FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2006] FCA 244

TRADE PRACTICES – misleading and deceptive conduct – certain Slendertone products as existed in 2000 – orders following delivery of reasons for judgement – findings of fact appropriately in orders – no basis to include declarations not going to offending conduct – appropriateness of injunctions in absence of undertakings – inactivity of business not outweigh public interest in orders – limited possible effect on third party not preclude corrective orders

Acts Interpretation Act 1901 (Cth) s 8

Trade Practices Act 1974 (Cth) ss 51A, 80A, 83, 86C, 86C(2)(b), 86C(4), 87, 87(1A)

Federal Court Act 1976 (Cth) s 21

Australian Competition and Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491

Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 2) [2003] FCAFC 163

Australian Competition and Consumer Commission v Danoz Direct Pty Ltd (2003) 60 IPR 296

Australian Competition and Consumer Commission v Dell Computers Pty Ltd (2002) ATPR 41-878

Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2004] FCA 303

Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2005] FCA 1703

Australian Competition and Consumer Commission v Hartwich [2002] FCA 273

Australian Competition and Consumer Commission v Health Partners Inc (1997) 151 ALR 662

Australian Competition and Consumer Commission v International Technology Holdings Pty Ltd (1997) 37 IPR 573

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

Australian Competition and Consumer Commission v The Tasmanian Salmonid Growers Association Ltd [2003] FCA 788

Hospital Contribution Fund of Australia Ltd v Switzerland Australia Health Fund Pty Ltd (1987) 78 ALR 483

Medibank Private Ltd v Cassidy (2002) 124 FCR 40

Mundine v Layton Taylor Promotions Pty Ltd (1981) ATPR 40-211

Trade Practices Commission v Santos Limited  [1993] ATPR 41-221

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v EMERALD OCEAN DISTRIBUTORS PTY LTD, SLENDERTONE HEALTH AND BEAUTY PTY LTD and SEAN O’DONOGHUE

WAD 118 of 2000

NICHOLSON J

17 MARCH 2006

PERTH

THE COURT ORDERS THAT:

for the purpose of s 83 of the trade practices act 1974 (CTH), the court makes the following findings of fact AGAINST the first, second and third respondents:

1.             The first and second respondents (‘Emerald Ocean’ and ‘Slendertone’ respectively), acting through their common sole director, secretary and member, the third respondent (‘Mr O’Donoghue’), were engaged in trade or commerce in marketing and selling, various electronic muscle stimulation products comprising the Sequence 16, the Supreme, the Top Tone 12, the Gymbody 8 and the Celluforme (collectively, ‘the Slendertone Products’).

2.             During the period of time in which Emerald Ocean and Slendertone marketed and sold the Slendertone Products, Emerald Ocean and Slendertone made various express representations about the Slendertone Products in promotional material published in:

(a)           the February 2000, March 2000 and April 2000 issues of ‘Women’s Health’ magazine (‘Women’s Health advertisements’);

(b)          the March 2000 issue of ‘Ultrafit’ magazine (‘Ultrafit advertisement’);

(c)           a pamphlet issued prior to and in June 2000 promoting the Top Tone 12 (‘Slendertone Pamphlet’);

(d)          Slendertone’s internet website located at:

http://www.slendertone.com.au (‘Slendertone website’)

which representations are set out in detail at paragraphs 3, 4, 5 and 6 below.

and pursuant to s 21(1) of the federal court of australia act 1976 (cth) the court declares that:

3.             Emerald Ocean and Slendertone engaged in conduct in connection with the supply and promotion of the Gymbody 8 and the Top Tone 12 such conduct being the causing the publication of the Women’s Health advertisements containing statements to the following effect:

(a)           that the Gymbody 8 and Top Tone 12 enable a user to workout without any work on the part of the user;

(b)          in relation to the Gymbody 8, that:

(i)            it has the power to tone any part of a user’s body with absolutely no effort;

(ii)           it can:

A.        tighten slack stomach muscles;

B.         shape and lift a user’s body;

C.        reduce a user’s waist measurements; and

D.        improve a user’s posture;

(iii)         it will give the user, from 40 minutes use of the Gymbody 8 per day, the equivalent of 300 general exercises; and

(iv)         it will make a user’s body toned within 3-4 weeks,

and in doing so:

(aa)                 in respect of the representations at sub-paragraphs 3(a) and (b) above, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth) (‘the Act’) and s 10 of the Fair Trading Act 1987 (WA) (‘ the FTA WA’) and made false or misleading representations with respect to the performance of the Gymbody 8 in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that the use of the Gymbody 8 alone without any work or effort on the part of the user does not and cannot:

(A)         tone any part of the user’s body;

(B)          tighten the user’s stomach muscles;

(C)         shape and lift the user’s body;

(D)         reduce the user’s waist measurements;

(E)          improve the user’s posture;

(F)          give the user, from 40 minutes use, the equivalent of 300 general exercises; or

(G)         result in the user becoming toned within 3-4 weeks;

(bb)                in respect of the representation at sub-paragraph 3(a) above, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act and s 10 of the FTA WA and made false or misleading representations with respect to the performance of the Top Tone 12 in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that use of the Top Tone 12 alone without any work or effort on the part of the user does not and cannot enable a user to obtain the benefits of exercising; and

(cc)                 in respect of the representations at sub-paragraphs 3(a) and (b) above, had no reasonable grounds for making such representations. 

4.             Emerald Ocean and Slendertone engaged in conduct in connection with the supply and promotion of the Gymbody 8 such conduct being the causing the publication of the Ultrafit advertisement containing statements to the following effect:

(a)           that the Gymbody 8 would enable a user to workout without any work on the part of the user;

(b)          that just 3 weeks of using the Gymbody 8 would give the user strong visible abdominal muscles;

(c)           that 40 minutes of using the Gymbody 8 contracts and relaxes the user’s muscles in a manner equivalent to the user performing sit-ups;

(d)          that the Gymbody 8 has the power to tone the user’s body with absolutely no effort on the part of the user; and

(e)           that use of the Gymbody 8 will make a user’s body toned within 3-4 weeks,

and in doing so:

(aa)       engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act and s 10 of the FTA WA and, in respect of the representations at sub-paragraphs 4(c) and (d) above, made false or misleading representations with respect to the performance of the Gymbody 8 in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that the Gymbody 8 alone without any work or effort on the part of a user does not and cannot:

(A)        give the user strong, visible abdominal muscles in 3 weeks;

(B)         in 40 minutes of use, contract and relax the user’s muscles in a manner equivalent to the user performing sit-ups;

(C)        tone the user’s body; or

(D)        result in a user becoming toned within 3-4 weeks; and

(bb)      in respect of the representations at sub-paragraphs 4(a)-(e) above, had no reasonable grounds for making such representations. 

5.             Emerald Ocean and Slendertone engaged in conduct in connection with the supply and promotion of the Top Tone 12, such conduct being the publication of the Slendertone Pamphlet containing statements to the following effect:

(a)           that the Top Tone 12 enables a user to workout without any work on the part of the user;

(b)          that 30 minutes of using the Top Tone 12 is equivalent to a user performing 180 sit-ups;

(c)           that use of the Top Tone 12 can:

(i)            tighten slack stomach muscles;

(ii)           tone and tighten a user’s thighs;

(iii)         smooth a user’s cellulite away;

(iv)         give the user marked reductions in the user’s body measurements; and

(v)          enable the user to successfully remove cellulite,

and in doing so:

(aa)       in respect of the representations at sub-paragraphs 5(a)-(c) above, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act and s 10 of the FTA WA and, in respect of the representations at sub-paragraphs 5(a), (b) and (c)(iv) made false or misleading representations with respect to the performance of the Top Tone 12 in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that the Top Tone 12 alone without any work or effort on the part of the user does not and cannot:

(A)        tighten a user’s stomach muscles;

(B)         tone and tighten a user’s thighs;

(C)        smooth away a user’s cellulite;

(D)        give a user marked reductions in body measurements; or

(E)         enable a user to remove cellulite; and

(bb)      in respect of the representations at sub-paragraphs 5(a)-(c) above, had no reasonable grounds for making such representations.

6.             Slendertone engaged in conduct in connection with the supply and promotion of the Slendertone Products, such conduct being the publication on the Slendertone website of statements to the following effect:

(a)           in relation to the Slendertone Products, that:

(i)            40 minutes use of one of the Slendertone Products is equivalent to a user performing approximately 300 sit-ups;

(ii)           3 weeks of using one of the Slendertone Products can flatten a user’s stomach with absolutely no effort whatsoever; and

(iii)         using one of the Slendertone Products can tone any part of a user’s body without exercising;

(b)          in relation to the Gymbody 8:

(i)            40 minutes of use is equivalent to a user performing approximately 300 general exercises;

(ii)           when used for 40 minutes a day, it will result in a user’s body looking flatter within 3-4 weeks; and

(iii)         it will tone a user’s body with absolutely no effort on the part of the user;

(c)           in relation to the Celluforme:

(i)            that it removes cellulite;

(ii)           that it breaks down cellulite and shapes the user’s muscles; and

(iii)         that a user will achieve results in approximately 8 weeks;

(d)          in relation to the Supreme:

(i)            that it provides body and facial toning;

(ii)           that it can eliminate the user’s cellulite; and

(iii)         that it delivers the ultimate workout to the user;

(e)           in relation to the Top Tone 12:

(i)            that it tones any part of a user’s body; and

(ii)           that it can banish ‘orange peel’ skin or cellulite for good;

(f)            in relation to the Sequence 16:

(i)            that it achieves in-depth toning of a user’s body;

(ii)           that it effectively disperses cellulite;

(iii)         that it achieves any level of toning, cellulite dispersal or fat reduction for a user; and

(iv)         that it tones a user’s muscles;

and in doing so:

(aa)       in respect of the representations at sub-paragraph 6(a) above engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act and s 10 of the FTA WA and made false or misleading representations with respect to the performance of the Slendertone Products in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that use of the Slendertone Products alone:

(A)        for 40 minutes is not equivalent to a user performing approximately 300 sit-ups;

(B)         for 3 weeks will not flatten a user’s stomach with absolutely no effort whatsoever; or

(C)        cannot tone any part of a user’s body without exercising;

(bb)      in respect of the representations at sub-paragraph 6(b) above, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act and s 10 of the FTA WA and made false or misleading representations with respect to the performance of the Gymbody 8 in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that use of the Gymbody 8 alone does not and cannot:

(A)        give a user, from 40 minutes use, the equivalent of 300 general exercises;

(B)         when used for 40 minutes a day, result in the user’s body looking flatter within 3-4 weeks; or

(C)        tone a user’s body with absolutely no effort on the part of the user;

(cc)       in respect of the representations at sub-paragraph 6(c) above, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act and s 10 of the FTA WA and, in respect of the representations at sub-paragraphs (6)(c)(i) and (ii), made false or misleading representations with respect to the performance of the Celluforme in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that use of the Celluforme alone does not and cannot:

(A)        remove cellulite;

(B)         shape a user’s muscles; or

(C)        enable a user to achieve results in approximately 8 weeks;

(dd)      in respect of the representations at sub-paragraph 6(d) above, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act and s 10 of the FTA WA and made false or misleading representations with respect to the performance of the Supreme in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that use of the Supreme does not and cannot:

(A)        provide body and facial toning;

(B)         eliminate a user’s cellulite; or

(C)        enable a user to obtain the benefits of exercising;

(ee)       in respect of the representations at sub-paragraph 6(e) above, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act and s 10 of the FTA WA and made false or misleading representations with respect to the performance of the Top Tone 12 in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that use of the Top Tone 12 alone does not and cannot:

(A)        tone any part of a user’s body; or

(B)         banish a user’s ‘orange peel’ skin or cellulite for good;

(ff)          in respect of the representations at sub-paragraph 6(f) above, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Act and s 10 of the FTA WA and made false or misleading representations with respect to the performance of the Sequence 16 in contravention of s 53(c) of the Act and s 12(1)(f) of the FTA WA in that use of the Sequence 16 alone does not and cannot:

(A)        achieve in-depth toning of a user’s body;

(B)         effectively disperse cellulite;

(C)        achieve any level of toning, cellulite dispersal or fat reduction for a user; or

(D)        tone a user’s muscles; and

(gg)       in respect of the representations at sub-paragraphs 6(a)-(f) above, had no reasonable grounds for making such representations.

7.             Mr O’Donoghue, as sole director, secretary and member of Emerald Ocean and Slendertone aided, abetted, counselled or procured and was directly or indirectly, knowingly concerned in or party to the conduct of:

(a)           Emerald Ocean and Slendertone in causing the publication of the Women’s Health advertisements and the Ultrafit advertisement containing the representations set out in sub-paragraphs 3(a) and (b) and 4(a)-(e) above; and

(b)          Slendertone in arranging publication of the Slendertone Pamphlet and the Slendertone website containing the representations set out in sub-paragraphs 5(a)-(c) and 6(a)-(f) above;

in circumstances where Mr O’Donoghue knew that Emerald Ocean and Slendertone had no reasonable grounds for making such representations on the basis of the use of any of the Slendertone Products alone, without a user also having a healthy diet and regular exercise.

anD pursuant to ss 80 and 80A of the Trade Practices Act 1974 (Cth) the court orders that:

8.             Each of Emerald Ocean and Slendertone themselves, and their respective servants or agents, in trade or commerce, in connection with the supply or promotion of the Slendertone Products, or any of them, be restrained for a period of 3 years from representing that the Slendertone Products, or any of them, have the following or similar performance characteristics, uses or benefits without also specifying with equal prominence that, ‘To obtain full benefit or result from the use of this product it must be used in conjunction with a healthy diet and regular exercise’:

(a)           tone any part of a user’s body without exercise;

(b)          tighten the user’s stomach or improve the strength of the user’s abdominal muscles;

(c)           shape and lift the user’s body;

(d)          reduce the user’s waist measurements;

(e)           improve the user’s posture; or

(f)            toning or tightening the user’s thighs.

9.             Each of Emerald Ocean and Slendertone themselves, and their respective servants or agents, in trade or commerce, in connection with the supply or promotion of the Slendertone Products, or any of them, be restrained for a period of 3 years from representing that the Slendertone Products or any of them have the following or similar performance characteristics, uses or benefits:

(a)           giving the user in 40 minutes per day the equivalent of 300 general exercises;

(b)          contracting and relaxing the user’s muscles in 40 minutes use in a manner equivalent to the user performing sit-ups;

(c)           giving the user strong visible abdominal muscles in 3 weeks;

(d)          giving the benefit of performing 180 sit-ups in just 30 minutes;

(e)           gaining a perfectly toned figure without exercise;

(f)            completely removing, smoothing away, banishing, dispersing or effectively treating cellulite or ‘orange peel’ skin;

(g)           shaping the user’s muscles;

(h)           giving a user of the product the benefit of a work-out without having to exercise;

(i)             making the user toned within 3-4 weeks;

(j)            markedly reducing the user’s body measurements in only 3 weeks;

(k)          giving the user the benefit of performing 180 sit-ups in just 30 minutes; or

(l)             achieves results in approximately 8 weeks.

10.         Mr O’Donoghue, for a period of 3 years, whether by himself, his servants or agents or otherwise howsoever, be restrained from aiding, abetting, counselling or procuring or being in any way directly or indirectly knowingly concerned in or a party to conduct, by Emerald Ocean, Slendertone or any other corporation, of the same or substantially similar nature to the conduct described in paragraphs 8 and 9 above.

11.         Emerald Ocean, Slendertone and Mr O’Donoghue at their own expense shall:

(a)           within 28 days of the date of this order, cause to be published an advertisement in terms of Sch A to these orders, in the following publications;

(i)            Women’s Health magazine;

(ii)           Ultrafit magazine;

(iii)         The Australian newspaper; and

(iv)         The West Australian newspaper

and Emerald Ocean, Slendertone and Mr O’Donoghue shall use their best endeavours to ensure that such advertisements:

(v)          are within the first 10 pages of the magazines and the first 20 pages of the newspapers;

(vi)         are of a size not less than 120 mm x 80 mm;

(vii)       are in a text which is in a type not less than 10 points; and

(viii)      include the logo of Slendertone as appearing in Sch A.

(b)          within 14 days of the date of this order, cause to be published on the Slendertone website for a period of 14 days the consumer notice in the form at Sch B to these orders and use their best endeavours to ensure that such notice:

(i)            shall appear immediately upon access by a consumer to the homepage of the website http://www.slendertone.com.au;

(ii)           shall be not less than 50 per cent of the size of the computer screen;

(iii)         shall have a bold type heading in at least 18 point type and the body of the notice shall be in a type not less than 12 points, Times New Roman font and right and left justified; and

(iv)         shall include the logo of Slendertone at the top as appearing in Sch B.

12.         Mr O’Donoghue attend, within 60 days of the date of this order, trade practices training covering ss 52 and 53 of the Act, in accordance with the requirements set out below, for the purpose of ensuring that he does not engage in conduct in contravention of ss 52 and 53 of the Act, or similar or related conduct:

(a)           the training is to be administered by a suitably qualified, compliance professional or legal practitioner with expertise in trade practices law; and

(b)          Mr O’Donoghue shall provide a written statement or certificate from the trade practices professional who conducts the training to the applicant within 14 days of completion of the training, verifying that such training has occurred.

13.         Emerald Ocean, Slendertone and Mr O’Donoghue jointly or severally pay 90 per cent of the applicant’s costs of the proceedings (including any reserved costs) in an amount to be agreed or, if not agreed, to be taxed.

14.         (a)     The cross-claim be dismissed.

          (b)     Unless the cross-respondent does within 14 days of today make an application for any special costs order, the first, second and third cross-claimants do jointly and severally pay the cross-respondent’s costs of the proceedings (including any reserved costs) in an amount to be taxed if not agreed.

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

Schedule A

Magazine and Newspaper notice

CONSUMER NOTICE

[Insert Slendertone logo here]

In its advertising of the Gymbody 8, Top Tone 12, Celluforme, Sequence 16 and Supreme (collectively, Slendertone Products), Slendertone Health and Beauty Pty Ltd (Slendertone) and Emerald Ocean Distributors Pty Ltd (Emerald Ocean) made various claims about the effects of using the Slendertone Products.

In legal proceedings brought by the Australian Competition and Consumer Commission, the Federal Court of Australia has declared that a number of representations made by Slendertone and Emerald Ocean, contained in their advertising of the Slendertone Products, were misleading or deceptive in contravention of the Trade Practices Act 1974 (Cth).  The representations included were in the following categories:

• the Slendertone Products can and will produce an improvement in the user’s body and their appearance without any work or effort;
• the use of the Slendertone Products is equivalent to regular exercise, including claims that 40 minutes use of a Slendertone Product is the equivalent to a user performing approximately 300 sit-ups;
• the use of the Slendertone Products can and will tone the body, including claims that using the Slendertone Products will give a user a perfectly toned figure without exercise;
• the use of the Slendertone Products can and will reduce waist and body measurements in a given time frame, including claims that using the Slendertone Products would markedly reduce the user’s body measurements in only 3 weeks; and
• the Slendertone Products can and will eliminate or ‘conquer’ cellulite.

The Federal Court also declared that Mr Sean O’Donoghue, the sole director, secretary and member of Emerald Ocean and Slendertone, was knowingly concerned in a number of the contraventions of Emerald Ocean and Slendertone.

The Federal Court’s reasons for judgment relate only to the Slendertone Products defined above, and only as those products existed in the first half of 2000.

The Federal Court’s judgment may assist consumers who purchased a Slendertone Product to take independent legal action in relation to the misleading or deceptive or false claims made by Slendertone and Emerald Ocean.  Consumers should seek their own legal advice or, for general information regarding the Federal Court’s judgment, consumers may contact the Australian Competition and Consumer Commission on 1300 302 502.

This advertisement has been inserted and paid for by Emerald Ocean,

Slendertone and Mr O’Donoghue

Schedule B

Website notice

CONSUMER NOTICE

[Insert Slendertone logo here]

Slendertone Health and Beauty Pty Ltd (Slendertone) wishes to advise consumers that certain representations made previously on its website in relation to the Gymbody 8, Top Tone 12, Celluforme, Sequence 16 and Supreme (collectively, Slendertone Products) were misleading or deceptive.

In legal proceedings brought by the Australian Competition and Consumer Commission, the Federal Court of Australia has declared that the following claims made by Slendertone were misleading or deceptive in contravention of the Trade Practices Act 1974 (Cth):

• 40 minutes use of a Slendertone Product is the equivalent to a user performing approximately 300 sit-ups;
• 3 weeks of using a Slendertone Product can flatten a user’s stomach with absolutely no effort whatsoever;
• use of the Slendertone Products can tone any part of a user’s body without exercising;
• 40 minutes use of the Gymbody 8 is equivalent to a user performing approximately 300 general exercises;
• when used for 40 minutes a day, the Gymbody 8 will result in the user’s body looking flatter within 3-4 weeks;
• the Gymbody 8 will tone a user’s body with absolutely no effort on the part of the user;
• the Celluforme removes cellulite;
• the Celluforme breaks down cellulite and shapes the user’s muscles;
• a user will achieve results in approximately 8 weeks;
• the Supreme provides body and facial toning;
• the Supreme can effectively remove a user’s cellulite;
• the Supreme delivers the ultimate workout to the user without the need to exercise;
• the Top Tone 12 tones any part of a user’s body;
• the Top Tone 12 can banish ‘orange peel’ skin or cellulite for good;
• the Sequence 16 achieves in-depth toning of a user’s body;
• the Sequence 16 effectively disperses cellulite;
• the Sequence 16 achieves any level of toning, cellulite dispersal or fat reduction for a user; and
• the Sequence 16 tones a user’s muscles.

The Federal Court also declared that Mr Sean O’Donoghue, the sole director, secretary and member of Emerald Ocean and Slendertone, was knowingly concerned in a number of the contraventions of Emerald Ocean and Slendertone.

The Federal Court’s reasons for judgment relate only to the Slendertone Products defined above, and only as those products existed in the first half of 2000.

The Federal Court’s judgment may assist consumers who purchased a Slendertone Product to take independent legal action in relation to the misleading or deceptive or false claims made by Slendertone.  Consumers should seek their own legal advice or, for general information regarding the Federal Court’s judgment, consumers may contact the Australian Competition and Consumer Commission on 1300 302 502 or click the ‘Media Releases’ link on the homepage of the ACCC at http://www.accc.gov.au.

This notice has been placed on Slendertone’s website as ordered by the Federal Court of Australia.

REASONS FOR JUDGMENT

1                     These reasons concern issues raised by written submissions in relation to proposed orders to give effect to the reasons delivered on 25 November 2005 in the same matter (Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2005] FCA 1703) (‘the reasons’). 

application of s 83 of the trade practices act 1974 (Cth)

2                     This relates to orders 1 and 2 of the applicant’s minute of proposed orders.  Those paragraphs propose to recite the engagement of Emerald Ocean Distributors Pty Ltd (‘Emerald Ocean’) and Slendertone Health and Beauty Pty Ltd (‘Slendertone’) in trade or commerce in relation to the Slendertone products and that during those periods various express representations concerning the Slendertone products were made in promotional literature in terms set out elsewhere in the orders.  They are preceded by the heading ‘FOR THE PURPOSE OF SECTION 83 OF THE TRADE PRACTICES ACT 1974 (CTH), THE COURT MAKES THE FOLLOWING FINDINGS OF FACT AGAINST THE FIRST, SECOND AND THIRD RESPONDENTS:’.

3                     The respondents contend that s 83 of the Trade Practices Act 1974 (Cth) (‘the Act’) is enlivened by the sealing of the judgment and that findings of fact by the Court are not confined to those matters proposed to be referred to in the orders and must include the findings in respect of the contraventions of the Act.  In any event, the ‘findings’ sought to be included in the orders were not disputed as appear from [2]-[3] of the reasons.

4                     The applicant accepts that the ordinary place for the statement of a finding of fact is in the reasons for judgment.  However, it is submitted that the formal recording of a finding of fact ‘reduces the difficulty facing courts in subsequent proceedings of determining whether a particular passage appearing in the reasons for judgment contains a finding of fact’:  Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2004] FCA 303 at [17].  It is submitted that formal findings of fact would assist the Court in any subsequent application under s 87(1A) of the Act either by the applicant or any other person who has suffered loss or damage by the conduct of the respondents in contravention of Pt V of the Act.  Such formal findings of fact are said to have been made in a number of cases including Australian Competition and Consumer Commission v International Technology Holdings Pty Ltd (1997) 37 IPR 573; Australian Competition and Consumer Commission v Health Partners Inc (1997) 151 ALR 662; Australian Competition and Consumer Commission v Hartwich [2002] FCA 273; and Australian Competition and Consumer Commission v The Tasmanian Salmonid Growers Association Ltd [2003] FCA 788.  Alternatively, it is submitted, that should the Court decline to make a formal order as set out in the terms of orders 1 and 2 of the applicant’s minute of orders, it should make an order that the seal of the Court be affixed to the reasons for the purposes of s 83 of the Act. 

5                     I am unable to agree with this latter alternative proposal.  Section 83 is a section which may be availed of by a person or party entitled to obtain the seal of the Court upon reasons for judgment.  It is not for the Court to order that the opportunity provided by the section be availed of. 

6                     As to the primary ground of the respondents’ contention, I agree with the applicant’s submissions.

declarations sought

7                     This refers to proposed orders 3-7.

8                     The respondents accept that they cannot argue against these proposed orders where they relate to specific findings made in relation to the specific express representations found to have been made by them.  However, the respondents contend that the orders should be shaped to take into account the reasons and the fact that the applicant has been unsuccessful in a number of claims.  In particular it is said where the Court has ruled that the statements of the respondents have been found to be false and/or misleading or deceptive as a result of the ‘absolute’ nature of the representation, the orders should be shaped to reflect that fact.  Also it is contended that regard should be had in the orders to the fact that the Court has found at [132]-[143] that the relevant technology supports representations which are qualified.

9                     The applicant responds to this by referring to the wide discretion for the Court to make binding declarations of right pursuant to s 21 of the Federal Court Act 1976 (Cth); Trade Practices Commission v Santos Limited  [1993] ATPR 41-221 and other matters pertaining to the Court’s power. 

10                  In relation to the absolute nature of the statements, the applicant also submits in reply that the nature of the statements of whether the technology supports representations that are qualified is a consideration to be taken into account by the Court in resolving the legal controversy as to whether the representations were in fact false, misleading or deceptive.  This, it is said, has been resolved by the Court because it was held that the absolute statements were false or misleading or deceptive.  Accordingly it is said it is appropriate for the Court to make the declarations in support of those findings without qualification.

11                  I agree with the applicant’s submissions that the purpose to be served by the exercise of the Court’s discretion to make orders is to solve the legal controversy at hand.  That is, orders fall to be made in circumstances where the findings require orders to be made because the conduct has been found to have given rise to liability.  Where orders are not required, because no contravention has been found, there is no requirement to craft an order recording the result.  Additionally, there is no competing draft from the respondents to provide persuasion towards the form of order which they seek.

12                  Therefore the applicant’s proposed orders 3-7 should be accepted.

INjunctions sought

13                  This refers to proposed orders 8-11.

14                  The respondents submit the injunctions sought are unnecessary and ought not to be made.  This is based on the fact that the business which gave rise to the applicant’s action has been terminated by the current action and there is no prospect of there being any revival in respect of the particular products.  It is said that the relevant principles are those in Australian Competition and Consumer Commission v 4WD Systems Pty Ltd (2003) 200 ALR 491 at
[211]-[219]. 

15                  The respondents concede that the statutory power to order injunctions pursuant to the Act is not subject to the same restraints of the power in equity as discussed by Selway J in 4WD Systems, and the Court should consider the complete circumstances.

16                  The applicant submits that the proposed injunctions are consistent with the public interest as the respondents, including the natural person respondent, have not given any undertakings that they will cease to engage in the contravening conduct.  It is that which is said to make this case distinguishable from the decision in Australian Competition and Consumer Commission v Danoz Direct Pty Ltd (2003) 60 IPR 296 where the respondent in that case provided undertakings to withdraw the relevant product from sale, not to sell it in the future, to destroy its existing stocks of the product and not to sell a similar device in the future. 

17                  Further it is submitted that the proposed injunctions are such that there is a clear nexus between each of them and the conduct giving rise to liability under the Act and that they are in clear terms and capable of being obeyed and are not too vague or imprecise or require continuing supervision by the Court.

18                  In my view, in the absence of any undertaking such as proffered in the circumstances in Danoz, the public interest considerations are such as to make the injunctive orders generally appropriate.  Even if the companies and person are not engaged in the future in business of the type proposed to be the subject of the orders, the absence of an undertaking without the injunctive provisions in place could raise a query in the mind of the public why the conduct was unrestrained in the face of orders finding breaches arising from conduct in that respect.

19                  The respondents query whether the reference to ‘any’ benefit in proposed order 8 and to ‘completely removing’ in proposed order 9(f) correctly reflect the reasoning of the judgment.  As to the former, I consider it would better reflect the reasons if amended to read in the relevant passage ‘To obtain full benefit or result from the use of this product it must be used in conjunction with a healthy diet and regular exercise’.  As to the latter, this should remain as it is, namely a reference to the injuncting of representations that Slendertone products completely remove cellulite and not injuncting a lesser representation in that respect.

corrective orders

20                  The applicant seeks certain non-punitive corrective orders in reliance on s 86C of the Act.  The cross-respondent opposes those orders because the section was not in force at the time of the conduct complained of in the proceeding.  The applicant accepts this and proposes to rely on s 80A which was in force at that time.  That section has relevant application until the date of its repeal by the Trade Practices Amendment Act (No 1) 2001 (Cth) effective 26 July 2001:  s 8 of the Acts Interpretation Act 1901 (Cth).  Section 80 is also a source of authority to make orders injunctive in character and relating to advertising:  Mundine v Layton Taylor Promotions Pty Ltd (1981) ATPR 40-211; Australian Competition and Consumer Commission v Real Estate Institute of WA Inc (1999) 95 FCR 114 at [49].

21                  The cross-respondent also contests the making of the correctional orders on the basis of discretionary factors.  It alleges the orders have the very real potential to cause damage to it and that factor either alone or with other discretionary factors should occasion the Court to refuse to make the orders in the terms proposed.  It states that the name ‘Slendertone’ together with the Slendertone logo is used by it in its own advertising literature and correspondence.  It exports its products to 40 countries throughout the world.  However, as Slendertone and Emerald Ocean were neither exclusive agents nor any form of agency, there was and is no affiliation between the respondents and the cross-respondent.  Therefore it is submitted that it would be unfairly prejudicial to the cross-respondent if the corrective order had the real potential for generating consumer confusion by being unfairly attributed to the cross-respondent or its products.  This, it is urged, falls to be considered in the context where the business of the respondents was shut down in June 2000 and there is no evidence that products were sold after that date.  Even at that date, the evidence was that the respondents did not have any products to sell.  This is a position in relation to which it is said by the cross-respondent the applicant brought no challenge at the trial.  Additionally reliance is placed on the fact that there is no evidence that the discontinued products pose any public safety issues.

22                  As the applicant submits in response, the power to order corrective advertising is one to be used protectively and not as a punishment.  The sole consideration for the Court is the protection of consumers: Hospital Contribution Fund of Australia Ltd v Switzerland Australia Health Fund Pty Ltd (1987) 78 ALR 483 at 492.  Advertising may be ordered even where there have been few complaints about the advertisements:  Australian Competition and Consumer Commission v Dell Computers Pty Ltd (2002) ATPR 41-878.  The applicant further submits that the cross-respondent’s submissions go not to the fact of advertising but to the form of advertising.  It proposes that schedules A and B to the orders, which set out the form of advertisements, be amended by the addition of the words ‘[T]he Federal Court’s reasons for judgment relate only to the Slendertone products defined above, and only as those products existed in the first half of 2000’.  I agree with this proposal. 

23                  Given that amendment, I do not think the other matters relied upon by the cross-respondent can outweigh the need for protective corrective advertising.  In particular the application by the cross-respondent for leave to rely on the affidavit of Mr O’Donoghue sworn 14 February 2001 as to the circumstances of his incorporation of Slendertone being before any involvement by the respondents in the sale of the Slendertone products cannot result in the discretion being exercised to the contrary. 

24                  In relation to proposed order 11(a) the advertisements are confined to the Women’s Health magazine; the Ultrafit magazine; The Australian newspaper; and The West Australian newspaper.  I consider these to be reasonable in the circumstances. 

25                  In relation to proposed order 11(b) relating to use of the website of Slendertone to publish a correctional notice, the respondents submit this would force the re-opening of a closed site.  However, the applicant brings evidence that the website is still operative and may be accessed by consumers and potential consumers.  The applicant filed an affidavit of M/s Alison Shilkin sworn on 21 December 2005 in which she deposes to successfully accessing the website on 19 December 2005.  She said the website displayed a Slendertone logo, stated that it was currently being updated and that product information could be obtained by calling a designated telephone number.  Therefore it is submitted the website should be taken as operative and may still be accessed by consumers and potential consumers.  Accordingly in my view, there is no reason this portion of the order should not be made. 

26                  In relation to proposed order 12 requiring Mr O’Donoghue to attend trade practices training, the respondents submit that participation in the proceeding has been education enough for him.  In my opinion it cannot be said that the involvement in the proceedings is a substitute for the proposed education program.  The program is supported by s 86C(2)(b) of the Act which gives the Court the power to order, in relation to a person who has engaged in contravening conduct, a probation order for a period of no longer than three years.  Such a probation order is defined by s 86C(4) of the Act to include an order directing the establishment of a compliance program and an education and training program as well as the revision of the internal operations of a person’s business.  I accept the submission by the applicant that involvement in proceedings is not a substitute for a tailored education program and that if it were, it would have the effect of limiting the operation of s 86C of the Act to proceedings resolved by consent.  If Mr O’Donoghue had given an undertaking not to be involved in trade or commerce in relation to the areas of activity involved in the proceeding the position may have been otherwise, but that is not the case.  The proposed compliance program contains a nexus to the relevant conduct as it relates to sections of the Act which form the basis of the findings of contravention; it is formulated in terms able to be obeyed; and it is in the public interest, envisaging prevention of further similar conduct. 

 costs

27                  Proposed order 13 is that Emerald Ocean, Slendertone and Mr O’Donoghue jointly or severally pay the applicant’s costs of the proceeding, in an amount to be agreed or, if not agreed, to be taxed.

28                  The respondents contend that the applicant is not entitled to all of their costs of the action. 

29                  It is submitted that the action was defended largely as a result of the applicant’s insistence on the orders for refunds sought in the original application.  These orders as originally sought required the respondents to refund any claimant who came forward, irrespective of the bona fide aspects of their claim.  The last claim for a refund was removed by amendment to the pleadings by the applicant having been given leave to do so, (see Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2004] FCA 303) on 23 March 2004, after the close of evidence.  Therefore it is submitted by the respondents that they ought not to be made to bear the costs of the action up to the date of the change in the pleadings.  It is said that the claim for relief pursuant to s 87 of the Act prior to the amendment was doomed to failure in that no consent (as required prior to the procedural change brought about by the decision in Medibank Private Ltd v Cassidy (2002) 124 FCR 40) had been obtained.  Additionally the blanket refund orders originally sought were faulty.  It is said that had not the change in the law by Medibank Private occurred thereby giving rise to the amendment to the pleadings, the respondents would have been successful in defending the part of the claim which, it is submitted, was the principal reason for the defence. 

30                  It is then said for the respondents that the possibility of reimbursement of costs by the applicant to the respondents in relation to the matters, which only arose because of the money claims made by the applicant and which were withdrawn and replaced by the current claim for findings of fact under s 83 of the Act, should be considered by the Court.  In this regard the respondents contend that the cross-claim itself, which sought payment of money from the cross-respondents that has to be paid as a result of the order being sought, would not have been brought.  In these circumstances it is submitted that such costs can reasonably be described as being within the concept of ‘costs thrown away’ payable by the applicant as the result of the amendment of the pleadings.

31                  Additionally it is submitted that the Court must take into account that there were circumstances in the reasons where the Court was not persuaded by the evidence of the applicant in respect of a number of the claims.  Therefore the respondents ought not to bear the costs of the applicant’s expert evidence.  Alternatively, there should be a percentage reduction in the amount of costs payable to the applicant.  Further, this percentage reduction should be increased to reflect the comments in [13] of the reasons.  There the Court stated that regard had not been had to what was said in Danoz Direct per Dowsett J at [79]-[90].  Further it was said that had the applicant accepted in respect of most of the pleaded representations that no determinative answer could be given on whether the Slendertone products had the performance characteristics claimed and had invoked s 51A of the Act, the evidence would have been confined to whether there was a respectable body of opinion or other information of which the respondents had knowledge such that the respondents had reasonable grounds for making the representations.  It is therefore submitted that there is a public policy benefit in depriving the applicant of its costs in circumstances where the applicant, by initiating the proceeding in the manner which it did, prolonged the hearing and increased the complexity of the matter in that way.  The public policy benefit pointed to is the encouragement of the applicant to approach future acts in the manner described by Dowsett J in Danoz Direct.

32                  Relevantly to costs and the terms of proposed order 11 requiring advertising, it is submitted that the applicant originally sought an order for advertising in national newspapers and publications irrespective of whether or not the impugned representations had appeared in those publications.  This has now been reduced to three publications.  This needs to be considered, it is submitted, in the context of where very few complaints have been received by the respondents about the product (see the evidence of M/s Cook).  In the circumstances, it is submitted that the applicant’s approach to the proceeding precluded any settlement by requiring terms in respect of remedial advertising and refund guarantee which were unsustainable. 

33                  In submissions in reply the applicant points to the judgment delivered on 23 March 2004, referred to above at [29] where it was accepted that the application to amend the pleadings was made necessary by an unforeseen matter wholly outside the control of the applicant, namely a change of law resulting from a decision of the High Court refusing special leave to appeal.

34                  In relation to the submission that the respondents ought not to bear the costs of the applicant’s expert evidence because the Court was not persuaded by the applicant’s evidence in respect of a number of the claims, the applicant says that the representations were grouped into the following categories in respect of which the following findings were made:

1.                  ‘work out without work’ – the nine representations were held to not accurately describe the effect of Electronic Muscle Stimulation (‘EMS’) products, therefore are false [72];

2.                  ‘no pain’ – the representation as to ‘no pain’ was not held to be misleading [80];

3.                  ‘equivalence to normal exercise’ – the nine representations were held to generally be false [86];

4.                  ‘toning, firming and flattening’ – the twelve representations were held to be misleading save as to where they represent that EMS ‘firms’ [131];

5.                  ‘ability to reduce, eliminate or ‘conquer’ cellulite’ – six of the eight representations pleaded were held to be false [143];

6.                  ‘girth reduction – inch loss, reduction in waist and body measurements and changes in body shape’ – the four representations were held to have contravened the Act [149];

7.                  ‘time for improvements’ – the seven representations pleaded were held to be false [154];

8.                  the allegations concerning the contravention of s 53(c) of the Act were upheld save as to the implied representations and the representations as to pain [155]; and

9.                  Slendertone did not discharge the onus of rebutting s 51A of the Act [207].

35                  The applicant disputes that it has succeeded only partially so as to make it reasonable that it bear the expense of litigating that portion upon which it has failed:  Australian Competition and Consumer Commission v Australian Safeway Stores Pty Limited (No 2) [2003] FCAFC 163 at [6] per Heerey, Sackville and Emmett JJ.  There at [7] the Court held that the applicant succeeded partially as:

‘In the present case the Commission was completely successful on the Preston Market charge and succeeded on four of the remaining nine charges.  But even on the charges where it was unsuccessful the Commission succeeded on some issues such as market definition, market power and taking advantage of market power which were common to all charges.  …’

There, the applicant received 80 per cent of its costs. 

36                  Here it is submitted that the applicant has succeeded on almost all of its allegations of misleading or false representations and that where it has not succeeded the costs and expenses of the pleadings were minimal due to the interrelationship between all of the representations and the evidence pleaded.  Therefore the applicant submits in these circumstances it is entitled to receive all of its costs from the respondents or, in the alternative, a de minimis reduction would be appropriate due to the few representations which were held not to be false and misleading.

37                  As to the respondents’ submission that the percentage reduction should be increased to reflect the comments in [13] of the reasons and the submission that the applicant’s approach precluded settlement, the applicant submits that the reason the nature and the length of the proceedings were protracted was mainly as a result of the respondents’ application to join a cross-respondent in an overseas jurisdiction as well as their application for further evidence and possible application to reopen the case.  Additionally, the respondents had unsuccessfully appealed the decision made on 23 March 2004.  These matters had entailed a number of directions hearings and special directions hearings and considerable costs were incurred by the applicant as a result. 

38                  Further, it is submitted that the applicant owed a duty to properly present its case and to pursue cases for policy and other reasons and is not under the same duty as a private litigant to attempt to settle a proceeding due to the public policy benefits in prosecuting alleged breaches of the Act. 

39                  In respect of the respondents’ submissions of the impact on costs of the applicant’s approach to the issue of advertising, the applicant repeats earlier submissions made in relation to advertising.

40                  Taking all the submissions into account, I consider that this is a proceeding where the applicant is very substantially entitled to its costs and that the order should allow for such costs to 90 per cent.  Order 13 should therefore be amended to read that Emerald Ocean, Slendertone and Mr O’Donoghue jointly or severally pay 90 per cent of the applicant’s costs of the proceedings (including any reserved costs), in an amount to be agreed or, if not agreed, to be taxed.

COSTS IN RESPECT OF CROSS-CLAIM

41                  These are held over for determination upon receipt of any further submissions from any of the parties following the making of orders on liability and relief.

Associate:

Dated:              17 March 2006