FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Henry Kaye and National Investment Institute Pty Ltd [2004] FCA 1363
TRADE PRACTICES – misleading and deceptive conduct – radio, internet and newspaper advertisements for attendance at a free public seminar discussing property investment strategies – where individual represented that he could make ordinary Australians “property millionaires” – where fine print qualifier appeared in advertisements – s 6(3) of Trade Practices Act 1974 (Cth) ‑ whether alleged representations made out – whether mere puffery – whether representations as to future matters – application of s 51A – whether reasonable grounds demonstrated – whether absence of reasonable grounds shown – whether individual “has aided, abetted, counselled or procured the contravention” breach of s 52 – application of s 75B – whether representations made on behalf of and with implied actual authority ‑ whether representations made “in trade or commerce” – remedies – injunctive and declaratory relief – whether corrective advertising ought to be ordered
EVIDENCE – whether inference can be drawn from failure to give evidence where no evidence adduced at trial concerning the witness’ state of mind
WORDS AND PHRASES “in trade or commerce” “property millionaire”
Trade Practices Act 1974 (Cth) ss 6, 52, 51A, 75B, 80, 84, 86C
Corporations Act 2001 (Cth) s 440D
Federal Court of Australia Act 1978 (Cth) ss 21, 23
Australian Competition and Consumer Commission v Chen (2003) 201 ALR 40 referred to
Australian Competition and Consumer Commission v Hughes (2002) ATPR 41-863 referred to
Matheson Engineers Pty Ltd v El Raghy (1992) 37 FCR 6 cited
Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 referred to
Parkdale Custom Built Furniture Pty v Puxu Pty Ltd (1982) 149 CLR 191 applied
Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 applied
Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 referred to
Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45 cited
National Exchange Pty Ltd v Australian Securities and Investment Commission [2004] FCAFC 90 referred to
Medical Benefits Fund of Australia Limited v Cassidy [2003] FCAFC 289 referred to
Cassidy v Medical Benefits Fund of Australia (No 2) [2002] FCA 1097; 205 ALR 402 referred to
Telstra Corporation Limited v Optus Communications Pty Limited (1997) ATPR 41-541 referred to
General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 referred to
Pappas v Soulac (1983) 50 ALR 231 referred to
Sanders v Glev Franchises Pty Ltd [2002] FCA 1332 referred to
Ting v Blanche (1993) 118 ALR 543 cited
Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525 cited
Sykes v Reserve Bank of Australia (1998) 88 FCR 511 cited
Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179 referred to
Australian Competition and Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881 referred to
Australian Competition and Consumer Commission v Oceana Commercial Pty Ltd [2003] FCA 1516 referred to
Wheeler Grace and Pierucci Pty Ltd v Wright (1989) ATPR 40 –940 referred to
Cummings v Lewis (1993) ATPR (Digest) 46 – 103 referred to
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 referred to
NMFM Property Pty Ltd v Citibank Ltd (No 10) (2001) 186 ALR 442 referred to
Re Duomatic Ltd [1969] 2 Ch 365 referred to
Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 referred to
Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 referred to
Yorke v Lucas (1985) 158 CLR 661 cited
Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 referred to
Fernandez v Glev [2000] FCA 1859 referred to
Chan Cuong Su t/as Ausviet Travel v Direct Flights International Pty Limited (No 2) (1999) ATPR 41–677 referred to
King v GIO Australia Holdings Ltd (2001) 184 ALR 89 referred to
Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 followed
Meadow Gem Pty Ltd v ANZ Executors & Trustee Co Ltd [1994] ATPR (Digest) 46-130 referred to
Glorie v WA Chip and Pulp Co Pty Ltd (1981) 55 FLR 310 referred to
Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 27 FCR 149 referred to
Forster v Jododex Pty Ltd (1972) 127 CLR 421 referred to
Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 applied
World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181 cited
Australian Competition and Consumer Commission v IMB Group Pty Ltd [1999] FCA 313; (1999) ATPR 41‑688 referred to
Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17
Australian Competition and Consumer Commission v Chen (2003) 201 ALR 40 referred to
Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2001] ATPR 41-801 referred to
Australian Competition and Consumer Commission v Target Australia Pty Ltd [2001] ATPR 41-840 referred to
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v HENRY KAYE AND NATIONAL INVESTMENT INSTITUTE PTY LTD (ACN 098 189 863)
KENNY J
22 OCTOBER 2004
MELBOURNE
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| VICTORIA DISTRICT REGISTRY | V 921 OF 2003 |
| BETWEEN: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
|
| AND: | HENRY KAYE FIRST RESPONDENT
NATIONAL INVESTMENT INSTITUTE PTY LTD (ACN 098 189 863) SECOND RESPONDENT
|
| KENNY J | |
| DATE OF ORDER: | |
| WHERE MADE: | MELBOURNE |
THE COURT ORDERS THAT:
1. On or before 4.00 pm on 5 November 2004, the applicant file and serve a minute of proposed orders to give effect to the reasons for judgment delivered today.
2. On or before 4.00 pm on 8 November 2004, the parties file and serve short submissions as to costs.
3. The matter be adjourned to a date to be fixed.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
| IN THE FEDERAL COURT OF AUSTRALIA |
|
| VICTORIA DISTRICT REGISTRY | V 921 OF 2003 |
| BETWEEN: | AUSTRALIAN COMPETITION AND CONSUMER COMMISSION APPLICANT
|
| AND: | HENRY KAYE FIRST RESPONDENT
NATIONAL INVESTMENT INSTITUTE PTY LTD (ACN 098 189 863) SECOND RESPONDENT
|
| JUDGE: | KENNY J |
| DATE: | |
| PLACE: | MELBOURNE |
REASONS FOR JUDGMENT
1 The applicant, the Australian Competition and Consumer Commission (“the Commission”) seeks declaratory, injunctive and other relief against the first respondent, Henry Kaye, in respect of statements made on the radio, the Internet and in newspapers in September 2003. By an amended statement of claim, the Commission alleges that these statements were misleading or deceptive, or likely to mislead or deceive, in contravention of s 52 of the Trade Practices Act 1974 (Cth) (“the TPA”). The proceeding against the second respondent, National Investment Institute Pty Ltd (“NII”) was stayed following the appointment of an administrator to NII on 25 November 2003: see Corporations Act 2001 (Cth) s 440D(1). The Commission alleges that Mr Kaye made a number of misrepresentations, which are detailed below, including that he would make five ordinary Australians property millionaires in just six months using no money down, no debt and no equity. He also claimed, so the Commission alleges, that he would turn a 1,000 ordinary people into property millionaires within 12 months.
2 The Commission relied on numerous affidavits. These were the affidavits of Robert Bruce Fowler sworn on 18 November 2003; Michael Oblan Azize sworn on 17 November 2003; Rosamond Stronach sworn on 13 November 2003 and 10 March 2004; Samantha Bourke sworn on 14 November 2003; Stephen Humphrey sworn on 14 November 2003; Neil Leahy sworn on 14 November 2003; Karen Jane Brown sworn on 14 November 2003 and 29 January 2004; Jacques Patrick Crouche sworn on 17 November 2003; Lisa Moore sworn on 18 November 2003; and Thomas Scott Keck sworn on 18 November 2003, 21 January 2004 and 24 February 2004; and the exhibits accompanying each of these affidavits. Mr Fowler and Mr Keck were subject to cross-examination.
3 Neither Mr Kaye nor Mr Nicholas Stewart Porritt (at the relevant time, also a director of NII) gave evidence at trial. Instead, Mr Kaye relied on the affidavits of Brian Dudakov sworn on 12 February 2004; and Brian Raymond Barnard sworn on 11 February 2004. Mr Kaye also relied on the affidavit of a gentleman who described himself as “a self-employed professional property investor”. This affidavit was sworn on 3 March 2004. In her affidavit of 10 March 2004, Mr Kaye’s then solicitor, Ms Michelle Dixon, gave an explanation for the delay in filing it. This gentleman and Messrs Dudakov and Barnard were subject to cross-examination.
the background facts
The advertisements
4 It was common ground that, until 25 November 2003, NII conducted business as a provider of property investment courses or programs. The primary program that it sold was a course entitled the “Investment Mastery Program” (“IM Program”). The IM Program was a 12 month program that purported to teach property investment strategies through workshops, seminars and written materials. The enrolment fee for the IM Program was $15,000.
5 At all material times, Mr Kaye was a director of NII. He was the sole director of NII from 19 April 2002 to 14 July 2003; and again from 13 October 2003. He was also the founder of NII and devised the strategies set out in the IM Program. After 14 July 2003, however, there were two other directors of NII. They were Brian Raymond Barnard (until 13 October 2003) and Nicholas Stewart Porritt (also until 13 October 2003). NII was wholly owned by NII Group Holdings Pty Ltd, which was wholly owned by NII Group Pty Ltd. NII Group Pty Ltd was wholly owned by Provident Group Pty Ltd, the sole shareholder of which was Mr Kaye.
6 During September 2003, Mr Kaye announced the “Henry Kaye” or “$1 million” Challenge (“the Challenge”), which was to consist of five free seminars conducted in Sydney, Melbourne, Perth, Adelaide and Brisbane (“the free seminars”). Mr Kaye proposed that one person should be chosen from the attendees at each seminar and that he would “teach [them] to become property millionaires, in just 6 months”. These five people were to be representative of the ordinary Australian. As it turned out, only two of the free seminars were conducted, namely, in Melbourne on 15 September 2003 and in Sydney on 18 September 2003. The balance of the seminars were cancelled after the commencement of this proceeding. As the Internet and newspaper advertisements for the Challenge (set out below) demonstrate, there was also a second aspect to the Challenge, because Mr Kaye also claimed that he would turn 1,000 ordinary Australians into property millionaires within 12 months.
The critics say Henry Kaye can’t turn ordinary Australians into millionaires (PAUSE)
Well, be there when he proves them wrong!
He’ll teach five volunteers to become property millionaires, in just 6 months … without using their own money, or taking on the risk of debt.
And if he fails, he’ll give a MILLION DOLLARS to charity.
He’s that confident.
Call 1300 304 805 to attend this information evening, this Thursday night at The State Theatre.
Be there and you could be the next millionaire!
Call 1300 304 805 now.
Terms and conditions available on the night.
By his defence, Mr Kaye admitted that he caused these radio advertisements to be broadcast.
8 The script of a “LIVE READ” advertisement differed slightly from this, but the meaning was essentially the same. It was as follows:
Henry Kaye, high profile property investor, says it’s time to silence his critics.
How?
He’ll turn 5 volunteers into Property Millionaires in just 6 months – using no money down, no debt and no equity.
And if he doesn’t, he’ll donate one million dollars to charity.
Want to be one of the lucky 5?
Then don’t miss Henry’s seminar on Thursday, September 18 at the State Theatre in Market Street.
To register, call 1300 304 805.
That’s 1300 304 805.
Terms and conditions available on the night.
9 The uncontroverted affidavits of Ms Brown established that Nicholas Porritt, who was a director of NII, arranged the radio advertisements in both forms. Having regard to Ms Brown’s second affidavit, I am satisfied that, on the balance of probabilities, the live broadcast was made in accordance with the words set out above. In her affidavits, Ms Brown, who was an Account Executive with a radio broadcasting network, deposed to the placing of advertisements with Fox FM (Melbourne) and 2 Day FM (Sydney) in the form of the scripts set out above. She specifically deposed to a conversation in early September 2003 with a Nicholas Porritt, who stated that he was from the National Investment Institute and that he wanted to arrange some advertising concerning “this free seminar we’re doing in Sydney and Melbourne”. She deposed that most of the advertisements were billed to the credit trading account of NII, although initial advertisements were paid by credit card in the name of Leonard N McDowall, who was NII’s Chief Executive Officer. She further deposed that Mr Porritt initially requested that the radio advertisement scripts were to be based on the advertisements in The Sunday Telegraph (see below). Mr Porritt’s name appears on the advertising schedules, which showed NII as the client; and that a Mr Porritt arranged for a credit account to be set up in the name of NII. The emailed instructions confirming the text of the advertisements were sent by a Mr Porritt as “General Manager Operations National Investment Institute”.
10 It was also common ground that Mr Kaye published, or caused to be published, certain advertisements that appeared on an Internet site located at www.henrykaye.com.au. These advertisements were lengthier than those on radio. In substance, after referring to some adverse publicity, these advertisements stated that it was Mr Kaye’s intention to “silence” his critics “once and for all”, by conducting a public event called “the $1 million Challenge”, to demonstrate that his property investment strategies worked. The advertisements stated that it was Kaye’s intention that one person be chosen from each of the free seminars and, under public scrutiny, he would “make ALL 5 of them into ‘property millionaires’ in 6 months”, “using no money down, no debt and no equity”; and that he would “write a cheque for one million dollars and give it to charity” if he failed. Under the heading, “Five Reasons Why You Should Be At The $1 million Challenge”, the advertisement indicated that Kaye said:
1. I will prove once and for all that I can teach anyone (and I mean anyone) to acquire a million dollar plus portfolio in 6 months.
2. I will prove to you that you can invest in property virtually risk free with zero debt and price protection using a proven system.
3. If you’re one of the 5 chosen attendees, you will be personally taught by me to build your million dollar property portfolio in 6 months using no money down, no equity and no debt.
4. I’ll be announcing how ALL attendees can become a part of our 1000 “Enlightened Property Millionaires” who’ll take part in a unique program that ‘guarantees you results or I pay you $50,000 in cash’.
5. By attending this event, you’ll be a part of history in the making … so be VERY quick as the event WILL book out.
11 Elsewhere in the Internet advertisements, Kaye was reported as saying:
I will prove once and for all that I can teach anyone to acquire a million dollar plus portfolio … with:
· NO money down
· NO equity
· NO debt and a
· Price Protection GUARANTEE
(Which means, even if the market were to go down, you wouldn’t lose money.) … .
If you ARE chosen to be one of the 5, you’ll discover why you don’t need any money to secure a million dollar property portfolio. You don’t need any equity. You don’t need to take on any debt. … Look, my methods ARE innovative. They produce extreme wealth rapidly. But they’re strategies based on safety, caution, due diligence and security! I’ll teach you all that and more. … .
12 Under the heading “1,000 more enlightened ‘Property Millionaires’ in 12 months”, Kaye was reported as saying:
I’m also seeking 1,000 ‘ordinary’ people to help me make world history. I’ll turn them all into ‘property millionaires’† with these very same strategies. Those who choose to come on board in the 1,000 WILL be paying clients. But I’ll absolutely guarantee that they’ll get a result too. That if you follow the steps, and it doesn’t give you AT LEAST $50,000 in profits by the end of the program, I’ll refund the cost of your program, AND give you $50,000 on top††.… .
At the foot of the advertisement, there appeared the following notation:
† ‘Property Millionaire’ means someone who secures $1million of property, either in their own right, in a joint venture, or in a syndicate.
†† Terms, conditions and criteria will be available on the night.
13 The Internet advertisements also reported Kaye as saying:
I learned the hard way how to find investment strategies that produce real results, and I learned what mistakes to avoid. I’ve proven that anyone, starting with almost nothing, even a non-english speaking migrant, CAN become very wealthy in this country.
…
… The biggest irony is that certain people say my wealth strategies are ‘high risk’. That’s a joke. The absolute opposite is true. … And anyone who’s studied my courses will tell you I teach extreme safety, and extreme due diligence in all my programs. … .
…
At this series of public events, totally free to the public, I’ll explain to the expected thousands of interested Australians exactly how I have built my wealth.
14 Mr Kaye also admitted that advertisements were published during September 2003 in The Australian Financial Review (“AFR”), The Sydney Morning Herald (“SMH”), The Sunday Telegraph, The Age and The Herald Sun newspapers, publicising and promoting the Challenge and the free seminars. He contended, however, that the newspaper advertisements were not published for, or on behalf of, NII; and that they were not done in the course of NII’s business affairs or activities. In these circumstances, they were not, so he submitted, published by him “on behalf” of NII within the meaning of s 84(2) of the TPA.
15 The differences between the newspaper advertisements were immaterial. An advertisement, which apparently appeared in The Age on 6 September 2003, contained the following statements:
At an event you must NOT miss, HENRY KAYE will silence his CRITICS once and for all:
“To prove to my critics (and you) that what I teach WORKS,
I’ll make 5 ‘ordinary’ Australians into ‘Property Millionaires’† in just 6 months
… using no money down, no debt and no equity…
And if I fail, I’ll sign this cheque for $1 million to charity.
… I learned the hard way how to find investment strategies that produce real results, and I learned what mistakes to avoid. I’ve proven that anyone, starting with almost nothing, even a non-english speaking migrant, CAN become very wealthy in this country.
…
Shouldn’t it be every Australian’s right to make their OWN decisions about learning to build wealth the way I did? The biggest irony is that certain people say my wealth strategies are ‘high risk’. … Based on my life experiences, I’d have to be one of THE most risk averse persons you’ll meet. … And anyone whose studied my courses will tell you I teach extreme safety, and extreme due diligence in all my programs.
…
I will prove once and for all that I can teach anyone to acquire a million dollar plus portfolio – with:
· NO money down.
· NO equity
· NO debt and a
· Price Protection GUARANTEE
(Which means, even if the market were to go down, you wouldn’t lose money.)
Let me just reiterate that. If you ARE chosen to be one of the 5, you’ll discover why you don’t need any money to secure a million dollar property portfolio. You don’t need any equity. You don’t need to take on any debt. And I’ll even be teaching you how to protect the value of your properties.
Look, my methods ARE innovative. They produce extreme wealth rapidly. But they’re strategies based on safety, caution, due diligence and security! I’ll teach you all that and more. All I’ll ask of those I’ll teach, is that they follow the exact steps, just as thousands of my enlightened clients have before.
1,000 more enlightened “Property Millionaires” in 12 months
I’m also seeking 1,000 “ordinary” people to help me make world history. I’ll turn them all into “property millionaires” with these very same strategies. Those who choose to come on board in the 1,000 WILL be paying clients. But I’ll absolutely guarantee that they’ll get a result too. That if you follow the steps, and it doesn’t give you AT LEAST $50,000 in profits by the end of the program, I’ll refund the cost of your program, AND give you $50,000 on top††. I’ll announce the 1,000 “property millionaires” † challenge on the night.
At its foot, this advertisement also said:
† ‘Property Millionaire’ means someone who has secured $1million of property, either in their own right, in a joint venture, or in a syndicate.
††Terms conditions and criteria will be available on the night.
16 There was also evidence that showed that Mr Porritt placed the newspaper advertisements in the newspapers referred to at [14] above. I interpolate here that, as set out at [170] to [173] below, I have found that these advertisements were made “on behalf of NII”.
The free seminars
17 By agreement between the Commission and Mr Kaye, a transcript of the seminar held in Melbourne on 15 September 2003 was admitted into evidence. The transcript showed, and I find, that, during the seminar that day, Mr Kaye promoted the IM Program in part by inviting the members of the public in attendance to participate in the 1,000 “Property Millionaires” program. In order to participate in the 1,000 Property Millionaires program, a person was required to pay for and enrol in the IM Program, for which, the fee was, as already noted $15,000. No-one suggested that the seminar in Sydney on 18 September 2003 was different in any relevant respect.
18 The transcript also showed, and I find, that the promotional campaign, of which the radio, Internet and newspaper advertisements were part, was calculated (amongst other things) to promote and market the IM Program. The affidavits of Mr Crouche and Mr Azize confirmed that this was the case. The affidavit evidence of Mr Crouche, which was unchallenged, established that a video promoting NII and its courses was shown at the free seminar in Melbourne on 15 September 2003. The affidavit evidence of Mr Azize, which was also unchallenged, established that there were a number of tables outside the seminar theatre in Sydney on the 18 September 2003, and that there were leaflets on the tables advertising the IM Program and the Challenge, including the 1,000 “Property Millionaires” program. The evidence of Messrs Azize and Crouche established that officers of NII obtained contact details, which they used to arrange private consultations with persons who had attended the free seminars to market the IM Program, when interested persons registered on the www.henrykaye.com.au website for the seminars, or completed registration forms at the seminars. Further, having regard to the evidence of Messrs Crouche and Azize, the transcript of the seminar in Melbourne on 15 September 2003 and the matters referred to at [171] and following, I am satisfied that this seminar, and the free seminar in Sydney on 18 September 2003, were conducted by NII or on its behalf.
the commission’s case
19 The Commission’s case concerns the statements made in the advertisements for the Challenge. The Commission alleged that, by the radio advertisements, Kaye had represented that:
(a) he would teach 5 volunteers (who are ordinary Australians) to become property millionaires (meaning having net wealth in property investments exceeding one million dollars) in six months without using their own money or taking on the risk of debt.
(b) he could turn ordinary Australians into property millionaires.
I refer to these representations below as the “radio representations”. The Commission alleged that the radio representation in paragraph (a) was with respect to a future matter within s 51A of the TPA and was misleading by operation of this provision. The Commission further alleged that the radio representation referred to in paragraph (b) was misleading or deceptive, or likely to mislead or deceive, “in that contrary to the representation, Kaye could not turn ordinary Australians into millionaires”. In its case against Mr Kaye, the Commission submitted that ordinary members of the public would take the expression “property millionaire” to mean an individual who held a portfolio of property worth a million dollars. The Commission also submitted that none of the representations made by the radio, on the Internet or in the newspapers were qualified in the way alleged by Mr Kaye: see below.
20 By the advertisements published on the “Henry Kaye” Internet site located at, and associated with, the domain name www.henrykaye.com.au, the Commission claimed that Kaye had further represented:
(a) Anyone, by following Kaye’s property investment strategies, can acquire a million dollars plus property portfolio with no money down, no equity, no debt and a price protection guarantee (meaning that if the market were to go down, they would not lose money);
(b) Kaye would make five ordinary Australians into property millionaires (meaning having net wealth in property investments exceeding one million dollars) in just six months using no money down, no debt and no equity;
(c) Those five people to be selected to become property millionaires would be representative of the ordinary Australian;
(d) Kaye would turn 1,000 ordinary people into property millionaires (meaning having net wealth in property investments exceeding one million dollars) within 12 months;
(e) At the free seminars it would be proved that Henry Kaye could teach anyone to acquire a million dollar plus property portfolio within 6 months;
(f) Kaye would teach five volunteers to build a million dollar property portfolio in six months using no money down, no equity and no debt;
(g) Alternatively to (b), Kaye would make five ordinary Australians into property millionaires (meaning someone who has secured a million dollars of property, either in their own right or in a joint venture or in a syndicate) in just six months using no money down, no debt and no equity;
(h) Alternatively to (d), Kaye would turn a thousand ordinary people into property millionaires (meaning someone who has secured a million dollars of property, either in their own right or in a joint venture or in a syndicate) within 12 months.
I refer to these representations below as the “Internet representations”.
21 The Commission alleged that the Internet representation in [20] (a) above was misleading or deceptive, or likely to mislead or deceive, in that Kaye’s property investment strategies (as set out in the index to the module and modules 1 to 10 of the IM Program) did not enable anyone to acquire a million dollar plus property portfolio with no money down, no equity, no debt and without the risk that if the market were to go down they would lose their money. The Commission specifically identified these strategies in Annexure D and their deficiencies in Annexures E and F to its amended statement of claim. The modules of the NII’s IM Program were in evidence.
22 The Commission alleged that the balance of the Internet representations were representations as to future matters, in respect of which neither Kaye nor NII had reasonable grounds. In consequence, these representations were misleading by virtue of s 51A. In the alternative, the Commission alleged that the Internet representation referred to in [20](c) above was misleading or deceptive, or likely to mislead or deceive, in that contrary to the representation, the five people to be selected to become property millionaires would not be representative of the ordinary Australian, but would have to meet rigorous selection criteria. The Commission further alleged that the Internet representation referred to in [20](e) above was misleading or deceptive, or likely to mislead or deceive, in that contrary to the representation, it was not proved at the free seminar that Henry Kaye could teach anyone to acquire a million dollar plus property within six months.
23 The Commission alleged that Mr Kaye made the same representations by the advertisements in the newspapers promoting and marketing the Challenge and the free seminars (“the newspaper representations”), as he did by the Internet, save that the newspaper representations did not include a representation to the effect of [20](e) above. The Commission impugned the newspaper representations in the same way as it did the Internet representations.
24 The Commission submitted that the representation were made in trade or commerce, because, for the purposes of the TPA, conduct in trade or commerce includes promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential customers.
25 As already noted, Mr Kaye admitted that he prepared the newspaper advertisements and caused them to be published. The Commission’s case was that, since Kaye was a director of NII and he engaged in this conduct on its behalf and within the scope of his actual or apparent authority, then this conduct was, by virtue of s 84(2) of the TPA, deemed to be engaged in by NII. In relation to the newspaper representations, the Commission also pleaded that, at all relevant times, Mr Kaye knew that the newspaper representations were false and misleading and that, in the circumstances, he aided, abetted, counselled, procured, or was directly or indirectly concerned in, or party to, NII’s contraventions of s 52 of the TPA and therefore, pursuant to s 75B, he was liable as an accessory to any breach by NII of s 52 of the TPA. Mr Kaye denied this.
mr kaye’s defence
26 Shortly after the commencement of this proceeding, Mr Kaye informed the Court through his counsel that he did not intend to continue with the Challenge. At the hearing of the matter, his counsel stated that he would submit to permanent injunctions of the kind sought by the Commission in paragraphs A(3), (6), (10) and (11) of the Amended Application.
27 Mr Kaye denied the advertisement mentioned above contained the radio representations, the Internet representations and the newspaper representations. Further or alternatively, in relation to the radio representations, he pleaded that:
(a) the radio advertisements contained a qualified statement that he could teach five volunteers to become property millionaires in six months without using their own money or taking on the risk of debt, the qualification or risk of non-fulfilment being clearly disclosed by the words “And if he fails, he’ll give a MILLION DOLLARS to charity”;
(b) the radio advertisements merely invited listeners to register to attend a seminar at which information would be given and be available and the advertisements were not capable of being acted on or relied on without further inquiry;
(c) the radio advertisements did not invite a listener to do or not to do anything in trade or commerce; and
(d) if (which is denied) the radio advertisements contained the alleged representations or any of them, the representation was made by him and not by NII.
28 Mr Kaye denied that the radio representation set out in [19](b) was misleading or deceptive, or likely to mislead or deceive. He said, further or alternatively, that:
If (which is denied) the radio advertisements contained the alleged representation, the alleged representation was not misleading or deceptive to listeners, or likely to mislead or deceive listeners, because the statements alleged to give rise to the representation were qualified or the risk of non-fulfilment disclosed by the words “And if he fails, he’ll give a MILLION DOLLARS to charity”. Further the alleged representation was not capable of being relied or acted on without further inquiry.
29 Mr Kaye made similar pleas in respect of the Internet and newspaper representations. He also denied that these Internet and newspaper representations related to future matters and said, in the alternative, that he and/or NII had reasonable grounds for making them. These grounds were the same grounds that he asserted in connection with one of the radio representations, as set out in the next paragraph.
30 Mr Kaye claimed that he had reasonable grounds for the radio representation set out in [19](a) above. In particulars to paragraph 11 of his Defence, his reasonable grounds were said to consist of the following:
He has approximately five years [sic] experience investing in the property market. This experience includes the purchase and sale of commercial and residential properties via put and call options and joint ventures, property financing and property development.
Over the approximately five year period, he has secured approximately 1,100 properties (either personally, via a joint venture vehicle or via a company (in which he was a sole shareholder and director or a majority shareholder)) to the approximate value of $430 million.
He estimates that in relation to all of the properties referred to … which were on-sold or settled, the joint venture or company in which he was involved earned a gross profit of approximately 5% of the value of those properties.
He was capable of teaching, and intended to teach, participants in the $1 million challenge the strategies developed by him and taught in NII’s IM Program, concentrating on the following strategies:
(a) the development of a system of property research and conducting due diligence in order to identify target areas for investment and particular investment opportunities;
(b) how to select the best areas in which to purchase property and to identify the best property in those areas;
(c) how to select the best times to negotiate good terms for the purchase of property and to take advantage of the commercial pressures faced by vendors and developers;
(d) how to syndicate property successfully with potential joint venture partners; and
(e) how to use renounceable contracts to minimise risks by protecting the purchase price.
He has instructed in wealth creation courses run by NII for approximately 3 years including the IM Program, the Business Mastery Course and the Platinum and Goldplus Affiliated Program, and was aware of the success of students in property investment following the successful completion of the courses.
Based on the foregoing, he was confident that his strategies worked and had a genuine belief that he could teach members of the Australian public to secure property to the value of $1 million, either in their own right, in a joint venture or as part of a syndicate.
31 In Further and Better Particulars delivered shortly before trial, these reasonable grounds were augmented to include:
Further, on the basis that “property millionaire” has the definition referred to … it was likely, and/or there was a reasonable chance, that the following strategies as taught in the [IM Program] would enable a person to become a property millionaire in six months using no money down, no debt and no equity
(a) the development of a system of property research and conducting due diligence in order to identify target areas for investment and particular investment opportunities being the strategies referred to in Module 1, pp 16-20 (due diligence) Module 2 pp 5-41 (Property Acquisition System) of the [IM Program];
(b) how to select the best areas in which to purchase property and to identify the best property in those areas being the strategy referred to in Module 2 of the [IM Program];
(c) how to select the best times to negotiate good terms for the purchase of a property and to take advantage of the commercial pressures faced by vendors and developers being the strategies referred to in Module 1 and Module 2 pp 37 to 41 of the [IM Program];
(d) how to syndicate property successfully with potential joint venture partners being the strategies referred to in Module 3, pp 5 to 21 and Module 6, pp 73 to 100 of the [IM Program]; and
(f) how to use renounceable contracts to minimise risks by protecting the purchase price being the strategy referred to in Module 7 of the [IM Program].
32 In a written outline filed before the hearing, Mr Kaye observed that the Commission’s case was not that the advertisements in terms contained the pleaded representations, but that an ordinary member of the public would infer the representations from the advertisements. He contended that the advertisements, read as a whole, did not support these inferences; and that the alleged representations “have been taken from select words in the advertisements and that words which qualify or explain the selected words have been entirely disregarded”.
33 Amongst other things, Mr Kaye submitted that:
(1) When the advertisements were considered as a whole, they clearly conveyed that he was making a bet or challenge to teach five ordinary Australians to become property millionaires, but that he could fail, and that, if he failed, he would give $1 million to charity. The clear message of the advertisements was, so he said, that he was confident of meeting the challenge, but he did not guarantee that he could do so.
(2) The expression “property millionaire” was “so vague as to be virtually meaningless without an explanation”. He submitted that there was no basis for the Commission’s allegation that the public understood the expression to mean net equity in property of $1 million, and not property to the value of $1 million, as he contended. He further submitted that “secure” meant “lay hold of, put a deposit on”, and not “purchase”.
(3) The advertisements did not say that he would turn any Australian into a property millionaire. Rather, they said that he would teach five Australians over six months how to become property millionaires.
(4) The advertisements did not say that anyone could become a property millionaire. Rather, they said that only five people would be selected and that they would have to meet certain criteria.
34 Mr Kaye also contended that, whilst the advertisements were made in relation to trade and commerce, they were not in trade or commerce. He submitted that nothing in the advertisements promoted NII’s courses. The Challenge was, so he said, his own challenge, not that of NII. In opening, counsel for Mr Kaye said, “the highest you can put these representations is that they may have some relation to NII’s trading activities”.
35 Counsel for Mr Kaye submitted that, if any of the pleaded representations were made and contained a “futuristic element”, then they were properly characterised as statements of present intention, or belief, and not representations as to the future. She also submitted that the pleaded representations were inherently incapable of misleading the public about anything, because the advertisements did nothing more than invite the public to register for a seminar.
jurisdiction
36 It is convenient to note at the outset that it was common ground that, because of s 6(3) of the TPA, the Court had jurisdiction over Mr Kaye with respect to the claims against him as a principal contravenor in respect of the alleged radio and Internet representations. This provision extends the operation of the Act to individuals where the impugned conduct involves the use of postal, telegraphic or telephonic services or takes place in a radio or television broadcast: see also Australian Competition and Consumer Commission v Chen (2003) 201 ALR 40 (“Chen”) at 47 per Sackville J and Australian Competition and Consumer Commission v Hughes (2002) ATPR 41-863 at 44,792 per Allsop J. It was not disputed that the Internet relies on the use of telephonic services.
37 The only basis of liability against Mr Kaye in respect of the newspaper representations was as an accessory under s 75B of the TPA. In order to make out its claim against him, it was necessary for the Commission first to establish that NII had contravened s 52. It was common ground that it was open to the Commission to proceed against Mr Kaye as an accessory notwithstanding that the claim against NII was stayed. As French J said in Matheson Engineers Pty Ltd v El Raghy (1992) 37 FCR 6 at 9:
Section 82 of the Trade Practices Act creates a cause of action for loss or damage suffered by a person by conduct of another in contravention of a provision of Pt IV or Pt V which the person who has suffered the loss or damage may recover “by action against that other person or against any person involved in the contravention”. The words of the section in this respect are clear and do not impose as a condition of accessorial liability a requirement that the primary contravenor be a party to the action. It may be that in many cases a primary corporate contravenor should be joined as a respondent so that the entire dispute may be determined. In other cases the primary contravenor may be a company in liquidation or just insolvent. There may be no point to the joinder of that company in those circumstances which may require leave of the court under the Corporations Law in any event.
It was not disputed that, as the Commission was not proceeding with its claim against NII, it was not open to it to rely on s 51A of the TPA in the claims against Mr Kaye for liability as an accessory: see Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 (“Universal Sports Challenge”) at [45] per Emmett J. This was significant in relation to the newspaper representations where the only basis for liability was as an accessory under s 75B of the TPA.
the evidence about the im program
Witnesses called by the Commission
Mr R B Fowler
38 Amongst other things the IM Program taught certain finance strategies, which were the subject of Mr Fowler’s evidence. Included in these strategies were:
(a) obtaining 100% finance, by purchasing properties, particularly “off the plan”, with long settlement periods, in the expectation that they would increase in value sufficiently prior to settlement to enable the whole of the contract price to be borrowed.
(b) purchasing property without using the purchaser’s own money for a deposit, by acquiring deposit bonds from deposit bond companies. The purchaser paid a fee (calculated by reference to the amount of the bond, the date of its provision and settlement) to a deposit bond company in return for a guaranteed payment of the amount of the deposit to the vendor.
(c) making renounceable contracts, pursuant to which the one property was sold to two purchasers. If the first purchaser of the property did settle, a renounceable contract gave the vendor the option to renounce the second contract, naming a lower purchase price.
39 Mr Fowler, who was a finance broker, gave evidence that, between February 2001 and May 2002, he was engaged as a finance consultant, mostly advising people referred by Kaye and NII. His duties included interviewing people regarding their suitability for a loan or deposit bond and processing their applications. He estimated that, during this period, he interviewed about 200 people for this purpose and that virtually all of them had attended one of Mr Kaye’s property courses. Based on this experience, he deposed that:
Most of the clients who consulted me after attending one of the Henry Kaye property courses were unable to be provided with any assistance to obtain finance loans or other means of acquiring investment properties. That is because they were unable to qualify for loans, and were not in a position to satisfy financiers [sic] requirements for products such as deposit bonds. Clients who did not have a reliable income sufficient to service a loan and assets which could be provided as security to a lender did not satisfy the requirements of lenders.
40 Mr Fowler’s evidence was that renounceable contracts were not available through financiers. He did say, however, that some lenders would lend 100% of the purchase price, but only if the contract price represented no more than 80% of a valuation made shortly prior to a loan application. He deposed that “lenders would only lend on this basis if there was a justification for the difference between the contract price and valuation, such as an increase in the value over the term of a contract”. He added that, if there was mortgage insurance, lenders might provide up to 90% of the contract price.
41 Mr Fowler deposed that some financiers would provide deposit bonds, providing the purchaser satisfied the deposit bond company’s requirements. He said that, generally, the applicant for the bond needed equity in the property asset equivalent to five times the amount of the bond and an income that would qualify for the loan sufficient to meet the purchase contract. A deposit bond might also be available if a suitable guarantor was prepared to guarantee the bond applicant’s obligations. In cross-examination, he said that, for many people, it was easier to qualify for a deposit bond than a bank guarantee, because they did not have “the necessary assets to put up the security” for a bank guarantee.
42 In his affidavit, Mr Fowler expressed the opinion that the finance strategies taught in the IM Program did not take account of the fact that borrowers had to demonstrate the capacity to service a loan and to provide adequate security before they would obtain finance approval.
43 In cross-examination, Mr Fowler agreed that a major concept taught in the IM Program (which he had attended) was securing property without using the purchaser’s own equity or cash; and that the IM Program dealt “in some parts” with what was required by the banks before they would agree to finance a property purchase. He ultimately conceded that the course materials (especially in module 6) gave comprehensive instruction on this topic, but he maintained that, based on his interviews with the course participants, this information “didn’t get through to the clients”. He maintained that Mr Kaye’s clients did not recognise the limitations imposed by the need to demonstrate the capacity to service any loan.
44 I found Mr Fowler to be a credible witness, but, for reasons that appear below, little, if anything, turned on his evidence.
Mr T S Keck
45 At the instance of the Commission, Mr Keck, who had extensive experience in the Australian property market and was the managing director of a property consultancy, prepared a report providing his opinions on two matters:
(a) whether the property investment strategies referred to in the [IM Program] course materials would be capable of being implemented by ordinary Australians in the Australian property market;
(b) whether the property investment strategies referred to in the [IM Program] course materials provided a basis for the representations alleged in … the statement of claim.
46 His report of 10 November 2003 was exhibited to his first affidavit. It commenced with the following observations:
Whilst much of the Kaye/NII material is non-controversial, commonsense or standard investment due diligence and to this extent informative and helpful to non-seasoned or first time/novice property investors, there isembedded within the material, specific strategies and a strong recommendation for a level of due diligence or audit which is, in practical terms, virtually impossible to achieve. On the one hand, many people would benefit from some of the advice and recommendations within the material, but ultimately the Kaye/NII absolute guarantees and claims are made subject to and are conditional upon a specific level of exacting attendance and due diligence which ordinary Australians, even experienced property professionals, either could not undertake, or would recognise the need not to fulfil to the compliance level sought by the Kaye/NII requirements.
Further to the general material the strategic approaches promoted by Kaye and detailed in the NII institutional program [are] that wealth from real estate can be created, not only nor primarily by capital growth, but specifically and more assuredly by buying below market value and to then promote, manage and present the same property at a significantly higher value to the acceptance of valuers and financiers to firstly create an equity margin as a preliminary step to wealth creation and to assist with 100% financing and then ultimately and secondly to sell at a profit.
…
My response to and opinion about the likelihood of being able to negotiate prices below market value is that it is extremely difficult, and appears to totally underestimate or even ignore the reality of vendor sale price maximisation techniques including the auction process, astute agency representation on the vendor’s behalf, agency negotiation skills, vendor anticipation particularly on a strong market, depth of demand (many willing purchasers), and the reluctance of vendors to respond to negotiation tactics or strategies designed to lower price negotiation points.
47 Mr Keck reiterated this in cross-examination, saying:
I acknowledge that a lot of what is in this course is commonsense and for an uninitiated property investor it would represent a lot of learning assistance. But, yes, my criticism of the course is that embedded within that - and I did use the word “embedded” - were key or core strategies, some of which we’ve discussed and, yes, my belief is that the course suggests that they are just too easily implemented. It suggests that, yes, it’s easy to befriend a valuer. Yes, he will listen to you. Yes, the bank will lend you the extra money. If you want to take somebody’s equity into a proposal without using your own and you’re not using your family or your closest friends, this course suggests that you can walk out of the institute and onto the footpath, stop somebody and if the proposal is good enough they will come in with you. I mean, we know that that is not the case.
48 Whilst Mr Keck accepted that a course participant might acquire a level of expertise from the course, it was his view that:
Whether it’s 12 months or 24 months, if they start the course as an ordinary Australian I think they end up the course as an ordinary Australian still, with a little bit of knowledge about real estate, perhaps some with a higher degree, and, amongst them, varying degrees of false anticipation.
49 Referring to what the course materials said about dealings with valuers, Mr Keck observed in his report of 10 November 2003 that:
These various strategies suggesting that valuers can be ‘persuaded’ to higher values, simply do not work in practice. The valuation profession adopts high standards of independence, analysis and responsible reporting and so far as evidence is concerned, relies upon sales rather than ‘asking prices’ for comparable properties. The Kaye material I believe, very wrongly suggests that the valuation process can easily be effectively manipulated and influenced to a beneficial outcome.
50 As to the suggestion that, “by enlisting the participation of co-investors who may bring equity and debt servicing ability”, property purchasers could “avoid the need for personal equity and even reduce or minimise the need for personal cashflow”, Mr Keck said:
As simple as it sounds and for that reason plausible and perhaps readily accepted by Kaye course participants, the reality is that co-opting third party friends or acquaintances as co-investors is an extremely difficult task. Theoretically possible but in practice rarely used.
51 As already noted, one strategy taught in the IM Program was to focus on “off the plan” purchases of unbuilt properties in order to obtain discounts from developers for bulk purchases and longer settlement periods whilst the properties were built. The Program suggested that this could lead to the creation of equity without personal funds being employed or fully settled. As to this Mr Keck said in his 10 November 2003 report:
Generally, developers are much more ‘hard nosed’ than the Kaye commentary encourages course participants to believe, apart from which they are usually represented by very experienced agents and other forms of marketing network, it being in my opinion a rarity rather than usual practice that significant discounts for bulk purchases can be arranged. For most projects, pre sales are sought ‘off the plan’ prior to full commitment of the project and unless sufficient number of sales are made at sufficient margin of profit, the project would be abandoned. Developers either get their pricing or do not proceed and thus the opportunity for significant discounts is extremely limited.
Whilst the Kaye strategies can be employed, they are generally well beyond the nuance and application of ordinary Australians, even experienced and knowledgeable real estate investors. My experience is that to buy cheaply is a rare and unusual occurrence, particularly in the recent strong market and that to achieve upward re-valuations higher than recent purchase price is unusual, and often, in any event, to no avail as most lending institutions have a policy of providing settlement funds on the basis of purchase price or valuation, which ever of the two is the lower. The soliciting of other parties as co-investors to provide either equity or debt servicing capacity may happen between family members and very close friends, but in my experience is a much rarer event between just good friends or acquaintances and is more likely to occur in the circumstances of a significant commercial property where the key proponent is very experienced in matters of investment, financing and real estate as opposed to the ordinary Australian or Kaye/NII student being an ordinary or average Australian with little experience, having only recently completed a seminar course and looking to acquire in all likelihood, just a standard residential property or apartment.
Technically, the theories and strategies promoted in the material are understandable and are not without precedent in the property markets but I do not believe that an ordinary Australian or inexperienced property investor, having completed the Kaye/NII course would then be in a position to apply the theories to practical advantage in the real marketplace. I believe that the material incorrectly encourages the belief that below market and discount outcomes are easily negotiated, that beneficial relationships can be quickly formed with real estate agents, valuers and financiers, but which in any event would rarely work, particularly at the level at which the Kaye/NII course participants enter the market, and that other people’s equity and debt servicing ability as co-investors is easily achieved when in fact it is difficult. I believe that the material strongly suggests that there is wide scope for advantageous although not necessarily unscrupulous manipulation within the property markets, but that this conveys a wrong impression as it ignores the generally adequate levels of due diligence which govern the decisions of vendors and developers and the professional standards, scrutiny and due diligence, particularly of valuers, financiers and other market consultants including estate agents.
52 After carefully setting out a model to test the ability of the “ordinary Australian” to become a millionaire, Mr Keck concluded:
In my opinion a typical Australian earning a higher than average income of $80,000 p.a., with no particular property expertise other than to have progressed through the Kaye/NII course, would have no prospects whatsoever of accumulating wealth sufficient to qualify for the term millionaire simply by applying the knowledge learnt from the course and over an ensuing period of a year or two following the course. Even if joining with a few co-investors, they would not have had the financial horsepower to position themselves for such an outcome, nor would market growth in any of the property categories, whether residential, commercial, industrial or retail have been sufficient to have attained such wealth.
53 Mr Keck also considered that it would “be an impossibility that five people, no matter how carefully chosen or well advised and personally assisted by Kaye, could become millionaires within the time frame of even 12-15 months”. He noted that “[t]he limiting factor [was] the commercial anticipation that whatever funds may be made available through contacts of Kaye, that such funds would only be provided on commercial terms. That is, at commercial interest rates, secured in the conventional manner, by first or second mortgage, and as to the extent of funds available, limited by the capacity of the five candidates to service the associated interest liability”. He also expressed the view that the claim that Mr Kaye could turn 1,000 ordinary people into property millionaires through their participation in the IM Program was “ludicrous”.
54 In relation to renounceable contracts or put option contracts, Mr Keck said, in his 10 November 2003 report, that, in his experience, contracts of this kind had occasionally been “employed in sophisticated dealings usually involving commercial property”. He added:
I have never been aware of them being used in the general residential markets, and rarely, in the residential sub apartment market as is the example referred to in the Kaye/NII material.
…
Scrutinising the suggested strategy, the only way in which any form of price or value protection could possibly be arranged is only through resale at a higher figure (whether one or more purchasers using renounceable contracts) at a time of an otherwise falling market. If an investor had not arranged a resale there could be no possibility of assuring the value as the “guarantee terminology” suggests. There is therefore nothing unusual or startling in what the material suggests and it offers no strategy leading to a price guarantee other than fundamentally having resold to a purchaser who satisfies their contract, notwithstanding an adverse change in market conditions.
55 In cross-examination, Mr Keck agreed that renounceable contracts can operate in some circumstances to hedge the risk of an investment, but he said:
My experience specifically … is that they are rare in the markets generally. On the few occasions that I’ve heard of them, it has been in commercial circumstances, and I’ve never heard of them in residential circumstances - other than in theory.
56 Finally, amongst other things, Mr Keck observed:
The claim that ‘most investors can commence investing with minimal personal outlay and purchase property below market value’ is unreasonable, and unsubstantiated by the [IM Program] materials
57 A second report dated 15 January 2004 was exhibited to Mr Keck’s second affidavit. It reiterated and, in some instances, expanded on his earlier report. In it, Mr Keck concluded:
In again reviewing the connection between the strategies … my opinion is that they do not provide a reliable or dependable basis for the Representations made.
58 A third report dated 23 February 2004 was exhibited to his third affidavit. This report was principally directed to a consideration of the affidavits of Mr Dudakov of 12 February 2004 and Mr Barnard of 11 February 2004. Although Mr Keck took issue with parts of Mr Barnard’s affidavit, it is unnecessary to set out the details of this disagreement. They will sufficiently appear from this discussion of Mr Keck’s evidence and of Mr Barnard’s evidence, which appears below.
59 In relation to the affidavit of Mr Dudakov (who gave expert evidence for Mr Kaye), Mr Keck maintained that, having considered all the IM Program material, he was of the opinion that it was fair to focus on the matters that he had specifically addressed, since they were, in his estimation, the core strategies. He also maintained his view that, during the relevant period, it was extremely difficult to buy at below market value. On the matter of valuations, Mr Keck said:
I don’t believe that Mr Dudakov and I are really in disagreement over the matter of obtaining valuations at higher amounts than purchase price. We agree that if a property can be demonstrated as having been purchased below market value, then a valuation at a higher fair market value should be expected. I disagree with Mr Dudakov, however, that the Kaye Module reasonably and rightly notes that if fully conversant with an area, a valuer (for mortgage purposes) will respect an investor’s opinion, listen to what an investor has to say and take such matters into account. The many valuers that I employ, and my own experience personally, allow me to state forthrightly that generally, valuers have little contact with purchasers or borrowers and may only rarely consider representations made by such parties. Perhaps in the operation of his practice and experience generally, Mr Dudakov has not operated as widely in the field of valuations for mortgage purposes as has been my experience and that of my staff.
In cross-examination, Mr Keck reiterated that, if an investor could obtain a higher valuation than the purchase price, then some institutions would lend on the higher valuation.
60 Mr Keck disagreed with Mr Dudakov that it was generally accepted industry practice for bulk purchasers to obtain a discount. He said:
During 1999, 2000 and 2001, a sustained period of market activity over three years, discounts for bulk were certainly not the ‘general acceptance’ of major developers, as there were sufficient purchasers at full or near asking list price for many projects … . … . Over the last four years, my own experience and that of my practice staff, having been involved with many projects in Melbourne, is that discounts for bulk were by far the rarity than the norm.
61 Mr Keck’s third report also noted amendments to the Commission’s pleading. In particular, he said:
I note that the alternative definition of ‘property millionaires’ has been included. On the basis of that alternatively defined definition, meaning ‘someone who has secured $1million worth of property either in their own right or in a joint venture or syndicate’, the strategies identified … could assist some individuals to secure $1million worth of property, but I believe still with very considerable difficulty and uncertainty of success. If the words ‘no money down, no debt and no equity’ mean that the typical Kaye ‘ordinary Australian’ is to pursue the strategy of becoming a millionaire, but from the outset without cash (money down), equity (other assets for security) or debt (no borrowing capacity), they would in one sense be commercially frozen, lacking credibility, and unable to make a commitment. In another sense, it is very difficult to imagine or contemplate the commercial circumstances where an ordinary Australian could be involved with a joint venture or syndicate, no matter how minor their interest, yet not in some manner be liable at least in part pro rata for the debt that such a joint venture or syndicate may carry.
62 In cross-examination, Mr Keck said of the IM Program:
As I’ve said in all of this material, it would be an extremely difficult thing to do. I’ve got to say, in 30 years of experience, I do not know anybody - including any of my clients - who have [sic] achieved this sort of status using these sorts of strategies in this time frame. I’ve never come across it.
63 He did not deny the possibility that someone might achieve millionaire status in the relevant time frame by pursuing the IM Program strategies: his point was that, in all his many years’ experience, he had not seen it happen. In the course of cross-examination, Mr Keck made it clear that he understood the word “secure” as used in the promotional and other IM Program material to mean “to hold equity in the purchase of property”. He said:
In my whole involvement as an expert in this matter, I’ve always understood or been under the impression that the term “secure” meant to be an equity partner in the purchase of or the establishment of.
64 In cross-examination, Mr Keck was taken to the written course materials or “modules” of the IM Program. His evidence was, in substance, that there were practical obstacles to successfully pursuing the strategies (e.g., “Property Angels – Debt/Equity Partnerships”) mentioned in the materials. Drawing on his personal experience of option contracts, he said:
They’re not a feature of the market, if ‘feature’ is meant to mean a prominent everyday methodology. They are used mainly in the amalgamation, for example, of commercial sites by experienced developers wanting to secure a right to purchase a property without putting the money down, depending on the ultimate gathering of property or planning permits that they may obtain. But it’s really in the domain of experienced and more commercial property that options - land subdividers, for example, take options from farmers on the urban fringe in the hope of exercising them a few years later as the market matures for that type of thing. But it’s my belief that in the context of this course and the people that were attending this course - most of whom would have been focusing, I believe - not entirely but most of whom would have been focusing on residential property, that even equipped with an understanding of how options can work, when they would go into the marketplace, if they were to buy either an individual residential property from a person in the street, or from a developer, they would not find those vendors readily giving of options in that environment.
65 In cross-examination, Mr Keck drew a clear distinction between professional property syndicates and the private property syndicates contemplated in the IM Program. He said:
The professional property syndicates are simply that. They’re very professional. They are marketed in a way that they have strong appeal to do-it-yourself superannuation firms and other smaller institutions and investors. The manner in which they’re wrapped, if I can use that term - you know, the consultants, the underwriters and so on - portrays, usually for good reason, a high level of due diligence and analysis - prospectus, ASIC guidelines, a very heavy level of corporate governance - all of which engenders in the minds of prospective investors lower risk, greater security and strong commercial governance. These are factors that would not normally characterise the sublevel personal syndicate relationship that the Henry Kaye course speaks of or which [counsel for Mr Kaye] is describing to me, in my opinion.
He agreed, however, that there were no statistics available that might indicate the prevalence of private syndication.
66 The main difference between Mr Keck and Mr Dudakov concerned the practicalities of buying below market value. Mr Keck agreed that it did sometimes occur. He added:
What actually occurs in the circumstances where somebody has bought below market value, if that is the description - what in fact they do is they - because it’s normally a market transaction of itself and can’t be defined any more than that. What happens is that the property transacts at a price less than people thought it would transact at or less than the opinion of a valuer who may have subsequently valued it for mortgage purposes, or in the opinion of some other analyst.
…
Supply and demand will normally arrive at market value. The normal influences of supply and demand would be the least supportive circumstances for something selling other than at market value.
67 In cross-examination, Mr Keck reiterated his criticism of a suggested strategy that involved “befriending” a valuer, to obtain a higher valuation in order to support greater borrowing than might otherwise be obtained. He said:
I very much disagree with it. I forget exactly what Mr Dudakov said on that, but there would be more than an apparent difference of agreementbetween Mr Dudakov and I if he felt that that were a normal practice. In my reports …, I did make the very point - and my practice values … probably 150 properties a day, five days a week doing this; I employ 70 valuers in Melbourne - some of the contracts that we have with the banks specifically prevent us from even discussing this with the mortgage applicant and, whether that were the case or not, it is highly unusual that when you would go to value the property, which hasn’t yet been settled and which is still occupied by the vendor or the vendor’s tenant, that the purchaser is even there. Usually they would be at work, because it’s done during working hours. So the reality of the purchaser, the investor, the NII graduate coming into contact with the mortgagee’s valuer is genuinely very remote to start with, and even inthose occasions where it did occur, the governance of most practices like my own is that the valuers are to be polite and pay respect to people but they would be in no way influenced by what the purchaser had to say about the property. So if … Mr Dudakov thinks that’s wrong, well, he and I have a big difference of opinion about that. … .
In cross-examination, Mr Keck reiterated that, in his opinion, it would, generally, be impractical to undertake the property research to the level taught in the IM Program.
68 Mr Keck had a clear and ample knowledge of the Australian property market, and I found him to be a highly credible witness.
Witnesses called by Mr Kaye
Mr Brian Dudakov
69 At the instance of Mr Kaye, Mr Dudakov, who also had extensive experience in property valuation and was the director of a property valuation and consultancy business, prepared a report concerning the strategies identified in the written material comprising Modules 1 to 10 of the IM Program, as well as Mr Keck’s first report. Mr Dudakov’s report also addressed the possibilities that a person might, by following the relevant strategies, “acquire a million dollar plus property portfolio” or become a “property millionaire” with no money down, no equity, no debt and a price protection guarantee”.
70 Mr Dudakov’s report of February 2004 was exhibited to his affidavit. He began by observing that, in his opinion, the Commission’s synopsis of the strategies taught in the IM Program (in Annexure D to the statement of claim) “tends to highlight the more contentious issues whereas the Modules, when read in totality convey a vast array of suggested strategies intended to set investors on a course towards accumulating wealth via property investment”. He went on to say:
Much of what is written in the Modules is just plain common sense. Other recommendations are of questionable benefit. Some would be difficult, if not impossible to achieve. However, when viewed as a whole, the Modules present as an excellent reference source for novices and, indeed, experienced property investors.
…
I consider that investing in real estate was within the realm of “ordinary Australians” and that Kaye’s strategies, when taken as a whole, were capable of being implemented by “ordinary Australians”.
…
As noted earlier, the Modules’ strategies contain a great deal of common sense (along with some material which is not capable of being implemented). As such, as a broad generalisation, I consider that the Modules would assist in enabling “ordinary Australians” to accumulate wealth through property investment.
71 In cross-examination, Mr Dudakov said:
These modules, to my reading, are basically a commonsense approach that points you in the right direction both for experienced players and inexperienced players as to - there are some very good suggestions in it and, as I admitted, some suggestions which I found to be not practical.
72 In cross-examination, Mr Dudakov expressed the opinion that “the key … to be successful in investing in real estate is to find the right deal, and the key to finding the right deal is to know how to go about doing it, and the modules in my opinion do provide that basis for which people can understand how to go about purchasing real estate”. He added that this know-how included “how to find investment partners, particularly … how to find investment partners who will bring to the table the money necessary to acquire the real estate”. He added that, “I think that the modules, taken as a whole, are a good document from which to get a good understanding of how to acquire real estate”.
73 Mr Dudakov stated that he disagreed with Mr Keck’s opinion that it would be extremely difficult to buy property “at below market”. He said:
While there can be no doubt that the purchase price for a property represents the best guide to value, the real estate market is imperfect and there are numerous examples of where property has been bought at below (or above) market. Indeed it is for precisely this reason that financial institutions employ valuers to validate (or otherwise) purchase prices.
…
The Modules quite rightly note that by being fully conversant with an area the valuer will respect the Investor’s opinion and listen to what he has to say and take into account factual material in relation to comparable sales evidence. If the property has been well purchased and this can be legitimately demonstrated and supported by the evidence, then there should be no reason for the valuer not to value a property at above purchase price.
74 In relation to the co-opting of third parties as co-investors, Mr Dudakov stated:
I do not have any statistical evidence as to the proportion of purchases made by co-investors and therefore my opinion, like that of Keck, must be intuitive and/or anecdotal. In this regard I am aware of … investment groups who source and co-invest in property. Obviously the key criteria for all investors must be that any joint venture or partnership be equitable. Provided that is the case there is no reason why a partnership would not be practicable.
As to focusing on new, yet to be constructed projects, this is merely one of Kaye’s strategies. Further, it is accepted industry practice for bulk purchasers to obtain a discount, the extent of which is dependent on the strength of the market at that time.
75 Mr Dudakov did not disagree with Mr Keck’s modelling and, as such, that “an ‘ordinary Australian’ could not become a millionaire over the time frame he has adopted if the definition of millionaire he applies is appropriate, namely that to be a millionaire requires having net wealth in property investments exceeding one million dollars”. In cross-examination, he said that his opinion that the IM Program material would enable some investors to become property millionaires using no money down, no debt and no equity was based on the understanding that “property millionaire” meant “someone who owns property, or an interest in property, which is worth $1million”. That is, a person who had a quarter interest in a $1million property would, on his understanding, be a property millionaire.
76 In cross-examination, Mr Dudakov said that, in performing property valuations, his instructions came from the mortgagees. He added that, generally speaking, “we wouldn’t contact the purchaser” although his firm was “quite often” contacted by property purchasers. He said further:
I think there’s a misunderstanding about the process. In mortgage valuations – and I'm not referring to the bulk type of residential property valuations, I’m talking about investment properties, be they residential or commercial - we are on a number of bank panels for valuers and, generally speaking, the intending borrower will ascertain who is on the accepted panel of valuers of those banks and if they are known to that person then they will certainly make it known that they are putting our name forward as the valuer to act on their behalf for the bank, but our direct responsibility and our ultimate client is the bank.
77 Asked whether he would be influenced by the opinions of a prospective purchaser, he explained:
Well, there are a myriad of particulars that we may not be aware of that we could be made aware of in relation to particular properties, such as if the property was affected by something that we did not know about - a sale property I’m referring to - and why that sale price was influenced by that effect. There may well have been some other reasons why a particular property sold for a particular price. If that were made known to us, and we could satisfy ourselves that that was accurate, then we would certainly take it into account.
78 In cross-examination, Mr Dudakov agreed that it was “not the norm” to acquire property portfolios of value other than by investment of personal funds, borrowing or inheritance, although he “wouldn’t rule it out” and “it would be a very low percentage of transactions”. In relation to the formation of property syndicates, he added:
I know we’re talking about a very small percentage of properties here, but the fact is, if someone brings - and it’s not dissimilar, in a sense to the formal syndications that are going on constantly throughout Australia - that is, that these people secure properties and then seek syndicates of people with mortgage funding based on non-recourse lending - ie, the property rises or falls by itself. The syndicated members in the more formal syndicates don’t provide any form of personal guarantees to the property. It’s the property itself that forms the security. That's the way those syndications work. There’s no reason to suggest that it couldn’t happen at this lower level.
He conceded, however, that the syndicator would typically put up his own money, “in the sense of putting up his deposit or an option fee which he may not get back if the deal doesn’t go ahead”. He also conceded, that he had no experience of syndication at a non-professional level and, at best, he could say that it was theoretically possible.
79 Mr Dudakov did not resile from the proposition that “[I]f the deal is right and it has the hallmarks of having significant capital gains, then I believe that prospective investors could be found”. This was not, he conceded, “the norm”, but he said that “I would not put it at the scale of being exceptional”. Mr Dudakov considered that, for a run of the mill property, it might be possible for an astute investor to identify a property at something less than 20% below market; and that, once negotiations opened, “there would be a crunch time within a very short period of time where you would have to put money down”. He added, there’s no doubt the deal comes before the financiers, but if the deal is good then I believe the financiers can be found”. He acknowledged that the legal advice that Kaye recommended would cost the investor money.
80 Mr Dudakov’s evidence, in cross-examination, was that, although there was an element of luck about it, it was possible to make very large amounts of money in a very short period of time out of property investment. He said, “I think there are … instances where by all normal criteria properties have been purchased at less than market value”. In his opinion, property investment results of this kind also took “a lot of diligence as well”. He commented:
One of the things I do think is very admirable about the modules is that basically it’s saying, “Do your homework. Get out there and look at properties. Look at everything that's going on in the suburb. Know that suburb backwards so that you know what is a good deal and what is not a good deal.”
…
It takes diligence, it takes a lot of foresight to know or believe that an area is going to take off and become popular. You may be right, you may be wrong, but that doesn’t mean that it’s not possible.
81 In cross-examination, Mr Dudakov also expressed the view that it would be possible to inspect all the houses on the market in a year in certain areas, saying:
Immediately, you would rule out properties that you are not focusing on, such as the normal three-bedroom brick-veneer, so to speak, in those areas where you may not be looking to invest. Your focus is more narrow than that. As I said, I think it’s daunting, but I don’t think that it’s impossible, because there are certainly - if you narrowed it down, at a guess I would say it probably would entail looking at 15 to 20 properties per week, and I don’t think that’s out of the question.
He agreed, however, that “15 to 20 is a lot of properties”. In re-examination, he said that the IM Program focused on investment apartments in off-the-plan developments (as well as renovation opportunities in spillover suburbs). He said that since there were not a huge number of developments at any one time, this would make the task of inspection possible.
82 Mr Dudakov conceded that a large part of the IM Program material suggested purchasing property on a very highly-geared basis, adding:
I mean that's very very common in investment property in Australia, I think. There’s been lots of press about negative gearing. The reason for negative gearing is because there’s a high degree of tax leveraging that can be obtained through acquiring property.
…
I mean, negative gearing is a fact of life. It’s extremely commonplace. Generally speaking, most gearings are at the 80 to 90 per cent level - I accept that - but gearing to that additional level just means that there is a greater interest payment required to pay off the loan.
He agreed that, in the Australian residential property market at the relevant time, the rate of rental return was less than the interest rate that applied on borrowings for residential loans. He also agreed that profit in the residential real estate market was dependent on capital growth. He admitted that “[t]he fact is … property is risky. Of course it’s risky - residential property less so than commercial property - but, of course, every investment has an element of risk”.
83 Mr Dudakov was very experienced in property valuation and a credible witness. As appears below, there was, ultimately, only limited disagreement between him and Mr Keck, which, for the most part, was attributable to differences in definitions, emphasis and approach. As will appear below, for the reasons stated, I found Mr Keck’s evidence of more assistance than that of Mr Dudakov; and I have preferred the evidence of Mr Keck on the occasions where the experts differed on a relevant matter.
Mr B R Barnard
84 Mr Barnard, who was, as noted above, a director of NII from 14 July 2003 to 13 October 2003, also gave evidence. He was also an employee of NII and its predecessor between early 2002 and 25 November 2003 and, from early 2003, NII’s General Manager, Education.
85 In his affidavit, Mr Barnard stated that the twelve month IM Program consisted of a 10 Action Steps Workshop; the Investment Mastery Foundation Weekend; a multimedia home video kit, which included workbooks identified as modules 1 to 10; a property field trip; a Question and Answer Workshop; a Three Day Advanced Finance Conference; and another Question and Answer Workshop. There was also an email response system for any queries. Customers in the IM Program were entitled to attend quarterly review workshops and to receive the Standard E-property Report, which they could upgrade to the professional E-property Report, for a nominal fee.
86 Mr Barnard deposed that:
The IM Program teaches that for a person to avoid the need to use their own equity or security, and to avoid taking on any debt to finance the purchase of a property, it is necessary for them to find another willing party to enter into a joint venture, or syndicate, or some other arrangement with them, pursuant to which that person provides the finance. This will only occur where the deal offered to the investor is one that the investor considers to be a good one, whether because the risk is minimised or the other parts of the deal are sufficiently attractive. The usual way in which the arrangement works with the investment partner is that the person who sources the deal and the investor share in the upside on the investment being any capital growth and, potentially, the rental return. The person sourcing the project is responsible for putting the deal together, and managing it. This will include identifying the property, negotiating the best purchase price, procuring a renouceable contract if required … managing the tenants and obtaining the necessary insurance. The course also teaches people to obtain a confidentiality agreement from potential investors before showing the deal to them, to ensure the investor cannot simply take the deal away from them.
…
The IM Program teaches people that they need to undertake a lot of research, or due diligence, to identify attractive investment opportunities. … .
87 According to Mr Barnard, the IM Program taught the following: (1) an understanding of the commercial pressures faced by vendors, agents, developers and others; (2) how to source purchasers for the property under renounceable contracts; (3) due diligence or how to target an area and become an expert in property sales and developments in that area before investing; (4) an understanding of the range of products that are available in the market, such as rental guarantees; and (5) how to source and present a deal to investors.
88 Mr Barnard also stated that NII sold a range of other programs to existing clients, including courses in advanced property and finance investment strategies for clients who were, or intended to become, professional property investors. Mr Barnard deposed that the IM Program was “very successful”. He estimated that about 8,000 people completed the course. He stated that, before the appointment of the administrator, there were “approximately 25 to 30 staff and consultants employed or engaged by NII to teach the course which included lawyers, teachers, finance experts and experienced and successful property investors”.
89 In cross-examination, Mr Barnard maintained that the Challenge was “something that Henry Kaye wanted to do personally in two stages: the five people, then the thousand”. He said further that:
What I knew was that the thousand people challenge would potentially increase sales but that the objective was always Mr Kaye’s objective.
…
[T]he initial intention was for Mr Kaye to prove himself and to prove his strategies do work.
…
When Mr Kaye first spoke to me about this concept, I expressed some reservations.
…
What I understood was that this was something that Mr Kaye was determined to do. At the time, once we discussed it, to me it seemed like an acceptable idea.
Mr Barnard gave evidence that:
Mr Kaye came to me and informed me that he was going to conduct this challenge. He gave me an outline of how this challenge was going to be conducted and his reasons why he was going to do it, and it was a fait accompli. It wasn’t a negotiation, it was, “This is what I’m going to do. This is why I’m going to do it.” I offered some comments in relation to it, but it certainly wasn’t a negotiation process.
90 Mr Barnard further deposed that Mr Kaye did not seek or obtain approval from the Board to place any of the advertisements giving rise to the alleged representations. He said that there was no discussion about the Challenge at Board level. In cross-examination, he also said that, in the period of his directorship, there was only one formal Board meeting, which was convened to deal with an ASIC issue. His evidence was that the Board meeting structure was not formalised in the period that he was director. He said, however, that management discussed “[s]trategic policy in relation to formal marketing concepts, ideas about any improvements or changes to the course” and that Mr Kaye took “a back-seat role” in the day-to-day running of the company.
91 When counsel for the Commission asked him why he resigned as director, Mr Barnard replied:
I was offered the opportunity to become a director of this company as part of a move towards the company becoming more corporatised, with a desire that the company would eventually become public[ly] listed. Over that period of the three months, I mainly was learning about the machinations of the company and what was my requirement as a director. During that period, events occurred that led me to believe very strongly that the company was not going to be able to continue heading in the direction that I believed that it needed to, and I didn’t feel comfortable continuing as a director as a result.
He conceded that there had been a very serious decline in NII’s sales between April 2003 and August 2003.
92 In his affidavit, Mr Barnard stated that two companies marketed NII products in Australia, namely, Novasource Consulting Pty Ltd (“Novasource”) and Empower Group Pty Ltd (“Empower”). According to him, Novasource and Empower “generated” customers to enrol in the NII products; conducted information nights; and contacted attendees and arranged an individual consultation with anyone who expressed an interest in the IM Program. Customers were asked to complete an enrolment form at the conclusion of the consultation. In cross-examination, however, Mr Barnard said that Novasource ceased to conduct marketing for NII in July 2003. According to Mr Barnard, the task was given to another company operated by a sales manager.
93 Mr Barnard agreed that the advertisements at issue in the proceeding were part of a campaign that included the free seminars. He conceded that there was one promotional strategy for the Challenge, but he denied that it directly involved NII’s products. He conceded that a potential advantage to NII was a lift in revenue as people enrolled in the IM Program to participate in the 1,000 Property Millionaires Program, but he asserted that “there was also a significant risk to the company because of the guarantee that was being provided” as part of this Program. He identified the guarantee, which was provided to people who attended a consultation and expressed an interest in this Program, as a “guarantee” given by NII as “guarantor”. He conceded that, in speaking of this guarantee at the free seminars, Mr Kaye was speaking as the alter ego of NII; and that NII’s marketing arm undertook to, and did, follow up attendees at the free seminars, who registered their interest, “with the objective of making a sale” for NII. He admitted that he knew this at the time. The books of account of NII showed that NII paid for the advertisements and some of the costs of the free seminars incurred in the course of the Challenge. In cross-examination, Mr Barnard agreed that Mr Kaye’s image was widely used on NII’s promotional material and that NII’s products were described as being, and were, Henry Kaye’s strategies. He also accepted that the Henry Kaye website set up for the Challenge was linked to NII’s website.
94 Mr Barnard did not give direct and full evidence on all matters. For example, he was less than forthcoming about his resignation as director of NII. Some of his evidence was clearly designed to establish a separation between NII and Mr Kaye that was not borne out by the other evidence on point when considered as a whole.
A self-employed professional property investor
95 As already indicated, a gentleman describing himself as a self-employed professional property investor also gave evidence. I refer to him below as “the witness” or “the investor”. It is unnecessary to name him in these reasons and, for reasons that appear hereafter, I do not consider it appropriate to do so.
96 Between March 2001 and May 2003, the witness attended and completed each of the Investment Mastery, Mezzanine Finance (Advanced Finance), Entrepreneurial Mastery, Business Mastery and Platinum Affiliate programs conducted by NII. He participated in and completed some of these courses three or more times. In his affidavit, he deposedthat before attending these courses he was “very heavily in debt with his family home”, about to be divorced and facing bankruptcy. His evidence was thatafter completing the courses he started his own business as a professional property investor.
97 In his affidavit, the witness deposed to having: (1) successfully acquired “property worth over $1 million within one month of completing the courses”; (2) identified some 20 properties “appropriate for purchase as investments”; and (3) purchased eight properties, with “joint venture partners”, using the strategies taught at the courses he attended. Specifically, the witness deposed to having successfully applied the following strategies: property due diligence and forming relationships with real estate agents (module 1); controlling property valuations (module 4); obtaining over 100% finance; negotiating long settlement periods (module 5); and securing property with a minimum deposit or with “other people’s money” (module 6). He deposed that, in general, he sourced properties by performing due diligence; he found investors to fund the proposed transaction; and then sold the relevant property for a profit. He deposed that this was only possible because of the knowledge and confidence he had acquired from attending the courses. His evidence was that, based on his due diligence, if the “deal” was not right, he would “walk away”. Documents were produced (on subpoena) in relation to about 10 of the transactions mentioned in his evidence. For various reasons, these documents were unsatisfactory (e.g., unexecuted copies of agreements, agreements apparently naming the wrong person or the wrong land, and agreements that were in parts virtually unintelligible).
98 Whilst the witness gave what he honestly believed to be truthful evidence, his evidence in cross-examination showed that he had a very limited appreciation of the transactions in which he was involved, and that the basis for his assertions regarding the successful application of the strategies taught in the IM Program, amongst others, was untenable.
99 In cross-examination, it became apparent that for around eight of the approximately 10 transactions that were the subject of any specific evidence, the witness had contributed, or agreed to contribute, significant funds of his own, “as an investor”. In one transaction where the witness acted as an investor (in a development in Cairns), it appeared,from the documents that the witness produced and from his evidence in cross-examination, that the witness advanced $100,000 without taking security; that he was ultimately “cut out” of the transaction; and that his $100,000 was yet to be refunded. He said, in cross-examination, that “I really don't know where my $100,000 is”; and that he was attempting to resolve the dispute out of court. In another transaction of the same or a very similar kind, concerning other land in Cairns, in which he was also an investor, his involvement ended with he and the developer again in dispute. There was no clear evidence concerning the precise details of the investments and the disputes.
100 In another transaction involving property in Sydney, the witness acquired a one-sixth interest by contributing one-sixth of the deposit and, as conceded by him in cross-examination, assuming substantial debt in order that the settlement might be completed. The witness’s evidence was that a long settlement period was negotiated in respect of the purchase and the property was ultimately resold at a profit. The evidence indicated, however, that there were other matters, which, if taken into account, would significantly diminish, if not remove, any net profit from the dealings with that property.
101 There was another instance in which a contact of the witness purchased a property off the plan and secured an interest in it using a guarantee equivalent to five per cent of the deposit, with an option to replace the guarantee with cash. The contact and the witness entered into what was termed an “interim partnership agreement”, pursuant to which the witness and another investment partner agreed to contribute 5% of the purchase price ($72,500) in return for “50% of the profit that will be achieved through the sale of the property at a later stage”. The witness borrowed most of the deposit ($64,000) under a loan agreement. The parties subsequently entered into a joint venture agreement.
102 The witness’s evidence in cross-examination highlighted that he simply did not appreciate the legal significance of, or the financial risks in, the transactions in which he was involved. For example, the witness used the term “joint venture” to describe transactions that would ordinarily be described as loan agreements, pursuant to which he was incurring debt, frequently at comparatively high rates of interest. The terms of these agreements, which the witness considered to be consistent with the strategies taught at the NII courses attended by him, involved the borrowing of large sums of money (sometimes without taking security or adequate security) and comparatively high interest rates. The “joint venture agreements” were, in most instances, transactions in which the witness was an investor, of his own or borrowed monies; and did not, in most instances, establish that he had “sourced” property by applying the due diligence strategy apparently taught in the NII courses. Although there were instances in which he acquired an interest in property without using his own equity, in each case, the witness was ultimately obliged to finance or undertake financial liability. From the evidence, I would infer that the witness was financially overcommitted, without having obtained any significant interest in property.
consideration
The pleaded representations were made
103 Bearing in mind the admissions made by Mr Kaye (see [7] and [10]) above, the first matters to consider are: (1) whether, by causing the radio advertisements to be broadcast, Mr Kaye made the radio representations (see [19] above); (2) whether, by causing the publication of the internet advertisements, Mr Kaye made the internet representations (see [20] above); and (assuming s 84(2) of the TPA is satisfied) whether, by causing the newspaper representations to be published, NII made the newspaper representations (see [25] above). If so, then there remains the question whether Mr Kaye is liable as an accessory under s 75B of the TPA.
104 Before considering the relevant advertisements specifically, I set out some principles that I intend to apply. First, whether the representations were made depends on the words used in the advertisements, reading the advertisements as a whole and bearing in mind any other contextual facts that would be likely to affect the audience or readership to whom the advertisements were directed. It would be wrong, as counsel for Mr Kaye emphasised, to select and consider words out of context: see Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 (“Puxu”) at 199 per Gibbs CJ; and Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 (“Tobacco Institute”) at 4 per Sheppard J and 27 per Foster J. Secondly, in determining whether the representations were made, it is necessary, in this case, to consider the persons to whom the advertisements were addressed and what they would have meant to those persons.
105 All the advertisements were conveyed to a very wide class of persons. In effect, anyone who, on the publication dates, read any of The Herald Sun, The Age, the SMH, the AFR and the Sunday Telegraph; listened to Fox FM in Melbourne or 2 Day FM in Sydney between 10 September and 18 September 2003; or used the Internet in September 2003 to visit Mr Kaye’s website was likely to have been exposed to the advertisements. In Tobacco Institute, Sheppard J said, in relation to newspapers, that:
Newspapers are read by people across the whole spectrum of society. They were read by almost all age groups. … They are read by the well educated and the poorly educated. They are read by the intelligent and the wary and also by the unsuspecting, the gullible and the impressionable. It is unnecessary to go on. Clearly those responsible for the advertisement intended that it should have the widest possible impact across all sections of society.
This is equally true of the advertisements in this case that were conveyed by radio and on the Internet: see also Puxu at 199 per Gibbs CJ and Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 (“Taco Company of Australia”) at 202 per Deane and Fitzgerald JJ.
106 In Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45 (“Campomar”) at 85, the High Court said:
It is in these cases of representations to the public … that there enter the “ordinary” or “reasonable” members of the class of prospective purchasers. Although a class of consumers may be expected to include a wide range of persons, in isolating the “ordinary” or “reasonable” members of that class, there is an objective attribution of certain characteristics. …
Where the persons in question are not identified individuals to whom a particular misrepresentation has been made or from whom a relevant fact, circumstance or proposal was withheld, but are members of a class to which the conduct in question was directed in a general sense, it is necessary to isolate by some criterion a representative member of that class. The inquiry thus is to be made with respect to this hypothetical individual why the misconception complained of has arisen or is likely to arise … . [Citations omitted]
Their Honours added, at 86:
[I]n an assessment of the reactions or likely reactions of the “ordinary” or “reasonable” members of the class of prospective purchasers of a mass-marketed product for general use … the court may well decline to regard as controlling the application of s 52 those assumptions by persons whose reactions are extreme or fanciful. … The initial question which must be determined is whether the misconceptions, or deceptions, alleged to arise or to be likely to arise are properly to be attributed to the ordinary or reasonable members of the classes of prospective purchasers.
107 I do not consider that, in these passages, their Honours adopted a different view from that expressed in Taco Co of Australia Inc and in Tobacco Institute. Certainly, their Honours did not expressly say that they did: see also National Exchange Pty Ltd v Australian Securities and Investment Commission [2004] FCAFC 90; 49 ACSR 369 (“National Exchange”) at [23] to [25] per Dowsett J and [68] per Jacobson and Bennett JJ; also Medical Benefits Fund of Australia Limited v Cassidy [2003] FCAFC 289 (“Medical Benefits Fund”) at [31] per Stone J. In considering the effect of representations on the public, including their meaning, the court is to consider the effect on ordinary or reasonable members of the class in question. This does not mean that the court cannot consider the diversity of the experience and knowledge within the class and other matters pertinent to members of the class: compare National Exchange at [24] per Dowsett J. The question is whether, considered objectively, ordinary or reasonable members of the listening and reading public would have understood the representations in the way the Commission contends: see also Cassidy v Medical Benefits Fund of Australia (No 2) [2002] FCA 1097; 205 ALR 402 (“Cassidy”) at [44] per Hill J; appeal dismissed (save as to one matter) in Medical Benefits Fund.
108 The meaning and effect of commercial advertisements on radio and in print and electronic form will often be a matter of ultimate impression. In Telstra Corporation Limited v Optus Communications Pty Limited (1997) ATPR 41-541, Merkel J reviewed the authorities as to how the court should approach television and print advertisements. His Honour said, at 43-514, in relation to certain television advertisements that:
They will be seen by the casual but not overly attentive viewer viewing a free-to-air program with only a marginal interest in the advertisements shown between the segments of the program. In that context it will be the first impressions conveyed to that viewer, rather than an analysis of the cleverly crafted constituent parts of the commercial, which will be determinative.
…
In television and print advertising where a false dominant impression is conveyed, its message will not be ameliorated by the accuracy of the detailed message which is derived from a careful analysis of all of the constituent parts of the advertisement.
Similarly, in the case of radio and electronic advertising on the Internet, if a false impression is the dominant message, its accurate but less arresting parts do not necessarily alter the deleterious effect: see below.
109 In considering the meaning of the statements in the advertisements, it is necessary to consider the context in which they were made. The advertisements depicted Mr Kaye’s investment strategies as Henry Kaye’s products. His image was used in the advertisements to associate the strategies with him, although, for the reasons set out below, I accept that, as the Commission contended, the marketed products were in fact those of NII. The evidence of Mr Barnard confirmed that the advertised Challenge (in its two parts) was a response to the public criticism of the Kaye strategies (and, as appears below, NII’s products). The advertisements were themselves an integral part of a promotional campaign to deal with this criticism, to which the advertisements expressly referred. The response was to assert that the criticism was wrong and would be proved to be wrong. Further, it should be borne in mind that, the evidence established that, during the period in which the Kaye strategies were promoted, there had been a particularly strong property market. Mr Keck said, and I accept, that there had been substantial increases in property prices over the relevant period.
The radio advertisements
110 Anyone who listened to the radio advertisements and noted the reference to “terms and conditions” might have understood that there was more to the matter than the advertisements disclosed. Further, some listeners might have understood that there was an acknowledged risk of failure in the promise that Mr Kaye would give $1,000,000 to charity if he failed. This is, however, not an answer to the claim, because the clear message conveyed by these advertisements, considered as a whole, was that either Mr Kaye would teach five volunteers to become property millionaires (see the recorded live script) or that he would turn ordinary Australians into property millionaires (see the recorded live script and the live broadcast). I do not accept that, in the case of the recorded live script advertisements, the promise to give $1,000,000 to charity was anything other than an attempt to emphasise the strength of Mr Kaye’s conviction in the truth of the radio representations. I reject the submission made by counsel for Mr Kaye that the statements in the radio advertisements were relevantly qualified statements about his ability to turn ordinary Australians into property millionaires. Moreover, for the reason set out at [117] to [120] below, I am satisfied that in these advertisements, “a property millionaire” would have been understood by ordinary or reasonable members of the public as meaning a person “having a net wealth in property investments exceeding $1 million”. Accordingly, I find that the radio representations (as pleaded in paras 8(a) and (b) of the statement of claim, as amended) were made: see also [20] above.
The Internet and newspaper advertisements
111 In the Internet and newspaper advertisements, Mr Kaye expressly said that he would prove that he could teach anyone to acquire a $1,000,000 plus property portfolio with no money down, no equity, no debt and a price protection guarantee (meaning that if the market were to go down, they would not lose money). The Challenge was the means that Mr Kaye chose to demonstrate or “prove” the truth of this statement. It does not follow from this, however, that ordinary reasonable members of the public would have understood that the statement was limited to the Challenge and that, as counsel for Mr Kaye submitted, the statement meant only that Mr Kaye would prove that he could teach five ordinary Australians how to become property millionaires etc. On the contrary, having regard to these advertisements as a whole, they contain the clear representation that anyone, by following Kaye’s property investment strategies, could acquire $1,000,000 plus property portfolio with no money down, no equity, no debt and with a price protection guarantee. I do not accept that, as counsel for Mr Kaye submitted, there is a relevant difference between a statement that Mr Kaye could teach anyone to acquire a $1,000,000 plus portfolio and that anyone, by following his strategies, could acquire such a portfolio, especially because the advertisements clearly conveyed the impression that the key to such an acquisition was the diligent application of the strategies that Mr Kaye “learned the hard way”. The point of Mr Kaye’s “teaching” was, in the context of the advertisements, merely to enable his students to follow his strategies. Further, for the reasons stated above, I am not persuaded that ordinary reasonable members of the public would understand that this representation was qualified in the manner alleged by Mr Kaye. Accordingly, I find the Internet and newspaper representations (as pleaded in pars 14(a) and 21(a) of the statement of claim, as amended) were made.
112 Also in the Internet and newspaper advertisements, Kaye was reported as expressly saying that he would make five ordinary Australians into property millionaires in just six months, using no money down, no debt and no equity. This was the crux of the Challenge. In both mediums, the words “I’ll make 5 ‘ordinary’ Australians into ‘Property Millionaires’ in just 6 months” appeared in large font at the commencement of each advertisement. In significantly smaller font, Mr Kaye was reported as saying “ and if I fail, I’ll sign this cheque for $1 million to charity”. Next to these statements was a photograph of a determined Mr Kaye holding a cheque. The clear message conveyed in both kinds of advertisements was that Mr Kaye was determined that he would make five ordinary Australians into “property millionaires”, as he claimed. Indeed, the whole point of the Challenge was, according to the advertisements, to silence Mr Kaye’s critics “once and for all” by doing so. As stated above in [111] above in connection with the radio representations, the promise to give $1,000,000 to charity was no more than an attempt to emphasise the strength of Mr Kaye’s conviction about his ability. Ordinary reasonable members of the public would not have understood that Mr Kaye was making a qualified statement about his ability to make ordinary Australians “property millionaires” as he claimed. Subject to the meaning of “property millionaire” (see below), the representations (as pleaded in pars 14(b) or (g) and 21(b) or (f) of the statement of claim, as amended) were made.
113 Mr Kaye admitted that the Internet and newspaper advertisements represented that “those 5 people to be selected to become property millionaires would be representatives of the ordinary Australian”. That is, Mr Kaye admitted that, the pleadings in pars 14(c) and 21(c) of the statement of claim, as amended. His case on this representation was that it was not misleading or deceptive (see below).
114 Under a heading “1,000 more enlightened ‘Property Millionaires’ in 12 months”, the Internet and newspaper advertisements expressly stated that Mr Kaye would turn 1,000 ordinary people into Property Millionaires within 12 months with his strategies. Mr Kaye was to teach these strategies to the 1,000 who paid the enrolment fee for the IM Program. Counsel for Mr Kaye contended, nonetheless, that the statement that he “would turn 1,000 ordinary people into Property Millionaires within 12 months” was essentially a qualified one. In support of this submission, counsel relied on the various statements as to what Mr Kaye would do if he failed and, in particular, drew attention to Kaye’s statement that, if a participant followed “the steps” and “it doesn’t give you AT LEAST $50,000 in profits by the end of the program, I’ll refund the cost of your program, AND give you $50,000 on top”. Having regard to this, she contended that the only guarantee contained in these advertisements was that a person would achieve $50,000 profit. I do not accept, however, that ordinary reasonable members of the public would have understood that Mr Kaye’s clear statement that he would turn the participants in the 1,000 Property Millionaires program into property millionaires in 12 months was qualified by this guarantee because the guarantee offered something less. On the contrary, having regard to the tone and clear direction of these advertisements, such a person would be likely to understand that this “guarantee” was intended only to emphasise Mr Kaye’s conviction that these people would in fact be turned into Property Millionaires. Accordingly, subject to the meaning of “property millionaire” (see below) the representations (as pleaded in pars 14(d) or (h) and 21(d) or (g) of the statement of claim, as amended) were made.
115 Under the heading, “Five Reasons Why You Should Be At The $1 million Challenge”, Mr Kaye was reported, in the Internet and newspaper advertisements, as saying, “I will prove once and for all that I can teach anyone (and I mean anyone) to acquire a million dollar plus portfolio in 6 months”. Counsel for Mr Kaye submitted that there is no interpretation open other than Kaye would prove that matter as part of the challenge: he was not saying he would prove it at the free seminars. Certainly, there would in all probability have been some part of the Internet reading public who would have understood the statement in this way, because the advertisement on the Internet did refer to the Challenge as involving the training by Kaye of the five chosen attendees at the free seminars. This is not a complete answer, however, because the advertisements are ambiguous in this respect. The relevant heading suggested that, in this context, the $1 million Challenge was the “event”, or free seminar, which by reason of what Kaye was to do, would be booked out. I accept, that, as counsel for the Commission submitted, since the impression and understanding of a significant proportion of the relevant public would have been that “at the free seminars it would be proved that Henry Kaye could teach anyone to acquire a million dollar plus property portfolio within 6 months”, then ordinary or reasonable members of the Internet reading public would also have had this impression and understanding. Accordingly, the representation (as pleaded in pars 14(e) of the statement of claim, as amended) was made.
116 Also under the heading, “Five Reasons Why You Should Be At The $1 million Challenge”, the Internet also contained the statement that “[i]f you’re one of the 5 chosen attendees, you will be personally taught by me to build your million dollar property portfolio in 6 months using no money down, no equity and no debt”. The newspaper advertisements said as much in slightly different words. As noted above, they asserted that:
If you ARE chosen to be one of the 5, you’ll discover why you don’t need any money to secure a million dollar property portfolio. You don’t need any equity. You don’t need to take on any debt.
Counsel for Mr Kaye contended that, for the reasons mentioned in [111] to [112] above, this was not an unqualified statement. For the reasons stated in those paragraphs, I find, however, that ordinary or reasonable members of the reading public would not have considered the statement to be a qualified one. Accordingly, the representations (as pleaded in pars 14(f) and 21(e) of the statement of claim, as amended) were made.
117 The Commission submitted that the expression “property millionaire” meant a person having net wealth in property investments exceeding one million dollars. Mr Kaye contended that the expression “property millionaire” meant a person having an interest in property worth $1 million, or property to the value of $1 million. In support of this contention, counsel for Mr Kaye referred to the definition of “property millionaire” in the Internet and newspaper advertisements; and to the use of a symbol, which she described as prominent, to indicate that these words were intended to have a specific and defined meaning: see [12] and [15] above. There were other references in the advertisements (e.g., “properties worth”, “ a million dollar plus portfolio”, “profits”) that, according to her, confirmed Mr Kaye’s approach to the expression. Counsel contended that, since this was the meaning properly attributable to the expression “property millionaire”, a person who had a very small share in property valued at $1 million could be understood to be a “property millionaire” as much as a person who had 100% ownership of such property. Further, counsel submitted that a person could qualify as a “property millionaire”, for the purposes of the advertisements, notwithstanding that his or her interest in the property was burdened by substantial debt. In relation to the radio advertisements, counsel contended that the expression “property millionaire” was so vague as to be meaningless.
118 In Medical Benefits Fund, Stone J (with whom, on this matter, Moore J and Mansfield J agreed) reviewed the authorities and discussed the appropriate approach for a court to adopt in considering the significance of a symbol pointing to some qualification. Her Honour said, at [35] – [41]:
MBF submits that irrespective of the impression conveyed by the main part of the advertisements the written disclaimers were sufficiently prominent to bring the obstetrics waiting period to the attention of a person viewing the advertisements.
In support of its submissions MBF points to the decision of Moore J in George Weston Foods Ltd v Goodman Fielder Ltd (2000) 49 IPR 553 (‘Wonder White Case’). In that case Moore J held that an asterisk can be sufficient to draw the attention of a consumer to a qualification of a representation. That case concerned, inter alia, the packaging of bread which declared in large typeface ‘Now Twice the Fibre*’. Moore J observed, at 572, that:
‘the asterisk is prominent and would be taken to signify some qualification or explanation of the words used. One could expect a consumer interested in the fibre content to seek out the qualification or explanation. Not only is the explanation within 2 cm of the words used on the package (albeit in much smaller type) but it is repeated elsewhere on the packaging.’
While the Wonder White Case is authority that an asterisk leading to a qualification of a representation may be effective to neutralise an otherwise misleading or deceptive advertisement, whether this is so is a matter for determination in the specific circumstances of any particular case. The qualifying material must be sufficiently prominent to prevent the primary statement being misleading and deceptive or likely to mislead or deceive; Australian Competition and Consumer Commission v Signature Security Group Pty Limited [2003] FCA 3 at [26] - [27]; (2003) ATPR 41-908.
Signature Security involved, inter alia, the advertising of security systems for a price exclusive of any goods and services tax component. In that case, at [27], I commented:
‘The degree of prominence required may well vary with the potential of the primary statement to be misleading and deceptive. It seems to me that a representation that the price of goods is $295 is seriously misleading if the truth is that they are never available at that price. Even an astute observer noticing the asterisk and realising that it directs the reader to additional information might be led to believe that the goods were available for $295 at least in some circumstances. It is unlikely that such an observer would immediately conclude that they were never available at that price. In those circumstances it would take an extremely prominent reference to the additional information to prevent such a representation from being misleading.’
This reasoning is pertinent to the MBF advertisements in question, which presented the striking image of a pregnant woman with the waiver and claim tomorrow representations [as defined] (primary statements). The disclaimer qualified these representations. The impact of the fine print qualification is, however, disproportionate to the impact of the pregnancy image and the primary statements. The potential for the overall effect to be misleading and deceptive is immense.
In the billboard advertisements the disclaimer was flagged by an asterisk. In the television advertisements it was not. Rather the text, `12 month waiting periods such as pre-existing conditions and obstetrics still apply', appeared at the bottom of the screen, in small font, for less than five seconds. Even an astute and observant viewer may not have had sufficient time to peruse the fine print with sufficient care to notice the qualification and it is not unlikely that even a reasonably careful viewer might have been misled.
Asterisk or not, the disproportion in both the television and billboard advertisements between the dominant representations and the qualification of those representations was such that the qualification was insufficient to draw the attention of prospective customers to the fact that a waiting period applied for obstetrics claims. It is the entire effect, particularly the first impression, that makes the advertisements misleading. … .
119 Plainly enough whether the marked qualification in the newspaper and Internet advertisements affected the content of the representations in the manner for which Mr Kaye contended depends upon the overall effect of the advertisements in the circumstances in which they were published. As already stated, in this context, the matter is largely one of first impression.
120 In the Macquarie Dictionary, the word “millionaire” is defined to mean “a person worth a million or millions, as of pounds, dollars, or francs … a very rich person”. Bearing this in mind, the expression “property millionaire” would ordinarily be understood as a rich person, having a net wealth in property of at least $1 million dollars. Ordinary reasonable radio listeners would have understood the radio advertisements in this way. The thrust of the advertisements, whether on radio, the Internet or in the newspapers, was that Kaye’s strategies were a safe and secure means for an ordinary Australian to become rich. This was the dominant message. It is true that the Internet and newspaper advertisements carried some notation against the words “property millionaire”, which indicated there was a qualifying definition or similar applicable to the term. This definition did not appear until the end of the advertisements, which were lengthy, and it was in small print, which was unlikely to attract attention. Precisely what the definition meant was also unclear. Whilst ordinary reasonable members of the public might have wondered what the definition meant, they might well have been surprised to learn that it had the meaning for which Mr Kaye contended. I have little doubt that, given the prominence of the central message, ordinary reasonable members of the reading public would have understood the expression “property millionaire” to mean, as the Commission contended, a person having a net wealth in property of at least $1 million dollars. Further, I reject the submission, which was advanced by counsel for Mr Kaye, that such members of the public would have understood the word “secure”, in the context of these advertisements, to mean anything less than “own”. For these reasons too, I doubt that ordinary reasonable members of the relevant public would have attached any particular limiting significance to the reference to the availability, on the night, of terms and conditions (see [12] and [15] above). This reference appeared under the reference to “property millionaire”, with so little prominence that only a careful reader would have attended to it.
121 Accordingly, I find that the representations pleaded in pars 14(b) and (d) and 21(b) and (d) of the statement of claim as amended were made; and the alternative representations pleaded in pars 14(g) and (h) and 21(f) and (g) were not made.
The advertisements contained representations and were not mere puffery
122 Counsel for Mr Kaye submitted that some of the statements, especially in the radio advertisements, on which the Commission relied were in the nature of commendatory puffery and not of an actionable kind. Whether representations in an advertisement are actionable or merely in the nature of puffery depends on the particular facts, considered “in the light of the ordinary incidents and character of commercial behaviour”: see General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164, at 178 per Davies and Einfeld JJ; Pappas v Soulac Pty Ltd (1983) 50 ALR 231 at 234-235 per Fisher J; and Sanders v Glev Franchises Pty Ltd [2002] FCA 1332 at [270] - [274] per Kenny J.
123 As already noted, the advertisements were themselves an integral part of the campaign to respond to public criticism of the Kaye strategies; and the response was to assert that the criticism was wrong and would be proved to be wrong. In sum, the radio, the Internet and the newspaper representations would have conveyed the impression and understanding to at least a significant number of ordinary or reasonable readers or listeners that Kaye was saying that he could turn or make ordinary Australians into property millionaires by following his strategies; and that he would demonstrate this claim. This would not have been understood as mere puff in the context in which it was made. The context and tenor of the advertisements conveyed clearly that the representations were serious statements; and this was confirmed by various of Mr Kaye’s statements, including that he would give $1 million to charity if he could not turn the five volunteers in the $1 million Challenge into property millionaires in the manner he described.
The representations as to future matters are properly characterised as such
124 Were the representations alleged in paragraphs 8(a), 14(b), (c), (d), (e) and (f) of the statement of claim, as amended, representations as to future matters, as the Commission alleged? (For present purposes, if the relevant representations in paragraph 14 were properly so described, so too were the equivalent representations in paragraph 21, although, for the reasons already stated, s 51A(2) has no relevant operation with regard to the paragraph 21 representations.) If the relevant representations in paragraphs 8 and 14 of the statement of claim, as amended, were as to future matters, then the whole of s 51A of the TPA has an operation in relation to them.
125 The meaning of “future matter” for these purposes has been discussed in this Court in a number of cases: see, e.g., Ting v Blanche (1993) 118 ALR 543 (“Ting v Blanche”) at 552-553 per Hill J; Miba Pty Ltd v Nescor Industries Group Pty Ltd (1996) 141 ALR 525 (“Miba”) at 536 per Merkel J; and Sykes v Reserve Bank of Australia (1998) 88 FCR 511 (“Sykes”), at 514-515 per Heerey J and 518-521 per Sundberg J.
126 In Ting v Blanche, Hill J found that the respondent had represented that, if the applicants purchased a warehouse, then they could rent it out for between $70,000 and $80,000 a year, and that this was misleading and deceptive. In considering s 51A, his Honour said, at 552-553:
It will be readily apparent that a representation as to future conduct or a future event will generally imply (and sometimes explicitly state) that the maker of the representation was of a particular state of mind as to the future conduct or event as at the time the representation was made. … . It would be no less a representation as to the future by virtue of this implication.
…
Whatever may be the case where there is an express representation as to the maker’s state of mind concerning a future matter, it is not, in my opinion, correct to treat a representation as to an event or conduct in the future, be that in a form of a prediction or otherwise, as not being a representation with respect to a future matter merely because it implies a representation as to the maker’s present state of mind.
127 In Miba, on the other hand, Merkel J held that a representation about potential turnover was not, in the particular circumstances of the case, a representation as to a future matter. The applicants in Miba alleged that, in order to induce them to enter into a franchise agreement, the respondents made representations about the takings the business would make. They relied on a letter from one of the respondents concerning the weekly sales achieved at another franchise store. The letter stated the writer’s “understanding” that the average operator at the shopping centre in which the prospective franchisee proposed to open his store achieved sales in the order of $10,000 per week. This was compared with operators at another shopping centre, and the letter concluded by saying that “[t]his would lead us to believe that a well managed operation … could achieve sales of between $8000 and $12000 per week after adjusting for competition and demographics” (at 532). Merkel J held that this last-mentioned representation was not within s 51A of the TPA, observing, at 536:
[I]t is my view that [the representation] is properly characterised as a statement as to a present belief based on the grounds set out. In that context it relates to the capacity of the proposed outlet to achieve the sales projection. Although the sales projection necessarily has a future element in it that element does not transform the characterisation of the representation into one which is with respect to a future matter. In my view the applicability of s 51A is to be ascertained by a proper characterisation of the representation made in each case. It is difficult to see how s 51A can operate in a case such as the present where the grounds for the sales projection are expressly stipulated and an assessment of their reasonableness is left for evaluation by the representee. In these circumstances a representation that the grounds are reasonable, rather than that the representor believes that they are reasonable, is inconsistent with the representation made.
128 Miba was distinguished in Sykes, at 515 per Heerey J and 521 per Sundberg J. As Sundberg J observed in Sykes at 521:
The significance of Miba for present purposes is its insistence that whether a statement is with respect to a future matter depends on its proper characterisation in the context in which it is made.
129 Counsel for Mr Kaye contended that, although the representations referred to in [124] above contained “futuristic” elements, they were properly characterised as statements of Mr Kaye’s present intention to teach ordinary Australians how to become property millionaires. I reject this submission. Whilst these representations imply that Kaye had a particular state of mind as to some future conduct or event, they are substantially representations by him as to what he would demonstrate in the future and how he would demonstrate it and, as such, they are representations as to future matters.
Operation of s 51A
130 As already noted, in relation to the radio and Internet representations made with respect to future matters, the Commission relied on s 51A of the TPA. Section 51A(1) and (2) of the TPA provide:
(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 sub-section (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.
(3) … .
131 In Ting v Blanche at 552, Hill J said:
The section is but an interpretation section; it does not of itself create a cause of action, nor define a norm of conduct. The relevant cause of action is to be found in s 82(1) of the Act by reference to the norm of conduct laid down in s 52 of the Act. What s 51A does, in a practical sense, in cases where it applies, is to cast the burden of proof upon the respondent corporation who has made a representation about a future matter to show that in making that representation it had reasonable grounds for so doing. In the language of Sheppard and Neaves JJ in Cummings v Lewis (1993) 113 ALR 285; ATPR (Digest) 46-103, s 51A is "designed to facilitate proof" (at ALR 294; ATPR 53,450).
132 Where s 51A (2) applies, an applicant does not have to establish as a part of the cause of action that the respondent corporation did not have reasonable grounds for making the representation. As Goldberg J observed in Phoenix Court Pty Ltd v Melbourne Central Pty Ltd (1997) ATPR (Digest) 46-179 (“Phoenix Court”) at 54,432, s 51A(2):
throws the evidentiary burden on a respondent to establish that reasonable grounds for making the representation existed and in the absence of such evidence the deeming provision has the consequence that the representation is taken to be misleading. Section 51A does not create an independent cause of action separate from s 52 and other sections in Pt V of the Act but rather casts the burden of proof on the respondent and if that burden is not discharged then a breach of s 52 is established by the applicant proving the representation as to the future matter and the fact that it did not come to pass. [Citation omitted]
133 Referring to Universal Sports Challenge at [44]-[46] per Emmett J; Australian Competition and Consumer Commission v Danoz Direct Pty Ltd [2003] FCA 881 (“Danoz”) at [172]-[173] per Dowsett J; and Australian Competition and Consumer Commission v Oceana Commercial Pty Ltd [2003] FCA 1516 at [240] per Kiefel J, counsel for Mr Kaye contended that, once Mr Kaye adduced evidence of reasonable grounds, then it was for the Court to make a judgment, on the balance of probabilities, having regard to all the evidence, as to whether the corporation had reasonable grounds for making the representation. I reject this submission. Although their Honours adverted, in these cases, to the possibility that this might be the effect of s 51A(2), none decided that it was. As Dowsett J observed in Danoz at [173], most of the authorities indicate that the effect of s 51A is to place the evidentiary burden of reasonable grounds on the representor. I adopt this approach to s 51A(2), although I doubt that, in this case, the other approach would lead to a different result.
134 It does not, however, follow from this that s 51A removes all judgment as to the quality of the representation. As Lee J said in Wheeler Grace and Pierucci Pty Ltd v Wright (1989) ATPR 40-940 (“Wheeler Grace”) at 50, 254:
The section provides that a representation with respect to any future matter “shall be taken to be misleading” if the corporation does not have reasonable grounds for making the representation. It does not deem such a representation to be misleading conduct. It provides that representations “shall be taken to be misleading” which indicates that there is a matter of judgment or decision remaining to be exercised as to the quality of the representation.
As will be seen, counsel for Mr Kaye also relied on this aspect of the operation of s 51A, when submitting that the relevant representations were incapable of being misleading or deceptive.
135 In Ting v Blanche at 552, Hill J also said:
Representation as to future facts may, of course, constitute conduct which is misleading or deceptive or likely to mislead or deceive within s 52 of the Act, irrespective of the operation of s 51A. However, without the intervention of s 51A the burden would remain upon the applicant to show that the representation, in whatever form it took, was misleading or deceptive or likely to mislead or deceive. In the ordinary case where a representation as to future conduct or events is alleged to have been made, that means that the burden would be upon the applicant to show not merely that the conduct or event has not come to pass but also that at the time the representation was made the respondent did not believe that the conduct or event would come to pass or that there was no basis for a belief that the conduct or event would come to pass: James v ANZ Banking Group Ltd (1986) 64 ALR 347, Global Sportsman Pty Ltd v Mirror Newspapers Pty Ltd (1984) 2 FCR 82 at 88.
His Honour’s observations are apposite in connection with the newspaper representations: see also Phoenix Court at 54,432 per Goldberg J. In this proceeding, the parties conducted the case upon the basis that, whilst s 51A(2) had no operation (see [38] above), s 51A(1) remained applicable. As Lee J in Wheeler Grace at 50,254, s 51A(1) “has the effect of either stating the law as it stood prior to the amendment or extending it”. Having regard to the observations of Hill J to which reference has just been made, I would agree with Lee J. The parties accepted that, in order to make out its case with regard to the newspaper representations, it was incumbent on the Commission to establish that, in so far as the newspaper representations were as to future matters, there were no reasonable grounds for making them.
Mr Kaye did not show reasonable grounds
Statement of Claim, as amended, pars 8(a), 14(b), (c), (d), (e) and (f)
136 Mr Kaye adduced no evidence relevant to the particulars of his defence set out at [30] above. As counsel for Mr Kaye noted, there are cases in which the alleged representor may not be best placed to give evidence of reasonable grounds: compare Cummings v Lewis (1993) ATPR (Digest) 46-103 at 53, 449 per Sheppard and Neaves JJ. These particulars, however, called for evidence from Mr Kaye or, perhaps, from some other suitable person. None was forthcoming. This part of Mr Kaye’s defence fails for want of evidence.
137 Mr Kaye’s case at trial on reasonable grounds necessarily focused on the matters identified in the particulars set out at [31] above. His counsel laid some emphasis on the strategies that were the subject of the IM Program, including the identification of suitable properties by “due diligence”, the preparation and presentation of investment plans to potential investors, the identification of “joint venture” partners from amongst family, friends and business associates, the need to perform “extreme finance due diligence”, the need to consider the availability of different methods of financing, the need to establish relationships with real estate agents and valuers, and the identification and consideration of the characteristics of different kinds of property, including the advantages of off-the-plan developments. As already noted, however, the significance of these strategies was the subject of expert evidence from Messrs Keck and Dudakov. As already stated, they were both credible witnesses, whose evidence I have preferred to any relevant evidence touching this part of the case given by Mr Barnard (who was plainly more partisan than they).
138 Counsel for Mr Kaye contended that the Kaye strategies were essentially very simple; and that the evidence showed that it was possible for the ordinary Australian to follow them and secure relevant property. She submitted that the Court ought not consider any question of profitability, observing:
Of course, Mr Kaye doesn’t know how they’re going to implement [the strategies] in their own personal life and he can’t take responsibility for that.
She submitted that, in order to make out reasonable grounds, it was sufficient if the evidence established that all that Mr Kaye said “can be done”.
139 As we have seen, if I rejected his submissions concerning the meaning of “property millionaire”, Mr Kaye did not seek to argue that there were reasonable grounds for the statements made in pars 8(a) and 14(b) and (d) (or 21(b) and (d) discussed below) of the statement of claim, as amended, although he did contend there were reasonable grounds for the representations in pars (c), (e) and (f) (and the balance of the “future” representations in par 21: see below). That is, counsel for Mr Kaye contended that, if these representations were future representations, then Mr Kaye had “reasonable grounds for making the statements which do not rely upon the definition of ‘property millionaire’ to mean net equity of $1 million”. In order to make out reasonable grounds, Mr Kaye relied on the strategies set out in the course materials (the modules) and the evidence of Messrs Keck, Dudakov, Barnard and the witness who described himself as a professional property investor (referred to in the following discussion as “the investor”): see [95] and following.
140 As Heerey J said in Sykes at 513:
If there was a representation as to a future matter, s 51A requires the representor to show:
· some facts or circumstances
· existing at the time of the representation
· on which the representor in fact relied
· which are objectively reasonable and
· which support the representation made.
What is evidence of reasonable grounds depends on the circumstances of the case.
141 On the one hand, counsel for Mr Kaye referred to the fact that both Messrs Keck and Dudakov agreed that much of the IM Program was common sense. According to her, if the expression “property millionaire” meant a person who had secured a million dollars of property in his or her own right (or in a joint venture or syndicate) then the experts agreed that “the co-opting strategy would enable someone to secure $1 million worth of property with no money down, no equity and without incurring debt”. She relied on Mr Dudakov’s evidence that, taken as a whole, the course “modules” were helpful to potential investors; it was possible for the strategies to be implemented; and that, if a deal were a good one, a financier would be found. She emphasised that:
The eligibility criteria of the Million Dollar Challenge was that the five participants would spend between 10-25 hours per week learning the strategy. Over a six month period this equates to between 250-600 learning hours. In addition, as made clear in the letter from NII to the applicant they were to receive personal coaching from Kaye.
142 The Commission submitted, on the other hand, that Mr Dudakov’s evidence did not support any basis for reasonable grounds for belief in the representation. Counsel for the Commission noted that Mr Kaye apparently conceded that, if it were found that “property millionaire” had the meaning for which the Commission contended, then this would be the end of the case. I do not, however, consider that counsel for Mr Kaye intended this at all: neither her conduct of the case nor her final submissions reflected such an understanding.
143 I accept that Messrs Keck and Dudakov agreed that the IM Program material contained much common sense and would have assisted inexperienced property investors. I also accept Mr Keck’s evidence that there were practical obstacles to an ordinary Australian’s pursuit of the core course strategies. This was clearly demonstrated in his evidence.
144 Mr Keck’s evidence at [49] was, and I accept, that it was extremely difficult to buy below market value, because, as he pointed out, there were various factors that tended to maximise the purchase price, notwithstanding the buyer’s best endeavours to the contrary. Further, for the reasons given by Mr Keck (which I find cogent) I accept that it was rare to obtain significant discounts from developers. I also accept his evidence that renounceable contracts were not ordinarily available in the general residential or residential sub-apartment market; that, though theoretically possible, it would generally be difficult to co-opt friends and acquaintances as investors either to put up their own money or to incur a liability in respect of borrowed funds, especially where the co-opting party proposed to use no money of his or her own and to incur no liability in respect of borrowed funds. Further, I prefer Mr Keck’s evidence to that of Mr Dudakov concerning a borrower’s capacity to persuade a valuer to make a significantly higher valuation than otherwise. The investor’s evidence showed very limited success in this regard. I accept Mr Keck’s evidence, based on his experience, that, generally, valuers have little, if any, contact with borrowers, such contact not uncommonly being prohibited by the lender for whom the valuer acted. Whilst I accept that, as Mr Dudakov’s evidence indicated, there may be instances in which an investor could discharge the level of due diligence recommended in the Kaye strategies, I accept Mr Keck’s evidence that, at least in many instances, the recommended level of due diligence would be virtually impossible to achieve.
145 As Mr Keck maintained, and the investor’s evidence exemplified, I find that it was likely that many participants in the IM Program, who were exposed to its course materials, would have completed the course with varying degrees of false anticipation about their ability to make wealth out of property investment, by carrying out the Kaye strategies. I accept that, as Mr Keck maintained, the Kaye strategies focused on buying below market value, presenting the property at a higher value to valuers and financiers to assist with 100% finance, and selling at a profit. This is confirmed by the course material. As the evidence of Mr Keck and the investor highlighted, the Kaye strategies were deficient because, in many instances, they did not address who was going to take on the debt or put up the equity to enable the investment to proceed. If property were to be “secured” by anyone, with no money down, no debt, no equity and no risk, it could only be done with co-opted parties providing all the funds or taking all the borrowing liability and risk. As Mr Keck said, this would ordinarily be an extraordinary arrangement.
146 Mr Keck’s evidence was, and I accept, that an inexperienced property investor, having completed the course in which the Kaye strategies were taught, would not be in a position to take practical advantage of these strategies in any real market. I accept his evidence that an ordinary Australian would have virtually no prospects of accumulating sufficient wealth to be a “property millionaire” (in the sense of having net wealth in property of $1 million) simply by applying the knowledge he could acquire from the course in the two years or so following its completion. As Mr Keck said, even joining together, ordinary Australians would not have “the financial horsepower”, that would support the requisite borrowing. I find that, as Mr Keck said, it would be virtually impossible for five people to become property millionaires (in this sense) in six months with no money down, no debt, no equity and no financial risk. Further, I accept Mr Keck’s evidence that whether a “property millionaire” meant (as I have found) a person having net wealth in property exceeding $1 million or a person who has secured a million dollars worth of property in a joint venture or otherwise, it was unlikely that such a person, being an ordinary Australian, could be involved in a joint venture or syndicate without incurring some liability for the debt that the joint venture or syndicate carried. Even if the expression, “property millionaire”, had the more limited meaning for which Kaye contended, I accept that, as Mr Keck said, the strategies could assist some individuals to secure $1 million worth of property, but only with very considerable difficulty and uncertainty of success.
147 When Mr Dudakov’s evidence is considered as a whole, it was consistent with that of Mr Keck in a number of respects, including that some Kaye strategies were impossible to achieve. Although some of Mr Dudakov’s evidence was apparently supportive of Mr Kaye, when it is examined, it would appear that, in some cases, it was based on assumptions that even Mr Dudakov conceded were faulty. For example, his evidence in cross-examination was that there was, as Mr Keck said, limited opportunity for a purchasing borrower to speak with the lendor’s valuer. When Mr Dudakov’s disagreement with Mr Keck over purchasing “below market” and co-opting other parties is considered, it is apparent that the disagreement is more about characterisation and emphasis than about the facts. Mr Dudakov did not contravert Mr Keck’s essential point that, in the main, all joint venturers would be obliged to contribute funds or carry some of the debt.
148 Since I have found that the expression “property millionaire” referred to a person having net wealth in property of a million dollars or more, Mr Dudakov’s evidence is, in any case, of limited assistance to Mr Kaye, because, as already noted, his evidence was based on attributing a different meaning to the expression. Even on the basis of the more limited definition, Mr Dudakov conceded that, although perhaps not impossible, it was not the “norm” to acquire property portfolios of value other than by the investment of personal funds, borrowing, or inheritance. Mr Dudakov’s evidence was, in effect, that the strategies would assist in enabling ordinary Australians to accumulate wealth through property investment, and not that it could reasonably be expected that they would acquire such wealth. His evidence amounted to no more than this: although not the “norm”, if the deal was right, prospective investors could be found; with luck, an investor might make very large sums of money out of property investment; and, in the normal course, no property could be commercially acquired other than by an investor putting up his own funds or borrowing them (in which case, he would need to service the borrowing). When regard is had to Mr Dudakov’s definition of “property millionaire”, it is apparent that his disagreement with Mr Keck is relatively slight.
149 Counsel for Mr Kaye submitted that the evidence of the investor was “overwhelmingly proof that due diligence and equity/debt co-opting strategies can be understood and implemented by the ‘ordinary Australian’”. She submitted that his experience illustrated that, despite Mr Keck’s reservations, persons who have been taught the strategies can successfully implement them. I reject these submissions. As counsel for the Commission submitted, although the witness was (quite properly in the circumstances) not subject to vigorous cross-examination, his evidence made it abundantly clear that his claims to be a successful professional investor were without foundation. His evidence did not advance Mr Kaye’s case. His evidence showed that a person might, by studying the Kaye strategies, acquire some limited information about property investment and the confidence to enter the property market. His evidence showed that he had a very limited grasp of the legal and financial significance of the transactions in which he was involved.
150 Counsel for Mr Kaye submitted that the evidence of Mr Fowler was either irrelevant or should not be accorded any weight. The Commission also conceded that his evidence did not take the case very far. I accept this submission, because Mr Fowler’s evidence was, in substance, directed to the extent to which former customers of NII had the capacity to raise loan funds for their investments. Nothing ultimately turned upon this question.
151 Mr Kaye did not establish that he had reasonable grounds for the representations in question, in the manner asserted in the particulars accompanying his statement of claim, as amended. It will be recalled that, by way of particulars, Mr Kaye had asserted that “it was likely, and/or there was a reasonable chance” that certain strategies, which were identified, would enable a person to become a property millionaire (i.e., having an interest in property worth $1 million) in six months using no money down, no debt and no equity. This is not made out on the evidence (unless the term “property millionaire” is understood as not indicative of wealth and/or is virtually meaningless). Furthermore, the evidence did not show that it was reasonably practicable to follow the Kaye strategies and that there was a reasonable prospect of achieving the results to which Mr Kaye referred. I accept the Commission’s submission that this was, in the circumstances of the case, what was required for Mr Kaye to make out his case of reasonable grounds. It was not sufficient for him merely to establish, as his counsel submitted, that, by following these strategies, a person might achieve the promised results, irrespective of the improbability of so doing.
152 As noted above, Kaye conceded that, in the case of paragraphs 8(a), 14(b) and (d) of the statement of claim, as amended, he could not make out a case of reasonable grounds if the expression “property millionaire” was understood to mean having net wealth in property investments exceeding one million dollars. The concession was plainly properly made, having regard to the evidence. By virtue of the concession, which is borne out by the evidence, and s 51A, the following radio or Internet representations are to be taken to be misleading:
Kaye would teach 5 volunteers (who are ordinary Australians) to become property millionaires (meaning having net wealth in property investments exceeding one million dollars) in 6 months without using their own money or taking on the risk of debt: statement of claim, as amended, par 8(a).
Kaye would make 5 ordinary Australians into property millionaires (meaning having net wealth in property investments exceeding one million dollars) in just 6 months using no money down, no debt and no equity: statement of claim, as amended, par 14(b).
Kaye would turn 1,000 ordinary people into property millionaires (meaning having net wealth in property investments exceeding one million dollars) within 12 months: statement of claim, as amended, par 14(d).
153 This left the following representations:
Those 5 people to be selected to become property millionaires would be representative of the ordinary Australian: statement of claim, as amended, par 14(c).
At the free seminars it would be proved that Henry Kaye could teach anyone to acquire a million dollar plus property portfolio within 6 months: statement of claim, as amended, par 14(e).
Kaye would teach 5 volunteers to build a million dollar property portfolio in 6 months using no money down, no equity and no debt: statement of claim, as amended, par 14(f).
154 It follows from the foregoing discussion that Mr Kaye did not make out reasonable grounds for the representation pleaded in paragraph 14(f) of the statement of claim, as amended; and I so find.
155 As noted above, by paragraph 19(b) of his Defence, Mr Kaye admitted that, at the free seminars, he did notprove that he could teach anyone to acquire a million dollar plus property portfolio within six months; and that therefore the statement was not fulfilled. Again, it follows from the foregoing discussion that Mr Kaye did not make out reasonable grounds for the representation pleaded in paragraph 14(e) of the statement of claim, as amended; and I so find.
156 Further, as the earlier discussion shows, Kaye did not establish that there were any reasonable grounds for the representation, forming part of the pleading in paragraph 14(c), that the five selected persons would “become millionaires” in any sense at all. That is not, however, how the parties approached this representation. Instead, the parties focused on the representation so far as it concerned the selection of ordinary Australians. Counsel for Mr Kaye relied on a letter dated 24 September 2003 from a Mr Guy Solling (described as General Counsel). Mr Solling wrote to the Commission concerning the Challenge and informed it that he was instructed that these five people would not be chosen at random but on merit. A copy of a brochure accompanying the letter stated that an independent judging panel would select the five persons and referred to conditions of eligibility. There was, however, no evidence from Mr Kaye or anyone else concerning the composition of the panel or any specific criteria that it was to apply in making its selection. Mr Kaye was in court for much of the trial and it could not be suggested that he was unavailable to give this evidence. In the circumstances, I am not satisfied that Mr Kaye has shown that he had reasonable grounds for the representation that the effect of the panel’s choice would be to select five representative “ordinary Australians”.
157 As already noted, the parties accepted that, in order to make out its case with regard to the newspaper representations, it was incumbent on the Commission to establish that, in so far as the newspaper representations were as to future matters, there were no reasonable grounds for making them. As also noted above, Kaye conceded that, in the case of paragraphs 21(b) and (d) of the statement of claim, as amended, he could not make out a case of reasonable grounds if the expression “property millionaire” was understood to mean having net wealth in property investments exceeding one million dollars. Has the Commission positively shown, however, that there were no reasonable grounds for the newspaper representations? These representations were:
Kaye would make 5 ordinary Australians into property millionaires (meaning having net wealth in property investments exceeding one million dollars) in just 6 months using no money down, no debt and no equity: statement of claim, as amended, par 21(b).
Those 5 people to be selected to become property millionaires would be representative of the ordinary Australian: statement of claim, as amended, par 21(c).
Kaye would turn 1,000 ordinary people into property millionaires (meaning having net wealth in property investments exceeding one million dollars) within 12 months: statement of claim, as amended, par 21(d).
Kaye would teach 5 volunteers to build a million dollar property portfolio in 6 months using no money down, no equity and no debt: statement of claim, as amended, par 21(e).
158 The evidence of Mr Keck established that there were no reasonable grounds for the representations pleaded in paragraphs 21(b), (d) and (e), and I so find. The evidence of the investor confirmed this want of reasonable grounds. I have already observed that the weight to be accorded the evidence of Mr Dudakov was affected by the fact that it rested on a definition of property millionaire that I have rejected; and, in any event, on examination, his differences with Mr Keck were not significant.
159 As already noted, in connection with the pleading in paragraph 21(c), the parties concentrated on the claimed selection of ordinary Australians. I am not satisfied, however, that the Commission has established that there were no reasonable grounds for this claim. The published conditions and what is known of the selection process did not exclude the selection of such persons.
The non-future representations were misleading and deceptive
160 The representations that did not attract s 51A were:
Kaye could turn ordinary Australian into property millionaires: statement of claim, as amended, par 8(b);
Anyone, by following Kaye’s property investment strategies, can acquire a million dollars plus property portfolio with no money down, no equity, no debt and price protection guarantee (meaning that if the market were to go down, they would not lose money): statement of claim, as amended, pars 14(a); 21(a)).
161 The application of s 52 of the TPA is not restricted to conduct that is intended to mislead or deceive: see Puxu at 197 per Gibbs CJ; and Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216, at 228 per Stephen J. As Gibbs CJ observed in Puxu, at 197:
A corporation which has acted honestly and reasonably may therefore nevertheless be rendered liable to be restrained by injunction, or to pay damages, if its conduct has in fact misled or deceived or is likely to mislead or deceive.
162 The conduct complained of must, however, be viewed as a whole. Again, as Gibbs CJ observed in Puxu, at 199:
It would be wrong to select some words or act, which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. It is obvious that where conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words.
163 A statement in an advertisement will be misleading or deceptive, or likely to mislead or deceive, for the purposes of s 52 of the TPA, if any reasonable interpretation of it would lead ordinary or reasonable members of the class to whom it is addressed into error: see [107] above; and Campomar at 85-86. There must be a sufficient nexus between the impugned conduct and the misconception or deception that arises in consequence of the impugned conduct: Campomar at 83, 85.
164 Counsel for Mr Kaye contended that the representations pleaded in paragraphs 8(b), 14(a) and 21(a) of the statement of claim, as amended, were properly characterised as statements of opinion, rather than statements of fact, and their capacity to mislead or deceive should be assessed accordingly. I reject this submission. Numbers of ordinary or reasonable members of the listening or reading public would reasonably have perceived the representations as statements of fact. They were held out as such in the advertisements in which they were made. The statements concerned the acquisition of the status of “property millionaire” or the acquisition of a million dollar portfolio, which was held forth as an objectively achievable status. This was underscored in the electronic and print forms by the definition that attached to the expression “property millionaire”. In the context of the advertisements, a property millionaire was someone who had a “million dollars plus property portfolio”. The latter expression was just another way of referring to the acquisition of the status of a property millionaire, being a person having net wealth in property investments exceeding $1 million dollars. The representations were reasonably open to be interpreted as a statement of fact and, having general regard to the matters discussed at [144]-[149] above, they were plainly misleading and deceptive. The lack of evidence that any specific person or persons was misled does not, in the circumstances of the case, persuade me to a contrary view. An inexperienced property investor, or “ordinary Australian”, having been taught the Kaye strategies, would not be in a position to take practical advantage of these strategies in any real market. An ordinary Australian would have virtually no prospects of accumulating sufficient wealth to be a “property millionaire” or acquire “a million dollars plus property portfolio” (in the sense of net wealth) simply by following the Kaye strategies: see generally [144]-[149] above.
165 In final submissions, counsel for Mr Kaye also contended that the Commission’s pleading was fatally flawed. The Commission’s pleading in paragraph 9 of the statement of claim, as amended, was that Kaye could not turn ordinary Australians into millionaires; and, by way of particulars, referred to Annexure E. Annexure E listed some propositions about the capacity of ordinary Australians to acquire wealth by means of property investment, which was the subject of much of Mr Keck’s evidence. The point made by counsel for Mr Kaye was that “the plea does not rely on any allegation that the strategies in the IM Program could not be achieved”. She reiterated and expanded on this submission in reply. She submitted that the Commission had failed properly to plead lack of reasonable grounds. She said that the Commission had not, in its pleading, said why the representations in the “1,000 Property Millionaires” Challenge were false or why the Kaye strategies would not work. There was, she said, also no evidence of these matters. I reject this submission. The Commission’s pleading included Annexures D and F. Annexure F specifically challenged the practicability or workability of the strategies. Mr Keck gave ample evidence about these matters. As counsel for the Commission noted, Annexure D contained a lengthy list of impugned Kaye strategies, the challenge to which was confined by the parties’ subsequent pleadings and the conduct of the case. There was no substance to the pleading submission made on behalf of Mr Kaye and, in any case, the point was taken much too late in the day. The case had been opened and run without Mr Kaye raising the point. Mr Kaye’s case was conducted throughout in the full knowledge of the Commission’s case against him. The trial was conducted by both parties on the basis that, if the evidence of Mr Keck were accepted, then this was evidence that the strategies in the IM Program were either impractical or could not achieve their ends; and, in this event, the Commission’s case about the misrepresentations and deceptions would be made out.
166 Counsel for Mr Kaye also submitted that the representations were not capable of being misleading or deceptive because they were not capable of being acted on without further inquiry. She submitted further that the advertisements did not promote or offer any product for sale. In final written submissions, counsel said:
The advertisements did no more than announce a challenge to teach people how to become ‘property millionaires’ and invite the public to attend or register for an information evening to learn the terms and conditions applicable to the challenge. The purpose and, as it turned out, the effect of the advertisements was to attract the public to the information evenings but that is all they did. In short, the public could not act on the advertisements without further inquiry. Those that were interested enough attended the information evenings and received further information about the Million Dollar Challenge and the 1000 Property Millionaires Challenge. Those that did not attend were not misled about anything.
167 Although attendees at the free seminars were given more information about the challenge, NII, the Kaye strategies and NII’s products, this does not mean that the representations in the advertisements were not misleading. There may have been members of the public who attended the free seminars and lost interest in the Challenge and the Kaye strategies as a result, although this was not the object of the seminars. It does not follow from this, however, that ordinary and reasonable members of the public were not misled or deceived into believing that, by following the Kaye strategies, ordinary Australians could become property millionaires: compare Cassidy at [59] per Hill J. As Stone J said, on appeal, in Medical Benefits Fund at [43]:
Although evidence of the public being misled or deceived may be persuasive, it is not necessary for there to be any such evidence; Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177. The submissions that there is room under the TPA … for publication of misleading or deceptive advertising so long as it is corrected by later material is not sustainable. [Section 52 of the TPA] prohibits conduct that is ‘misleading or deceptive or is likely to misled or deceive’ and neither intent nor effect is determinative of whether the conduct is in breach of this provision; Yorke v Lucas (1985) 61 ALR 307 … at 666 and Equity Access Pty Ltd v Westpac Banking Corporation (1989) 16 IPR 431 at 441. Nor is it to the point that the misleading or deceptive impression may or will be corrected before or after any contract is made. Whether a representation is misleading or deceptive (or likely to be so) depends on the circumstances in which it is made and not on what might happen in the future; St Luke’s Health Insurance v Medical Benefits Fund of Australia Limited (1995) ATPR 41-428; Minister for Health and Aged Care v Harrington Associates Ltd (2000) 107 FCR 212.
Her Honour’s observations are applicable in this case. For the reasons her Honour gives, I reject the submission referred to in [165] above. Further, as already stated, I reject the submission that the representations were relevantly qualified. I find, on the balance of probabilities, that a not insignificant part of the listening and reading public, being “ordinary” or “reasonable” members of it, were mislead or deceived or likely to have been misled or deceived by the representations pleading in paragraphs 8(b), 14(a) and 21(a) of the statement of claim, as amended.
The newspaper advertisements were made “on behalf of” NII
168 In order to succeed against Mr Kaye under s 75B of the TPA in respect of the newspaper representations, it was necessary for the Commission to establish that the newspaper representations were made on behalf of NII. As noted at the outset of these reasons, the Commission relied on s 84(2) of the TPA in respect of the newspaper advertisements. Section 84(2) relevantly provides:
Any conduct engaged in on behalf of a body corporate:
(a) by a director, servant or agent of the body corporate within the scope of the person’s actual or apparent authority; …
(b) …
shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.
169 Lindgren J discussed s 84(2) in NMFM Property Pty Ltd v Citibank Ltd (No 10) (2001) 186 ALR 442 at 702, where his Honour said:
It seems to me that an act is done ‘on behalf of’ a corporation for the purpose of s 84(2) if either one or two conditions is satisfied: that the actor engaged in the conduct intending to do so ‘as representative of’ or ‘for’ the corporation, or that the actor engaged in the conduct in the course of the corporation’s business, affairs or activities. This view accords with what Kiefel J said in Lisciandro v Official Trustee in Bankruptcy (1995) 80 PR 41–436 at 40,903‑4.
170 For the reasons I am about to give, I find that Kaye published the newspaper advertisements in the course of NII’s business or activities and on behalf of NII.
171 There was a large body of evidence that the newspaper advertisements were made “on behalf” of NII. The evidence established that Mr Porritt, who was a director of NII, placed the advertisements. Mr Porritt did not give evidence. The unchallenged affidavits of Ms Stronach, Ms Bourke, Mr Humphrey, Mr Leahy and Ms Moore established that Porritt placed the newspaper advertisements in the AFR, SMH, The Sunday Telegraph, The Age and The Herald Sun newspapers. In her affidavit, Ms Stronach, who was the Manager of the Agency Team selling advertising space in the AFR, set out the procedures for booking and placing advertisements with the AFR. Exhibited to her affidavit were documents that, in accordance with these procedures, were produced in respect of advertisements booked for proposed publication dates of 6 and 12 September 2003, bearing the name of “Nicholas” on NII letterhead, “Nicholas Porritt”, and “Nicholas” at National Investment Institute, credit card details, a fax number and an email address Nicholas.Porritt@nii.com.au. I infer that Porritt gave the instructions and confirmed the booking in the name of NII. A copy of the advertisement, which appeared on the relevant dates, was exhibited to her second affidavit. Ms Bourke’s evidence was to similar effect, save that it related to The Sunday Telegraph. Exhibited to Ms Bourke’s affidavit were documents that, in accordance with the newspaper’s procedures, were produced in respect of advertisements booked for proposed publication dates of 7 and 14 September 2003, bearing the name of “Nicholas Porritt and “National Investment Institute”. Ms Bourke deposed:
[O]n the basis of my investigations that [NII] had applied for a credit trading account with the newspaper when the first of the advertisements was booked. The advertisement published on 7 September 2003 was paid for prior to its publication, because [NII’s] application for its credit card account was still being process[ed] at the time. Payment for that advertisement was made by $10,000 being charged to diners club card number 36172962760018 in the name of card holder Leonard N. McDowall; and by a cheque for $8,452.42 (cheque number 104879 drawn by [NII] by the Commonwealth Bank in Melbourne). The newspaper subsequently approved [NII’s] application for a thirty day credit trading account and the ad published on 14 September 2003 was charged to that account.
It is apparent from this that the first advertisement was paid for on the credit card of NII’s Chief Executive Officer, whilst the subsequent advertisement was charged to the credit trading account in the name of NII.
172 Similarly, Porritt booked the advertisements in The Age and charged payment to an account in the name of “Choice Property Group”. Save that Mr Humphrey’s affidavit evidence related to placing advertisements in The Age, it was to similar effect as that of Ms Stronach and Ms Bourke. Exhibited to his affidavit were documents that, in accordance with the newspaper’s procedures, were produced in respect of advertisements booked for proposed publication dates of 6 and 14 September 2003, bearing the name of “Nicholas” or “Nicholas Porritt” and National Investment Institute (as well as “Choice Property Co”). Porritt also booked the advertisements in The Herald Sun, and charged payment to NII’s account. In his affidavit, Mr Leahy gave evidence concerning the placing of advertisements in The Herald Sun on 7 and 12 September 2003. Exhibited to his affidavit were documents that, in accordance with the newspaper’s procedures, were produced in respect of the advertisements, bearing the name of “Nicholas” or National Investment Institute. Lastly, Ms Moore’s affidavit established that Porritt, who applied for an account in the name of NII, also booked the advertisements in the SMH.
173 I find that, as Mr Barnard said in cross-examination, the Kaye strategies of property investment, which were promoted in the Challenge, were NII’s product: see [93] above. The adverse criticism to which the advertisements referred was criticism of NII’s products; and NII’s products bore Henry Kaye’s image and identity: see [93] above. I accept that, as Mr Barnard said, the advertisements and free seminars were part of the one promotional strategy; and that the 1,000 “Property Millionaires” Program was an integral part of the Challenge. Having regard to the transcript of the free seminar in Melbourne on 15 September 2003, it is plain enough that the evident object of the 1,000 “Property Millionaires” program was to induce 1,000 people to pay an enrolment fee in the IM Program (i.e., to sell the IM Program to 1,000 members of the public). Mr Barnard could not deny that this aspect of the Challenge had the potential to lift revenue for NII. It was, after all, NII that guaranteed the results of the IM Program to the potential participants in it: see [93] above. The evidence of Messrs Barnard, Azize and Crouche established that the free seminars were a means of obtaining expressions of interest in the NII products from consumers. After the seminars, as this evidence established, NII marketing people telephoned those who had expressed interest, with a view to arranging a consultation concerning NII’s products. The evidence clearly establishes that the newspaper advertisements were made “on behalf of” NII.
kaye caused the advertisements to be published on behalf of nii with actual or apparent authority to do so
174 Mr Kaye was a director and ultimate owner of NII, being the sole shareholder in the ultimate parent company. Accordingly, he had implied actual authority to broadcast and publish the newspaper advertisements on behalf of NII within the rule in Re Duomatic Ltd [1969] 2 Ch 365 (“Duomatic”). See Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 (“Brick and Pipe”) at 314-320 per Ormiston J. The Appeal Division of the Supreme Court of Victoria found it unnecessary to decide whether the rule in Duomatic applied: see [1992] 2 VR 279 at 369.
175 The Commission also submitted (and I find) that the majority of the Board of Directors of NII at the time gave their consent to, or acquiescence in, the publication of the newspaper advertisements. Porritt, as found above, placed the advertisements on behalf of NII. Kaye admitted that he caused the newspaper advertisements to be published, but said (and I reject) that they were not published for or on behalf of NII. Although Mr Barnard gave evidence to the effect that the Challenge was Kaye’s idea, that it received no Board approval, and that he was told by Kaye that the Challenge was his affair, Mr Barnard’s evidence in cross-examination made it clear that he knew that the placing of the newspaper advertisements was part of a promotional campaign to market NII’s products, and that he took no steps to prevent Kaye from proceeding with it. In these circumstances, I accept that, as the Commission submitted, there was at least the implied consent or acquiescence of a majority of the Board, if not the entire Board, constituting implied actual authority: see Brick and Pipe at 319; and Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 132-134 per Clarke and Cripps JJA.
Kaye is not liable as an accessory
176 There is little doubt that the officers of a corporation whose conduct is attributed to the corporation (by the operation of s 84) and in respect of which the corporation is in breach of s 52 may, by that conduct, be themselves “involved in the contravention” within the meaning of s 75B: see Yorke v Lucas (1985) 158 CLR 661 (“Yorke v Lucas”) at 670 and 677. In the present case, NII contravened s 52 of the TPA by publishing the newspaper advertisements containing representations that would lead ordinary or reasonable members of the public to believe that they could obtain significant net wealth ($1 million or more) in property investments by adopting the Kaye strategies, being the strategies taught by NII in its IM Program, when the fact was that it was not reasonably practicable to obtain such wealth by following such strategies.
177 Counsel for Mr Kaye submitted that Mr Kaye could not be liable as an accessory to any contravention by NII of s 52 of the TPA. Having regard to the transcript of the free seminar in Melbourne and to Mr Solling’s letter (see [156] above), it was apparent, so she said, that Kaye very much believed in the strategies taught in the IM Program. She submitted that there was no evidence to support the submission that Kaye knew that his strategies were not reasonably capable of achieving the represented results or that he knew the representations were misleading or deceptive.
178 Section 75B of the TPA relevantly provides that a reference to a person involved in a contravention of s 52 shall be read as a reference to a person who has “aided, abetted, counselled or procured the contravention” (s 75B(1)(a)) or who “has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention” (s 75B(1)(c)). Section 75B indicates the various ways in which a person can be involved in a contravention sufficiently to extend to the making of compensatory orders against that person.
179 In relation to s 75B(1)(a), Mason ACJ, Wilson, Deane and Dawson JJ said in Yorke v Lucas at 667:
[T]he words used, ‘aided, abetted, counselled or procured’, are taken from the criminal law where they are used to designate participation in a crime as a principal in the second degree or as an accessory before the fact. Both in the case of felonies where the principal offender and secondary participant commit separate offences, and in the case of misdemeanours where no distinction is drawn between the two, a person will be guilty of the offences of aiding and abetting or counselling and procuring the commission of an offence only if he intentionally participates in it. To form the requisite intent he must have knowledge of the essential matters which go to make up the offence whether or not he knows that those matters amount to a crime.
Their Honours added at 669:
Notwithstanding that s 75B operates as an adjunct to the imposition of civil liability, its derivation is to be found in the criminal law and there is nothing to support the view that the concepts which it introduces should be given a new or special meaning.
180 Section 75B(1)(c) extends the liability to someone “knowingly concerned” in contravening conduct. In Yorke v Lucas, the joint judgment concluded at 670:
There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention. …
We have already indicated why par (a) requires knowledge. … In our view, the proper construction of par (c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.
181 In this Court, this approach has been consistently followed: see, e.g., Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 at [134] per Cooper, Kiefel and Emmett JJ; Fernandez v Glev Pty Ltd [2000] FCA 1859 at [18]; and Chan Cuong Su T/A Ausviet Travel v Direct Flights International Pty Limited (No 2) (1999) ATPR 41-677 at 42, 666.
182 Judicial opinion in this Court has differed as to the extent of knowledge required by s 75B(1)(c): see Medical Benefits Fund at [3]-[7] per Moore J and [83]-[93] per Stone J; and King v GIO Australia Holdings Ltd (2001) 184 ALR 98 at 104 per Moore J. In Medical Benefits Fund, for example,Stone J adopted a different approach to this issue from Moore J (with whom Mansfield J agreed). After referring to Yorke v Lucas at 667-8, Stone J said, at [82], that, in order to be liable as an accessory to a breach of s 52:
[I]t is necessary to know the essential elements of the contravention, by which I understand that one must know that which makes the conduct a contravention; in this case, its misleading and deceptive character. Only then can one form the intention to participate in conduct of that character.
Accordingly, her Honour held, at [93], that the primary judge fell into error because he did not consider it relevant to determine if the alleged accessory knew whether the conduct was misleading or deceptive or likely to mislead or deceive.
183 Moore J, with whom Mansfield J agreed, differed from Stone J in this regard. Referring to Yorke v Lucas at 669-670, Moore J held, at [12], that, on any view, accessorial liability only arose in the case under appeal “if it is at least demonstrated that the alleged accessory knew of the facts which constituted the conduct of MBF which contravene the … Act.” His Honour continued at [13]:
In relation to the television advertisements, the conduct of MBF was (firstly) the publication of the advertisements in the context where (secondly) the content of the advertisements (being the visual images, the sound and the way they were formatted and sequenced) might lead members of the public to believe that certain benefits would be enjoyed or rights conferred by taking out insurance with MBF where (thirdly), in fact, they would not be. In my opinion, these three matters constitute, as a minimum, “essential matters” for the purpose of applying the principle established in Yorke v Lucas. I have included the contents of the advertisements and what they might convey as a second essential element because it is the probable impact of their content which transforms what otherwise would be unexceptionable commercial conduct into unlawful conduct.
184 Moore J held, at [14], that the primary judge had erred because the alleged accessory was not aware of the second matter. His Honour explained that while the alleged accessory was aware of what the advertisements contained, the accessory was not aware that the advertisements might lead members of the public to believe that certain benefits would be enjoyed or rights conferred by taking out insurance with MBF. Accordingly, on this view, the primary judge erred in concluding that the alleged accessory was liable as an accessory. Moore J added at [15]-[16] that:
[I]n my opinion, liability as an accessory (in circumstances where the contravening conduct of the principal was making false or misleading representations) does not depend on an affirmative answer to the question whether the alleged accessory knew the representations were false or misleading. All that would be necessary would be for the accessory to know of the matters that enabled the representations to be characterised in that way. In a comparatively simple situation, such as the situation considered in Yorke v Lucas, where particular representations were made to individuals or groups of individuals, knowledge of those matters would almost inevitably result in the alleged accessory also knowing the representations were false or misleading. …
However, in a situation where representations are made to the public and whether they are misleading or deceptive is to be approached at a level of abstraction (to use the language of the High Court in Campomar Sociedad, Limitata v Nike International Ltd (2000) 202 CLR 45 (at [101]) it seems inapt to explore the question of whether the alleged accessory knew the representations were false or misleading in some subjective sense. As illustrated by the preceding consideration of the facts of this case, it is probably appropriate to consider, and only consider, the question of whether the alleged accessory knew that the conduct of the principal might lead members of the public to assume a state of affairs which was not the true state of affairs. If this analysis is correct, then the division of judicial opinion … may, at least in many instances, be illusory rather than real. It is not a large step to say knowledge that a representation may convey a meaning contrary to the facts is also knowledge that the representation is false and the making of the representation is misleading and deceptive conduct.
185 As already noted, Kaye knew that the advertisements were to be and were in fact published. Kaye also knew that the advertisements contained the impugned representations. Since the advertisements were plainly calculated to lead members of the public to believe that they could obtain significant net wealth (at least $1 million) through property investment by adopting the Kaye strategies, I find that Kaye knew that the contents of the advertisements would lead ordinary and reasonable members of the public to believe that they could acquire such wealth by adopting the strategies as taught in the IM Program. Indeed the transcript of the free seminar in Melbourne records that Mr Kaye repeatedly said as much.
186 Did the evidence establish that Mr Kaye knew that his strategies were not reasonably capable of achieving the represented results or that he knew the representations were misleading or deceptive? For the reasons I am about to give, I do not consider that it did.
187 In written submissions, the Commission drew attention to Mr Kaye’s concessions concerning the lack of reasonable grounds for some of the radio and Internet representations and to his failure to establish reasonable grounds in relation to other radio and Internet representations. I do not, however, consider that these matters constitute evidence of Mr Kaye’s state of mind at the time the newspaper representations were made.
188 The Commission also drew attention to some of the circumstances surrounding the publication of the advertisements and submitted that, bearing in mind that Mr Kaye had been present in court for much of the trial, the Court should infer that he knew the representations were misleading or deceptive or were likely to mislead or deceive.
189 No inference can be drawn from Mr Kaye’s failure to give evidence unless there was evidence adduced at trial concerning his state of mind that required an answer (i.e., evidence that would support an inference adverse to Mr Kaye): compare Jones v Dunkel (1959) 101 CLR 298 at 304 per Dixon J, 308 per Kitto J, 309 per Taylor J, 311 per Menzies J, 322 per Windeyer J. Absent some evidence concerning Mr Kaye’s state of mind, including evidence that he deliberately shut his eyes to what was going on, there is no basis upon which the Court can draw any inference against Mr Kaye concerning his knowledge. There was, however, no evidence of Mr Kaye’s actual state of mind, at the relevant time, other than, perhaps, the transcript of the free seminar in Melbourne (and it did not provide a basis for any inference of the kind the Commission invited me to draw). Wilful blindness is not easily imputed and I would not do so in this case. Accordingly, I reject the Commission’s submission that the Court should draw an inference from Mr Kaye’s failure to give evidence that he knew either that NII’s conduct might lead members of the public to assume a state of affairs which was not true or that the representations were misleading or deceptive or likely to mislead or deceive. I would not therefore conclude that Mr Kaye was liable as an accessory under s 75B of the TPA.
The representations were made in trade and commerce
190 Referring to Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 (“Concrete Constructions”) at 603, Yates v Whitlam [1999] NSWSC 976; 32 ACSR 595 and NRMA Limited v Yates (2000) 18 ACLC 45 (“NRMA Limited v Yates”), counsel for Mr Kaye submitted that the publication of the advertisements was not conduct in trade or commerce within the meaning of s 52 of the TPA. Counsel submitted that “[m]edia advertising was not an integral part of NII’s trading activities”; and that “the advertisements did not market NII’s courses”. She referred to NII’s marketing arrangements, which were the subject of Mr Barnard’s evidence, and to the fact that NII’s name did not appear anywhere in the advertisements. She submitted that the purpose of the advertisements was to answer Mr Kaye’s critics, rather than to promote NII and its products.
191 Referring to Concrete Constructions at 602-603 and 605, Meadow Gem Pty Ltd v ANZ Executors & Trustee Co Ltd (1994) ATPR (Digest) 46-130 (“Meadow Gem”), Fasold v Roberts (1997) 70 FCR 489 (“Fasold v Roberts”) and Glorie v WA Chip and Pulp Co Pty Ltd (1981) 55 FLR 310 (“Glorie v WA Chip and Pulp”), the Commission contended that the advertisements in which the representations were made constituted conduct in trade or commerce, because they were promotional activities in relation to the business of NII.
192 The meaning of the expression “in trade or commerce” was, as the parties agreed, settled in Concrete Constructions, where Mason CJ, Deane, Dawson and Gaudron JJ said at 604:
What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public.
193 In Meadow Gem at 53,631, Hedigan J said, applying Concrete Constructions, that “the conduct in question does not have to be conduct in connection with one’s own business, and that it would be sufficient if the conduct engaged in was for the purpose of promoting the business of some other person or corporation”. As Sackville J said in Fasold v Roberts, at 528:
Promotional activities in relation to the supply of goods and services constitute conduct which usually bears a trading or commercial character.
See also NRMA Limited v Yates at 52. In Glorie v WA Chip and Pulp, Morling J held, at 319-320, that the exhibition of a documentary film on forests was “in trade or commerce”, bearing in mind that the film was produced, in part, to answer criticism of the woodchipping industry. His Honour held, at 320, that a real reason for exhibiting the film was to protect indirectly the commercial interests of the members of a commercial association of companies engaged in the industry. As the primary judge, Morling J took a similar approach in Australian Federation of Consumer Organisations Inc v Tobacco Institute of Australia Ltd (1991) 27 FCR 149, at 157, with which a Full Court, consisting of Sheppard, Foster and Hill JJ, substantially agreed: see Tobacco Institute at 16 per Sheppard J, 25 per Foster J and 44 per Hill J.
194 As already stated, the advertisements, which were booked on NII’s behalf and for which NII largely paid, were an integral part of the one promotional campaign. Whilst the campaign was, at least according to the advertisements, a response to criticism of the Kaye strategies, it was fundamentally calculated to promote the business of NII. As I have found, the Kaye strategies of property investment were the products of NII’s, which bore his image and identity. It is these products that the Challenge was designed to promote. The evident object of the whole Challenge was to persuade the public that NII’s product was valuable and, in the case of the 1,000 “Property Millionaires” Program, to induce 1,000 people to buy the Program (i.e., to pay the enrolment fee for it). As part of the promotion, NII marketing people telephoned those who had expressed interest, with a view to arranging a consultation concerning NII’s products and NII guaranteed the results of the IM Program to the potential participants in the Program. I reject the submissions made on behalf of Mr Kaye that the campaign was purely a personal attempt to vindicate his strategies.
195 On the basis of these findings, and having regard to Concrete Constructions and subsequent decisions (some of which are referred to in [193] above), I conclude that the publication of the advertisements was conduct in trade or commerce.
the appropriate remedies
196 The final matter that falls for determination is the appropriate remedy in light of these reasons. The Commission seeks permanent injunctions, declarations and corrective advertising.
197 As noted already, Mr Kaye agreed to submit to the permanent injunctions that the Commission seeks. He submits, however, that this is the only appropriate remedy. In support of this, in written submissions, his counsel said:
The advertisements appeared over a few days in September 2003. The public was capable of taking any steps by virtue of them except to attend the public seminars to obtain more details about the two challenges. NII is now in liquidation and has not run the courses since an administrator was appointed in November 2003. It is submitted that there are no grounds for ordering corrective advertising. The power to order corrective advertising is to be used protectively and not punitively. In fact such an advertisement could now only cause confusion as giving the impression that the challenge is proceeding.
Counsel for Mr Kaye also submitted that the Court should not make the declarations sought by the Commission in this case, because:
There is no reason to believe that Kaye or NII would offend again and no-one has suffered loss or damage as a result of the advertisements. Further, as the challenge will not proceed and NII and Kaye no longer run courses, declarations would have no practical effect or benefit.
198 The Commission submitted that, bearing in mind the policy of the TPA, which is concerned with the public interest, the present was an appropriate case in which to grant declaratory relief in order to mark the Court’s disapproval of the contravening conduct. Moreover, the Commission contended that, where breaches of the TPA consist of media advertisements, corrective advertising, raising the awareness of consumers and competitors as to the type of conduct that breaches the Act, may be particularly appropriate. In written submissions, Counsel for the Commission submitted:
Given the risk of misleading and deceptive conduct by those who promote ‘get rich quick’ schemes, it is appropriate for corrective advertising to be ordered to make consumers aware that they should be alert to the importance of questioning advertising, and to those who engage in the promotion of courses in investment strategies to the type of conduct that contravenes the Act.
Declaratory relief
199 The law with respect to declaratory relief is not in dispute. The issue is whether the grant of the declarations sought by the Commission would serve any practical purpose. 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, I consider that:
1. The declarations sought would be directed to the determination of a legal controversy and not to answering abstract or hypothetical questions. Mr Kaye has strongly contested that he committed any breach of s 52 of the TPA. In some cases it might be appropriate simply to make findings of fact including findings that a respondent has contravened a provision of Part V of the Act: see s 83. In this case, however, it seems to me appropriate, that the Commission, having proved its case against Mr Kaye, should be granted a declaration vindicating its claim. I do not consider that the grant of injunctive relief in the terms agreed would adequately serve this purpose.
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;
4. Mr Kaye is the proper contradictor.
200 I reject the principal submission made by counsel for Mr Kaye that the injunctions to which Mr Kaye agreed relevantly cover the field of appropriate relief. It has been said, in various contexts, that, “[p]roceedings under the Trade Practices Act have a special character in that the Act deals with the protection of the public interest”: World Series Cricket Pty Ltd v Parish (1977) 16 ALR 181 at 186 per Bowen CJ, cited with approval in Australian Competition and Consumer Commission v IMB Group Pty Ltd [1999] FCA 313;(1999) ATPR 41‑688 (“IMB”) per Drummond J at [14]. This special character has a bearing on remedies. The Commission stands apart from other litigants in that its functions include the furtherance of those interests.
201 Indeed, this much is recognised by the decision of the Full Court of this Court in Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89, where Sheppard J held, at 100, that the concern of the TPA with the public interest supported “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 also 106 per Foster J and 107 per Hill J; also Chen at 48 per Sackville J; Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2001] ATPR 41-801 at [34] per Carr J; Australian Competition and Consumer Commission v Target Australia Pty Ltd [2001] ATPR 41-840 at [18] per Lee J; and IMB at 42-803 to 42-804 per Drummond J. Of necessity, the relief that the Court considers appropriate in each case will depend on the circumstances of the case: compare Telstra Corp Ltd v AAPT Ltd [1999] NSWSC 853 (“Telstra”) at [57] per Bryson J.
202 Whilst I consider it appropriate to grant the injunctions (which are limited in terms) in exercise of the power conferred on the Court by s 80 of the TPA, there are sufficient consequences flowing from the making of the disputed declarations also to warrant their making. They will serve patently to vindicate the Commission’s claim that Mr Kaye has contravened s 52. In the circumstances of the case, this is fitting in the public interest.
Corrective advertising
203 The principles regarding the exercise of discretion in relation to corrective advertising have developed in the context of orders sought under the TPA. In Medical Benefits Fund, Stone J, with whom Moore and Mansfield JJ agreed on this issue, said, at [48]-[54]:
Those principles have emphasised that the power is to be used protectively and not punitively. …
There are numerous authorities for the proposition that the purpose of ordering corrective advertising under s 80 and/or s 80A of the TPA is to protect the public interest and that punitive considerations should not be entertained. In Australian Competition and Consumer Commission v On Clinic Australia Pty Ltd (1996) 35 IPR 635,Tamberlin J observed, at 640:
‘The purpose of corrective advertising is to protect the public interest. ... Corrective advertising is intended to dispel incorrect or false impressions which may have been created as a result of deceptive or misleading conduct. It is not intended to be punitive. In any matter concerning corrective advertising the timing of such corrective advertising is of course important, ... There is no principle that any particular period is appropriate as a point beyond which corrective advertising is not warranted. In the context of advertising it is necessary to examine the nature, extent and intensity of the advertising and the media in which it has been released with a view to deciding whether there could reasonably be any current misapprehension as a result of the advertisements.’
See also Janssen Pharmaceutical Pty Ltd v Pfizer Pty Ltd(1986) ATPR 40-654, Makita (Australia) Pty Ltd v Black & Decker (Australasia) Pty Ltd (1990) ATPR 41-030 at 51,477; Hospital Contribution Fund Australia Ltd v Switzerland Australia Health Fund Pty Ltd (1988) ATPR 40-846 at 49,117; Australian Competition and Consumer Commission v Hungry Jack's Pty Ltd [1996] FCA 955; Australian Competition and Consumer Commission v Purple Harmony Plates Pty Ltd [2001] FCA 1062 at [33]; and Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Pty Ltd (2000) 34 ACSR 673 at 677. This approach is peculiarly apt in relation to orders made under s 12GLAof the ASIC Act and s 86C of the TPA now that there is specific provision for `punitive orders' in s 12GLB of the ASIC Act and s 86D of the TPA.
Advertising that is directed to dispelling incorrect or false impressions created as a result of deceptive or misleading conduct will generally have, as an ancillary benefit, some public educational effect in relation to the operation of the relevant legislative provisions. In Australian Competition and Consumer Commission v Target Australia Pty Ltd (2001) ATPR 41-840 … Lee J commented, at 43,382, that:
‘The purpose sought to be achieved by corrective advertising is to raise public awareness - for both consumers and competitors - as to the type of conduct that may contravene the Act, and as to the outcome of the particular litigation.’
This benefit had often been recognised including in Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 95 FCR 114 ... . Although French J was there dealing with breaches of Part IV of the TPA, his comments are equally applicable to the conduct under consideration here. French J accepted that under s 80 of the TPA there was power to make orders to bring the outcome of those proceedings to the attention of the members of the Real Estate Institute of Western Australia and to the public as consumers. Nevertheless his Honour observed that it is important that corrective advertisements do more than merely announce a ‘win’ for the ACCC. In relation to the contraventions of Part IV of the TPA French J held, at 133, that s 80 authorised advertisements ‘directed to informing the relevant markets of the outcome of the litigation so that those in the market have at least a broad understanding of the ways in which the contravenors have had to change their conduct.’ Such advertisements ‘aid in the enforcement of the primary orders and the prevention of the repetition of the contravening conduct.’
His Honour expressed similar views in Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548… where he was prepared to make consent orders for corrective advertising because the proposed advertisement was ‘consistent with the objectives of consumer protection for which such advertisements should be ordered in respect of contraventions of Pt V’. His Honour noted, at [22], that the advertising would ‘assist in drawing [the contravention] to the attention of consumers generally who may have acquired Virgin Mobile packages or may be contemplating doing so’ and would serve ‘the positive function of alerting consumers to the obligation imposed on Virgin Mobile to disclose those things’, namely the cash price and minimum cost of the phone package.
…
It was submitted for MBF that there must be a nexus between any corrective advertising and the conduct that constituted the statutory breach. In the absence of such nexus it was submitted that the Court has no power to make an order directed to the general education of the public about its statutory rights and their enforcement; see the comments of French J in ACCC v REIWA at 113. As Mr Sackar QC, senior counsel for MBF put it, MBF could not ‘legitimately be ordered to pay for educating consumers generally nor educating the insurance community generally’. I agree with that proposition but do not agree that this was the effect of the primary judge's orders.
204 On the one hand, corrective advertising can be appropriate when, as here, the breaches of s 52 consist of media advertising. There is also a distinct risk of misleading and deceptive conduct on the part of those who promote “get rich quick” schemes. There is, plainly enough, a public interest in raising the awareness of consumers to this risk, especially in relation to the promotion of courses in investment strategies of the kind discussed in this case. There is also a public interest in raising an awareness in potential promoters of the dangers of this conduct and of the outcome of this particular litigation.
205 On the other hand, whilst there must be a nexus between the corrective advertising and the breach, I consider that an order for corrective advertising in the form the Commission seeks would be punitive. The Commission has sought corrective advertising in the form of radio broadcasts and newspaper advertisements and has submitted a template advertisement for publication. I would not make the orders, as proposed. I also doubt the utility of corrective advertising in this particular case, where I propose, in any event, to accord the injunctive and declaratory relief that the Commission seeks. This relief is itself designed to serve the public interest, marking the Court’s disapproval of the impugned conduct. Further, some of the considerations to which counsel for Mr Kaye referred are legitimately kept in mind in considering the nature of the appropriate remedies. The advertisements were broadcast or available over one month only last year. In this case, the Challenge, which was the subject of the contravening advertisements, did not proceed beyond the two free seminars in Sydney and Melbourne to which I have referred. Mr Kaye undertook to cease the campaign after these proceedings were instituted in January 2004 and did so cease.
206 I consider that the public interest is adequately and appropriately served by the grant of the injunctive and declaratory relief in the form that the Commission has sought. I would direct that the Commission file a minute of order in accordance with these reasons for judgment.
207 The parties have not addressed me on the question of costs. I would also direct that they file and serve short submissions as to costs.
| I certify that the preceding two hundred and seven (207) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Kenny. |
Associate:
Dated: 22 October 2004
| Counsel for the Applicant: | D G Collins SC with M P Barrett |
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| Solicitor for the Applicant: | Slater & Gordon |
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| Counsel for the Respondent: | C M Kenny |
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| Solicitor for the Respondent: | Maddocks until 22 August 2004 |
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| Lewis Allen Janover from 23 August 2004 |
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| Date of Hearing: | 9-12, 15-16 March 2004 |
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| Date of Judgment: | 22 October 2004 |
