowed in part only and the Notice of Contention dismissed.

6    The cross-appeals will also be dismissed.

appeal

The formaldehyde representation

7    Dateline imported and sold Keratin Complex in 2009 and 2010. At that time, hair straightening products were permitted to contain up to 0.05% of “free formaldehyde” without a specific warning or up to 0.2% of “free formaldehyde” if there was a specific warning that the product contained formaldehyde. The ACCC alleged that Dateline made the formaldehyde representation:

(a)    in an advertisement on Dateline's website from late 2009 until at least 22 July 2010 (Website Advertisements);

(b)    in a letter dated 20 September 2010 that Dateline distributed to its sales representatives and about 20 retailers or potential retailers (20 September Letter); and

(c)    in advertisements published in magazines between 27 September 2010 and 11 October 2010 (Magazine Advertisements).

8    Dateline admitted that it had made the formaldehyde representation in these media. However, it denied that the ACCC had proved that the formaldehyde representation was false.

9    The primary judge identified the class of persons to whom the formaldehyde representation was made as a "wide cross-section of people", including hairdressers and owners of hairdressing salons interested in finding products to use in their business, and people concerned about the appearance of their hair or wishing to change their appearance (in relation to the Website Advertisements - at [34]); persons who were engaged in the hairdressing business or in selling hairdressing products (in relation to the 20 September Letter - at [199]); and a "broad cross-section of readers", principally women (in relation to the Magazine Advertisements (at [300]).

10    The primary judge concluded that a not insignificant number of ordinary consumers would understand the words "does not contain toxic or dangerous chemicals such as Formaldehyde" to mean, inter alia, that Keratin Complex did not contain a chemical called formaldehyde which is or can be in a liquid, or which is a chemical that can be used as a preservative and is or can be in a liquid, and that persons using the product could not be exposed to formaldehyde. Whilst this conclusion related directly to the Website Advertisements, this was simply one expression of the formaldehyde representation and therefore applicable generally. Central to the disposition of the case was whether that representation accorded with the true factual position.

What constitutes formaldehyde?

11    It was "common ground that formaldehyde is a chemical that is a gas in ambient conditions". When formaldehyde gas is combined with water, molecules of formaldehyde are "solvated" by water molecules, and the solvated formaldehyde then "readily reacts with water molecules to form a solution consisting of a compound called methylene glycol and some unreacted formaldehyde molecules". This fact, as found by the primary judge, was, as his Honour observed, the “central plank” of the ACCC’s argument that a solution consisting of methylene glycol and unreacted formaldehyde is a form of formaldehyde: at [59].

12    On the evidence of the experts who were called by the ACCC (the ACCC’s experts), the primary judge found, combining his Honour’s reasons at [76] and [77], that "formaldehyde includes the solution created when formaldehyde is combined with water; that is, [a simple aqueous] solution consisting of unreacted formaldehyde and methylene glycol". It also includes formalin, an aqueous solution of methylene glycol and unreacted formaldehyde, with methanol added as a stabiliser. To manufacture Keratin Complex, formaldehyde (in the form of formalin) was mixed with cysteine to form timonacic acid, which was then mixed in with other chemicals to form Tri-Ionic Keratin; the Tri-Ionic Keratin was then added to other chemicals, including further timonacic acid. Although the experts agreed that it was extremely difficult to predict whether timonacic acid would “decompose to form formaldehyde and cysteine” in Keratin Complex, the ACCC contended that an inference to that effect could be drawn if the ACCC could demonstrate that the samples of Keratin Complex it tested contained methylene glycol, which would be accompanied by unreacted formaldehyde.

13    His Honour accepted that if methylene glycol was present in water then unreacted formaldehyde molecules in dynamic equilibrium would "inevitably be present as well". This is an important finding in the context of this appeal. However, the ACCC did not rely on the accompanying unreacted formaldehyde as being enough, of itself, to prove that Keratin Complex contained “formaldehyde”. As the primary judge described it, it is “the combination of methylene glycol and unreacted formaldehyde that the ACCC relies on as constituting formaldehyde”.

14    One of the methods adopted to test for methylene glycol was Nuclear Magnetic Resonance (NMR) spectroscopy, which is able to differentiate between methylene glycol, timonacic acid and other formaldehyde producers present in a sample. The experts agreed that NMR testing is “the only quantitative analytical approach whereby formaldehyde as methanal can be differentiated from methylene glycol and other formaldehyde producers”. The primary judge accepted that NMR testing could accurately detect and quantify the methylene glycol present in an aqueous solution and was not affected by the presence of timonacic acid.

Conclusion of the primary judge

15    The primary judge further accepted that the results of the NMR testing of Keratin Complex conducted by the ACCC's experts were valid and sufficiently reliable to accept. That testing indicated that the concentration of methylene glycol in the sample of Keratin Complex was likely to be 2.45 ± 0.5% by weight. His Honour inferred from that quantity of methylene glycol in the sample that unreacted formaldehyde molecules must have been present.

16    Notwithstanding that inference, the primary judge concluded that the ACCC had failed to establish that Keratin Complex contained formaldehyde. His Honour advanced two reasons for reaching that conclusion. First, the presence of methylene glycol and unreacted formaldehyde molecules in a complex aqueous solution was not necessarily formaldehyde, and Keratin Complex was a complex solution. Second, the testing for the presence of formaldehyde was carried out more than two years after the batch of Keratin Complex from which the sample was taken was manufactured and bottled.

Appeal grounds 1, 7 and 8 and Notice of Contention grounds 1 and 2

Simple and complex aqueous solutions

17    Appeal ground 1 argues that the primary judge erred in finding that a test that detected the presence of methylene glycol in a complex aqueous solution, such as Keratin Complex, did not necessarily, and on the evidence before him, did not establish the presence of formaldehyde.

18    The primary judge drew a distinction between simple and complex aqueous solutions which depended on the following findings. First, that Keratin Complex is an aqueous solution. Second, that a simple aqueous solution containing methylene glycol and, of necessity, unreacted formaldehyde molecules in dynamic equilibrium constituted formaldehyde. Third, however, that "[m]ore complex solutions containing methylene glycol cannot necessarily be described as formaldehyde" such that he needed evidence to be satisfied that "a particular more complex solution contains formaldehyde because it contains methylene glycol and unreacted formaldehyde" (emphasis added) (at [79]-[80]). A solution of formalin is an example of a more complex solution that is referred to as formaldehyde.

19    This third finding proceeded from a dichotomy between a "simple aqueous solution" and a "complex solution". This, the ACCC submits, is a false dichotomy and arose from a misunderstanding of the expert evidence.

20    It is important to understand what these terms mean. A simple aqueous solution of formaldehyde is one containing methylene glycol and unreacted formaldehyde molecules in dynamic equilibrium. A complex aqueous solution contains not only methylene glycol and unreacted formaldehyde molecules in dynamic equilibrium but also other chemicals, for example, in the case of Keratin Complex, timonacic acid.

21    “Dynamic equilibrium”, as found by the primary judge at [69], describes the reaction between formaldehyde gas and water forming a solution consisting of methylene glycol and unreacted formaldehyde molecules. A reverse action also occurs whereby methylene glycol and unreacted formaldehyde molecules form water and formaldehyde. It is a constant reaction and reverse reaction which is known as an equilibrium reaction. The actions and reactions occur simultaneously and the system then reaches equilibrium, and whilst the forward and reverse reactions continue to occur, there is no net change in the quantity of the components of the solution. The equilibrium ratio lies very much in favour of the formation of methylene glycol, so that in a simple aqueous solution there will be methylene glycol and unreacted formaldehyde present in a ratio of 99.96%:0.04% .

22    No expert gave evidence that the equilibrium in an aqueous solution required any specific ratio in order to constitute formaldehyde. Equally, there was no evidence that solutions including methylene glycol and unreacted formaldehyde in a different ratio from that found in a simple aqueous solution are popularly or commonly described as formaldehyde, or as containing formaldehyde. The experts agreed that the specific dynamic equilibrium, that is the particular ratio between methylene glycol and unreacted formaldehyde present in a simple aqueous solution, could not be readily transposed to a complex solution like Keratin Complex.

23    The primary judge accepted the evidence of the ACCC’s experts, particularly Professor McGeary, that if methylene glycol is present in an aqueous solution then formaldehyde molecules will also “inevitably be present as well”. This finding was not confined to a simple aqueous solution. His Honour so concluded when considering whether the test samples of Keratin Complex contained methylene glycol and unreacted formaldehyde. Indeed, at that point, in his Honour’s reasons he determined to refer only to “methylene glycol” as shorthand for the combination of “methylene glycol and unreacted formaldehyde” molecules.

24    The experts called by Dateline, Professor Haddad and Dr Rowe both expected that, in a solution including things other than water, the equilibrium between methylene glycol and unreacted formaldehyde would be lower. Put another way, there would be a lower ratio of unreacted formaldehyde to methylene glycol. However, neither suggested that there would be no equilibrium. The primary judge at [113] accepted that in Keratin Complex the equilibrium may be different to that in a simple aqueous solution.

25    The ACCC submits that the primary judge equated uncertainty as to the level or ratio of the equilibrium between the methylene glycol and the unreacted formaldehyde molecules in anything other than a simple aqueous solution with uncertainty as to whether methylene glycol and unreacted formaldehyde molecules in such a solution was "formaldehyde" as found in [77]. The ACCC submits that this approach was erroneous, was not supported by the evidence and was difficult to reconcile with his Honour's finding as to how ordinary consumers would understand the representation made in the Website Advertisements and Magazine Advertisements, relevantly, that formaldehyde "can be a component of a solution", with no distinction being drawn between simple and complex aqueous solutions.

26    It is necessary, in this context, to appreciate the difference between the parties’ respective experts as to what constituted “formaldehyde”. Those for the ACCC described formaldehyde as including an aqueous solution consisting of methylene glycol with associated unreacted or free formaldehyde molecules relating to each other in a dynamic equilibrium and the solution called formalin.

27    Dateline’s experts, Professor Haddad and Dr Rowe interpreted the term “formaldehyde” to include only free, unreacted formaldehyde. They acknowledged that the word “formaldehyde” is in common usage to refer to formalin, but described this as “loose terminology” or “almost slang”. They remained, as was submitted by senior counsel for the ACCC, recalcitrant in maintaining throughout their evidence that one could correctly refer only to the formaldehyde molecules as formaldehyde or, conversely, that methylene glycol, in solution with unreacted formaldehyde, could never be referred to as formaldehyde.

28    This stark difference between the experts helps to understand the respective submissions of the parties which disagree significantly at crucial points because they proceed from significantly different assumptions as to what constitutes formaldehyde. This difference, for example, explains why Dateline places such weight in the fact that the NMR testing performed in February 2012 was unable to detect any “formaldehyde molecules” in the sample tested. This is a reference only to “unreacted” or “free” formaldehyde molecules and takes no account of the identification in the test sample of a significant quantity of methylene glycol and its inferred relationship in dynamic equilibrium in water with unreacted or free formaldehyde molecules as a form of formaldehyde.

29    The expert opinion of the ACCC’s experts on this vital question was preferred by the primary judge. As we earlier explained, his Honour accepted that a solution of methylene glycol associated with unreacted formaldehyde in water was a form of formaldehyde.

Presence of unreacted formaldehyde

30    The primary judge accepted (at [98] and [113]) that if methylene glycol is present, unreacted formaldehyde molecules would inevitably be present as well, whether in a simple or a more complex solution, such as Keratin Complex.

31    The experts agreed, as outlined in the overview of conclusions reached from the Experts’ Conclave, that while they understood the nature of many of the chemical species comprising the formulation, "after these species are mixed, there is considerable uncertainty regarding the specific composition of the product” and that “[w]hile the nature of some species is known, many other components of the formulation are not known precisely." While this was an opinion stated in the most general terms it was, nonetheless, a crucial issue.

32    Mr Taylor, in his written statement dated 28 June 2013 stated that the company had since mid-2010 had its products, including Keratin Complex reviewed by a technical consulting organisation for the pharmaceutical and cosmetic industries which conducted reviews of the “lists of ingredients … and Material Safety Data Sheets (MSDS)” for regulatory compliance purposes. He annexed an MSDS relating to Keratin Complex which disclosed a number of discrete ingredients.

33    The primary judge summed up his conclusion in this respect at [113] finding the NMR tests to be both valid and reliable, disclosing the presence in Keratin Complex of a significant quantity of methylene glycol and, as a matter of necessary inference, inseparable unreacted molecules of formaldehyde.

34    To the extent that his Honour here identified a difference between the presence of methylene glycol and associated unreacted formaldehyde molecules in Keratin Complex on the one hand and in a simple aqueous solution on the other, it was merely to observe that the “equilibrium constant” may change in a complex solution. His Honour also found, as we have found, that in an aqueous solution methylene glycol is inseparable from unreacted molecules of formaldehyde.

35    Dateline, in its Notice of Contention (grounds 1 and 2), challenges the primary judge’s conclusion that the presence of methylene glycol in the test sample demonstrated inferentially that unreacted formaldehyde molecules, although undetected, nonetheless must necessarily have been present.

36    If that challenge fails it puts to rest Dateline’s “de minimis” submission concerning the presence, if any, of unreacted formaldehyde molecules. That submission did not engage with the ACCC’s case, in any event.

37    Dateline submits that the primary judge at [90] was correct to find that the ACCC was required to and had failed to prove that such a complex mixture would be regarded as formaldehyde or would have any of the properties which allow the solution to still be called formaldehyde. This submission misconceives both the nature of the ACCC’s case and the primary judge’s reasons. It was never contended by it that the Keratin Complex was formaldehyde, only that it contained formaldehyde. The language of the formaldehyde representation makes this quite clear.

38    Dateline also relied on the fact that the February 2012 NMR test did not detect formaldehyde but only methylene glycol. Dateline submits that there was the following expert evidence that methylene glycol could exist without the presence of formaldehyde molecules and that there would or may be no equilibrium in solutions as complex as Keratin Complex:

(a)    the Joint Experts Report acknowledged that an equilibrium situation involving formaldehyde being present was only a possibility, not a certainty: "While some dynamic equilibria may exist between chemical component species of Keratin Complex, it is impossible to specify all these equilibria, their equilibrium constants, or their equilibrium concentrations" [this statement, in fact, appears in the Experts’ Conclave Overview].

(b)    Professor Haddad and Dr Rowe said at sec 3.1 of the Experts’ Conclave Overview that "[T]hey consider that the simple aqueous dynamic equilibrium between aqueous formaldehyde and methylene glycol cannot be considered to apply unchanged in a complex sample such as Keratin Complex."

(c)    Dr Rowe said: "The pure compound [methylene glycol] has no formaldehyde at all."

(d)    Dr Rowe’s evidence concerning a complex solution such as Keratin Complex: “I have formulated with most of the incipients that are present in that formulation over the years, and knowing formaldehyde very well, I would suspect that that would react fairly rapidly with many of those incipients. So the equilibrium constant would be even lower [than in a simple aqueous solution].”

(e)    Dr Rowe said that in Keratin Complex "[t]here may be no equilibrium at all. Who knows?", noting that formaldehyde is a very reactive compound that may react with some of the gums or other excipients which are present in the formulation;

(f)    Professor Haddad’s response to a question from his Honour about the dynamic equilibrium in Keratin Complex “there would be far less formaldehyde present, if any”;

(g)    Mr Anthony’s evidence that there was a large amount of many proteins, gums and oils in Keratin Complex that “will absolutely wipe out any formaldehyde that’s in that bottle” and “consume every grain of formaldehyde”. Mr Anthony also said “the gums [in Keratin Complex] are highly reactive to formaldehyde and actually form complexes with formaldehyde.”

39    Dateline submits that the error made by the primary judge was his apparent assumption that the proposition set out at [98], [113] and [221] (that formaldehyde molecules must necessarily exist when methylene glycol molecules are present in a solution containing water) was not in issue such that he could "infer" that that would apply. It submits that while his Honour noted that there was evidence to that effect, he did not advert to or deal with the evidence to the opposite effect this being an understandable oversight in a case as large and complex as the present. In short, the submission is that there was therefore very much a contest on the expert evidence whether there could or would be even a notional amount of formaldehyde molecules when methylene glycol was present in a complex aqueous solution and that the primary judge did not resolve this contest.

40    Dateline submits that had his Honour considered this issue, he could not have been satisfied to the level required by s 140 of the Evidence Act 1995 (Cth) (Evidence Act) that the conflict should be resolved in favour of that finding.

41    For the following reasons, we disagree.

42    First, it is overstating the passage cited from the Experts’ Conclave Overview to say that the experts agreed that an equilibrium involving formaldehyde (in water) was a mere possibility. The passage was a statement concerning equilibria generally. So far as it concerned the particular equilibrium constant between methylene glycol and unreacted formaldehyde in a complex solution, such as Keratin Complex, Dateline’s own experts Professor Haddad and Dr Rowe merely opined, that in a complex solution such as Keratin Complex the ratio of unreacted formaldehyde to methylene glycol would be lower than in a simple aqueous solution.

43    The primary judge accepted this evidence. To that extent it was said that the “numbers”, as described by Professor Haddad at the Experts’ Conclave, cannot be translated from a simple to a complex aqueous solution. Dateline’s experts did not positively assert that there would be no equilibrium. It was never put to the experts called by the ACCC that there was no dynamic equilibrium between methylene glycol and unreacted formaldehyde in Keratin Complex.

44    Turning to the evidence of Mr Michael Anthony, who is the principal of Keratronics Inc (Keratronics), the manufacturer of Keratin Complex. He has a degree in Mechanical and Industrial Engineering. Whilst this discipline included, to some unspecified extent, study of organic chemistry and chemical dynamics, he was not called as an expert witness, and certainly not an expert witness in the field of chemistry. He acknowledged in his written statement that he is not a chemist and for that reason offered no response to the views of the ACCC experts on chemistry. He was, for good reason, clearly not treated as an expert witness on this issue by the primary judge.

45    Dr Rowe’s evidence as to pure methylene glycol did not advance matters. He was speaking in this context of “pure” methylene glycol where there was no water present. Professor McGeary gave contrary evidence that when a molecule of methylene glycol "dehydrates, it gives up a molecule of water in forming a molecule of formaldehyde", such that it was not possible to produce a bottle of pure methylene glycol. It was unnecessary for the primary judge to resolve this question. It is a false issue. The issue in the case concerned methylene glycol in an aqueous solution. Where the primary judge found (at [72]) that methylene glycol cannot be isolated from unreacted molecules of formaldehyde he was referring to methylene glycol in a solution including water.

46    Finally, as to the failure of the NMR test to detect unreacted formaldehyde, Dateline’s case involved further, rather complex, submissions based on the evidence of Dr Kling.

47    Dr Kling's oral evidence revealed that he was told that Chemical Analysis was measuring to see whether they could see, relevantly, formaldehyde in the sample. He acquired all of the spectra in Chemical Analysis' report. He carried out two sets of NMR experiments: one used carbon-13 ("13C" or "carbon") NMR testing (Carbon NMR), and the other hydrogen ("1H" or "proton") NMR testing (Proton NMR). Proton NMR was the more sensitive test. Dr Kling agreed that if any formaldehyde molecules were present in the sample being tested then:

(a)    he would have seen their resonance peak at about the location of 197 on the 13C spectrum, but no such peak was observed;

(b)    he would have seen a resonance peak for them in the 1H spectrum at a location of about 9.7 but he did not see such a peak in any of the many 1H spectra that he ran on the sample. Indeed, he ran a number of NMR scans, changing a number of parameters to try to detect something at 9.7, but did not see any peaks corresponding to formaldehyde molecules in any of them.

48    In response to the proposition that that region revealed there was no formaldehyde present in the sample, Dr Kling said that none could be detected. He agreed that no solvated formaldehyde molecules were observed.

49    The ACCC in its submissions relies upon the opinion given by Dr Cook, which concerned a reference spectrum as printed in a physical document provided by Chemical Analysis to the ACCC. It had been "scaled" (expanded) to make smaller peaks visible. Dr Cook and Dr Kling reviewed the spectra for the sample they tested on a computer screen. Dr Cook said he saw nothing useful in the proton spectra that he viewed on screen but doubted that he expanded the spectra around the area of 9.7 to see whether there was a peak there.

50    Although the Proton NMR testing did not show a peak for formaldehyde at the point on the NMR spectra where Dateline posited it should appear if it were present, Dr Cook explained that on the scale at which the NMR spectra were printed he would not have expected to see unreacted formaldehyde molecules at that point.

51    Dateline submits that the spectra were in a computer form and were printed out by Chemical Analysis for the purposes of the proceeding. None of the more sensitive proton spectra were included in Dr Cook's original report at all and were only produced on request by Dateline's solicitors. Dateline submits that there is a strong inference that, were it possible to detect any formaldehyde in the spectra by scaling them up, then the spectra taken by Dr Kling would have been scaled up and the peaks found and that the failure by the ACCC to adduce any such evidence gives the strongest possible inference that expanding any of the spectra would not have assisted the ACCC.

52    Dateline then submits that the only conclusion open on the evidence was that, despite very careful and extensive analysis using the most sensitive and sophisticated, non-invasive method of Proton NMR and Carbon NMR, which was the best method to use, the ACCC's own independent experts could not detect formaldehyde molecules in the sample they tested. This, it contends is “proof positive” that it is possible to have methylene glycol in a complex solution but not to have any formaldehyde molecules at the same time and that it is also proof that it is possible to have a situation where there is no equilibrium between methylene glycol and formaldehyde at all in a complex solution such as the sample they tested.

53    The ACCC submits, in answer, that the conduct of the NMR testing, upon which Dateline relies on as "proof positive" that it was possible to have methylene glycol in a complex solution without formaldehyde molecules, needs to be properly understood. The quote that Dr Cook provided was to conduct "method development and specific groundwork to determine whether the carbon-13 NMR method can reliably quantify free formaldehyde (as methylene glycol and other oligomers if present)" (emphasis in original), for reasons he explained earlier in the quote. The Validation Report prepared by Dr Cook and Dr Kling stated that it defined processes and procedures for the analysis of the following analytes: "Methylene glycol, methylene glycol dimer and monomethyl methylene glycol". Methylene glycol was described in the Validation Report as "the only detectable adduct at that low concentration".

54    Accordingly, the ACCC submits correctly that it is erroneous to describe Dr Kling as having analysed Keratin Complex for formaldehyde in solvated form as that term is used by Dateline. Importantly, again as the ACCC correctly notes, at the conclusion of his oral evidence, upon which Dateline relies, Dr Kling stood by the accuracy of the Validation Report. As the primary judge observed, the opinions of Dr Kling and Dr Cook were not contradicted by any evidence called by Dateline. His Honour found that the results of the NMR testing recorded in the Validation Report were "valid and sufficiently reliable to accept". We accept the ACCC’s submission that the adverse inference that Dateline seeks to draw from Dr Cook's evidence, on the basis of a comparison between his evidence and the oral evidence of Dr Kling, is unwarranted, particularly in circumstances where, as his Honour observed, "it was not put to him that his opinion was invalidated by the discrepancies identified by Dateline's counsel".

55    The respondents did not point to any expert evidence that the failure of the NMR test to detect unreacted formaldehyde was a matter which supported a conclusion that there was no unreacted formaldehyde present in the test sample. In those circumstances, the judge was not required to consider whether such a conclusion ought to have been drawn.

56    We also do not accept the respondents’ written submission that the failure to detect formaldehyde molecules was “proof positive” either that it is possible to have methylene glycol in a complex solution but not to have any formaldehyde molecules at the same time, or that it is possible to have a situation where there is no equilibrium between methylene glycol and formaldehyde at all in a complex solution such as the sample they tested. The respondents would have required expert evidence to support conclusions to that effect.

57    However, the central issue at trial was whether or not Keratin Complex could be said to contain formaldehyde, by reason of the presence of methylene glycol. There was a dispute between the experts on that point. The evidence was that methylene glycol and unreacted formaldehyde molecules in dynamic equilibrium in a simple aqueous solution was commonly referred to as formaldehyde. The experts disagreed as to whether a complex solution must be said to contain formaldehyde when it contains methylene glycol and an unknown and undetected quantity of unreacted formaldehyde.

58    Exhibit A2 contained this crucial question for answer by the experts as follows:

Question:

16.    Was formaldehyde found to be present in Keratin Complex and if so what were the reported concentrations?

Answer:

    The HPLC [High-performance liquid chromatography] testing did not show the presence of free formaldehyde alone, but rather showed the total of free formaldehyde, methylene glycol, and potential contributions of formaldehyde from formaldehyde oligomers, timonacic acid, and other formaldehyde producers. NMR showed the presence of methylene glycol but did not detect formaldehyde. HPLC cannot differentiate between free formaldehyde and formaldehyde produced from the species listed above and it also suffers from the “observer effect”, where the process of measurement changes the sample so that the result obtained does not reflect the composition of the sample prior to the measurement. NMR is able to differentiate between formaldehyde (as methanal), methylene glycol, formaldehyde oligomers, timonacic acid, and other formaldehyde producers, and does not suffer from the observer effect.

59    It may be seen that the response to the question was neither direct nor particularly enlightening. It should have been capable of a clear unequivocal answer. That it was not is rather telling against the ACCC’s case. The submissions put on behalf of the ACCC as to this question and the answer to it did not provide any further illumination.

60    There was evidence supporting the conclusion that the dynamic equilibrium ratio was lower in such a complex solution than it was in a simple aqueous solution. The conclusion that the presence of methylene glycol in dynamic equilibrium, at a lower ratio, with unreacted formaldehyde molecules in Keratin Complex is properly called “formaldehyde” would require reasoning that would require the Court to make assumptions as to what effect the lower equilibrium ratio may or may not have upon the chemical nature of methylene glycol and unreacted formaldehyde molecules subject to that lower equilibrium ratio. It may have had no effect. Conversely, it may have altered the chemical nature of the two in combination. In those circumstances, the primary judge was entitled not to accept the ACCC’s experts’ evidence on this point. We consider that the primary judge was correct in his analysis. No appealable error has been demonstrated.

61    It was for the ACCC to make out that critical part of its case. In our opinion, it failed to do so.

62    We would for the above reasons, reject ground 1 of the Notice of Appeal as well as grounds 1 and 2 in the Notice of Contention.

63    It follows, consequentially, that grounds 7 and 8 have not been made out.

Appeal ground 2

64    The second ground of appeal alleges error by the primary judge in concluding that formaldehyde was not an ingredient of Keratin Complex. However, the ACCC made no submissions about this which are inconsistent with the process we have described at [12] above involving the mixing of formalin with cysteine to form timonacic acid which was then mixed in with other chemicals to form Tri-ionic Keratin which was then added to other chemicals to form Keratin Complex. Importantly the primary judge concluded that timonacic acid is not formaldehyde (at [89]). Thus the primary judge reasonably concluded that formaldehyde was not an ingredient in the making of Keratin Complex even though formalin was used together with cysteine to form timonacic acid.

65    Accordingly ground 2 fails.

Appeal grounds 3 and 5 and Notice of Contention ground 3.

Temporal limitation on representations and timing of the testing of Keratin Complex

66    These grounds, collectively, challenge the primary judge’s findings concerning the effective life of Keratin Complex: consumers knowledge as to this and the testing, for use in this litigation, of Keratin Complex samples whose effective life had expired. We have, for the sake of completeness, considered these grounds although, given our conclusion as to ground 1 of the appeal, the outcome of this consideration cannot affect the orders made by the primary judge.

67    The primary judge proceeded on the basis that, in order to falsify the representation that Keratin Complex did not contain formaldehyde, any test had to be undertaken within two years of the date of manufacture of the sample to be tested.

68    Mr Anthony, in re-examination stated that a bottle of Keratin Complex could be used after opening, for "no more than two years … because of oxidisation." He said that a bottle of Keratin Complex was stamped with the date on which it was filled and sealed (the lot number), but not with any date by which it ought to be used. As the ACCC correctly submits, neither the lot number's status as a date or its meaning was or could have been readily apparent to consumers.

69    Mr Anthony's evidence was that Keratin Complex could be degraded by exposure to light and oxygen. In cross-examination, Mr Anthony accepted that the timonacic acid in Keratin Complex could degrade over time and that the degradation of Keratin Complex could be observed as little as less than a week after oxygen was first introduced into a bottle.

70    The experts agreed that degradation would increase once a bottle of Keratin Complex was opened. The experts observed that, at least in simple solutions, there was some evidence that timonacic acid decomposed, to some extent, to form formaldehyde and cysteine.

71    The Keratin Complex that was the subject of NMR testing was manufactured on 20 November 2009. Accordingly, the testing established that Keratin Complex contained methylene glycol two years and four months after its manufacture. The conclusion reached by the primary judge that the ACCC could not establish from this testing that the formaldehyde representation was false was the product of the following deductive reasoning.

72    First, his Honour considered that "ordinary consumers" viewing, relevantly, the Website Advertisements for Keratin Complex "would not expect the advertised qualities or properties of the product to represent the position forever", but rather would expect "a product containing organic and chemical components to deteriorate over time", would have "a 'use by' or 'best before' date", and would understand the representations to be "temporally limited to some unspecified 'use by' or 'best before' date".

73    The ACCC submits that, by this reasoning, the primary judge significantly read down the scope of the formaldehyde representation, which was not limited as to time, on the premise that ordinary consumers would not expect a hair product to be efficacious forever. Even if that premise could be supported on the evidence. The ACCC submits that it does not follow from an expectation that a product might, at some undefined point in time, no longer perform the purpose for which it was purchased that consumers would also expect that a product could at any stage contain formaldehyde. We accept this. In any event there was no such evidence.

74    Second, the primary judge referred to the expert evidence regarding the deterioration of Keratin Complex upon exposure to oxygen, and to Mr Anthony's evidence about the two year "lifetime" or "shelf-life" of the product, which his Honour accepted (at [96]).

75    Third, combining steps 1 and 2, his Honour syllogistically concluded that in order to show that the formaldehyde representation was false, the ACCC had to show "either that the Keratin Complex that was tested was manufactured and bottled no more than two years before the testing, or that its age would not affect the results."

76    Dateline makes the following submissions. The relevant point is that Chemical Analysis analysed a particular sample of what was once Keratin Complex and sought to draw conclusions from that sample about all Keratin Complex ever distributed by Dateline. However, the results of testing a particular sample can only be extrapolated to Keratin Complex generally if the sample tested was in a condition that was fairly representative of the Keratin Complex as sold and in the form it was likely to be used, that is, when applied to a person's head. Dateline submits that the primary judge correctly found that, on the balance of probabilities as affected by s 140 of the Evidence Act, the results obtained from the sample tested could not safely be used to draw any conclusions about Keratin Complex in the form it was sold or would have been used.

77    However, as the ACCC correctly submits, the primary judge did not proceed on the basis that the sample of Keratin Complex that the ACCC tested had to be, and was not, "fairly representative of the Keratin Complex as sold and in the form it was likely to be used". Rather, his Honour proceeded on the basis of Mr Anthony's evidence that the effective life of Keratin Complex was two years and that consumers would have understood the formaldehyde representation to be limited to that same period, such that testing of the product outside of that period did not prove the falsity of the representation.

78    Dateline referred to Mr Anthony’s other evidence that, in typical usage, a bottle would be used within about a week after opening, and that a bottle is not intended to stay unused for months. The primary judge made no finding as to this. There was no basis advanced by Mr Anthony enabling him to say how soon after a bottle was opened that it would be used. This would no doubt depend on many factors. However, the advertising material stated that treatment using Keratin Complex will straighten curly or frizzy hair for up to five months. Each bottle contained between 10-16 applications. A person regularly using a bottle might then have it for use over a period longer than two years.

79    As the ACCC correctly identified, there was no evidence adduced that any consumer would or could have known the manufacturer's views about the length of time for which Keratin Complex would be efficacious. Accordingly, we accept its submission that there was no basis on which the primary judge could conclude that even if a consumer understood there might be some period after which the product might not work, the consumer would understand that period to be two years.

80    We are persuaded that the primary judge’s reasoning on this issue led him to confine the period for which Keratin Complex could reliably be tested. However, we accept the ACCC’s submission that there was no basis on which to conclude that the formaldehyde representation would only be false if Keratin Complex could be shown to have contained formaldehyde within two years of its manufacture. It follows that, so far as the reliability of testing was concerned, the primary judge erred in so confining this to within a two year period.

81    Moreover in light of Mr Anthony's evidence concerning the degradation of Keratin Complex it is, we accept, very unlikely that any degradation of the sample of Keratin Complex tested by NMR spectroscopy only occurred two years after the date of manufacture. As the ACCC submits, the respondents led no evidence of any testing to demonstrate that degradation would not have occurred before two years had passed since manufacture, and their experts offered no explanation of why any degradation in a sample of Keratin Complex could or would not have occurred until two years after the date of its manufacture.

82    The Keratin Complex bottle was not subject to any warning that it should be used within a week of opening and was "not intended to stay unused for months", which was Mr Anthony's evidence in re-examination and to which we have referred.

83    Dateline in ground 3 of its Notice of Contention contends that there was overwhelming evidence to show that the sample tested by Chemical Analysis had provably degraded to such an extent that it could not be treated as representative of Keratin Complex as sold by Dateline or used by its customers. This, it submits, was because it came from a bottle that had first been opened in October 2010, opened again in December 2011, split, stored at times in unknown conditions, and, by the time it was tested by NMR in February 2012, had the milky coffee colour of degraded product. Dateline submits that the samples of Keratin Complex “expired” in November 2011 but were not tested until February 2012. It contends that it is not the simple number of times the bottle had been opened, but the fact that it had been exposed to oxygen (and light, and unknown conditions) for about 15 months from its first opening, and its condition by the time it was tested by NMR was, on Mr Anthony's unchallenged evidence, degraded. Unopened bottles of Keratin Complex have silver foil across the opening, which has to be removed to access the contents.

84    The evidence to which Dateline refers was as follows:

(a)    the bottle tested by NMR (Batch 0026KT Lot 112009) was originally purchased on 7 September 2010 by Mr Peter Wallner of the ACCC and expired on 20 November 2011.

(b)    it was sent to Leeder for HPLC (High-performance liquid chromatography) testing on 10 September 2010 but was not tested until October. Mr Wang, who tested the sample by HPLC, took a portion of it to test, and thought Leeder's "sample reception" sent it back to the ACCC shortly after the testing. It was stored in a refrigerator;

(c)    the ACCC sent the same bottle to Leeder on about 5 December 2011 for further HPLC testing with instructions to split the sample and provide a portion to Chemical Analysis. That was done by someone within Leeder who was not called to give evidence; it is therefore not known what was done to protect against contamination or degradation;

(d)    the sample provided to Chemical Analysis arrived on 9 December 2011. Dr Cook believed that the sample was in a plastic container but did not know how or where it was stored; he did not do the experiments on the sample, so he "didn't have much to do with that stage". Dr Kling first saw the sample when he did the testing, but confirmed that this summer period was when Chemical Analysis was moving offices, and that the sample was recorded in documents as having been stored at "ambient" conditions, ie room temperature.

(e)    when Dr Kling analysed the sample, he centrifuged it to remove brown insoluble material, which was consistent with the sample being a milky coffee colour. Mr Anthony's unchallenged evidence was as Keratin Complex ages, it degrades; oxygen intake into the bottle can actually change the chemistry of the product, and it becomes milk coffee-like.

(f)    The sample tested by Chemical Analysis came from a bottle that had been first opened in September 2010 (and the silver foil removed). From that point, the contents were exposed to oxygen. The bottle was opened again in December 2011 and a portion was placed in a container of some kind and sent to Chemical Analysis. By the time it was tested in February 2012, the sample had been exposed to oxygen for about 15 months. It was not tested by NMR spectroscopy within about a week of being opened, which was what Mr Anthony's unchallenged evidence was of its normal conditions of use. It was liable to be oxidised by the oxygen it had been in contact with for such a long period.

85    Dateline submits that the primary judge was not only entitled to find that Keratin Complex needed to be tested in a form that was as sold by Dateline or used by its customers, but had abundant evidence to conclude that the sample analysed by NMR spectroscopy had degraded by the time it was tested (and likely well before that event). It then submits that the conclusions drawn about that sample could not, under s 140 of the Evidence Act, be said to hold for Keratin Complex in the form it was sold by Dateline.

86    However, the primary judge at [115] rejected Dateline’s submission that the fact that the bottles from which samples were taken had been opened several times before the NMR testing and that there was little evidence as to the conditions under which the bottles were stored invalidated the NRM test results. Rather, as his Honour explained, it was necessary to test the truth of the representations by reference to the conditions under which the product was actually used.

87    Keratin Complex came in three different sizes, which as his Honour found suggested "that it would not all be used after one treatment". As we mentioned, each bottle of Keratin Complex offered "10-16 applications" thus contemplating that the bottle would be opened on multiple occasions. The primary judge was well justified in concluding that it was not necessary to conduct the testing "only upon a sample taken from a pristine, unopened bottle": at [115]. There is no evidence that the product was exposed to oxygen for about 15 months unless that simply means that the silver foil had been removed for the length of that period of time. The product was kept in a bottle and it was not suggested that the cap was not replaced after each occasion of a sample was removed for testing. The evidence was not that the Keratin Complex sample which was tested was continuously exposed to oxygen.

88    As for Dr Kling’s sample being a milky coffee colour, no inference of degradation arises. One variety of Keratin Complex is “Amber” and is described as a thick brown liquid.

89    None of the evidence relied upon by Dateline warrants a different conclusion.

90    We would, for these reasons, uphold grounds 3 and 5 of the appeal and reject ground 3 of the Notice of Contention.

Appeal ground 4

91    There was no evidence to contradict that given by Mr Anthony that the “effective life”, “shelf life”, “use by” or “best before” dates for Keratin complex were each two years. On that basis the challenge under ground 4 to the findings of the primary judge at [96] that the “effective life” of the product and the “shelf life” of the product were each two years, fails.

Appeal ground 6

92    This ground concerned whether the primary judge erred in finding that there was no evidence, nor any other basis, by implication, to find that the results of the NMR test undertaken in February 2012 would have been the same or similar if carried out on or prior to 20 November 2011, that is, within two years of the date of manufacture and bottling of the sample. The ACCC made no written or oral submissions as to this ground. No error has been demonstrated. This ground fails.

Appeal grounds 9 – 10 and Notice of Contention ground 4

93    Appeal grounds 9 - 10 concern whether the primary judge erred in finding that in order to establish that it was, or was likely to be, misleading or deceptive for Dateline to represent it had reasonable grounds to make the following representations:

(a)    Keratin Complex did not contain any toxic or dangerous chemicals;\

(b)    Keratin Complex did not contain formaldehyde;

(c)    persons using Keratin Complex could not be exposed to formaldehyde;

(d)    Keratin Complex was safe for its recommended use; and

(e)    Keratin Complex complied with all health and safety regulations in the world,

the appellant had to prove that the representations were not true: at [268], [269], [276].

94    The ACCC submits that the primary judge should have found that in relation to the 20 September Letter and the Magazine Advertisements, Dateline contravened s 52(1) of the TPA by making representations to the effect that it had reasonable grounds, to make each of the five representations set out under the previous paragraph.

95    The ACCC submits, correctly in our opinion, for reasons which we will shortly explain, that even assuming that it did not establish that these representations were false, it does not follow from that conclusion that at the time of making the representation, Dateline and Mr Taylor had reasonable grounds to make it.

96    Dateline and Mr Taylor submit that the relevant representations were as to present, not future matters, and fall to be determined in light of the principles set out in the Australian Competition and Consumer Commission v Dukemaster [2009] FCA 682 and the Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82. We do not agree. These cases involved the expression of an opinion. That is not the position here. The statements impugned were as to matters of fact and included, also as a matter of fact, that Dateline had reasonable ground for making the statements.

97    Indeed, Dateline submits that the representations were a compound representation to the effect: "X is a fact, and we say so on reasonable grounds". The question of whether Dateline had reasonable grounds to make the statement is an objective one. However we do not accept Dateline’s submission that it is not limited to grounds known or actually relied upon at the time.

98    Dateline submits that its success on the truth of the underlying representation is enough to defeat these grounds. In other words, so long as the represented fact is right, Dateline submits that the ACCC has not shown that it was misleading or deceptive for Dateline to have made the representation on incomplete or wrong reasons that it believed were correct and complete, and did not include the reasons showing it to be correct.

99    We do not accept this submission. It is not a question as to Dateline’s subjective belief. Rather, the representation that Dateline had reasonable grounds for making the several representations of fact is to be considered in light of the grounds which Dateline actually then knew and whether those grounds, objectively, were reasonable.

100    There will not be reasonable grounds for making a representation if, at the time of making, it, the representor did not have facts sufficient to induce, in the mind of a reasonable person, a basis for making the representation: Australian Competition and Consumer Commission v Jones (No 5) [2011] FCA 49 at [32]-[33]; George v Rockett (1990) 170 CLR 104 at 112.

101    It matters not that it transpires, in due course, that the fact represented is true. That may simply be serendipitous. The representation, “I have reasonable grounds” for making the representation of fact is a discrete representation, indeed one which is likely to reinforce in the representee the reliability of the representation of fact.”

102    Moreover the reasonable grounds representation is also one of fact. It is not directed to grounds which may become known but are not then known. Consumers should be protected against such conduct where, in fact, objectively assessed, there were no reasonable grounds known to the representor.

Notice of Contention ground 4

103    In the event that he was wrong concerning this conclusion, his Honour concluded that the ACCC had demonstrated that Dateline did not have reasonable grounds to make the representations in question. Dateline, by ground 4 of its Notice of Contention, challenges this finding. It does so, on the basis that it contends that on the material in its possession as at 20 September 2010 it had reasonable grounds to make each of the representations. His Honour relied in particular upon an interim report prepared by Intertek dated 15 September 2010 (Intertek Report), which Mr Taylor received, of testing it had undertaken. In that report, Intertek stated that "[f]ree formaldehyde was not detected", but "the spectra acquired are consistent with samples containing methylene glycol, the hydrated form of formaldehyde."

104    In respect of the “contains formaldehyde” representation Dateline submits that nothing in the Intertek report undermined the conclusion that Keratin Complex did not contain formaldehyde. It points to the fact that the Intertek Report, in terms, said that there was no formaldehyde, and referred to the presence of a different chemical, methylene glycol, described as a "hydrated form of formaldehyde". Dateline submits that this is clearly a different substance: that it was not "free formaldehyde", but rather a "derivative" that was expressly excluded from Australian regulations. It then submits that Mr Taylor correctly interpreted a scientific document and is criticised for not asking questions that would have been productive of the answer, rationally, that the document speaks for itself.

105    Dateline also submits that the primary judge treated the "could not be exposed" representation on the same basis and therefore likewise erred. It contends that so far as safety or exposure to formaldehyde is concerned, there was no ban in Australia on methylene glycol, and that there was no reason to suggest it was unsafe. The only issue of safety was the presence (or not) of formaldehyde. It submits that there was good evidence to believe that Keratin Complex was safe. The same submission is made in respect to "toxic and dangerous" chemicals. The regulatory rule bans formaldehyde, but not methylene glycol. Accordingly, Dateline submits that where a product has methylene glycol but not formaldehyde, there is no basis for concluding that the presence of the former raises issues of safety.

106    These submissions proceed from Dateline’s contentions as to what constitutes formaldehyde. They are directed to the presence of methylene glycol alone. They are based on the proposition that methylene glycol does not constitute formaldehyde. The Intertek Report described methylene glycol as the “hydrated form of formaldehyde. That is not the case here where the Intertek interim NMR test described the methylene glycol in Keratin Complex, which is an aqueous solution, as the “hydrated form of formaldehyde”. The primary judge at [271] was alert to this.

107    Dateline led expert opinion evidence from its own expert toxicologist, Mr Robert Golden, who deposed in his affidavit at [61] that it is well established that in aqueous solutions methylene glycol and formaldehyde exist in equilibrium. He added that methylene glycol, by definition, is always in equilibrium with trace levels of formaldehyde. Later at [67] he stated:

It is important to again emphasise that since formaldehyde or free methylene glycol is a chemical impossibility there can be no data on the effects of methylene glycol alone.

108    He was referring to methylene glycol in an aqueous solution.

109    Dateline’s submissions are predicated upon false assumptions and we do not accept them. Dateline’s submissions require a conclusion that it was reasonable to disregard the presence of methylene glycol in making the “contains formaldehyde” and “could not be exposed” representations. We do not accept that this was reasonable in the light of the material available to Dateline, which said nothing to warrant that approach.

110    This reasoning also disposes of Dateline’s contention that the primary judge erred in finding that it did not have reasonable grounds to represent that persons using Keratin Complex could not be exposed to formaldehyde. As his Honour observed at [272]:

(i)n the face of the interim NMR report, there was no warrant for that emphatic representation.

111    As to the representation that Keratin Complex had complied with all health and safety regulations in the world, his Honour observed it was "plain that the Irish authorities considered that Keratin Complex did not comply with the Irish regulations", Ireland having issued a recall notice in respect of the product.

112    Dateline submits that so far as the Ireland recall was concerned, the question is not what the Irish authorities thought, but whether Keratin Complex did contravene and that contravention was based on free formaldehyde levels which were zero.

113    That Dateline challenges or seeks to interpret the conclusions of the Irish authorities is not to the point. As the primary judge noted at [159], the recall notice referrable to Keratin Complex was issued in mid-2010 on the basis that “the product poses a chemical risk because it contains a high level of free Formaldehyde (1.9% and 1.7% whereas the allowed limit is 0.2%)”.

114    When Dateline represented that it had reasonable grounds for representing that Keratin Complex complies with all health and safety regulations in the world it did so knowing of the Irish recall.

115    Certainly Mr Taylor as at 1 September 2010 was made aware that Copomon Enterprises LLC (Copomon), Dateline’s supplier of Keratin Complex, had issued a press release challenging the validity of the tests relied upon by the Irish authorities in issuing the recall notice. In light of that, Mr Taylor wrote to Mr Rick Gerstein of Copomon inquiring as to why, given the criticism of the Irish test results, there had been no legal challenge to the recall notice. His question went unanswered. He then communicated directly with Mr Anthony of Keratronics and raised a series of questions. This is described by the primary judge at [171]:

In response to the question: “What is the likelihood of the formaldehyde problem being overcome and would it be possible to overturn the recall in Ireland?”, Mr Anthony responded that his company was creating stabilisers for the product that would solve the problem and which were being tested. He said he expected, if it were possible, that the problem should be overcome in the next month.

116    Between then and 20 September 2010 Mr Taylor made further enquiries and obtained further information including that some other tests had detected formaldehyde in Keratin Complex. Ultimately, he seized on the Intertek Report to justify what was stated in the 20 September Letter including the representation that Keratin Complex complies with all health and safety regulations in the world.

117    We have already explained why that report did not constitute reasonable grounds. Dateline’s further submissions do not detract from that conclusion or otherwise support its contention that it had reasonable grounds to make that representation.

118    Dateline has failed to demonstrate error in respect to the finding that Dateline contravened s 52 of the TPA in representing that it had reasonable grounds for its representation as to Keratin Complex's compliance with regulatory standards worldwide.

119    Nor are we persuaded that the primary judge erred in relation to his findings that Dateline did not have reasonable grounds for representing that Keratin Complex was safe for its recommended use and further that Keratin Complex contained no harmful chemicals. Our reasons for so concluding primarily proceed from our rejection of Dateline’s submission as to the effect of the Intertek Report concerning the presence of formaldehyde in Keratin Complex. However, the reasons of the primary judge as to these two representations at [273] and [275] respectively are further reasons which, in our opinion, more than adequately support his Honour’s conclusions.

120    We would, for these reasons uphold grounds 9 and 10 in the appeal and dismiss ground 4 of Dateline’s Notice of Contention. Although we have upheld these grounds we see no reason to interfere with the costs order (order 6) made by the primary judge on 18 November 2014. We would however make the following orders.

Orders on appeal

(1)    The appeal be allowed in part as to paragraph (1) of the declarations made on 18 November 2014 in the manner set out in Order 4 hereunder.

(2)    Otherwise the appeal be dismissed.

(3)    The parties confer on the question of the costs order on the appeal with a view to agreeing a proposed order and filing a minute of proposed consent orders as to costs. Failing agreement, the parties are to file submissions on the costs of the appeal not exceeding two pages on the following timetable:

(a)    appellant’s submissions to be filed on or before 7 September 2015;

(b)    respondents’ submissions to be filed within a further 7 days thereafter;

(c)    appellant’s reply submissions, if any, to be filed within a further 7 days thereafter.

(4)    Paragraph 1 of the declarations made on 18 November 2014 be varied as follows:

(a)    by inserting “(i)” after the words “first respondent” in the second line;

(b)    by adding at the end of the declaration the following “and (ii) that the first respondent had reasonable grounds for making representations that:

    (a)     Keratin Complex did not contain formaldehyde;

    (b)     persons using the product could not be exposed to formaldehyde;

    (c)     Keratin Complex was safe for its recommended use;

    (d)     Keratin Complex complied with all health and safety regulations in the world; and

    (e)     Keratin Complex contained no harmful chemicals.

(5)    The question of penalty, if any, in respect of the contraventions the subject of the amended declaration set out in Order 4 above be remitted to Rangiah J for hearing and determination.

CROSS-APPEAL

121    The cross-appeal relates to findings by the primary judge as to misleading representations made by Dateline in the 20 September Letter. The letter was sent to its sales representatives and about 20 retailers or potential retailers of Keratin Complex. The position on the cross-appeal is more straightforward. There are contextual evidentiary considerations, but the technical aspects are less complex.

122    The cross-appeal is directed to the Irish ban statement and the finding by the primary judge that Dateline contravened s 52(1) of the TPA by making a representation in the 20 September Letter that the ban and sale of Keratin Complex Smoothing Therapy in Ireland would be overturned, and that Dateline had no reasonable grounds to make that representation. Mr Taylor appeals from the finding that he was knowingly concerned in that contravention.

123    The fundamental question raised by the cross-appeal is whether, even assuming in Dateline’s favour that the ACCC failed to prove that Keratin Complex contained formaldehyde, whether it necessarily followed that there was a reasonable basis to emphatically express the belief that tests had actually proven that there was no formaldehyde in Keratin Complex.

124    The 20 September Letter read as follows:

KERATIN COMPLEX

TOTALLY SAFE – NO HARMFUL CHEMICALS

Keratin Complex has been confirmed as being totally safe and compliant with every health and safety regulation, worldwide.

Tests just to hand prove once and for all that formaldehyde is not an ingredient and cannot be detected in Keratin Complex.

The situation is:

1)    Formaldehyde is not an ingredient in Keratin Complex.

2)    There are no symptoms of formaldehyde whatsoever because there is no formaldehyde emitted by Keratin Complex…

3)    The 40 year old test (HPLC) used to detect formaldehyde here and in Ireland is the incorrect test. The EU Scientific Committee on Cosmetic Products and Non-food Products Intended for Consumers (SCCNFP/586/02) stated on 17/12/02 that the HPLC test is not appropriate for products with a Keratin Complex type formulation. The Irish authority also concedes this. The HPLC test cannot distinguish a harmless aldehyde (Thiazolidine 4 Carboxylic Acid) from formaldehyde so it records it as being formaldehyde. This test is so inaccurate that it can record formaldehyde as being zero right up to any figure you would like to make it by simply adding more or less timonacic to the test.

4)    The correct, and only, valid test is the Nuclear Magnetic Test (NMR) test which detects the signature of an ingredient. These tests clearly show that formaldehyde is not detectable in Keratin Complex.

5)    The tests confirming Keratin Complex has no formaldehyde issues are:

A)    Intertek…who certified formaldehyde in Keratin Complex was below LOD (level of detection). That is, cannot be detected. This test report will be available through Intertek Australia.

B)    Dr Valter Ballatini, EU accredited chemist, who proved that the HPLC test was totally inappropriate for testing a product with a Keratin Complex type encapsulation formulation and also proved that formaldehyde was below the LOD in Keratin Complex.

C)    Keratronics Inc who confirmed zero formaldehyde in Keratin Complex.

D)    The Unit of Toxicology and Chemical Security at the University of Miguel Hernandez who performed two tests using a different technology for each test and concluded that Keratin Complex had no formaldehyde issue.

E)    Bruce Green and Chartered Associates, Consultant Formulation Chemists in the UK, who certified Keratin Complex as safe and compliant with all regulations for sale in the UK.

All these tests are available for inspection. We have attached the first two pages of the Intertek report. The report is a lengthy report with many diagrams but is available to anybody who wishes to see it.

6)    Every decision made anywhere in the world to the contrary, and specifically in Ireland, will be over-turned. All tests carried out here using the HPLC test and showing Keratin Complex contains formaldehyde will be recalled.

7)    You may have been subjected to a malicious fear campaign of anonymous and non-anonymous faxes, SMS messages, leaflets and telephone calls. Legal action is being taken against all these people.

Keratin Complex is the leading keratin system in the world, including Australia. It didn’t become the No. 1 keratin system other than by being entirely truthful and accurate as to which ingredients were in its products and, also, by being by far the best and safest keratin treatment in the world. …

(emphasis added)

125    It is common ground that “the Intertek Report” referred to in the 20 September Letter (at [5]) did indeed note:

Free formaldehyde was not detected … although the spectra acquired are consistent with samples containing methylene glycol, the hydrated form of formaldehyde. Un-hydrated free formaldehyde is extremely reactive in aqueous solutions and predominantly exists as methylene glycol. The equilibrium highly favours the formation of methylene glycol and so in this case the free formaldehyde level is below the LOD [level of detection].

(emphasis added)

126    It is necessary to canvass a little of the background against which the primary judge construed the 20 September Letter and the alleged representations. Much of this is taken from the reasons for judgment, which, relevantly to the cross-appeal, are not in dispute. The material is recounted to set the backdrop against which the Irish ban statement was made. On the cross-appeal, the context is important in relation to the question of whether there were reasonable grounds to express the opinion contained in the 20 September Letter, which was to the effect that the Ireland ban on Keratin Complex would be overturned (Irish Ban Statement).

127    The relevant context as identified by the primary judge was as follows. Copomon was, as mentioned, the supplier of Keratin Complex to Dateline. Mr Gerstein was an executive of Copomon. On the importation of Keratin Complex into Australia from June 2009, Mr Gerstein informed Mr Taylor that any aldehydes in the products were “encapsulated” and “did not pose a safety risk to humans”. The material safety data sheet supplied by Copomon did not refer to the presence of formaldehyde or formalin as an ingredient. Mr Taylor was informed that Keratin Complex would be approved in the United Kingdom. Despite these assurances, Mr Taylor became aware of rumours in late May 2010 that tests conducted on Keratin Complex had supposedly detected formaldehyde. He sought to clarify this position. Mr Gerstein reassured him that all of the aldehydes in Keratin Complex were “encapsulated” and therefore could not be emitted when the product was used. Mr Taylor twice sought by email a further update from Mr Gerstein on this topic. In an email sent on 1 June 2010, Mr Taylor said:

[t]he allegation is that [Keratin Complex] has formaldehyde in it as an ingredient which isn’t listed on the MSDS or in the UK/EU report … we know formaldehyde is in the product when used and there is no question that formaldehyde is required to make these systems work

128    Mr Taylor explained that the reference in that email to formaldehyde being in the product was a reference to “bound” or “encapsulated formaldehyde” within the product. Mr Gerstein also confirmed this in the responsive email of 1 June 2010. Thus, Mr Taylor then sent an email to an employee and directors of Dateline on the same day which said, amongst other things, that while formaldehyde was in the product, formaldehyde was never released in gas form when it was heated. Mr Taylor followed this up later by emailing Mr Gerstein on 8 June 2010 to say that:

[t]here are two lab tests and both show that [Keratin Complex] has formaldehyde in it which means that the [material safety data sheet] and EU and UK reports are incorrect … the only way out is to show that some other ingredient in [Keratin Complex] is responding to the formaldehyde test but which [sic] is unlikely as the test is quite simple …

129    On 10 June 2010, Mr Gerstein then sent Mr Taylor a document which he had obtained from Keratronics which referred to unidentified studies referring to formaldehyde. Mr Gerstein forwarded a further email on 12 June 2010 from Mr Anthony of Keratronics, which said:

… formaldehyde is pre-reacted with keratin to produce the acid and does not exist as a separate free ingredient.

…

The HPLC test isn’t valid because it’s measuring a decomposing solution and so will indicate a positive.

Head space test will not indicate any or no significant free formaldehyde.

130    Mr Taylor by way of keeping them informed on this topic, then provided a document to sales representatives and staff on 27 July 2010 entitled “The Facts”, which confirmed that there was no formaldehyde in Keratin Complex.

131    Around this time in mid-2010 the Irish authorities issued the recall notice for Keratin Complex. Copomon responded to this by issuing a press release, which Mr Gerstein forwarded to Mr Taylor on 1 September 2010. This stated:

With respect to tests performed in Ireland by the EU labs on the Keratin Complex Treatments, there exists some controversy as to the validity of the tests. In accordance with protocols for test[s] for formaldehyde, the EU has no valid procedure to determine whether the formaldehyde is released as a result of the testing process itself, which inadvertently releases reactants to their natural components.

The Irish authorities (Padriag Burke) stated that they recognise the need to develop new testing procedures for products that are constituted with formaldehyde reactions to form new compounds that are benign. For example, the Keratin Complex smoothing treatment contains Thiazolidine-4 carboxylic Acid (TCA) which is a condensate product of Cysteine, (and other proteins contained in a special form of Keratin) and formaldehyde.

…

In addition Copomon Enterprises LLC DBA Keratin Complex has hired Intertek Analytical Services an EU approved testing facility to test our products to refute the testing methods used by the Ireland authorities.

132    Mr Taylor explained in evidence that he had concluded from the Copomon press release that the HPLC test was not appropriate for Keratin Complex as it could not distinguish between unbound and encapsulated formaldehyde. Mr Taylor nevertheless continued to engage in communication on the topic, and sent an email on 1 September 2010 to Mr Mel Howard of Copomon in which he said:

We have been advised by KC that formaldehyde was not an ingredient in the treatment but independent tests here show that it has 1.7% free formaldehyde which we had advised [Keratin Complex] of months ago.

We were supplied with a scientific report showing that the tests for formaldehyde were either inaccurate or inapplicable and that the Thiazolidinecarboxylic acid absorbed formaldehyde anyway. Also, certification of compliance for the UK and EU which apparently isn’t the case. KC also advised that formaldehyde didn’t need to be listed as an ingredient in the treatment (the MSDS doesn’t include it in the ingredients).

133    There were then exchanges on the topic of challenging the Irish ban. On 2 September 2010 Mr Taylor emailed Mr Gerstein twice with a series of questions, one of them being:

If Keratin Complex contends that [formaldehyde is not an original ingredient in Keratin Complex] … then why wasn’t the Irish authority legally challenged?

134    Additionally, he raised by way of query and comment:

What chance is there of having the Irish…authorities reverse or qualify the recall? Have never heard of this happening before. Gov departments don’t usually admit they are wrong and are always very thorough with their analysis and decision making to avoid any legalities.

135    Those queries were not answered. Mr Taylor, however, himself went on to say:

If the German test shows there is no formaldehyde as an ingredient we would have a slim chance of beating a recall. If formaldehyde is an ingredient, however small, a recall would be unavoidable.

136    The reference to the German test was to the fact that Copomon had foreshadowed that Intertek would have conducted testing. Mr Taylor had informed Copomon that he wanted to be provided with a statement from Keratronics confirming that formaldehyde was not an ingredient, a test from an independent laboratory showing that there was no formaldehyde in Keratin Complex and a test or report confirming the difficulties associated with HPLC testing. He explained that he wanted this information to ensure that Keratin Complex was safe to distribute in Australia and for Dateline to continue to make representations in its advertising that there was no formaldehyde in the product.

137    The following day, Mr Taylor emailed Mr Anthony of Keratronics to ask a series of questions, which were responded to by Mr Anthony on the same day. In response to the question "[i]s formaldehyde an ingredient in the manufacture of the treatment??", Mr Anthony said:

Yes, it is used to manufacture Thiazolidine 4 carboxylic acid by reacting it with Keratin (high [cysteine] content) and other proteins.

138    Mr Anthony, however, dismissed the suggestion that formaldehyde was produced with heat and referred to a Spanish air test which had showed that no formaldehyde was found. He also referred to the problems of HPLC testing.

139    There were then important exchanges, particularly in relation to the Irish Ban Statement. In response to the question Mr Taylor had raised “what is the likelihood of the formaldehyde problem being overcome and would it be possible to overturn the recall in Ireland?”, Mr Anthony advised that his company was creating stabilisers for the product that would solve the problem, which were being tested. He said that he expected that they should know if the problem could be overcome within the next month.

140    Mr Taylor also emailed Mr Gerstein on the same day, 3 September 2010, and questioned whether Dateline should stop selling the treatments and whether it should advise customers that a new formula was coming in, or whether there was chance that retesting using some other method would change the situation with the Irish authorities. In response, Mr Gerstein confirmed that they were working on a new product and had been doing the testing which would prove that they had not “lied about the encapsulation”, but he was unsure how long it would take to overturn the Irish ban.

141    On the same day, Ms Davies of Hairhouse Warehouse emailed Mr Taylor enclosing a copy of an analytical report which stated that Keratin Complex contained 1.56% formaldehyde. Mr Taylor responded promptly to Ms Davies, to enquire as to the mode of testing and point out problems with the HPLC method.

142    On 4 September 2010, Mr Taylor sent an email to Copomon and Keratronics which queried the accuracy of the ingredients listed on the bottle, and specifically queried whether there was a need to list formaldehyde. The president of Copomon, Mr Larry Solomon, responded to the queries raised by Mr Taylor, and advised that the labelling was 100% correct as to the contents of the bottle and the ingredients, that the HPLC test had an “accelerator” added that actually created a formol from the timonacic acid, and that Copomon were awaiting the results of the Intertek NMR testing. He emailed on the same day to say:

[Formaldehyde] is a gas is it not an ingredient, it is the result of the reaction. Formaldehyde in liquid form is called FORMALIN

WE do not use formalin we use a [cysteine] that is not formalin or formaldehyde

(Errors in original)

143    In response, Mr Taylor wrote to Messrs Solomon, Gerstein, Howard and Anthony to indicate that he would need, amongst other things, an explanation as to how thiazolidine-4-carboxylic acid (which is known as TCA) works in the treatment, a definitive statement about the HPLC test, and a statement that formolin was not an ingredient of Keratin Complex. On the following day he sent an email once again explaining what information he thought was needed in order to fight an automatic recall in Australia and said, amongst other things, that Copomon and Keratronics needed to state that the Irish decisions were being contested and that new tests were being carried out.

144    Mr Anthony responded to this on 5 September 2010 with a statement signed by him in which he said, amongst other things:

[Methanal] is not an added active ingredient in the formulation of Keratin Complex Treatment. The product is formulated with 2.0 to 2.5% Thiazolidine-4 carboxylic Acid, a condensate of Keratin proteins and formaldehyde as a solution. The reaction of formaldehyde with cysteine proteins results in Thiazolidine-4 carboxylic Acid. The reaction can be reversible if the solution is diluted due to competing saturation of dilutant and the cysteine proteins. However, under normal use, and if undiluted, the reaction is stable.

…

Problems arise when tests are performed to determine the presence of formaldehyde. These tests have indicated the presence of the chemically bound formaldehyde as a donated product of the acid.

(original emphasis)

145    Mr Anthony also provided, on 6 September 2010, the results of testing performed by Dr Valter Ballantini of the University of Pisa using a method of testing described by Dr Ballantini as being “not so different from that used by Ireland authorities”. There were three different results. Each of them showed the presence of formaldehyde, one below the maximum concentration allowed of 2,000 mg/kg, one above and one at about the maximum concentration. Mr Taylor treated this, however, as simply confirming that the HPLC test was unreliable when testing for the formaldehyde in a sample of Keratin Complex. Mr Taylor continued to exert pressure on Mr Gerstein for the availability of the Intertek test. There were exchanges about the adequacy of the Ballantini tests.

146    On 16 September 2010, Mr Gerstein forwarded Mr Taylor an email chain which included an email from Mr Anthony which stated, in relation to Intertek:

[t]hey have found a small amount of methylene glycol which is an indication of a reversible reaction of the [timonacic acid] disassociating to free formaldehyde in water. However it is tiny and should meet the spec. They need to get the exact amount for a final report.

147    On 17 September 2010, Mr Gerstein emailed Mr Taylor with a further email from Dr Ballantini which said:

As you have seen, I did a lot of work on Keratin Complex product and yesterday I finished my research. I’ve found a result that can be used to unmistakably detect the level of formaldehyde in products like ours where there are different compounds that could release formaldehyde or react in a manner that could erroneously confused [sic] with free formaldehyde. I’m writing a document to explain what I did and the details on how to conduct the analysis. I think that this document could be used to be sent to HSE in order to obtain the withdrawal of the RAPEX.

148    Mr Taylor treated the information from Mr Taylor as indicating that the interim NMR test had not detected free formaldehyde, but rather, had detected a compound known as methylene glycol. He understood that the detection of methylene glycol was the result of the timonacic acid disassociating or decomposing. His understanding was that this meant that there was no formaldehyde in Keratin Complex. He said that he was fortified in this belief by the document provided to him on 18 September 2010 by Mr Gerstein, which he understood to be a Copomon draft press release saying:

[w]e adamantly refute the findings that came out of Ireland…

Three renown [sic] chemists in Spain, England and Italy have also refuted the findings of the Irish Agency and we are awaiting the documented proof that states “NO FREE FORMALDEHYDE WAS FOUND” in Keratin Complex Smoothing Therapy.

Ireland refuses to acknowledge these laboratories, thus unfairly continuing to support their antiquated tests that date back several decades.

The problem arose when tests in Ireland were performed using a 17 year old HPLC test that was “grandfathered in” to determine the presence of Formaldehyde. The Irish authorities concede that the tests are inadequate but can do nothing about it, as they have never changed their methods of testing that have existed for many years, going back into the ‘70s.

149    As noted by the primary judge (at [192]), Mr Taylor provided the letter to Dateline’s sales’ staff to distribute to customers, but the evidence did not reveal whether they did distribute it. The evidence did show that the letter was distributed directly by Dateline to approximately 20 customers or potential customers and to competitors. The recipients included: Mr Sam Jarred, the buying manager for Price Attack; Mr Formica and Mr Caccamo, whom Mr Taylor understood were in the hair straightening business; Ms Davies of Hairhouse Warehouse; Mr Elio Natta, the owner of a salon called Oz Hair; AMR Hair, a customer of Dateline; and Mcarthur Supplies Pty Ltd, a competitor.

The analysis at first instance

150    On addressing the 20 September Letter and in considering the Irish Ban Statement, his Honour noted (at [196]) that the context suggested that the Irish authorities would be persuaded to see the error of their decision upon learning if the results of the interim NMR test which showed that Keratin Complex did not contain formaldehyde and the evidence that the HPLC tests were not the correct testing methodology. His Honour noted, however, (at [197]) that in order for the ban to be overturned, the Irish authorities would have to be persuaded that it was appropriate to do so. His Honour continued on to say:

[a]ny decision to overturn the ban would have to be based on the authorities’ assessment of the relevant regulations and the scientific evidence. Such a decision was one that, patently, Dateline and others associated with Keratin Complex might be able to influence, but could not control. The statement in the letter amounted to a strident and emphatic way of saying that Dateline believed that the Ireland ban would be overturned. In my view, ordinary persons who read the letter would regard the statement that the Ireland ban would be overturned as an expression of opinion, not a statement of fact. (Emphasis added)

151    In considering the Irish Ban Statement, his Honour discussed the authorities in relation to s 51A of the TPA, which then provided:

(1)    For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.

(2)    For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.

152    His Honour discussed (at [237]) the effect of s 51A(2) as imposing an evidential burden on the respondent to adduce evidence on the issue of whether there were reasonable grounds for making the representation, but that no persuasive onus fell upon the respondent to prove that it had reasonable grounds. He cited North East Equity Pty Ltd v Proud Nominees Pty Ltd (2012) 285 ALR 217 per Mansfield, Greenwood and Barker JJ (at [28]). His Honour noted that once the respondent adduces evidence of reasonable grounds, the applicant must satisfy the “dispositive burden” of showing that the respondent did not have reasonable grounds for making the representation: North East Equity (at [30]). The approach his Honour took (at [238]) was that a breach of s 52(1) of the TPA will not be proven if the evidence demonstrates that there were some facts or circumstances existing at the time on which the representor relied and which were objectively reasonable in support of the representation which was made. His Honour followed Sykes v Reserve Bank of Australia (1998) 88 FCR 511 per Heerey J (at 513).

153    After referring to Global Sportsman Pty Ltd his Honour noted (at [240]) that the 20 September Letter expressly set out two matters on which the Irish Ban Statement were based. First, that HPLC testing could not determine whether Keratin Complex contained formaldehyde. Second, that Keratin Complex did not in fact contain formaldehyde.

154    His Honour held (at [240]) that the opinion expressed by Mr Taylor in the 20 September Letter implied that those matters were sufficient to result in the Irish ban being overturned. He then turned to the evidence which showed that, by the date of the letter, Mr Taylor had been told repeatedly by the distributor and manufacturer of Keratin Complex that HPLC testing could not detect whether Keratin Complex contained formaldehyde, or whether formaldehyde was created by the testing process. Additionally, Dr Ballantini of the University of Pisa had confirmed that the derivatisation during the testing procedures could be the problem. Mr Taylor had also been informed that the Irish authorities believed that the HPLC testing was inadequate, and there was nothing to demonstrate the contrary was correct. Accordingly, his Honour concluded (at [241]) that there was a reasonable basis for Mr Taylor to form the view and state that the HPLC testing used by the Irish authorities could not detect whether Keratin Complex contained formaldehyde. Thus, the first issue was decided in favour of Dateline.

155    The second matter was more difficult. The question was whether there was a reasonable basis for Mr Taylor’s statements that Keratin Complex did not in fact contain formaldehyde. It was true that he had been told repeatedly by the distributor and manufacturer that formaldehyde was not an ingredient in Keratin Complex. Mr Taylor understood from Mr Anthony’s statement of 5 September 2010 that the reaction of formalin with cysteine produced timonacic acid, and that the reaction was stable under normal use and if undiluted. If this was as far as the information went, his Honour would have considered that Mr Taylor had reasonable grounds for his opinion that Keratin Complex did not contain formaldehyde. However, as his Honour noted, there was other information available to Mr Taylor by the time he wrote the 20 September Letter. In particular, the Intertek Report on 15 September 2010, which said that:

Free formaldehyde was not detected…although the spectra acquired are consistent with samples containing methylene glycol, the hydrated form of formaldehyde. Un-hydrated free formaldehyde is extremely reactive in aqueous solutions and predominantly exists as methylene glycol.

(emphasis added)

156    Therefore, the Intertek Report, his Honour found, indicated to Mr Taylor that methylene glycol was the hydrated form of formaldehyde. It indicated that what was absent or undetected was “free” formaldehyde, not that there was no formaldehyde at all in Keratin Complex. Mr Taylor stated that the Intertek Report indicated that there was effectively no formaldehyde in Keratin Complex. His Honour held that was not what it said and the 20 September Letter misrepresented the effect of the Intertek Report when it stated that formaldehyde was not detected in Keratin Complex.

157    Mr Taylor had explained that his understanding was also reinforced by the draft press release prepared by Copomon, which had said that scientists from three countries had stated that “NO FREE FORMALDEHYDE WAS FOUND in Keratin Complex”. Again, however, that draft press release, his Honour held (at [245]), also ignored the presence of methylene glycol.

158    The primary judge referred to the evidence of Mr Taylor, which was to the affect that he understood that methylene glycol was a different molecule to formaldehyde, which he understood was a gas only. His Honour held (at [246]), however, that if that was Mr Taylor’s understanding, it depended upon a selective (therefore, not reasonable) reading of the Intertek Report. His Honour noted, that the Intertek Report plainly indicated that methylene glycol was a form of formaldehyde.

159    His Honour’s view was that Mr Taylor was being selective, in the sense that the Intertek Report did indicate that methylene glycol was a form of formaldehyde and, although the question of whether methylene glycol was a form of formaldehyde was controversial, nonetheless, Mr Taylor was prepared to rely upon the expertise of the author of the Intertek Report in order to claim in the 20 September Letter that Keratin Complex did not contain formaldehyde. Apparently, however, he did not rely upon that author’s opinion that methylene glycol is, in fact, a form of formaldehyde. Given that Mr Taylor had no qualifications or expertise in chemistry, his Honour was of the view that on the material available to Mr Taylor at the time that he wrote the 20 September Letter, there were not reasonable grounds for him to conclude that Keratin Complex did not contain formaldehyde.

160    The primary judge noted (at [247]) that the Irish ban on Keratin Complex was based on a product containing free formaldehyde in excess of the maximum allowable limit. Whether the ban would be overturned was likely to depend, not only upon demonstrating that the HPLC testing was inappropriate, but also upon NMR testing showing that Keratin Complex did not contain free formaldehyde in excess of the limit, and upon the Irish authorities being persuaded that the NMR testing was accurate and that the presence of methylene glycol did not contravene the Irish regulations. It was logical, his Honour held (at [247]), that the ban might not be overturned unless the Irish authorities could be persuaded that methylene glycol was not a form of formaldehyde and was not covered by the Irish regulations. There was no evidence, his Honour said, that Mr Taylor sought any advice as to whether methylene glycol would be regarded as a form of formaldehyde for the purposes of the Irish regulations.

161    On another but important note, the primary judge emphasised that Mr Taylor said that the Irish ban would be overturned, not that it could be. This went further than even Copomon and Keratronics had done. His Honour found that there was no other information to hand to Mr Taylor to warrant the Irish Ban Statement. For example, the primary judge referred to the question that Mr Taylor posed to Mr Anthony on 3 September 2010 about the likelihood of the formaldehyde problem being overcome and whether it would be possible to overturn the recall in Ireland. Mr Anthony responded that the formaldehyde question should be able to be overcome in the next month, but did not address the question of whether the recall could be overturned. Mr Gerstein had said that the HPLC testing was mandated in Ireland, so when he said in his email of 3 September 2010 that he was unsure how long it would take to overturn the Irish Ban, it could not be read, his Honour concluded, as any form of unequivocal statement that the ban would be overturned.

162    Indeed, the evidence on that topic was to the contrary because Mr Taylor himself in his email of 2 September 2010 indicated that he was not confident that the Irish ban would be overturned. As noted above, he said:

What chance is there of having the Irish…authorities reverse or qualify the recall? Have never heard of this happening before. Gov departments don’t usually admit they are wrong and are always very thorough with their analysis and decision making to avoid any legalities.

163    The primary judge held (at [253]) that it was far from clear that the Irish authorities would overturn the ban based on the Intertek Report. His Honour noted that the Irish government might query the precise methodology used and the reliability of the results, and might wish to commission independent testing. His Honour also noted that the fact that the Intertek Report indicated that methylene glycol was present, even if free formaldehyde was not, might have affected the consideration of the authorities as to whether to overturn the ban.

164    A further reason which should have caused Mr Taylor to be more careful, the primary judge said, was the fact that Ms Rothwell, the Intertek analyst, had asked whether a further analysis was required “to quantify the free formaldehyde based on the levels of methylene glycol present”. Even if Mr Taylor had not understood precisely what this meant, the primary judge concluded that the question should have caused him to seek clarification before making the Irish Ban Statement.

165    The primary judge noted that the body of the 20 September Letter referred only to the absence of formaldehyde, not free formaldehyde. His Honour considered that the letter, even read in the context of the attached extract of the Intertek Report, based the opinion that the ban would be overturned upon the absence of any form of formaldehyde on testing, when that was not the position. His Honour therefore concluded (at [256]) that the confidence expressed by Dateline in stating that the Irish ban would be overturned was not justified by the information that Mr Taylor had received and was not reflected in his own correspondence to Copomon and Keratronics. The representation was not qualified and did not indicate merely that the ban could or might be overturned or even that it was likely to be overturned. Rather, it was unequivocal.

166    Accordingly, the primary judge found that the Irish Ban Statement was misleading pursuant to s 51A(1) of the TPA, and in breach of s 52(1) of the TPA.

Grounds of cross-appeal

167    Dateline and Mr Taylor argue that:

(1)    the primary judge erred in holding that the statement of Dateline’s present opinion was a representation with respect to a future matter;

(2)    the primary judge erred in finding that, on the material before it, Dateline did not have reasonable grounds for making a representation that in its opinion the Ireland ban would be overturned;

(3)    the primary judge erred in finding that Dateline contravened s 52(1) of the TPA in respect of the Irish Ban Statement; and

(4)    in relation to Mr Taylor, the primary judge erred in finding that:

(a)    Mr Taylor knew that the representation did not accord with his belief or opinion and was misleading;

(b)    Mr Taylor knew that Dateline did not have reasonable grounds for making the Irish Ban Statement; and

(c)    Mr Taylor was knowingly concerned in Dateline’s contravention of s 52 of the TPA.

Dateline’s contentions on the cross-appeal

168    Dateline stresses that it is important to view the 20 September Letter in context. Paragraph 5 and para 6 relevantly stated:

5)    The tests confirming that Keratin Complex has no formaldehyde issues are:

A)    Intertek, the largest testing company in the world with over 1000 laboratories in over 100 countries, including Australia, who certified formaldehyde in Keratin Complex was below the LOD (level of detection). That is, cannot be detected. This test report will be available through Intertek Australia

…

All these test are available for inspection. We have attached the first two pages of the Intertek report. The report is a lengthy report with many diagrams but is available to anybody who wishes to see it.

6)    Every decision made anywhere in the world to the contrary, and specifically in Ireland, will be overturned. All tests carried out here using the HPLC test and showing Keratin Complex contains formaldehyde will be recalled.

169    Dateline appears to accept, as it must, that the statement “every decision made anywhere in the world to the contrary, and specifically in Ireland, will be overturned” was a strident and emphatic way of saying that Dateline held the opinion that the Ireland ban or recall would be overturned, and that ordinary persons who read the 20 September Letter would regard the statement that the Ireland recall would be overturned as being an expression of opinion, not a statement of fact. In other words, Dateline needed reasonable grounds to make the statement. Dateline says that it had reasonable grounds.

170    Although it is talked about as a “ban”, Dateline correctly observes that on 12 August 2010 the Irish regulatory authorities issued a mandatory recall of Keratin Complex in Ireland. Mr Taylor became aware of the recall and the reasons for it when alerted by Ms Davies of Hairhouse Warehouse on 1 September 2010. In the reasons given for the recall, the following was expressed: “[t]he product poses a chemical risk because it contains a high level of free Formaldehyde (1.9% and 1.7% whereas the allowed limit is 0.2%)” (emphasis added).

171    Mr Taylor was aware at the time that he wrote the 20 September Letter that the Irish ban had been imposed as a consequence of a HPLC test. He also knew of expert advice that the HPLC test was unreliable as experts had concluded the HPLC test wrongly stated the presence of “Free formaldehyde” in a sample of Keratin Complex. Dateline says that the result was that formaldehyde was reported as having been in the product being tested “when in fact it was not”. It was only produced by decomposition by the carrying out of the test itself. According to Dateline, while it was not a matter which was operative at the time the representation was made, it should be observed that the primary judge, following extensive expert chemistry evidence, concluded that this belief was in fact correct. His Honour said (at [103], [104] and [106]):

103    The first test used “pre-column derivatisation” in which the reaction of the analyte with the derivatising agent was performed before the sample was introduced into the HPLC separation column and separated into its various chemical substances. The experts, in their joint report, agreed that when HPLC testing using pre-column derivatisation is conducted on an aqueous sample containing timonacic acid, the unreacted formaldehyde present in the sample will react with the DNPH and will then encourage the formation of formaldehyde molecules from any methylene glycol, polymethylene glycol and timonacic acid present in the sample. In other words, the DNPH acts as a “sink” for unreacted formaldehyde and causes the timonacic acid to decompose and produce more formaldehyde molecules. The experts agreed that pre-column derivatisation with DNPH is not an accurate method for the measurement of the individual concentration of methylene glycol that was originally in the sample. It measures the combined total concentrations of methylene glycol derived from all sources, including timonacic acid, in the sample.

104    It follows that the first HPLC test does not demonstrate that the sample contained methylene glycol before it was tested. All or part of the timonacic acid that was present in the sample decomposed to release formaldehyde molecules during the derivatisation process. The test does not prove that any part of the timonacic acid had decomposed in the bottle prior to the testing process. The first test fails to prove the ACCC’s allegation that Keratin Complex contained formaldehyde.

…

106    In the second test, post-column derivatisation was used. A derivatising reagent, acetyl acetone, was reacted with the analyte after separation. The experts agreed that, similarly, this test can only provide a measure of the total amount of methylene glycol from all sources in the sample. The addition of a derivatising reagent when timonacic acid is present means that the test cannot be used for the individual measurement of any methylene glycol present in the sample before the reagent was added. Therefore, the second HPLC test does not prove that methylene glycol was present in the sample before it was tested. This test does not prove the ACCC’s allegation that Keratin Complex contained formaldehyde.

172    While the suitability of HPLC as a test for formaldehyde was a live issue when the case commenced, the joint experts agreed during the trial that the test was unsuitable for analysing Keratin Complex. The primary judge accepted that evidence and made findings to that effect. Dateline says that this vindicates Mr Taylor’s belief. We do not accept the submission and will return to this central issue.

173    Dateline also submits that what motivated Mr Taylor to send the 20 September Letter was the receipt of the NMR test performed by Intertek in the United Kingdom as summarised in the Intertek Report. It was explained to Mr Taylor at the time, and later shown in evidence in the case itself, that the use of NMR spectroscopy was a more sophisticated and sensitive test which did not suffer from the decomposition issues that plague the HPLC test. The 20 September Letter attached two pages of the NMR test. Dateline relies upon the fact that the Intertek Report has the title “Interim NMR Report on the analysis of Keratin products to assess the presence of free formaldehyde”. In other words, it states that what was being looked for was “free formaldehyde”. Dateline points out that the Intertek Report concluded that “[f]ree formaldehyde was not detected in ASG 10431952 and ASG 10431953”, which were the two sample numbers given to the two samples of Keratin Complex submitted for testing.

174    The primary judge noted that the Irish regulations were also written in terms of levels of “free formaldehyde”, and the Irish recall, as set out in the documents which Mr Taylor saw, was imposed upon the stated basis that there was measurable level of “free formaldehyde” in the product.

175    There was no doubt, therefore, according to Dateline, that relevant “reasonable grounds” had been identified and that the opinion based upon them was conveyed very strongly by the words used in the 20 September Letter, which clearly conveyed that the recall imposed by the Irish regulator was “wrongly imposed and unsupportable”.

176    Dateline contends that the primary judge erred in asking the wrong question solely in terms of what the Irish authorities could or would have to be persuaded to do (at [197]), but this is certainly not what his Honour did. The Irish Ban Statement was a statement of opinion. This is the basis upon which all parties and the primary judge approached the question. Mr Taylor emphatically assured readers of his opinion that the Irish regulations would be overturned because it had been shown by new tests that the tests on which the recall was based were unreliable.

177    Dateline also object to the finding of “selective” reading of the Intertek Report, and submit that the primary judge erred by linking the Irish Ban Statement with the question of whether Keratin Complex contained or did not contain formaldehyde. Dateline argues that this was a different question that fell to be determined on different grounds. The very difficult chemical question about whether methylene glycol was formaldehyde does not enter into the analysis. According to Dateline, the start and end was what Intertek itself said, namely, that methylene glycol was not “free formaldehyde” and that no free formaldehyde was detected. Dateline argue that since the “free formaldehyde” was the appropriate criterion for the ban, Mr Taylor was not reading the Intertek Report “selectively” as suggested (at [246]).

Consideration

178    The onus of proof issue is not controversial.

179    As to the correct approach concerning representations of different types, in Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682, Gordon J said (at [10]):

The following principles are worth restating.

1.    A contravention of s 52(1) of the TPA is established by “conduct” which is misleading or deceptive or likely to mislead or deceive: Global Sportsman Pty Ltd 2 FCR 82, 87. The “conduct”, in the circumstances, must lead, or be capable of leading, a person into error (Hannaford (trading as Torrens Valley Orchards) v Australian Farmlink Pty Ltd [2008] FCA 1591 at [252] citing Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 200; Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 198) and the error or misconception must result from “conduct” of the corporation and not from other circumstances for which the corporation is not responsible: Global Sportsman Pty Ltd 2 FCR 82, 91. “Conduct” is likely to mislead or deceive if there is a “real or not remote chance or possibility regardless of whether it is less or more than fifty per cent”: Global Sportsman Pty Ltd 2 FCR 82, 87.

2.    Section 52(1) is concerned with the effect or likely effect of “conduct” upon the minds of that person or those persons in relation to whom the question of whether the “conduct” is or is likely to be misleading or deceptive falls to be tested. The test is objective and the Court must determine the question for itself: Global Sportsman Pty Ltd 2 FCR 82, 87. Section 52 is not designed for the benefit of persons who fail, in the circumstances of the case, to take reasonable care of their own interests: Elders Trustee and Executor Co Ltd v E G Reeves Pty Ltd (1987) 78 ALR 193 at 241. Moreover, it would be wrong to select particular words or acts which although misleading in isolation do not have that character when viewed in context: Elders Trustee 78 ALR 193 at 241 citing Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199.

3.    “Conduct” can, of course, include making a statement which is misleading or deceptive or likely to mislead or deceive: Global Sportsman Pty Ltd 2 FCR 82, 88.

4.    By making a statement of past or present fact, a corporation’s state of mind is irrelevant unless the statement involved the state of the corporation’s mind: Global Sportsman Pty Ltd 2 FCR 82, 88. Contravention of s 52(1) does not depend upon the corporation’s intention or its belief concerning the accuracy of the statement of fact but upon whether the statement conveys a meaning which is false. A false meaning will be conveyed if what is stated concerning the past or present fact is inaccurate but also if, although literally true, the statement conveys a meaning which is false.

5.    Precisely the same principles control the operation of s 52(1) to statements involving the state of mind of the maker when the statement was made (e.g. promises, predictions and opinions). A statement which involves the state of mind of the maker ordinarily conveys the meaning (expressly or impliedly) that the maker of the statement had a particular state of mind when the statement was made and, commonly, that there was a basis for that state of mind: Global Sportsman Pty Ltd 2 FCR 82, 88.

6.    A statement of opinion will not be misleading or deceptive or likely to mislead or deceive merely because it turns out to be incorrect, misinforms or is likely to do so: Elders Trustee 78 ALR 193, 242 and Bateman v Slatyer (1987) 71 ALR 553, 559. An incorrect opinion does not of itself establish that the opinion was not held by the person who expressed it or that it lacked any or any adequate foundation: Global Sportsman Pty Ltd 2 FCR 82, 88. An expression of an opinion which is identifiable as an expression of opinion conveys no more than that the opinion is held and perhaps that there is a basis for the opinion. If that is so, an expression of opinion however erroneous misrepresents nothing: Global Sportsman Pty Ltd 2 FCR 82, 88.

7.    However, an opinion may convey that there is a basis for it, that it is honestly held and when it is expressed as the opinion of an expert, that it is honestly held upon rational grounds involving an application of the relevant expertise. If the evidence shows that the opinion was not held or that it lacked any or any adequate foundation, particularly if the opinion was expressed as an expert, a statement of opinion may contravene s 52 of the TPA: Elders Trustee 78 ALR 193, 242, proposition (4): see also Hannaford [2008] FCA 1591 at [253] and RAIA Insurance Brokers Ltd v FAI General Insurance Co Ltd (1993) 41 FCR 164; Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388; NC Seddon and MP Ellinghaus, Cheshire and Fifoot’s Law of Contract (9th Australian Edition, 2008), [11.116].

(emphasis added)

180    Dateline’s position is that there were objectively reasonable grounds which support the expression of opinion that was made. Dateline say that the primary judge fell into error in trying to assess the likelihood that the Irish authorities could be persuaded to see the error of their ways.

181    This part of Dateline’s argument is misconceived. This is not what the primary judge did. Indeed, to the contrary, his Honour made it clear that that is not how the statement would be understood – not in a literal sense, but rather, it was the emphatic expression of an opinion that there was proof which showed that the recall was not founded on the correct conclusion. The primary judge did not treat the Irish Ban Statement as a promise or prediction, but as a representation that there were reasonable grounds (the tests) on which it could be emphatically said the ban would be overturned. The focus was not on the ban but on the underlying grounds. The overturning of the ban was an indication only of the emphatic representation about the result of the tests. In the present circumstances, however, it makes no difference whether the representation is treated as being a prediction or promise on the one hand or a statement of opinion held on the other. In either instance, the representation will mislead if there were, objectively viewed, no reasonable grounds for making it.

182    A representation will not contravene s 51A and s 52(1) of the TPA (or their subsequent legislative successors) where the representor, as objectively viewed, had reasonable grounds known to him or her to make the representation. The focus is on the reasonableness of the grounds as then known, not what may later become known.

183    Dateline objects to the approach of the primary judge in distinguishing between “would” as used in the representation and “could”, but this approach was entirely correct. It was necessary and reasonable in order to analyse the character of the representation, namely, whether it was emphatic or not. Whether or not it was emphatic goes to the question of reasonableness. A carefully qualified statement might be reasonable where an emphatic statement might not. As the ACCC submits, the subject of the representation was the future behaviour of an administrative decision maker in Ireland. That future behaviour was described in the unequivocal terms: "[e]very decision made anywhere in the world to the contrary and specifically in Ireland, will be overturned” (emphasis added).

184    The primary judge also recognised (at [197]) that once he had characterised the representation as conveying an expression of opinion, that any decision by the Irish authorities to overturn the ban “was one that, patently, Dateline … might be able to influence, but could not control”. Not only was that finding open to the primary judge, but it was the correct finding. The question for the primary judge was whether the asserted reasonable grounds provided a basis for making the representation of belief or opinion. At the heart of this representation was the "strident and emphatic" assurance as to the results of the scientific testing. The statements were not tempered with any qualification or condition.

185    What is central to the debate is that a simple rebuttal of HPLC testing as a correct or reliable method for detecting formaldehyde in Keratin Complex would not correspondingly support an unequivocal statement that the Irish ban would be overturned. Proof that the HPLC testing is inadequate for measuring the existence or otherwise of formaldehyde in Keratin Complex does not prove that other tests unequivocally demonstrate that formaldehyde is not to be found in Keratin Complex. Clearly those other tests were advanced as the basis for the representation because in para 4 of the 20 September Letter, Dateline, through Mr Taylor, stated that the only valid test to detect the presence of formaldehyde in Keratin Complex was the “Nuclear Magnetic Test”. Dateline relied upon the NMR testing that Intertek had conducted for Copomon and Keratronics respectively in the 20 September Letter. This was taken further in para 5, where it was said that the NMR testing was said to confirm “that Keratin Complex has no formaldehyde issues”. This was more specifically extrapolated to being that the NMR testing demonstrated that “certified formaldehyde in Keratin Complex was below the LOD (level of detection)”. Dateline talked of Intertek’s NMR test findings “falsifying” the HPLC tests upon which the Irish authorities had relied.

186    It was open and, indeed correct, for the primary judge to find that Dateline misrepresented the effect of the Intertek Report when stating that “formaldehyde” was not detected in Keratin Complex. Objectively, it did not do so. Similarly, Mr Taylor’s asserted understanding, that the Intertek Report indicated there was effectively no “formaldehyde” in Keratin Complex, did not reflect what the Intertek Report said. The primary judge was entitled to find (at [246]) that the misleading statement was driven by a selective reading of the Intertek Report, which “plainly indicated that methylene glycol was a form of formaldehyde”. As noted above, the report said:

Free formaldehyde was not detected …, although the spectra acquired are consistent with samples containing methylene glycol, the hydrated form of formaldehyde. Un-hydrated free formaldehyde is extremely reactive in aqueous solutions and predominantly exists as methylene glycol. The equilibrium highly favours the formation of methylene glycol and so in this case the free formaldehyde level is below the LOD [level of detection].

(emphasis added)

187    While there may be much debate as to the question of whether methylene glycol was a form of formaldehyde, Mr Taylor did not profess to have that understanding. He was prepared to rely upon the expertise of the author of the Intertek Report to claim in the letter that Keratin Complex did not contain formaldehyde, but, as the primary judge noted, apparently he was not prepared to rely on the author’s opinion that methylene glycol is actually a form of formaldehyde. The reliance was selective. As observed by the ACCC, if the 20 September Letter had sought to draw a distinction between "free formaldehyde" and "formaldehyde", the representation might be reasonable. The 20 September Letter, however, does not grapple with the Intertek Report’s reference to the detection of methylene glycol, being the hydrated form of formaldehyde.

188    It appears on the evidence that the Irish Ban Statement was made without anyone having approached the Irish authorities to ascertain their response to the position reflected by the results in the Intertek Report.

189    As to the Dateline submission that both the Irish regulations and ban relied only on certain levels of “free” formaldehyde, there was no distinction drawn in the 20 September Letter between “free” formaldehyde and formaldehyde. This is a difficulty for Dateline and Mr Taylor because the 20 September Letter based the opinion that the ban would be overturned upon the absence of any form of formaldehyde” (emphasis added). Absent any qualification to that statement, it is incorrect.

190    Similarly, the primary judge was entitled to find that the confidence Dateline expressed in the 20 September Letter was inconsistent with Mr Taylor’s own correspondence to the supplier and manufacturer of Keratin Complex. Again, this is consistent with the fact that the Intertek Report recorded the presence of “methylene glycol, being the hydrated form of formaldehyde”. The 20 September Letter did not make the distinction between free formaldehyde and methylene glycol as the hydrated form of formaldehyde.

191    Although Dateline seeks to suggest that the representation was simply that the Irish ban “could” be withdrawn, that is not what the 20 September Letter says.

192    Dateline makes the point that the detailed scientific report was attached to the 20 September Letter for readers to digest. It is certainly not sufficient to do this. True it is that attaching the report is part of the context in which the representation was made, but the whole purpose of the emphatic representation was to communicate the message it contained, not the more restrained and qualified content of the Intertek Report.

193    As to Mr Taylor, he had been directly involved as the person engaged in the exchange of communications with the supplier and manufacturer of Keratin Complex. There was no evidence that he had approached the Irish regulator to ascertain its position and views, both in relation to the recall and in relation to the subsequent testing. It was entirely open for the primary judge to draw the conclusion that Mr Taylor knew that the emphatic and unqualified representation was misleading and that there were not reasonable grounds for making it. Therefore, insofar as Mr Taylor is concerned, there is no doubt as to the correctness of the finding as to his accessorial liability. Mr Taylor was the author of the 20 September Letter. It is sufficient to establish Mr Taylor’s accessorial liability if he knew, as he was correctly found to have known, that there was not an objectively reasonable basis to make such a strident and emphatic representation.

Conclusion

194    It is true that the primary judge found that the ACCC had failed to prove that the testing revealed the existence of formaldehyde in a complex solution as distinct from a simple aqueous solution.

195    Assuming, in Dateline’s favour that its argument that the ACCC had failed to prove the existence of formaldehyde in Keratin Complex, such a failure does not mean that there were reasonable grounds to emphatically assert that there was no formaldehyde in Keratin Complex. No expert gave evidence, nor was there any expert evidence, that there is, therefore, no formaldehyde in Keratin Complex. No finding was made after the very extensive expert evidence that there was no formaldehyde in Keratin Complex. The finding was simply that there had been a failure to prove the positive existence of formaldehyde in Keratin Complex to the standard in Briginshaw v Briginshaw (1938) 60 CLR 336, or s 140 of the Evidence Act 1995 (Cth).

196    On one view the statement that the Irish authorities would overturn the ban was a statement as to a future fact. Neither the parties, nor the primary judge, appear to have approached the matter on that basis. Rather it was approached as though it was the expression of an opinion emphatically held on objectively reasonable grounds.

197    In either case, on the authorities, the initial burden at least shifted to Dateline to prove that there was, objectively, a reasonable basis known to Dateline for expression of the opinion. There was no such reasonable basis.

198    The cross-appeals will be dismissed with costs.

Associate:    

Dated:    28 August 2015