FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Billbusters Pty Ltd [2003] FCA 423

Trade Practices – Representations – Misleading or deceptive conduct - Declaratory Relief – Injunctions

Practice and procedure – application for summary judgment – no arguable defence

Trade Practices Act 1974 (Cth) ss 52, 53(aa) and (c), 58, 80(1), (4) and (5)

Federal Court Rules 1979 (Cth) O 20 r 1 and 2

Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253 followed

Warea Pty Ltd v Waterloo Industries Pty Ltd (1986) 12 FCR 152 distinguished

Multi Modal Ltd v Polakow (1987) 78 ALR 553 followed

Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 referred

Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 referred

Fried v Dixie Holdings Pty Ltd [2000] FCA 1048 referred

Sykes v Reserve Bank of Australia (1998) 88 FCR 511 referred

Ting v Blanche (1993) 118 ALR 543 referred

Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179 referred

Wright v TNT Australia Pty Ltd (1988) 15 NSWLR 662 referred

Given v CV Holland (Holdings) Pty Ltd  (1977) 29 FLR 212 considered

Riley McKay Pty Ltd v Bannerman (1977) 31 FLR 129 referred

Darwin Bakery Pty Ltd v Sully (1981) 36 ALR 371 referred

Gardam v George Wills & Co Ltd [No 1] (1988) 82 ALR 415 referred

Doolan v Waltons Ltd(1981) 39 ALR 408referred

Ducret v Chaudhary’s Oriental Carpet Palace Pty Ltd (1987) 16 FCR 562 considered

Australian Competition and Consumer Commission v Glendale Chemical Products Pty Ltd (1998) 40 IPR 619 referred

Given Optional Extras Pty Ltd (1976) 10 ALR 627 referred

De Jong v Prudential Assurance Co Ltd (1977) 14 ALR 694 referred

Trade Practices Commission v Optus Communications Pty Ltd (1996) 64 FCR 326 referred

Dillon v Chin (1988) 84 ALR 457 referred

Health Insurance Commission v Hospitals Contribution Fund of Australia (1981) 36 ALR 204 referred

Hollis v ABE Copiers Pty Ltd (1979) 41 FLR 141 referred

Thompson v Riley McKay Pty Ltd (1980) 29 ALR 267 referred

Barton v Westpac Banking Corporation (1983) 50 ALR 397 considered

Theseus Exploration NL v Foyster (1972) 126 CLR 507 referred

Trade Practices Commission v J & R  Enterprises Pty Ltd (1991) 99 ALR 325 referred

Australian Competition and Consumer Commission v Commercial and General Publications Pty Ltd [2002] FCA 900 considered

Fancourt v Mercantile Credits Limited (1983) 154 CLR 87 considered

Webster v Lampard (1993) 177 CLR 598 referred

Express Newspapers Plc v News (UK) Ltd [1990] 3 All ER 376 referred

Geoffrey Inc v Luik (1997) 38 IPR 555 referred

Bhogal v Punjab National Bank [1988] 2 All ER 296 referred

Tomlinson v Cut Price Deli Pty Ltd (1992) 112 ALR 122 referred

Australian Competition Consumer Commission v Goldy Motors Pty Ltd (2001) ATPR 41-801 considered

Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 considered

Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 95 FCR 114 referred

Australian Competition and Consumer Commission v Pacific Dunlop Limited (2001) ATPR 41-823 referred

Dey v Victorian Railways Commissioners (1949) 78 CLR 62 referred

General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 referred

AUSTRALIAN COMPETITION & CONSUMER COMMISSION v BILLBUSTERS PTY LTD & ANOR

VG 621 of 1998

KENNY J

8 MAY 2003

MELBOURNE

THE COURT ORDERS THAT:

1.         The second respondent has been, within the meaning of par 80(1)(e) of the Trade Practices Act 1974 (Cth) (“the Act”), knowingly concerned in, or party to, the conduct of the first respondent referred to in paragraphs 4, 5, and 7(1) of the Statement of Claim in contravention of s 52 of the Act.

2.         The second respondent, by himself, his servants or agents or otherwise howsoever, is restrained from:

            (a)   representing to members of the public that he performs; and

            (b)   being knowingly concerned in representations by another person to members of the public that he, she, it or they perform;

            audit services on accounts or invoices of Telstra (‘the Representation’) unless the second respondent not less than 14 days prior to the first publication of the Representation by any such person, or any such representation in substance to the effect of the Representation by any such person, advises the Australian Competition and Consumer Commission in writing of details of:

                   (i)         the business name of each person intending to make the Representation;

                   (ii)        the principal place of business of each such person; and

                   (iii)       the intended mode of publication of the Representation to members of the public.

3.        Pursuant to O 20, r 2 of the Federal Court Rules, any cross-claim of the second respondent be dismissed.

4.        The second respondent pay the applicant’s costs of the proceeding, including the costs of the motion, as amended by notice dated 6 September 2002.

5.        Within 7 days of the date hereof, the applicant serve on the second respondent:

(a)   these orders; and

(b)   a copy of the reasons for judgment, which have been delivered today by posting them to him at his address at P O Box 715, Lane Cove, NSW 1595.

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

REASONS FOR JUDGMENT

the application

1                     By motion, an amended notice of which was dated 6 September 2002, the applicant, the Australian Competition and Consumer Commission (“ACCC”) made application for orders that:

1.    Pursuant to order 20, rule 2(1)(a), (b) and/or (c), the cross claim, if any, of the second respondent:

       (a)   be dismissed generally;

       (b)   alternatively, be permanently stayed;

       (c)   alternatively, be dismissed with judgment for the applicant, cross respondent.

2.    Further, pursuant to order 20, rule 1(1)(a) and/or (b) there be judgment for the applicant on its claim against the second respondent.

3.    Such further or other order as the Court sees fit.

4.    Costs of the proceeding, including the costs of the application.

The ACCC relied on numerous affidavits (referred to below) in support of its application.

2                     I note that, on the hearing of the motion, the ACCC made it clear that it sought no relief against the first respondent, which was in liquidation (see affidavit of Kanishka Nadarajah sworn 19 January 1999, pars 2 and 3).  The ACCC sought orders and declarations against the second respondent, Miles Kendrick-Smith (also referred to as Miles Smith), alone.  The orders and declarations sought by it were that:

1.      The second respondent has been within the meaning of section 80 of the Trade Practices Act 1974 (Cth)… knowingly concerned in or party to the conduct of the first respondent in contravention of ss 52, 53(aa), 53(c) and 58 of the Act referred to in paragraphs 4, 5, and 7 of the Statement of Claim.

2.      The second respondent, by himself, his servants or agents or otherwise howsoever is restrained from:

(a)   representing to members of the public that he performs;

(b)   being knowingly concerned in representations by another person to members of the public that he, she, it or they perform;

       audit services on accounts or invoices of Telstra (‘the Representation’) unless the second respondent not less than 14 days prior to the first publication of the Representation by any such person, or any such representation in substance to the effect of the Representation by any such person, advises the Australian Competition and Consumer Commission in writing of details of:

(i)      the business name of each person intending to make the Representation;

(ii)     the principal place of business of each such person;

(iii)    the intended mode of publication of the Representation to members of the public.

3.      The second respondent pay the applicant’s costs of the proceeding, including the costs of this application.

3                     The ACCC successfully made a like application in Australian Competition and Consumer Commission v Simply No-Knead (Franchising) Pty Ltd (2000) 104 FCR 253.  In that case, the Commission had initially sought declarations against the respondent company and one of its directors that they had engaged in conduct that contravened provisions of the Trade Practices Act 1974 (Cth) (“TPA”).  When the proceeding was still on foot, the company was wound up, but the ACCC did not apply under s 471B of the Corporations Law for leave to continue with its claim against it.  Instead, it sought relief against the director alone.  The Court granted this relief even though the grant depended on the making of adverse findings against the company.

4                     Mr Kendrick-Smith did not appear at the hearing of the motion on 2 October 2002.  Nor did he file any affidavit or other material in opposition to the motion.  As at this date, he did not apparently have legal representation, his former solicitors having filed a notice of ceasing to act as solicitors in February 2001.  At the hearing of the motion, the ACCC relied on two affidavits of service dated 16 September 2002 and 1 October 2002 respectively, both sworn by Mary Louise Doyle, as well as an affidavit (including “SCP 4”) sworn on 20 August 2002 by Ms Susan Pryde, solicitor for the ACCC.  These affidavits satisfied me that the ACCC had effected substituted service of its notice of motion and other relevant documents by posting them to PO Box 715, Lane Cove, New South Wales, 1595, in accordance with the orders made by a registrar of the Court on 20 August 2002 and 24 September 2002.  I note too that, in an affidavit sworn on 11 March 2001, Mr Kendrick-Smith deposed that this postal address was to be his address for service of documents in this proceeding. 

5                     At the hearing on 2 October 2002, there was also no appearance for the first respondent, which was in liquidation.  An affidavit sworn by Ms Pryde on 16 July 2002 informed the Court, amongst other things, that the liquidator for the first respondent continued to be Sims Lockwood.  At the hearing, the Court was given a copy of a letter dated 23 September 2002 from Mr N G Singleton of Sims Lockwood, advising that the liquidator neither consented nor objected to the orders sought by the ACCC.

procedural history

6                     The history of this proceeding is pertinent to the ACCC’s motion.  In sketching this history, I am assisted by another affidavit of Ms Pryde, which was sworn on 13 September 2002, providing a chronology of the proceeding.

7                     The ACCC instituted the proceeding on 13 November 1998, by an application seeking substantive and interlocutory relief.  By its application and statement of claim (which was later amended), the ACCC alleged that the respondents had contravened certain provisions of the TPA in connection with the purported operation of a telephone invoice auditing service.  By a notice of motion returnable on 13 November 1998, the ACCC sought and obtained mareva and other orders (which were extended on 17 November 1998 and later, on 20 November 1998, to the trial of the proceeding or further order). 

8                     A provisional liquidator was appointed to the first respondent on 24 November 1998.  Mr Kendrick-Smith swore an affidavit in the proceeding on 16 December 1998.  Subsequently, the parties filed and served further affidavits and made other applications (which are not presently relevant).  On 19 July 1999, Gyles J made orders concerning, amongst other things, the delivery of pleadings.  On 9 August 1999, when the ACCC served its statement of claim, a firm of solicitors represented Mr Kendrick-Smith.  By 19 August 1999, however, these solicitors had ceased to act for him.  On 27 September 1999, Mr Kendrick-Smith filed and served a defence and cross-claim, which a registrar of the Court struck out on 14 December 1999.  (Parts of the orders made in this proceeding on 20 November 1998 were discharged in November 1999.)

9                     Also on 14 December 1999, a registrar ordered, amongst other things, that the proceeding be transferred for mediation to the New South Wales Registry of the Court.  Mr Kendrick-Smith was made bankrupt on 13 March 2000.  Also in March 2000, he engaged a firm of solicitors to act for him, and it filed an amended defence on his behalf on 14 March 2000.

10                  The subsequent attempt at a mediated solution failed, and the matter returned to the Melbourne Registry of the Court.  In February 2001, the solicitors who had acted for Mr Kendrick-Smith gave noticed that they ceased to do so.  On 19 November 2001, the Court gave leave to the ACCC to file and serve an amended application.  There were orders for substituted service on Mr Kendrick-Smith on 20 August 2002.  On 21 August 2002, the first respondent’s solicitors gave notice that they ceased to act for it. 

11                  The present motion, notice of which was first filed on 16 July 2002 and amended on 6 September 2002, came on for hearing before a registrar on 24 September 2002 and before me on 2 October 2002.

the case as pleaded

12                  Mr Kendrick-Smith made a number of admissions in his defence.  They included some relatively formal matters as to the capacity of the ACCC to sue in its own name, the first respondent’s incorporation, and his effective control of the first respondent prior to its liquidation.  He also admitted some matters of more substantive significance.  He admitted that, between May 1998 and 13 November 1998, he and other representatives of the first respondent represented, in trade and commerce, that:

(1)               the first respondent had developed a method of reviewing and checking telephone accounts issued by Telstra Corporation Ltd (“Telstra”);

(2)               the first respondent believed, on reasonable grounds, that its systems, methods and procedures were able to identify errors in telephone accounts, and to determine the nature and extent of overcharging;

(3)               the first respondent believed, on reasonable grounds, that its systems, methods and procedures were able to calculate the adjustments, credits and refunds to which customers were entitled in respect of the identified errors and overcharging;

(4)               the first respondent’s systems, methods and procedures involved paying to Telstra all amounts properly due by Telstra customers in respect of their telephone accounts;

(5)               when a Telstra customer engaged the first respondent, the first respondent intended to review and check his or her telephone accounts:  (a) to obtain from the customer and/or Telstra information about the account over the preceding seven years; (b) to review and check that information; (c) to identify the nature and extent of any errors resulting in overcharging by Telstra; (d) to calculate the adjustments, credits and refunds to which the customer was entitled in respect of the identified errors and overcharging; and (e) to pay money to Telstra on behalf of the customer in respect of his or her telephone account; and

(6)               the first respondent had found errors in telephone accounts of Telstra customers for specified amounts. 

13                  By its statement of claim, the ACCC also alleged (but Mr Kendrick-Smith did not admit) that, between May and 13 November 1998, Mr Kendrick-Smith represented that:  (1) the first respondent believed, on reasonable grounds, that its systems, methods and procedures were able to provide the necessary information to negotiate with Telstra on behalf of its customers in relation to the identified errors and overcharging; (2) the first respondent believed, on reasonable grounds, that its systems, methods and procedures were able to ascertain the net amount payable by a customer to Telstra, or payable to the customer by Telstra, after proper allowance for the adjustments, credits and refunds to which the customer was entitled; (3) the first respondent’s systems, methods and procedures involved collecting money from customers and holding the money on trust until due payment to Telstra on behalf of the customers who had engaged the first respondent; and (4) the first respondent intended, on its engagement, to notify the customer of the net amount payable by the customer to Telstra, or payable to the customer by Telstra, after proper allowance for the adjustments, credits and refunds to which the customer was entitled, to collect from the customer and to hold in safe custody money for payment to Telstra on behalf of the customer, and to provide the necessary information to, and to negotiate with, Telstra in relation to the identified errors and overcharging and the adjustments, credits and refunds to which the customer was entitled.

14                  By its statement of claim, the ACCC alleged (and Mr Kendrick-Smith denied) that the admitted and alleged representations were false and, in so far as any of the representations related to future matters, were made without reasonable grounds.  The ACCC alleged that, by reason of its conduct, the first respondent had contravened ss 52, 53(aa) and (c) and 58 of the TPA.  Mr Kendrick-Smith was, so the ACCC claimed, involved in each of these contraventions. 

15                  In his defence, Mr Kendrick-Smith also said, in answer to the whole of the statement of claim, that (1) the first respondent had established a business “whereby it would check the invoices of clients of Telstra to identify any errors, then determine the nature and extent of any over-charging by Telstra to its clients’ telephone accounts”; (2) on establishing such errors, the first respondent would then seek to recover the moneys from Telstra plus any moneys “due in accordance with service level guarantees that Telstra was bound to pay under its agreement with its customers”; (3) the first respondent would charge its clients a fee of 30% of the moneys recovered from Telstra; (4) when error was identified in an account, a claim would then be made on Telstra on the client’s behalf; (5) the first respondent would then inform the client, by way of statement, as to the state of its account, including any credits and any moneys owed to the client by Telstra and by the client to the first respondent; and (6) the first respondent would, on receipt of moneys from its clients, deduct its fees and then deposit the balance into a trust account, which was then paid to Telstra.  Mr Kendrick-Smith further alleged that, in obtaining injunctive relief against him in November 1998, the ACCC had misled the Court and, in consequence, the first respondent’s business was destroyed.

the evidence before the court

16                  Counsel for the ACCC submitted that the evidence upon which the Commission relied fell into the following groups, namely, (1) evidence of the media publicity by which the respondents launched their campaign in early-mid 1998; (2) evidence of customers’ dealings with the first respondent; (3) evidence from Telstra explaining what had occurred from its point of view; (4) evidence from the Australian Communications Authority (“ACA”) concerning its investigation into the first respondent’s allegations against Telstra; (5) evidence from Mr Anthony Gerard Mineely, ACCC, about the ACCC’s dealings with Mr Kendrick-Smith; (6) evidence of Mr Kendrick-Smith; and (7) the affidavit of Deborah Maree Barrett sworn 13 September 2002.  I adopt this analysis as a convenient way to approach the material before me.

(1)     Evidence of the media publicity

17                  Exhibited to an affidavit sworn on 4 July 2002 by Ms Petra Chisholm, a General Manager of Rehame Australia Monitoring Services Pty Ltd, were transcripts of radio and television interviews with Mr Kendrick-Smith.  Transcripts of other interviews were exhibited to an affidavit sworn on 12 November 1998 by Ian William Fleet, National General Manager, Sales, Processes and Systems, Telstra. 

18                  In these interviews, Mr Kendrick-Smith alleged:

·        Telstra had overcharged its customers;

·        the first respondent had “assessed” or “looked at” or “checked the accuracy” of the bills of 33,000 Telstra domestic customers over a seven-year period and found an average overcharging or error rate of $178;

·        the first respondent had sophisticated equipment that enabled it to identify the overcharging; and

• the first respondent did everything for the customer, including forwarding payments to Telstra and recovering money from Telstra on behalf of its clients.

19                  In an interview with Malcolm T Elliott, Sydney 2UE, on 10 May 1998, Mr Kendrick-Smith said:

[W]e developed a system for checking bills and started to offer the bill checking services or bill busting services to others.

… .

…

We guarantee anyone that rings us on 133 666 we will, if they allow us to check their bills, credit their account automatically with $25.00.

…

I’d like to just do something special today and that is everyone, whom, for the next six weeks rings us, and mentions 2UE, we are going to double the amount that we give back, not $25.00 but $50.00.  [Mr Kendrick-Smith stated that $25 out of the $50 was to go to the Wesley Mission.]

…

I’ve got staff here right now taking calls, the phones are ringing off the hook, as you can well imagine.  The average error rate we find on these bills is just below $200 per domestic customer.

20                  In a subsequent radio interview with Alan Jones, again on Sydney 2UE, on 22 May 1998, Mr Kendrick-Smith said:

For the thirty-three thousand [Telstra domestic customers] that we’ve looked at to date, the average error rate we found on domestic clients’ bills is one hundred and seventy-eight dollars per account.

…

We guarantee to give [anyone who telephones us] twenty-five dollars whether we find errors or not, and then they get any errors that we find.

21                  On 21 May 1998, Mr Kendrick-Smith assured Tracey Grimshaw and viewers of the “Today” show on GTV9, that he had “a process whereby we actually check the accuracy of bills”.  He reiterated, “[O]f 33,000 domestic clients, we find an average error rate of $178”.  Again, on the National Nine Network’s “A Current Affair”, Mr Kendrick-Smith said, on 25 May 1998:

We have yet to find an account [where] we haven’t found an error of some sort on.  We find an average error rate on bills of a hundred and seventy-eight dollars.

22                  In an interview with Ms Tracey Strong, on ABC Bundaberg, on 22 June 1998, Mr Kendrick-Smith affirmed:

On household accounts, we find an average error rate, at this point in time, of just over a hundred and seventy-eight dollars per account.  We have looked at over thirty thousand individual consumer’s accounts to arrive at that figure of a hundred and seventy-eight. 

…

We have yet to find an absolute pristine account for a client.

23                  In an interview with Gaye Pattison, on Albury CO-FM, on 16 July 1998, he asserted that, “We’re receiving over two thousand calls a day”.  When asked by Ms Pattison how the scheme worked, Mr Kendrick-Smith stated:

Quite simply.  All someone has to do is ring us on our 133 666 number.  We then take down some details.  We then do everything for the consumer.  We then get a minimum of twenty-five dollars credited back to their account, and an average error rate that we find on domestic consumers’ bills of a hundred and seventy-eight dollars.  That’s in addition to the twenty-five dollars.

…

What we do is we take all the bills, which we get direct from Telstra, given the client’s submission.  We then pass those through a very large optical scanning system which takes all the information off the paper bill and then compares it against the tariffs that were in place at the time that the calls were made.

24                  Mr Kendrick-Smith claimed that he had been able to recover over $800 for one householder.  He explained that Telstra made the repayments to him and that he passed them on to his clients.  In a later interview on South Australian radio, on 4 August 1998, Mr Kendrick-Smith reiterated many of his claims and explained that:

[W]e take hold of old copies of bills and pass those against the tariffs that were in place at the time.  We take all the information and basically check every single line item, and, in addition to that, items which might not be displayed on the actual bill that the consumer receives but are available via electronic means from Telstra.

He added, “[W]e use an optical carriage recognition system”.  This was, so Mr Kendrick-Smith explained, “very similar to a very large photocopier but instead of printing out paper, it takes an image:  we take that image then and convert it into computer information and then compare the computer information against the data-base”. 

25                  Again, on “A Current Affair”, on 9 October 1998, Mr Kendrick-Smith reaffirmed that “We have found mistakes ranging from less than five dollars, for a client, up to, in one instance, over eight hundred dollars, just for one domestic consumer.  And that domestic consumer has got back his eight hundred dollars”.  He added, “We forward any amounts of money that is due to Telstra, less any disputed amounts, all of that money is paid to Telstra”.

(2)     Evidence of clients’ dealings with the first respondent

26                  A number of the first respondent’s former clients deposed to their dealings with it.  They included customers Hutchison, Gazal, Saunders, Wiesner and Bennett.  These clients gave similar accounts to one another.  Each was a domestic customer of Telstra.  They were attracted to the first respondent generally because of the statements in the media about its services.

27                  Mr Hutchison’s evidence was that a representative of the first respondent told him that the first respondent did not charge for its services as such.  Instead, it would take 30% of any amount erroneously charged by Telstra to him.  He gave evidence to the effect that, after engaging the first respondent, he sent his Telstra accounts to it for “review”.  A week or so after he first sent an account, he received a statement back from it.  This statement showed that a deduction had been made representing a “credit”.  He paid the amount remaining (after allowing for the deduction) to the first respondent on the understanding that it would settle his account with Telstra.  As it turned out, however, when he received his next account from Telstra, he was notified that payment of his previous account was overdue.  He nonetheless forwarded this account to the first respondent and, shortly afterwards, received another statement from it, identifying “errors” in Telstra’s account.  The first respondent claimed that an amount was payable to it, and that this amount was calculated by deducting an amount from Telstra’s current bill and adding it to the amount that the first respondent had said was payable to Telstra on the last occasion.  The first respondent gave no details of the errors.  When Mr Hutchison sought an explanation for this statement and an assurance that his Telstra accounts were being paid, he was told:

Telstra owed me a lot more than $20.00 [because of the errors made by it on my account] but Telstra would not pay me the entire amount at once.

28                  Mr Hutchison ultimately received notification from Telstra that, since his account remained unpaid, his telephone service would be disconnected.  As to this, Mr Hutchison stated:

I was shocked by this [disconnection] notice because I had made the payments to [the first respondent] on the understanding that the payment would be forwarded to Telstra immediately upon its receipt by [the first respondent]. 

29                  Mr Hutchison’s subsequent telephone calls to Telstra and the Telecommunications Industry Ombudsman (“TIO”) resulted in his ending his relationship with the first respondent.  The first respondent had, it turned out, paid no part of his account with Telstra, notwithstanding that he had made payments to it for this purpose.  The intervention of the TIO apparently prevented the disconnection of Mr Hutchison’s telephone service for the non-payment of his account.

30                  As already indicated, each of the first respondent’s clients who made affidavits in this proceeding gave a similar account to Mr Hutchison.  Ms Gazal deposed that:

[A]s I didn’t really understand the charges on my Telstra account, I believed that there could reasonably be errors. 

After speaking to a representative of the first respondent, she added that she “understood that [the first respondent] would check for errors in the accounts I received from Telstra” and that it would “retain half the value of the errors it identified and the other half would be credited against my account”.  Ms Gazal further understood that it would deal with Telstra on her behalf if it found errors in her account, and that the first respondent would notify her of any consequential reduction in the amount that she was to pay.  She too believed that when she made payment to the first respondent of the amount disclosed on its statement, it would settle her account with Telstra for the relevant month.  When Ms Gazal discovered that her Telstra account remained unpaid, she unsuccessfully sought her money back from, and terminated her relationship with, the first respondent.  In a second affidavit sworn in this proceeding, Ms Gazal reiterated that the first respondent had never provided her with any information about how it calculated the alleged errors in her Telstra accounts. 

31                  Ms Wiesner deposed that, after receiving a disconnection notice from Telstra, she telephoned the first respondent’s offices and spoke to one of its representatives.  Ms Wiesner asked whether the first respondent intended to forward the payment she had made to it to Telstra in settlement of her Telstra account.  Its representative told her that:

[T]he TIO had set up a trust account for all the money [the first respondent] had been paid and that as such I should not be concerned as together the organisations were handling the matter.  She said that the ACCC had ensured that no [first respondent] customers will be disconnected and that as such I should not be concerned.

Ms Wiesner deposed that she then telephoned the TIO and was informed that “no such trust account” existed.  When she telephoned the first respondent’s office again, she was told a different story.  Ms Wiesner ultimately terminated her relationship with the first respondent.

(3)     Telstra’s response to the respondents’ allegations

32                  Telstra began receiving letters from the first respondent concerning Telstra’s domestic customers from about 25 May 1998.  In his 12 November 1998 affidavit, Mr Fleet observed that:

Typically, three or four letters were received from [the first respondent] per customer.  None of these letters were signed by [the first respondent] or Mr Smith.  The letters were all in standard form.

33                  Prior to 12 June 1998, Telstra acted on many of the requests contained in these letters.  It received a significant number of complaints from customers whose services and accounts had been changed as a result.  In consequence, between 12 June 1998 and 20 October 1998, Telstra adopted a practice that involved notifying its customers of the changes that had been sought by the first respondent ostensibly on their behalf, and seeking confirmation that they did in fact want the requested changes.  Mr Fleet deposed that, prior to 20 October 1998, Telstra received a total of about 7,395 standard form letters from the first respondent relating to approximately 2,356 customers (including the standard form letters received prior to 12 June 1998). 

34                  According to Mr Fleet, on 20 October 1998, Telstra received several thousand pages of standard form letters and other documents, including follow-up letters from the first respondent.  His evidence was that these documents were not collated in any orderly way or held together in any secure fashion.  They bore various dates and some referred to attachments that did not exist.  Telstra returned these documents under cover of a letter dated 26 October 1998, which informed the first respondent that Telstra required it to conform to certain minimum standards in delivering documents. 

35                  Prior to 24 June 1998, Telstra applied its usual credit management procedures to those of its customers who had engaged the first respondent.  From then until early October, it suspended these procedures in relation to them.  From about 9 October 1998, however, Telstra began sending letters, informing these customers that the usual credit management procedures would soon be recommenced and affording them the opportunity to pay their accounts within a stipulated period. 

36                  Mr Fleet deposed that Telstra investigated the allegations made by Mr Kendrick-Smith and the first respondent as far as it was able to do so.  In about August 1998, the ACA requested Telstra to conduct an investigation of the accounts of 12 Telstra customers who had engaged the first respondent, in order to determine whether there were in fact any systemic billing problems.  In making its investigation, Telstra had regard to the first respondent’s allegations.  According to Mr Fleet, Telstra did not identify any systemic billing problems as a consequence of this investigation.

37                  In August and in September 1998, at the request of the TIO, Telstra conducted further investigations into the first respondent’s claims.  The September investigation concerned some 200 customers who had engaged the first respondent.  They were nominated by the TIO from a sample of about 2,300 customers whom the first respondent referred to it.  Again, Telstra found no systemic billing errors as a result of these investigations.

(4)     The investigations by the ACA

38                  Kathleen Ann Silleri, a senior policy analyst in the consumer protection team, ACA, described the ACA’s investigations into the respondents’ allegations in an affidavit affirmed on 13 November 1998.  She deposed that the ACA made an investigation into Telstra’s billing and charging practices after the Minister for Communications, Information Technology and the Arts requested it to do so.  In making its investigation, the ACA reviewed documentation that the first respondent had provided to the Minister.

39                  When the investigation commenced, Ms Silleri sought further details of the first respondent’s allegations from Mr Kendrick-Smith, and met with him on 14 July 1998 for the purpose of obtaining this information.  Notwithstanding her requests, Mr Kendrick-Smith did not demonstrate his computer system to her, nor provide any further material substantiating his claims.  Ms Silleri deposed that Mr Kendrick-Smith “did however explain that he determined whether customers had been overcharged by comparing anecdotal information received from the customer with the relevant Telstra Basic Carriage Service Tariffs, records of which he [had] kept for the past seven years”.

40                  The ACA subsequently informed Mr Kendrick-Smith that it would randomly select 18 of the first respondent’s customers and would seek to contact them.  The ACA eventually interviewed 13 of these 18 customers and spoke to them about their Telstra accounts and the claims made against Telstra by the first respondent. 

41                  On 2 September 1998, Ms Silleri prepared a preliminary report based on, amongst other things, the discussions with these customers.  She deposed:

For each of the sample customers in the report, [the first respondent’s] claims (both the amount and category) do not appear to have any relationship to the charges levied by Telstra or the services supplied to the customer.  The preliminary report also notes that 10 of the sample customers had outstanding accounts with Telstra and that the majority of those customers have paid money to [the first respondent] which had not been passed on to Telstra as payment or part payment of their accounts.  …  Based on information set out in the preliminary report I concluded that [the first respondent’s] claims were grossly overstated and without substantiation.  [The first respondent’s] claims centred on alleged overcharging for line connection, handset rental and maintenance and line and socket rental and maintenance.  I was unable to work out the process used by [the first respondent] to determine the amount of compensation owing to a client.

42                  On 12 November 1998, Ms Silleri prepared a written report on behalf of the chairman of the ACA, to be provided to the Minister on the outcome of the ACA’s investigations.  Ms Silleri deposed that:

The report concluded that as a result of the ACA’s investigation, no specific or systematic [sic] billing or overcharging anomalies by Telstra were found.  …  The report also stated that [the first respondent] appeared to misinterpret the [Customer Service Guarantee Standard] provisions and gave misleading information to [its] customers and the media regarding the extent and amount of monies owed to customers by Telstra.

(5)     The ACCC’s dealing with Mr Kendrick-Smith

43                  On 13 November 1998, when Mr Mineely made his first affidavit in this proceeding, he was Acting Regional Director, ACCC, Melbourne office.  Mr Mineely deposed that he first met with Mr Kendrick-Smith at the first respondent’s offices on 20 October 1998.  In part, the purpose of the meeting was, he said, “for the second respondent to raise his concerns with the [ACCC] about Telstra’s conduct” and, in part, “for the [ACCC] to confirm the nature of the first respondent’s business and to consider the position of consumers”.  Mr Kendrick-Smith told Mr Mineely and other ACCC representatives that:

[W]hen the first respondent received a bill from Telstra for telephone services provided to one of the first respondent’s customers, a statement was prepared invoicing the customer in the sum of:  the Telstra invoice amount, less the identified Telstra overcharge, plus 15% of the identified Telstra overcharge (which was the first respondent’s fee for its service).  …  [T]he first respondent provide[d] its customers with a copy of their Telstra account.  …  [W]here monies owed by Telstra to the first respondent’s customer are greater than the undisputed amount invoiced by Telstra, no payment is made to Telstra.  Instead monies invoiced by the first respondent to its customer and received by it from the customer are retained and deposited by the first respondent into a trust account until the disputes have been settled … .

44                  According to Mr Mineely, Mr Kendrick-Smith also said that the first respondent reviewed its customers’ accounts to determine whether there had been breaches by Telstra of the Customer Service Guarantee (“the CSG”) or the Telstra Pledge.  If any breaches were found, it calculated the amount of penalties owed by Telstra as a result.  In relation to this, Mr Kendrick-Smith explained:

In those instances where the first respondent considered that Telstra owed the customer more than the customer owed Telstra, the first respondent ceased paying the undisputed amounts to Telstra.

45                  At the conclusion of the meeting, Mr Mineely told Mr Kendrick-Smith that the ACA would require further information in order to investigate his complaints against Telstra.  Notwithstanding numerous requests for this information prior to 13 November 1998 and Mr Kendrick-Smith’s statements that he would provide it, the ACCC had not received the information as at that date.  In a further affidavit, sworn 12 July 2002, Mr Mineely, now Deputy Director, ACCC, Melbourne office, deposed that the information requested of Mr Kendrick-Smith had not subsequently been forthcoming from him.

(6)     Evidence of Miles Kendrick-Smith

46                  Although Mr Kendrick-Smith has made numerous affidavits in this proceeding, he made none specifically in response to the motion heard on 2 October 2002.  On 19 May 2000, however, a registrar of the Court directed him to file and serve “affidavits setting out the manner in which the first respondent calculated billing errors”.  This order was reiterated on 29 June 2000.  These orders resulted in Mr Kendrick-Smith’s affidavit of 19 July 2000, which is the most pertinent of his affidavits to the matters raised on the motion.  He deposed, amongst other things, as follows:

During the period January 1998 through to November 1998, I was the Managing Director and Chief Financial Officer of the first respondent … .  I was the founder of the company. 

[The first respondent] was established to audit consumer telephone, gas and electricity bills and statements from financial institutions.  It initially started to audit Telstra telephone bills both for residential and corporate Telstra telephone customers.  Once established in this area, I envisaged that [the first respondent] would move its product base to the Internet and then provide the same or similar services to its customer base for other utilities such as gas, electricity, and water. 

… .

Based on … advices and interpretations of the ‘Service Level Guarantees’, Econ Holdings Pty Ltd [in respect of which Kendrick-Smith was a director and the secretary] and [the first respondent] undertook error detection on a number of Telstra domestic and commercial consumer bills.  As a result of advice given by various solicitors in relation to over-billing, over $1.5 million was repaid by Telstra to various client corporations during a two-year period. 

… .

After receiving legal advice and testing that advice on corporate customers …, I wished to ensure that [the first respondent’s] auditing systems properly audited clients’ telephone accounts before launching [the first respondent] to the public.  On or about October 1997, I developed the business plan for [the first respondent] together with CQR Partners, accountants.  … .

… .

This development and implementation of our automated computer systems ran from October 1997 to May 1998 at an enormous cost of approximately $1.6 million.  … . 

As we neared the completion of our computerised auditing billing system, we began to hire and train staff to handle customers’ telephone inquiries about our auditing services.  … .

… .

[The first respondent] launched its retail business in approximately the second week of May 1998. 

… .

[The first respondent’s] systems were designed to work on a step by step approach with customers, and much attention was given to ensure that the systems were as clear and simple as possible, to avoid any misunderstanding with retail consumers.  This system worked as follows:

(i)                 Firstly, a customer would call in to inquire about our services.  This call would be received by an electronic answering system that told the customer what information was needed to determine, if possible, errors appearing on their account.  The information we required was their telephone bill, and the fact that they were a retail customer.  If the customer did not have all of this information, they were instructed to terminate the call and then ring back once they had all the information.

(ii)               Secondly, once the customer had all the information required, a list of predetermined questions was asked of the customer to see if they had a genuine complaint on their Telstra account.  If it appeared that they had genuine errors on their account, the Customer Service Representative would then explain the way [the first respondent] worked including our fees and our general Terms and Conditions of trade.  … .

(iii)             Thirdly, a product information kit was then sent to the consumer including, our terms and conditions, a letter for the client to sign appointing us as their agent, a diagram of how [the first respondent’s] system worked, a bonus $25 voucher for engaging [the first respondent], self-addressed envelopes to [the first respondent] and ‘re-address’ stickers to redirect their future Telstra bills to [the first respondent] for error detection.  … .

(iv)             Fourthly, once a customer had read our Terms and Conditions of trade and signed the letter appointing us as their agent, and then returned the letter to us, our auditing department proceeded to calculate the errors into a dollar amount which was then forwarded to Telstra in the form of an account.

In this affidavit, Mr Kendrick-Smith also sought to explain how the statements sent by the first respondent to Ms Gazal and Mr Saunders were calculated.

(7)     Affidavit of Deborah Maree Barrett

47                  In support of the motion, the ACCC relied on an affidavit of Deborah Maree Barrett, a project officer in the Melbourne office of the ACCC, sworn on 13 September 2002.  This was, plainly enough, sworn with reference to O 20, r 1(1)(a) of the Federal Court Rules (“the Rules”).

48                  In her September 2002 affidavit, Ms Barrett deposed that she had the care and conduct of the ACCC’s investigation into the respondents’ activities, and that she had been involved in the matter prior to the issue of this proceeding in November 1998.  Ms Barrett further deposed that she had read all the affidavits filed by the ACCC and by Mr Kendrick-Smith, including his affidavit of 19 July 2001.  She referred particularly to the following affidavits filed on behalf of the ACCC:

(a)                             Phillip John Hutchison sworn 12 November 1998;

(b)                             Ian William Fleet sworn 12 November 1998;

(c)                             Anthony Gerard Mineely sworn 13 November 1998;

(d)                             Kathleen Anne Silleri affirmed 13 November 1998;

(e)                             Donald George Saunders sworn 18 November 1998;

(f)                               Pamela Susan Gazal sworn 17 November 1998;

(g)                             Alison Weisner sworn 13 November 1998;

(h)                             Anthony Bennett sworn 19 November 1998;

(i)                               Affidavit of Anthony Gerard Mineely sworn 12 July 2002; and

(j)                               Affidavit of Petra Chisholm sworn 4 July 2002.

She deposed that she believed, on the basis of the matters set out in these affidavits, that Mr Kendrick-Smith had no defence to the ACCC’s claim. 

the rules of court

49                  The ACCC moved for orders under O 20, r 1(1)(a) or (b), and under O 20, r 2(1)(a), (b) or (c) of the Rules.  Order 20, rule 1 of the Rules provides:

(1)      Where, in relation to the whole or any part of the applicant’s claim for relief, there is evidence of the facts on which the claim or part is based, and:

(a)   there is evidence given by the applicant or by some responsible person that, in the belief that the person giving the evidence, the respondent has no defence to the claim or part; or

(b)   the respondent’s defence discloses no answer to the applicant’s claim or part;

(c)

[repealed]

the applicant may move on notice for such judgment for the applicant on that claim or part and the Court may pronounce such judgment and make such orders as the nature of the case requires.

(2)      Where the Court pronounces judgment against a party under this rule, and that party claims relief against the party obtaining the judgment, the Court may stay execution on, or other enforcement of, the judgment until the determination of the claim by the party against whom the judgment is directed to be entered.

(3)      The Court in any application under this rule may give such directions, whether for amendment of the pleadings or otherwise, as may be thought fit.

Order 20, rule 2 provides:

(1)      Where in any proceeding it appears to the Court that in relation to the proceeding generally or in relation to any claim for relief in the proceeding:

(a)     no reasonable cause of action is disclosed;

(b)     the proceeding is frivolous or vexatious; or

(c)      the proceeding is an abuse of the process of the Court;

the Court may order that the proceeding be stayed or dismissed generally or in relation to any claim for relief in the proceeding.

(2)      The Court may receive evidence on the hearing of an application for an order under subrule (1).

Order 20, rule 1(1)

50                  Is the ACCC entitled to the orders it seeks under O 20, r 1(1)?  Before orders can be made under this rule, there must be evidence of the facts on which the claim is based.  Some of the evidence relied on by the applicant is of a hearsay nature.  Is it to be admitted as evidence of the facts on which the claim is based?

51                  In Warea Pty Ltd v Waterloo Industries Pty Ltd (1986) 12 FCR 152 (“Warea”), at 154, Pincus J held that an application for judgment under O 20, r 1 must give evidence of the facts on which the claim is based other than by hearsay, “because O 33, r 2 does not apply to such an application; that is so, because the application is not interlocutory”.  Order 33, r 2 has, however, since been repealed:  see Federal Court Amendment Rules 2001 (No 3), Statutory Rules 2001 No 322, Sch 1, Item 4. 

52                  Further, French J distinguished Warea in Multi Modal Ltd v Polakow (1987) 78 ALR 553 (“Multi Modal”).  Multi Modal also involved an application under O 20, r 1(1).  It was similar to this case in so far as the respondent did not appear.  Evidence in support of the application under O 20, r 1(1) was given principally by a director of the applicant, mostly from his own knowledge.  There was, however, some evidence of a hearsay character.  French J noted that the evidence at issue in Warea was disputed since the respondents had appeared and contested its admissibility.  In contrast, in Multi Modal, his Honour said, at 558, “[t]he evidence in question is not disputed in this case, for the respondent has not appeared.  In my opinion, the evidence in question can be admitted under [O 33, r 3] notwithstanding its hearsay character”.  Order 33, r 3 has also since been repealed (see Federal Court Amendment Rules 2002 (No 1), Statutory Rules 2002 No 130, Sch 1, Item 3) but there is a provision equivalent to O 33, r 3 in s 190(3) of the Evidence Act 1995 (Cth).  I too would admit the evidence relied on by the applicant, though of a hearsay character, substantially for the reasons given by French J in Multi Modal. 

The section 52 claim

53                  As the foregoing shows, the ACCC alleged that Mr Kendrick-Smith was involved in the first respondent’s contraventions of ss 52, 53(aa), 53(c) and 58 of the TPA. 

54                  In reliance on s 52, the ACCC alleged that the representations made by the first respondent (as detailed above) were false; and, so far as they related to future matters, they were made without reasonable grounds. 

55                  Section 52 of the TPA prohibits a corporation from engaging in conduct in trade and commerce that is misleading or deceptive, or that is likely to mislead or deceive.  The words “engage in conduct” include the making of representations about a past, present or future matter.  Plainly enough, the first respondent was a corporation engaged in trade and commerce; and, if it has contravened s 52 (or ss 53(aa), 53(c) or 58), then Mr Kendrick-Smith was, directly or indirectly, knowingly concerned in, or party to, the contravention within the meaning of s 80(1) of the TPA. 

56                  In order to make out its case under s 52 in respect of a pleaded representation, the ACCC must establish that the representation was made; and that, viewed objectively and subject to s 51A, the representation was misleading or deceptive or likely to mislead or deceive.  The application of s 52 of the TPA is not restricted to conduct that is intended to mislead or deceive:  see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, at 197 per Gibbs CJ; Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216, at 225 per Stephen J; and Fried v Dixie Holdings Pty Ltd [2000] FCA 1048, at [55] per Weinberg J.  The conduct complained of must, however, be viewed as a whole:  see Puxu, at 199 per Gibbs CJ.

57                  Where a corporation makes a representation with respect to a future matter without reasonable grounds for making the representation, s 51A deems the representation to be misleading for the purposes of s 52.  Practically speaking, where s 51A applies, it casts the burden of proof upon the respondent corporation who has made a representation about the future matter (as to which, see Sykes v Reserve Bank of Australia (1998) 88 FCR 511, at 514-6 per Heerey J and 518-521 per Sundberg J) to show that in making that representation it had reasonable grounds for doing so:  subs 51A(2); Ting v Blanche (1993) 118 ALR 543, at 552-3 per Hill J; and Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) ¶46-179, at 54,432 per Goldberg J. 

58                  The evidence establishes that the first respondent, by Mr Kendrick-Smith and others, represented, in trade and commerce, that it had developed a system for identifying and quantifying errors and overcharging in the telephone accounts of Telstra’s domestic customers.  Mr Kendrick-Smith stated on radio that this system involved the use of “a very large optical scanning system” and a specialised computer software programme.  By means of this equipment and software, as well as the information in its possession, the first respondent could, so Mr Kendrick-Smith said, calculate the net amount that was properly to be paid by a Telstra customer to Telstra, or by Telstra to its customer.  Mr Kendrick-Smith further represented that the first respondent would undertake this task for a Telstra customer who engaged the first respondent and forwarded his or her telephone accounts to it.  In addition, Mr Kendrick-Smith stated that, if a Telstra customer paid the first respondent the amount that it calculated as due to Telstra, then the first respondent’s procedures provided for the payment of this amount to Telstra.  (I interpolate here that most of these matters were either the subject of admissions or were in keeping with the statements made by Mr Kendrick-Smith in his defence.)

59                  The evidence given by Telstra customers who had engaged the first respondent established that the first respondent did not pay to Telstra any of the moneys that they forwarded to the first respondent in accordance with the first respondent’s calculations (as notified to them).  Ms Silleri, who was involved in the ACA’s investigation, corroborated their evidence that the first respondent did not pay Telstra any amount these customers paid to it (at its direction).  She also gave evidence that the ACA’s investigation showed that the amounts that the first respondent said were to be deducted from the amounts owing to Telstra because of errors and overcharging on Telstra’s part bore little, if any, relationship to Telstra’s charges or services.  Indeed, Ms Silleri’s evidence was that the independent investigation conducted by the ACA failed to find any basis for the first respondent’s allegations concerning errors in Telstra’s billing or overcharging.

60                  Furthermore, the independent investigation conducted by the ACA failed to disclose any equipment or software of the kind to which Mr Kendrick-Smith referred in his interviews with the media.  Despite her requests, Ms Silleri was not shown anything that fitted the relevant descriptions.  Nor did the ACA’s investigation disclose that the first respondent had in place any system, method or procedure that could have identified errors and overcharging in the manner claimed on behalf of the first respondent, or that could have secured the discharge of a customer’s liability to Telstra by the payment of some lesser amount than that shown on the customer’s account with Telstra. 

61                  Mr Fleet’s evidence was that the first respondent bombarded Telstra with correspondence, sometimes requesting changes to its customers’ services and accounts that were not wanted by the customer.  His evidence was that the accounts of customers who engaged the first respondent remained mostly unpaid; and that this led to significant difficulties not only for Telstra but also for those customers.  Telstra’s investigations failed to disclose any basis for the first respondent’s allegations against Telstra of systemic billing errors and overcharging.

62                  Mr Mineely’s evidence showed too that, despite repeated requests, Mr Kendrick-Smith did not give any information, either about his equipment and computer software or systems, methods and procedures, that might have supported his statements in the media about the first respondent’s capabilities. 

63                  I turn to Mr Kendrick-Smith’s own evidence at [78]-[87] below.  At this point, it suffices to say that I am satisfied that the ACCC has adduced evidence of the facts on which its s 52 claim is based.

The s 53 claims

64                  Paragraphs (aa) and (c) of s 53 of the TPA provide:

A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services:

(aa)           falsely represent that services are of a particular standard, quality, value or grade;

…

(c)        represent that goods or services have sponsorship, approval, performance characteristics, accessories, uses or benefits they do not have;

65                  The word “services” in s 53(aa) means services supplied to a consumer in trade and commerce:  see Wright v TNT Australia Pty Ltd (1988) 15 NSWLR 662, at 668 per Lee J and the definition of “services” in TPA, s 4.  The words “falsely represent” in this paragraph are satisfied if the representation is in fact false, even through the representor did not know that it was:  see Given v CV Holland (Holdings) Pty Ltd  (1977) 29 FLR 212 (“Given”), at 217 per Franki J; Riley McKay Pty Ltd v Bannerman (1977) 31 FLR 129, at 134 per Bowen CJ; Darwin Bakery Pty Ltd v Sully (1981) 36 ALR 371, at 376 per Keely, Toohey and Fisher JJ; and Gardam v George Wills & Co Ltd (No 1) (1988) 82 ALR 415, at 426 per French J. 

66                  In Given, Franki J consideredwhether a representation as to the number of miles travelled by a motor car was one as to “a particular quality” of that car within s 53(a) of the TPA.  His Honour observed, at 215, that the meaning of these words depended very much on the goods, the quality of which was being considered.  His Honour said, at 216:

This case is concerned with a particular quality of a motor vehicle.  The Shorter Oxford Dictionary gives the following meanings amongst others, for ‘quality’ in relation to things:  ‘An attribute, property, special feature.  The nature, kind or character (of something)’. 

In my opinion the number of miles a particular vehicle has travelled describes a particular attribute, or a special feature of that vehicle, and therefore describes a particular quality of that vehicle.

Lockhart J cited this passage with approval in Doolan v Waltons Ltd (1981) 39 ALR 408, at 411. 

67                  After referring to these and other cases in Ducret v Chaudhary’s Oriental Carpet Palace Pty Ltd (1987) 16 FCR 562, Ryan J concluded, at 577, that:

Those authorities suggest to me that a wide meaning has been given to ‘quality’ in s 53(a) – a meaning which extends beyond the degree or grade of excellence which a thing can be said upon physical examination to possess in comparison with others of a similar kind, and which includes the virtues, attributes, properties and special feature of the thing.  I am confirmed in that view by the fact that the Act by s 53(aa) contemplates that a representation may be made that services as well as goods, are of a particular quality.

In my opinion ‘standard’ as used in s 53 of the Act connotes a narrower concept than ‘quality’.  ‘Standard’ is defined in the relevant sense in the Shorter Oxford English Dictionary as ‘a definite level of excellence, attainment, wealth or the like, or a definite degree of any quality, viewed as a prescribed object of endeavour or as the measure of what is adequate for some purpose’.  An example of a representation that goods were of a particular standard within the meaning of s 53(a) of the Act is to be found in Gilmour v. Bannister Nominees Pty. Ltd (1982) [4 ATPR 40-325] where a statement was made that a concrete pumping machine was ‘to contractors’ standard’.

Notwithstanding the differences in width between ‘quality’ and ‘standard’ as used in s 53(a), I consider that a representation as to each of them in respect of goods is capable of being made by attributing to the goods a value expressed as an amount of money.  Whether such an attribution constitutes a representation of that kind is a matter of fact to be determined on the evidence in each case.

68                  By its statement of claim, the ACCC alleged that, in making the representations, the first respondent falsely represented that the services that it provided, or offered to provide, were of a particular standard, quality, value or grade in contravention of s 53(aa) of the TPA: see [12] and [13] above. I have set out at some length some of the judicial exegesis of the words “a particular standard, quality, value or grade” in order to show that the word “quality” has been interpreted broadly, to refer to such things as the attributes and special features of a service, depending on the service in question.  If this is so, then the ACCC can be taken tohave adduced evidence of the facts on which its s 53(aa) claim is based (even if there are other difficulties with this claim:  see [88] below).

69                  The ACCC has also alleged that, in making the pleaded representations, the first respondent represented that its services had “performance characteristics, uses or benefits they did not have in contravention of s 53(c) of the TPA.  Plainly, this is not a case of performance characteristics:  cf Australian Competition and Consumer Commission v Glendale Chemical Products Pty Ltd (1998) 40 IPR 619, at 633 per Emmett J.  The words “uses or benefits” are, however, of more general application.  Whether there is a representation of a relevant “use” or “benefit” in connection with services to be provided by a representor will depend on the nature of the services in question, although the benefit, for these purposes, must inhere in the services in question:  cf Given Optional Extras Pty Ltd (1976) 10 ALR 627; De Jong v Prudential Assurance Co Ltd (1977) 14 ALR 694; Trade Practices Commission v Optus Communications Pty Ltd (1996) 64 FCR 326; Dillon v Chin (1988) 84 ALR 457; and Health Insurance Commission v Hospitals Contribution Fund of Australia (1981) 36 ALR 204, at 211 per Bowen CJ; but see Hollis v ABE Copiers Pty Ltd (1979) 41 FLR 141, 151 per Lockhart J.  A representation will be made for the purposes of s 53(c) (and (aa)) where statements are made in the mass media, regardless of whether it actually reached, or was understood by, any intended representee:  see Thompson v Riley McKay Pty Ltd (1980) 29 ALR 267, at 275-7 per Deane J. 

70                  Bearing in mind these matters, and the evidence adduced by the ACCC and referred to above, the ACCC can also be taken to have adduced evidence of the facts on which its s 53(c) claim depends (even if there are other difficulties with this claim: see [88] below). 

The section 58 claim

71                  Section 58 provides:

A corporation shall not, in trade or commerce, accept payment or other consideration for goods or services where, at the time of the acceptance: 

(a)  the corporation intends:

       (i)    not to supply the goods or services; or

       (ii)   to supply goods or services materially different from the goods or services in respect of which the payment or other consideration is accepted; or

(b)  there are reasonable grounds, of which the corporation is aware or ought reasonably to be aware, for believing that the corporation will not be able to supply the goods or services within the period specified by the corporation or, if no period is specified, within a reasonable time.

72                  In a prosecution for breach of s 58(a), Sheppard J said in Barton v Westpac Banking Corporation (1983) 50 ALR 397, at 410:

What must be established is that the defendant corporation adverted to the gravamen of the matter which the section makes an offence.  Since it can only form an intention through the mind or minds of its agent or agents, the offence will not be committed unless it is proved beyond reasonable doubt that one or more agents turned his or their attention, at the time of the acceptance of a customer’s money, not only to what it was that would be supplied but also to whether that was materially different from that for which the money was being accepted.  Only if they knew that what was or would be supplied was or would be materially different from that for which the money was accepted, will the requisite intention be established.

I am not satisfied that there is evidence before me on the issue of intent and, on this motion, the ACCC fails on this aspect of its claim:  cf Theseus Exploration NL v Foyster (1972) 126 CLR 507, at 513-4 per Barwick CJ. 

73                  Section 58(b) does not speak of intent.  It requires an objective assessment of the factual material that was before the corporation to determine whether there were reasonable grounds, of which the corporation was aware or ought reasonably to have been aware, for believing that the corporation would not be able to supply the services within a specified or reasonable period:  see Trade Practices Commission v J & R Enterprises Pty Ltd (1991) 99 ALR 325, at 355 per O’Loughlin J.  In connection with a prosecution under s 58(b) of the TPA, Heerey J said in Australian Competition and Consumer Commission v Commercial and General Publications Pty Ltd [2002] FCA 900, at [213]:

[T]he critical element of s 58(b) is not that the defendant accepts payment without a reasonable belief that it will be able to supply services.  Rather, the prosecutor has to establish, objectively as at the time of acceptance of payment, facts and circumstances which constitute reasonable grounds for believing that the defendant will not be able to supply the services.  The relevant belief is not the defendant’s belief.  The defendant may not in fact be aware of the facts and circumstances constituting the reasonable grounds; it is sufficient if it ought reasonably be aware of them. 

74                  In its statement of claim, the ACCC alleged that, by making the representations detailed earlier, the first respondent accepted payment for its services where, at the time of acceptance, it intended not to supply the services; and/or to supply services materially different from the services in respect of which the payment was accepted.  Alternatively, the Commission alleged that there were reasonable grounds, of which the first respondent ought to have been aware, for believing that it would not be able to supply the services within the time it specified or within a reasonable time.  For present purposes, I accept that the ACCC has adduced evidence of the facts on which its s 58(b) claim is based. 

Other requirements of O 20, r 1(1)(a)

75                  The ACCC relied principally on O 20, r 1(1)(a).  In order to succeed under this provision of the Rules, there must also be evidence given by the applicant, or some responsible person that, in the belief of the person giving the evidence, the respondent has no defence to the claim.  The affidavit of Deborah Maree Barrett satisfied this requirement.

Discretionary matters

76                  Even where there is evidence of the facts on which the claim is based and evidence as required by par (a) of O 20, r 1(1), the Court must nonetheless determine whether, as a matter of discretion, it should grant the application. 

77                  It should be borne in mind that, as the High Court of Australia said in Fancourt v Mercantile Credits Limited (1983) 154 CLR 87, at 99:

The power to order summary or final judgment is one that should be exercised with great care and should never be exercised unless it is clear that there is no real question to be tried … . 

To similar effect, see also Webster v Lampard (1993) 177 CLR 598 (“Webster v Lampard”), at 611-2 per Mason CJ, Deane and Dawson JJ. 

78                  Is there in this case an issue that ought to be tried?  If the material before the Court discloses that there is an arguable defence, then the case should go to trial, and the application under O 20, r 1(1) should fail.  This will be so if, for example, there are unresolved matters of fact that might provide a defence, or the material for a defence:  see, for example, Express Newspapers Plc v News (UK) Ltd [1990] 3 All ER 376, at 379 per Browne-Wilkinson V-C; Webster v Lampard, at 625 per McHugh J; and Geoffrey Inc v Luik (1997) 38 IPR 555, at 557 per RD Nicholson J.

79                  Is an arguable defence disclosed in the material before the Court?  For the following reasons, there does not appear to be an arguable defence to the s 52 claim.  First, I note that Mr Kendrick-Smith has filed no affidavit specifically in opposition to the ACCC’s motion.  This is not, however, an end of the matter.  I have already referred to Mr Kendrick-Smith’s affidavit of 19 July 2000.  In this affidavit, he stated that the first respondent had in the past detected significant billing errors on Telstra’s part and that, in consequence, Telstra had made repayments to its customers; that the first respondent had installed expensive automated computer systems (or a computerised auditing billing system); and that it could, and did, calculate errors in the accounts of Telstra customers who engaged it.

80                  According to the authorities, the correctness of factual assertions in an affidavit in opposition to an application for summary judgment are not to be decided upon the application unless the assertions are shown to be manifestly false, either because of their inherent implausibility or their inconsistency with the contemporary documents or other compelling evidence:  see, e.g., Bhogal v Punjab National Bank [1988] 2 All ER 296, at 303 and Geoffrey Inc v Luick at 557 per Nicholson J. 

81                  Let it be assumed that the first respondent had previously found billing errors in Telstra’s accounts.  Yet there is no evidence of the nature of these errors and the circumstances in which they were found. 

82                  Further, there is compelling evidence showing that Mr Kendrick-Smith’s statements about the first respondent’s capacity to identify and quantify billing errors and overcharging in Telstra’s domestic customers’ accounts were false.  There is also compelling evidence showing that the first respondent did not pay Telstra the sums sent by customers to it on the understanding that the first respondent would pay them to Telstra in settlement of their accounts. 

83                  There is the uncontradicted evidence of Telstra clients who engaged the first respondent that (1) none of the payments made by them to the first respondent were passed on to Telstra in settlement, or part settlement of their accounts; and (2) they received no details of any alleged errors and overcharging.  There is also the uncontradicted evidence of Ms Silleri and Mr Fleet that the investigations made by the ACA (in the case of Ms Silleri) and by Telstra (in the case of Mr Fleet) did not disclose any systemic errors in Telstra’s billing or overcharging.  There is also Ms Silleri’s evidence that the errors that the first respondent purported to identify bore little, if any, relationship to Telstra’s charges or services. 

84                  Critically too, there is no evidence in Mr Kendrick-Smith’s 19 July 2000 affidavit or elsewhere of any system, method or procedure that could have identified the errors or overcharging (or that might have secured the discharge of a customers’ liability to Telstra) in the manner claimed by him.  There is no evidence at all, either in his own affidavit or elsewhere, of the existence of “a large optical scanning system” of the kind mentioned by him.  There was little, if any, evidence of the development of a specialised computer software programme.  There was evidence, instead, of the development of an invoicing-accountancy package.  For example, “ACCC Exhibit 7” to his July 2000 affidavit included statements that:

Econ Solutions will develop its own proprietary software for an invoice system which will interface with an accounting package currently available in the market.

Econ Solutions will develop the required software to enable the establishment of a client database, to produce customer invoices and to interface into a customised accounting system. 

There was no evidence (other than by way of Mr Kendrick-Smith’s assertions) of any more complex or sophisticated computer programme.

85                  Ms Silleri and Mr Mineely both gave evidence that, notwithstanding their repeated requests, Mr Kendrick-Smith did not show them any equipment or software of the kind mentioned by him in the media.  Nor did he provide any other information to them that might have supported his statements about the first respondent’s capabilities. 

86                  In so far as the representations by Mr Kendrick-Smith, on behalf of the first respondent, related to future matters, Mr Kendrick-Smith has failed to adduce evidence that he had reasonable grounds for making these representations. 

87                  There would, therefore, appear to be no arguable defence to the s 52 claim. 

88                  The material before the Court does, however, point to arguable defences to the s 53 and s 58 claims.  There may be a tenable argument that, in making the representations it did, the first respondent did not make any representation that the services that it provided, or offered to provide, were of a particular “quality” within the meaning of s 53(aa) or that they had relevant “performance characteristics, uses or benefits” within the meaning of s 53(c).  The ACCC did not specifically plead, for example, that the first respondent represented that a Telstra customer engaging it would reduce his or her telephone account or recover monies from Telstra.  Further, in connection with the s 58 claim, there are, it seems to me, some unresolved matters of fact which the Court would need to determine before it could hold that the first respondent had contravened s 58.  This is the case notwithstanding that s 58(b) apparently requires an objective assessment of matters of which the first respondent should have been aware.  Plainly too, given Mr Kendrick-Smith’s statements on affidavit, the issue of intent that arises under s 58(a) ought to be determined only after trial.  I would not, therefore, grant the ACCC’s application to the extent that its case concerns alleged breaches of ss 53(aa) and (c) and 58 of the TPA.  They are not matters to be determined on summary judgment.

89                  At the hearing of the motion, I was troubled by a further matter.  This was whether the motion should be refused, because the ACCC had delayed too long in making its application.  Delay on the part of an applicant for summary judgment may constitute a ground for refusing the application:  see Tomlinson v Cut Price Deli Pty Ltd (1992) 112 ALR 122, at 125 per Drummond J, referring to Bell v Clare (1989) 23 FCR 274.  Bearing in mind the history of the litigation referred to earlier and that Mr Kendrick-Smith has not alleged (and the evidence does not show) that he has suffered any prejudice by reason of the ACCC’s delay in making this application, I am of the view that this is not a ground for refusing the relief sought.

declaratory and injunctive relief?

90                  The grant of declaratory and injunctive relief is itself discretionary.  I raised with counsel for the ACCC whether there would be any utility in granting this relief, having regard to the passage of time and the second respondent’s bankruptcy.  Amongst other things, counsel referred me to subss 80(4) and (5) of the TPA, Australian Competition Consumer Commission v Goldy Motors Pty Ltd (2001) ATPR 41-801 (“Goldy’s Motors Case”); Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 (“Tobacco Institute Case”); Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 95 FCR 114; and Australian Competition and Consumer Commission v Pacific Dunlop Limited (2001) ATPR 41-823.  In the Tobacco Institute case, Sheppard J observed, at 100, that:

The presence of s 80(4) and (5) of the Act and the interpretation of those sections by this Court provide an indication of the approach which the court, in some types of cases, may take.  The policy of the Act, concerned as it is with the public interest, enables the court, in relation to injunctive relief, to take a course that would not be taken in ordinary civil litigation.  That policy, in my opinion, extends into the area of declaratory relief and provides support for the view that the court may, in appropriate cases, exercise its power to grant declaratory relief to mark its disapproval of particular conduct engaged in in contravention of the Act.

See, in the same case, the reasons of Foster J at 105 and Hill J at 107.

91                  In considering whether declarations should be made in the Goldy’s Motors Case, Carr J stated, at [30]:

Applying the principles explained in Forster v Jododex Pty Ltd (1972) 127 CLR 421 at 437-438; Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582 and Gardner v Dairy Industry Authority of New South Wales (1977) 18 ALR 55 (also a decision of the High Court of Australia) it seems to me that:

1.      The declarations sought are directed to the determination of a legal controversy and not to answering abstract or hypothetical questions.  In its statement of claim the applicant identified the conduct in which the respondent has now admitted it engaged, and asserted that by such conduct the respondent had twice contravened (among other provisions) s 53(g) of the Act.  The respondent denied those claimed contraventions.  I think that the applicant is entitled to have the Court resolve the issue.  In some cases it might be appropriate simply to make findings of fact including findings that a respondent has contravened a provision of, relevantly, Part V of the Act.  Such findings might be of evidentiary value in subsequent proceedings – see s 83.  But in this case, subject to the other discretionary matters referred to below, I think that the applicant, having proved its case against the respondent, should be granted a declaration vindicating its claim.

2.      The applicant, as the public body charged with enforcing the Act, has a ‘real interest’ in seeking the relief;

3.      The relief is not ‘purely hypothetical’; and

4.      The respondent is ‘a proper contradictor’.

92                  His Honour’s observations are apposite in this case.  Given the state of the pleadings and the position adopted by the second respondent in this proceeding, it seems to me that the ACCC is entitled to have the Court resolve the issues that fairly arise.  Further, I accept that, if a declaration were made, then it could produce foreseeable consequences for the parties. 

93                  I accept that the conduct of which the ACCC complained in this case has had serious consequences for members of the public to whom it was directed.  There is no indication in the evidence or other material before me that Mr Kendrick-Smith appreciates the legal significance of his own and the first respondent’s activities, and comprehends (and regrets) the injury that he has caused, through the first respondent, to members of the public.  The injunctive relief sought is, moreover, limited.  If granted, then it will not operate as an absolute bar upon any of Mr Kendrick-Smith’s activities, since it will require him only to give notice of any activity falling within its purview. 

94                  For these reasons, I would grant the declaratory and injunctive relief sought in connection with the ACCC’s s 52 claim.

O 20, r 2

95                  In relation to the second respondent’s cross-claim, the ACCC invoked O 20, r 2 of the Rules.  The principles that govern an exercise of power under this rule are similar to those that apply under O 20, r 1(1).  An order will be made under this rule only in the clearest case:  see Dey v Victorian Railways Commissioners (1949) 78 CLR 62, at 91; General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125, at 129-130; and Webster v Lampard, at 602-3.

96                  As it happens, I doubt whether the second respondent has, in fact, made any cross-claim at all.  The defence of 27 September 1999, delivered pursuant to orders made on 31 August 1999, purported to plead a cross-claim and sought (amongst other things) damages by way of relief.  This particular pleading did not reappear in the amended defence of 14 March 2000.  This latter pleading was headed “Defence of the Second Respondent” and did not contain any claim for relief by way of cross-claim.  If, however, the second respondent intended to plead a tenable cross-claim in pars 9 - 11 of the amended defence, then, bearing in mind the matters referred to already, he has failed to do so.  Nothing appears to provide a basis for the claim that, in obtaining relief on 13, 17 and 20 November 1998, the ACCC misled the Court. 

97                  In case, however, it might be thought that there was a cross-claim on foot, I would grant the ACCC the relief it seeks under O 20, r 2 of the Rules.  The costs of the proceeding, including the costs of the motion, should be borne by the second respondent. 

Associate:

Dated:              5 May 2003