FEDERAL COURT OF AUSTRALIA
Australian Communications and Media Authority v Mobilegate Ltd A Company Incorporated in Hong Kong (No 4) [2009] FCA 1225
COMMUNICATIONS LAW – unsolicited SMS messages (Spam) – use of fake dating profiles – contraventions established – considerations applicable to imposition of pecuniary penalties
Crimes Act 1914 (Cth) s 4AA
Spam Act 2003 (Cth) ss 16, 24, 25
Trade Practices Act 1974 (Cth) s 76
Australian Communications and Media Authority v Clarity1 Pty Ltd (2006) 155 FCR 377 followed
Australian Communications and Media Authority v Mobilegate Ltd A Company Incorporated in Hong Kong (No 2) [2009] FCA 887 cited
J McPhee and Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 followed
Trade Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 296 followed
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 followed
Australian Competition and Consumer Commission v McMahon Services Pty Ltd (2004) ATPR 42‑031 followed
Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 followed
Trade Practices Commission v Stihl Chain Saws (Australia) Pty Ltd (1978) ATPR 40-091 cited
Markarian v The Queen (2005) 228 CLR 357 considered
Wood v Dancertext Pty Ltd [2007] FMCA 1410 considered
QUD 426 of 2008
LOGAN J
23 October 2009
BRISBANE
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IN THE FEDERAL COURT OF AUSTRALIA |
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QUEENSLAND DISTRICT REGISTRY |
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GENERAL DIVISION |
QUD 426 of 2008 |
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AUSTRALIAN COMMUNICATIONS AND MEDIA AUTHORITY Applicant
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AND: |
MOBILEGATE LTD A COMPANY INCORPORATED IN HONG KONG First Respondent
WINNING BID PTY LTD ACN 121 026 793 Second Respondent
JOBSPY PTY LTD ACN 112 801 073 Third Respondent
SIMON ANTHONY OWEN Fourth Respondent
TAREK ANDREAS SALCEDO Fifth Respondent
SCOTT MARK MOLES Sixth Respondent
GLENN CHRISTOPHER MAUGHAN Seventh Respondent
SCOTT GREGORY PHILLIPS Eighth Respondent
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JUDGE: |
LOGAN J |
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DATE OF ORDER: |
23 october 2009 |
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WHERE MADE: |
BRISBANE |
THE COURT ORDERS THAT:
1. The First Respondent, Mobilegate Ltd, pay to the Commonwealth of Australia, within 28 days of the date of this order, a civil pecuniary penalty in the amount of $5,000,000 in respect of its contraventions of the Spam Act 2003 (Cth) as found by the Court on 14 August 2009.
2. The Second Respondent, Winning Bid Pty Ltd, pay to the Commonwealth of Australia, within 28 days of the date of this order, a civil pecuniary penalty in the amount of $3,500,000 in respect of its contraventions of the Spam Act 2003 (Cth) as found by the Court on 14 August 2009.
3. The Fourth Respondent, Simon Anthony Owen, pay to the Commonwealth of Australia, within 28 days of the date of this order, a civil pecuniary penalty in the amount of $3,000,000 in respect of his involvement in contraventions of the Spam Act 2003 (Cth) as found by the Court on 14 August 2009.
4. The Fifth Respondent, Tarek Andreas Salcedo, pay to the Commonwealth of Australia, within 28 days of the date of this order, a civil pecuniary penalty in the amount of $3,000,000 in respect of his involvement in contraventions of the Spam Act 2003 (Cth) as found by the Court on 14 August 2009.
5. The Seventh Respondent, Glenn Christopher Maughan, pay to the Commonwealth of Australia, within 28 days of the date of this order, a civil pecuniary penalty in the amount of $1,250,000 in respect of his involvement in contraventions of the Spam Act 2003 (Cth) as found by the Court on 14 August 2009.
6. Any payment pursuant to orders 1 to 5 above be made by delivery of a bank cheque, made out to the Commonwealth of Australia, to the offices of the applicant’s legal representative, the Australian Government Solicitor, Level 12, 340 Adelaide Street, Brisbane in the State of Queensland, on or before the due date, or by such other arrangement, including in respect of the making of legal tender by Australian notes, as is made with the applicant or its legal representative on or before the due date.
7. Each of the First, Second, Fourth, Fifth and Seventh respondents pay the applicant’s costs of and incidental to the hearing in relation to civil penalties, to be taxed.
AND THE COURT FURTHER ORDERS THAT:
8. The version of the Applicant’s outline of submissions dated 17 September 2009 which is to be made available for public inspection from the Registry be the amended outline of submissions filed with leave on 23 October 2009, from which paragraphs 71 and 73 have been deleted.
9. Service of these orders be effected by the applicant taking the following steps:
9.1. in relation to the first respondent, sending a copy by pre-paid post to Tarek Salcedo, 2 Brookvale Close, Kenmore Hills, and emailing a copy to the email address tarek@txtconnect.com;
9.2. in relation to the second respondent, sending a copy by pre-paid post to the registered office at Denham Sheppard Accountants, Suite 8, 3990 Pacific Highway, Loganholme, and emailing a copy to the email address tarek@txtconnect.com;
9.3. in relation to the fourth respondent, emailing a copy to the email address simon@txtconnect.com;
9.4. in relation to the fifth respondent, sending a copy by pre-paid post to Tarek Salcedo, 2 Brookvale Close, Kenmore Hills, and emailing a copy to the email address tarek@txtconnect.com;
9.5. in relation to the seventh respondent, sending a copy by pre-paid post to 67 Beauvarida Street, Cannon Hill, and emailing a copy to the email address glenn@txtconnect.com.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using eSearch on the Court’s website.
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IN THE FEDERAL COURT OF AUSTRALIA |
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QUEENSLAND DISTRICT REGISTRY |
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GENERAL DIVISION |
QUD 426 of 2008 |
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BETWEEN: |
AUSTRALIAN COMMUNICATIONS AND MEDIA AUTHORITY Applicant
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AND: |
MOBILEGATE LTD A COMPANY INCORPORATED IN HONG KONG First Respondent
WINNING BID PTY LTD ACN 121 026 793 Second Respondent
JOBSPY PTY LTD ACN 112 801 073 Third Respondent
SIMON ANTHONY OWEN Fourth Respondent
TAREK ANDREAS SALCEDO Fifth Respondent
SCOTT MARK MOLES Sixth Respondent
GLENN CHRISTOPHER MAUGHAN Seventh Respondent
SCOTT GREGORY PHILLIPS Eighth Respondent
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JUDGE: |
LOGAN J |
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DATE: |
23 october 2009 |
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PLACE: |
BRISBANE |
REASONS FOR JUDGMENT
1 On 14 August 2009, I made a number of declarations and granted orders in the nature of injunctions in respect of conduct in contravention of the Spam Act 2003 (Cth) (Spam Act) by:
· Mobilegate Ltd - the First Respondent (Mobilegate);
· Winning Bid Pty Ltd - the Second Respondent (Winning Bid);
· Mr Simon Anthony Owen - the Fourth Respondent (Mr Owen);
· Mr Tarek Andreas Salcedo - the Fifth Respondent (Mr Salcedo); and
· Glenn Christopher Maughan - the seventh respondent (Mr Maughan).
At the same time I gave directions in respect of the filing and service of material relating to civil penalties in respect of those contraventions. I appointed today as the date for hearing in respect of penalty matters.
2 These reasons for judgment should be read in conjunction with those which I delivered on 14 August 2009: see Australian Communications and Media Authority v Mobilegate Ltd A Company Incorporated in Hong Kong (No2) [2009] FCA 887.
3 Pursuant to the directions given on 14 August 2009, the Australian Communications and Media Authority (the Authority), as Applicant, served upon the Respondents, which and whom I have mentioned, written submissions together with affidavits to be relied upon in respect of penalty or otherwise identified affidavits in respect of which reliance was to be placed. For their part none of the named Respondents has chosen to appear today. That, of course, is their perfect right.
4 One of them, Mr Salcedo, did, though, choose to correspond with the Registry of the Court. He did this by a letter dated 28 September 2009 received by the Registry that day. That letter now forms part of exhibit 2. A subsequent exchange of correspondence occurred as between the Registry and Mr Salcedo on the subject of whether it was his intention that the letter stand as his submissions in relation to the penalty hearing.
5 In the letter, which I record expressly I have taken into account, Mr Salcedo makes a number of assertions in relation to his involvement with corporate contraventions. Those assertions, at least on one view, are not consistent with the judgment entered against him by default. He has not applied to set aside the default judgment. It would be subversive of the process of justice to afford such assertions weight.
6 I should also record that another of the Respondents of interest today, Mr Owen, filed with the Court an affidavit pursuant to orders ancillary to injunctive orders of a Mareva nature which it became necessary to make as a sequel to the default judgment entered on 14 August 2009. Mr Owen has not sought to rely upon that affidavit in relation to penalty. While, properly, the Authority has noted the existence of that affidavit, its position is that it does not accept the evidence given in that affidavit in relation to Mr Owen’s financial position. Rather, were the affidavit to be relied upon by Mr Owen in relation to any question touching upon penalty, the Authority would seek to cross-examine Mr Owen in respect of that to which he deposes in that affidavit. Mr Owen has not sought to rely upon the affidavit in relation to penalty. In that circumstance I pay no regard to the affidavit.
7 What remains for determination in respect of Mobilegate, Winning Bid, Mr Owen, Mr Salcedo and Mr Maughan is the question of the amount, if any, that ought to be imposed by way of penalty in respect of the contraventions which are the subject of judgment in default.
8 There can be no question that the contraventions require the imposition of a penalty and a very substantial penalty indeed. The conduct concerned constitutes a series of contraventions of s 16 of the Spam Act. That section materially prohibits the sending, or causing to be sent, of commercial electronic messages that have an Australian link and that are, in effect, unsolicited.
9 Provision is made by s 24 of the Spam Act for the imposition of pecuniary penalties by way of civil penalty if this Court is satisfied that a person, ie, a body corporate or an individual, has contravened a provision such as s 16. If so satisfied, the Court may order the person to pay to the Commonwealth such pecuniary penalty in respect of each contravention as the Court determines to be appropriate. Read in isolation, that provision might be thought to provide for unlimited penalisation of contraventions. However, provision is made by s 25, for what are to be the maximum penalties for contraventions of civil penalty provisions such as s 16.
10 Section 24(2) of the Spam Act sets out, in a non-exhaustive way, a number of matters to which the Court should have regard in determining the pecuniary penalty to fix. I shall return in some detail to the considerations specified in s 24(2), insofar as they relate to the circumstances of this case, in a moment. For the present, it might be observed that the considerations specified in s 24(2), save for that in para (e), bear a strong resemblance to those found in s 76 of the Trade Practices Act 1974 (Cth) (Trade Practices Act). Section 24(2)(e) provides that if the Court considers that it is appropriate to do so, whether the person has previously been found by a court in a foreign country to have engaged in any similar conduct, is a relevant consideration. That sub-section articulates overtly a consideration which would, in any event, be relevant. It is further a consideration which, though not expressly articulated in s 76 of the Trade Practices Act, would be relevant to a penalty proceeding under that Act in particular circumstances.
11 As it happens, a court in a foreign country has not found the Respondents concerned to have engaged in any similar conduct. There was, at one stage though, a disposition on the part of the Authority to rely upon findings and penalties in respect of conduct in the United Kingdom by one of the Respondents of concern today. In the end though, that particular disposition did not manifest itself in evidence before me in relation to proceedings abroad, nor had evidence in relation to such proceedings proposed to be relied upon been served upon the Respondent concerned, as the interlocutory directions in respect of the penalty proceeding would have required. At best, it would seem that the conduct concerned was what one might term parallel in time to that the subject of Australian regulatory interest. Had there been evidence of prior findings in respect of prior conduct, ie, conduct prior to the alleged contraventions, those findings would have had a particular relevance in terms of assessing the gravity of the later Australian-related conduct.
12 As things stand, and in the absence of evidence, I expressly do not take into account any matter touching upon any alleged conduct in the United Kingdom. Rather, I approach the matter on the basis that none of the Respondents have been the subject of adverse findings abroad.
13 The Authority put forward that the conduct concerned in itself, insofar as it related to Australia, was of such gravity that, in a relative sense, parallel, as compared with prior, conduct abroad would not materially affect any question as to penalty. It expressly sought the deletion of reference in its written submissions to such conduct.
14 It is not impossible to conceive how parallel conduct might yield a view as to whether one should regard Australian-related conduct as but an isolated geographic aberration. It might also yield a view as to the overall worth of a Respondent. Nonetheless, it is in this case only the Australian-related conduct that I take into account, and I do so, in the end, at the invitation of the Authority.
15 The Authority’s stance, in my respectful opinion, reflected a very proper approach for an agency of the Commonwealth to take in circumstances where a particular Respondent had not appeared before the Court.
16 In summary, the contraventions of s 16 which are established are contraventions which involve the sending of unsolicited short message service - SMS messages - to the mobile telephones of users who have been deceived, inveigled even, into providing their mobile telephone numbers to representatives of either Mobilegate or, as the case may be, Winning Bid, under the belief that they were corresponding with individuals seeking to meet them and to form relationships via dating websites.
17 In fact, these users of the mobile telephones were the prey of Mobilegate or, as the case may be, Winning Bid. Those users were targeted via fabricated dating website profiles. That targeting was at the heart of a scheme, the design of which was to cause those mobile telephone users to exchange SMS messages using premium telephone numbers operated on behalf of either Mobilegate or Winning Bid. The users were charged amounts of up to $5 per message. There is some evidence before me as to amounts derived by Mobilegate and Winning Bid through this particular scheme. I shall detail that shortly.
18 In an interlocutory judgment which I delivered on 22 May 2009, I observed that:
The use of trickery to prey for reward upon the lusts or emotional vulnerabilities of others is hardly a vice confined to modern times. What modern times do offer, for those disposed to such a vice, are new means of prey, the internet, and the mobile telephone.
The corporate Respondents, Mobilegate and Winning Bid, and those of the individual Respondents with which I am concerned today, Messrs Owen, Salcedo and Maughan, might aptly be described as predators on the emotionally vulnerable for reward. That is a particularly vile form of behaviour.
19 The Spam Act provides for the imposition of penalties which, in the application of that Act to the circumstances of this particular case, are substantial indeed as to their maximum. It is necessary to relate in a little detail how that transpires, having regard to s 25. For a corporate entity which has not been found previously to have contravened the Spam Act the maximum penalty as provided for by s 25(3) is 100 penalty units per single contravention, or if the Court finds that the body corporate has on a particular day committed two or more contraventions, 2000 penalty units. For an individual who has not previously been found to have contravened the Spam Act the maximum penalty as provided for by s 25(4) is 20 penalty units per single contravention, or if the Court finds that the person has on a particular day committed two or more contraventions, 400 penalty units.
20 The Spam Act incorporates by reference the meaning given by s 4AA of the Crimes Act 1914 (Cth) to a penalty unit. It is there provided presently that a penalty unit is $110. By a process of mathematics one therefore derives that the maximum applicable penalty per day on which more than one contravention is found to have occurred is $220,000 in the case of a body corporate and $44,000 in the case of an individual.
21 In this particular case, many days are involved in which contravening conduct occurred. That has a corresponding effect on the theoretical maximum penalty applicable in respect of the contraventions.
22 On the evidence to hand, so far as Mobilegate is concerned, it appears - and this is as best an approximation as I can make - that the number of days on which two or more contraventions occurred was 331 days. In all, were one to assess a theoretical maximum in respect of Mobilegate, one would derive a maximum penalty under the Spam Act of something in excess of $72 million.
23 As to Winning Bid, the approximate number of days on the evidence in terms of best estimation on which two or more contraventions occurred was 187 days. Again, in terms of the theoretical maximum in respect of the contraventions, the subject of default judgment, the maximum penalty applicable in respect of Winning Bids conduct would be $40 million.
24 It is a possible but in the end only a theoretical exercise to look to maximums which might be applicable under s 25 in respect of those individuals who have been adjudged to be parties to corporate contravening conduct.
25 I shall make some reference to authority touching upon maximum penalty in a moment. For the present it is instructive to consider both individually and then in their totality the particular individual considerations specified in s 24(2) of the Spam Act save of course for that specified in s 24(20(e) to which I have already made reference. Before so doing it is helpful to reflect upon some general principles which are pertinent, in my opinion, to the imposition of pecuniary penalty.
26 There is but one directly applicable authority in respect of the Spam Act and the imposition of penalties under that Act. That is a judgment delivered by Nicholson J in Australian Communications and Media Authority v Clarity1 Pty Ltd (2006) 155 FCR 377 (Clarity1). One finds, with respect, in his Honour’s judgment in Clarity1 a very helpful collation indeed of relevant principle.
27 It is apparent from Clarity1 that Nicholson J was of the opinion that assistance was to be derived in terms of principle from judgments delivered in respect of civil penalties imposed under the Trade Practices Act. I respectfully agree with this approach.
28 To that end, the following general principles are pertinent:
1. the size of the contravening company;
2. the deliberateness of the contravention and the period over which it occurred;
3. whether the contravention arose out of the conduct of senior management in a corporation or at a lower level;
4. whether the corporation has a culture conducive to compliance with the Act, as, for example, evidenced by educational programs and disciplinary or other corrective measures which are taken institutionally in response to an acknowledged contravention;
5. whether the respondent, be it corporate or individual, has cooperated with the authorities responsible for the enforcement of the Act in relation to the contravention;
6. (and this may be part of the size of the corporation, where it is a corporate respondent), the financial position of the contravener and its, his or her capacity to pay;
7. the deterrent effect, both specific and general, of the proposed penalty;
8. the totality principle; and
9. parity and, I think, also relativity of penalty, with other respondents, having regard to individual circumstances of involvement in a contravention.
29 There are other statements in authorities under the Trade Practices Act which are, in my opinion, germane in relation to the imposition of penalty in respect of Spam Act prosecutions.
30 Thus, under the Trade Practices Act, it is relevant to take into account whether the conduct that contravened the Act was systematic, deliberate or covert: see J McPhee and Son (Australia) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532 at [158].
In this case, the contravening conduct might aptly be described by each of those adjectives. In other words, it was systematic, it was deliberate and, materially, covert in terms of the ability of those mobile phone users preyed upon to ascertain readily the identity of their predator if they were disposed to seek recourse to the courts to recover moneys lost. I shall elaborate a little further on that aspect in a moment.
31 Again, in terms of Trade Practices Act authorities, there is useful guidance on the role of both specific and general deterrence in the imposition of penalties. In Trade Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 296 at pages 297 to 298, Toohey J, then a judge of this Court, remarked:
The penalty should be such as to deter not only the particular offender but others who may be disposed to engage in prohibited conduct of a similar kind.
32 That, in my opinion, is a particularly weighty consideration in relation to Spam Act contraventions. This case discloses on the evidence that while it is possible for a regulatory authority, through diligent investigation, to detect not only those corporations but those individuals involved in contraventions, the task is not an easy or an inexpensive one. It consumes public resources which might otherwise usefully be deployed to other ends. That being so, penalties in respect of contraventions must be such as to deter the unscrupulous from taking a calculated business risk. In other words, in my opinion, penalties must be of such an order that having regard to particular gains which might be involved, it is in effect commercial suicide to seek those gains via contraventions of the Spam Act.
33 Sentiments such as these are evident in prior authority.
34 In NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at pages 294 to 295 (NW Frozen Foods), a Full Court opined:
The court should not leave room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay …
35 To like effect is the following observation of Selway J in Australian Competition and Consumer Commission v McMahon Services Pty Ltd (2004) ATPR 42‑031 at [15]:
The penalty must be sufficiently high that a business, acting rationally and in its own best interest, will not be prepared to treat the risk of such a penalty as a business cost.
36 Of course, a penalty should not be so high as to be oppressive, but it is important in this regard to recall exactly what is meant by that sentiment. That was, with respect, aptly and accurately stated by Merkel J in Australian Competition and Consumer Commission v Leahy Petroleum Pty Ltd (No 2) (2005) 215 ALR 281 (Leahy Petroleum (No 2)) at para 9 as follows, (and this is a reference to observations made by Smithers J in a case, Trade Practices Commission v Stihl Chain Saws (Australia) Pty Ltd (1978) ATPR 40-091, which had been referred to by Burchett and Kiefel JJ in NW Frozen Foods):
I therefore respectfully agree with the observation of Smithers J, referred to by Burchett and Kiefel JJ in NW Frozen Foods, to the effect that, a penalty that is of no greater than is necessary to achieve the object of general deterrence, will not be oppressive.
37 I intend to follow those general principles in relation to the imposition of penalty.
38 Also of great importance in a case such as this, where daily penalties accumulate, is the totality principle. I shall have a little more to say about that shortly.
39 As I have mentioned, there is but one earlier authority dealing directly with the Spam Act: Clarity1. The utility in that case is for its collation of principle in relation to the imposition of penalty. I have drawn upon that collation in making the statements already given with respect to principle. It is not, though, a case uncritically to apply as a comparative. The circumstances of that case were different to those of the present. The Respondents concerned are to be dealt with by reference to their particular contravening conduct.
40 This is not one of those cases of the kind encountered in the State criminal courts where, by reference to a high volume of analogous criminal conduct, it is possible to set, and then for sentencing judges to have regard to, particular benchmarks derived from guidance given by a Court of Appeal. I have already referred to theoretical maximums that one might derive in respect of the corporate Respondents, and to the ability to make an estimation of theoretical maximums in respect of individuals. In Markarian v The Queen (2005) 228 CLR 357 Gleeson CJ and Gummow, Hayne and Callinan JJ, in relation to maximum sentences said at [30]:
Legislatures do not enact maximum available sentences as mere formalities. Judges need sentencing yardsticks. It is well accepted that the maximum sentence available may in some cases be a matter of great relevance. In their book Sentencing, Stockdale and Devlin observe that:
“A maximum sentence fixed by parliament may have little relevance in a given case, either because it was fixed at a very high level in the last century … or because it has more recently been set at a high catch-all level … At other times the maximum may be highly relevant and sometimes may create real difficulties …
A change in a maximum sentence by Parliament will sometimes be helpful [where it is thought that parliament regarded the previous penalties as inadequate].”
41 And then at [31]:
It follows that careful attention to maximum penalties will almost always be required, first, because the legislature has legislated for them; secondly, because they invite comparison between the worst possible case and the case before the court at the time; and thirdly, because in that regard they do provide, taken and balanced with all the other relevant factors, a yardstick.
42 I turn to look at particular factors designated in s 24 as relevant. Obviously enough, these factors are measured against the matters pleaded in the statement of claim, and the evidence upon which the Authority seeks to rely and of which notice has been given to the particular Respondents; in particular, affidavits of Mr Weber, filed on 12 May, 13 May, and 21 May 2009.
Nature and Extent of Contraventions
43 I have already described these contraventions as deliberate, systematic and covert. The Authority submits that the conduct was duplicitous and exploitive. I agree. Between at least January 2006 and December 2008, the conduct involved the following: setting up fake profiles on dating websites and communicating with users of that dating websites to entice them to hand over details of their mobile phone number, as if they were communicating with another user of a dating website; sending SMS messages to those mobile telephone numbers by particular premium number services and engaging the users to engage in an exchange of SMS messages, as if with a potential dating partner; extending the deception of users by pretending premium short codes were being used as a “safe divert” service to enable the sender and receiver to communicate without the other party directly disclosing their mobile telephone number as a matter of caution; and obtaining revenue from the sending or receipt of the SMS messages via those premium numbers as a result of fees charged to the user of each message.
44 The premium short code numbers concerned were changed regularly. They were changed so as to avoid or overcome detection and complaints against the corporate respondents. So far as the Fourth, Fifth and Seventh Respondents, Messrs Owen, Salcedo and Maughan were concerned, their involvement, in terms of the judgment entered by default against them and in terms of the affidavit evidence, is extensive, knowing and persistent. Persistent also is a failure to address complaints. The length of involvement in contravening conduct varies.
Mobilegate
45 Mobilegate was incorporated on 20 August 2007. It was responsible for sending and receipt of SMS messages via particular premium numbers, more particularly described in the statement of claim, from 15 November 2007 through to 29 October 2008. Mobilegate’s earnings, as received from the aggregator Sybase, from the operation of the premium short codes, was in excess of $1.1 million between November 2007 and August 2008. Mobilegate received additional revenue from the aggregator Oxygen 8 in relation to another premium short codes operation from October 2008 to January 2009 in excess of $200,000. Those earnings are pertinent, on the subject of penalty, having regard to what I have already stated to be a principle of general deterrence in the imposition of penalties sufficiently high to make it commercial suicide to attempt to obtain such earnings by breaching the Spam Act.
Winning Bid
46 Winning Bid was incorporated on 1 August 2006. It was responsible for the sending and receipt of a number of SMS messages via premium numbers described in the statement of claim from 1 April 2007 until 15 November 2007. On the latter date, Winning Bid assigned its application messaging services agreement with Sybase to Mobilegate. The earnings of Winning Bid from the operation of the premium short codes concerned between April 2007 and November 2007 was in excess of $300,000.
Mr Owen
47 Mr Owen had an earlier involvement as sole director with a company known as International Machinery Parts Proprietary Limited (IMP). The conduct the subject of these proceedings initiated with IMP. IMP received payments from Sybase for the operation of particular short codes in respect of the period 1 January 2006 to 30 April 2007, totalling $690,000. Mr Owen was the director of Winning Bid from August 2006 to April 2008. He was also manager of Mobilegate from August 2007 to November 2008. Of each of the individual Respondents with whom I am concerned today, his involvement was the longest. It follows from this, in terms of the default judgment as well, that he has been involved in the greatest number of contraventions.
48 It is apparent on the evidence that Mr Owen was involved in establishing the premium short code operations initially via IMP in 2006. He is aptly described as the directing mind and will of each of the companies involved between 2006 and 2008. It was his details which appeared on contracts with aggregators for the provision of various short codes and also in correspondence with aggregators in relation to complaints.
49 It is relevant to note that Mr Owen was the sole director of IMP when that company was the subject of an infringement notice issued by the authority pursuant to the Spam Act. It is also relevant to note that Mr Owen was an individual respondent in proceedings in the Federal Magistrates Court against a company, Dancertext, and him: see Wood v Dancertext Pty Ltd [2007] FMCA 1410 (Dancertext). The conduct described in the reasons for judgment of Raphael FM bears particular comparison with the subject of the present proceedings.
Mr Salcedo
50 Mr Salcedo was the manager of IMP from June 2006 to May 2007. He was the manager of Winning Bid from April 2007 and the manager of Mobilegate from August 2007 to April 2009. There is also a basis for regarding him, de facto, as a director of Mobilegate even prior to his taking up that position in April 2009.
51 In June 2006, Mr Salcedo corresponded with the Authority on behalf of IMP in relation to complaints which came to form the basis of the infringement notice to which I have referred already.
52 Mr Salcedo was responsible for the day to day management of Mobilegate’s business from August 2007. He set up that company. He purportedly relinquished the directorship of the company in favour of Mr Scott Moles, with whom I am not concerned today, on 20 August 2007. It was Mr Salcedo who was responsible for the supervision of Mr Maughan. It was also Mr Salcedo who responded to what can only be described as a large amount of correspondence from aggregators and regulators. At the least, Mr Salcedo might be described as an influential and involved manager.
Mr Maughan
53 Mr Maughan was an employee of Jobspy, another Respondent with which I am not concerned today, and Winning Bid. He was engaged as a supervisor of other staff. He sent SMS messages to mobile phone users between the period January 2006 to November 2008, excluding from that period June to October 2006. He was responsible for the instruction of new staff, managing staff on a day to day basis, monitoring the number of SMS messages sent and answering complaints.
The nature and extent of any loss or damage suffered as a result of the contraventions.
54 There are at least two categories of loss which one might identify. That suffered by members of the public who were mobile phone users and that suffered by operators of dating websites through which fake profiles were placed.
Mobile phone users
55 Obviously enough, given the financial ends to which the scheme was directed, there is financial loss in respect of individual mobile phone users. That apart, there is at least inferentially and in some cases necessarily an emotional toll which does not readily admit of quantification but is doubtless real enough in individual cases and readily understandable.
56 The message logs demonstrate that when users queried or complained about premium short code charges being imposed upon them for sending or receiving the SMS messages, the employees of Mobilegate, or as the case may be, Winning Bid, or agents of those companies, informed them that both the sender and the recipient were paying the same charges for the messages and that the communication via the “safe divert” service was a means of concealing the other party’s mobile telephone number so they could safely communicate. This was done I find to encourage the users to continue to exchange messages resulting directly in revenue to those with whom I am concerned today either directly or in their capacity as officers or employees of those corporations. Here one sees the covert nature of the deception being undertaken.
57 The loss which the mobile phone users suffered came to them by way of their telephone accounts. There was no need, given the nature of the scheme for Mobilegate and Winning Bid directly to bill them. The nature of the scheme meant that those mobile phone telephone users faced the obstacle of dealing through their mobile telephone service provider to identify what they had been charged, by whom and for what purported service. They were in jeopardy in the event of non-payment of disconnection of their mobile telephone service or at least in an adverse noting being made in respect of them by that mobile telephone service provider and perhaps more widely in terms of credit.
58 The design and operation of the safe divert scheme also deliberately preyed upon vulnerable aspects of the victims of the conduct. I have already made reference to this. It is apparent from the message logs that many users sent a large number of messages and accordingly spent what, for individuals, could only be significant amounts of money before realising that the person with whom they were communicating was not a genuine member or user of a dating website. This is cruel behaviour; cruel and callous.
59 Quite apart from the obstacles that an individual would face in seeking to garner evidence of exactly who had preyed upon them, the Authority submits that there is an inference that embarrassment or shame associated with exposing publicly by litigation having been duped in this exploitive fashion would tend to suppress the individual seeking of financial redress.
60 That type of shame or embarrassment is not unknown in our law in relation to the readiness with which certain kinds of sexual offences are reported. In my opinion there is much to be said in favour of that particular quality attending the readiness with which individuals might care to seek particular redress from their exploiter in this type of conduct as well. That quality only serves to aggravate the conduct. By that I mean that it is of such an intimate exploitive nature that the exploiter by the very conduct gives itself, himself or herself, a degree of insulation at a practical level from suits for financial recovery. I take that aggravating factor into account in the imposition of penalty.
61 Based on the revenue shares agreements and payment schedules which have been set out in the evidence read before me, the total estimated financial loss to individual mobile telephone users, to consumers, by way of telephone charges incurred as a result of conduct by the Respondents with whom I am concerned today, was in excess of some $4 million. Again, that is a factor to take into account in relation to the imposition of penalties.
Dating Website Operators
62 I turn to the question of losses which one might apprehend dating website operators suffered. These operators, of course, have a legitimate and lawful role to play in our society. One might describe them, in the language of earlier times, as “matchmakers.” In so doing, a medium apt for modern times is used: the internet. In addition to the losses suffered by mobile phone users, the operators of dating websites, which the respondents Mobilegate and Winning Bid used, were the recipients of fake profiles from those companies. It is possible to identify financial loss, but it is not readily to possible to quantify that loss arising from factors such as:
1. dealing with complaints from users of a dating website who associated the Safe Divert scheme with the operator of the website itself;
2. undermining confidence in that website by users with associated reputational and, hence, goodwill damage via word of mouth. That, in turn, one might apprehend, would translate into a loss of lawful revenue for the website; and
3. monitoring and other policing costs incurred by website operators in an endeavour to identify and remove those who placed fake profiles or sought to place fake profiles.
The Circumstances in which the Contraventions Took Place
63 These circumstances include the circumstance that the conduct took place in circumstances where a director of Winning Bid had faced administrative action by the Authority in relation to similar conduct, as well as court proceedings. I refer in this regard to Mr Owen. The contraventions occurred in circumstances where, by virtue of Winning Bid and Mobilegate’s contracts with aggregators for the providing of premium short codes, the corporate respondents had expressly agreed to comply with the Spam Act.
64 The corporate Respondents, Mobilegate and Winning Bid, had faced regular complaints from mobile telephone service providers and from the Telecommunications Industry Ombudsman, as well as some particular mobile phone users, about their conduct, yet it continued. Requirements to obtain consent to the sending of SMS messages were also brought to the direct attention of the Respondents with which and whom I am concerned today, in the providing of new premium short codes. The communication logs of Sybase, which are in evidence, show that these complaints and the requirements for consent were routinely brushed aside. That, too, is an aggravating factor.
65 The corporate Respondents either themselves engaged or caused others to engage a network of individuals, whose job it was to set up fake profiles on dating websites then invent SMS messages to send via the Mobilegate computer system to the mobile phone users. In this sense, the corporate respondents and the individuals, Messrs Owen, Salcedo and Maughan, might be described as “puppeteers” for earnings by preying upon emotionally vulnerable individuals. The subordinate individuals were instructed on how to avoid detection on dating websites. They were directed to cast messages so as to entice ongoing responses from mobile phone users. As I have already mentioned, Mr Maughan was responsible for the day-to-day oversight of the operations of such individuals. All of this conduct was directed to the maximisation of the income of the corporate Respondents.
66 In evidence before me are printouts of the fake dating profiles, as well as logs of communications from specified profiles. These make depressing reading, when one knows that the profiles concerned are fake. There to be seen are communications under the guise of the profile, which were used as what the Authority aptly describes as a “lure” for the member of the public to provide his or her mobile phone number. Financial exploitation then followed when that lure yielded a strike. There is, overall, a consistent pattern of studied deception. It is not possible to see any mitigating factor in the behaviour.
Whether the Person Has Previously Been Found By the Court in Proceedings Under the Act to Have Engaged in Similar Conduct
67 I have already made reference to proceedings against, materially, Mr Owen, in the Federal Magistrates Court. I have also made reference to regulatory action taken by the Authority in the past against IMP at a time when Mr Owen was a director of that company.
Size of the Contravening Company
68 So far as Mobilegate is concerned, there is no evidence directly which is of assistance in relation to the size of that company. I have already made reference, though, to the earnings that it derived.
Deliberateness of the Contravention and the Period over which it Extended
69 I have referred already to the period involved. It is more particularly delineated in the statement of claim. There is no doubt that the contraventions were deliberate.
Whether the Contravention Arose out of the Conduct of Senior Management or at a Lower Level
70 These contraventions involved behaviour which was caused by the senior management of the companies concerned. I have described the involvement of particular individuals in corporate directorship or management already. A factor which is worthy to note in this regard is that the contravening conduct was not an incident of an otherwise lawful business, rather, the very essence of the businesses conducted by Mobilegate and Winning Bid, materially, was conduct designed to contravene section 16 of the Spam Act. That is a factor, in my opinion, which is relevant to general deterrence. The penalties must be of a level which would make it, as I have already said, commercial suicide to set up a business which has, as its aim, the contravention of the Spam Act.
Whether the Company has a Corporate Culture Conducive to Compliance with the Act
71 A short answer to such a consideration is that neither company, on the evidence, had any such culture. To the contrary, the cultures revealed were cultures of studied non-compliance.
Whether the Respondent has Shown a Disposition to Cooperate with the Authorities Responsible for the Enforcement of the Act in Relation to the Contravention
72 The Respondents with which and whom I am concerned today were, at early stages of this litigation, represented by lawyers. Legal representation, though, ceased some time ago. There is no evident cooperation with the administration of justice in the behaviours of any of the Respondents with which or whom I am concerned today. At its highest, it would seem to be that they are not concerned, individually, to put particular factors which might stand in their favour before the Court, but rather to let proceedings take their course. There is certainly nothing in the evidence which would suggest that any of the Respondents with which and whom I am concerned today are disposed to engage in education in relation to Spam Act responsibilities or otherwise to conduct themselves in a way that would be compliant. There is simply no evidence at all of attitude in the future other than the inferences which might arise by reference to past behaviours. They are hardly inferences which stand in favour of mitigation.
The Financial Position of the Contravening Party and Capacity to Pay
73 There is no evidence before me in relation to capacity to pay in respect of any of the Respondents. The Authority submits that an approach evident in Nicholson J’s judgment in relation to capacity to pay in Clarity1 is apposite in the circumstances of this case. His Honour stated at para 43:
Also I accept that the issue of capacity to pay is, although a relevant factor, of less relevance when balanced against the necessity of imposing a penalty that satisfies the objective of general deterrence.
74 His Honour then makes reference in that regard to Leahy Petroleum (No 2).
Deterrent Effect of the Proposed Penalty
75 I have already made reference to a particular importance in general deterrence in the imposition of penalty in respect of contraventions of this Act. It may be noted that Parliament itself has, in a sense, capped daily maximum penalties so as to avoid what one might regard as exponential and thus unrealistically large penalties for multiple contraventions. That said, Parliament has, nonetheless, provided for penalties which accrue, at least on a daily basis, which are significant penalties. In this case, the Authority seeks penalties which are not particularly large, having regard to theoretical maximums, but are large having regard to totality, but not so large as to offend that principle.
76 The totality principle requires that the total penalty for related offences ought not to exceed what is proper for the entire contravening conduct involved. So far as penalty is concerned, the Authority submits that penalties should fall within the following ranges:
· Mobilegate, a pecuniary penalty within the range of $3½ million to $5 million;
· Winning Bid, a pecuniary penalty within the range of $2½ million and $3½ million;
· Mr Owen, a pecuniary penalty within the range of $1.5 million to $3 million;
· Mr Salcedo, a pecuniary penalty within the range $1.5 million to $3 million;
· Mr Maughan, a pecuniary penalty within the range 750,000 to $1,250,000.
77 The Authority submits that, though these penalty ranges are substantial, they do not violate the totality principle. They represent a relatively small proportion of the theoretical legislatively-derived maximum amounts in the circumstances of these contraventions. So far as the corporate Respondents are concerned, they are in the order of 5% to 7% of theoretical maximums. I agree with this particular submission so far as the application of the totality principle is concerned.
Parity and Relativity
78 The proposed penalty ranges do, in my opinion, reflect appropriate parity and relativities. This might be highlighted in the following way.
79 As between Mobilegate and Winning Bid, Mobilegate’s conduct covered a longer period: 331 days as opposed to 187 days. Next, as between individual Respondents, Messrs Owen and Salcedo had a higher level, and a significantly higher level, of authority in the management and control of the corporations than did Mr Maughan. Nonetheless, each of the individual Respondents was involved for over 800 individual days of contraventions. Mr Maughan’s subordination is recognised by the penalty range submitted for him being in the order of 40 % to 50 % of that submitted as apt in respect of Messrs Owen and Salcedo.
80 Next, as between Messrs Owen and Salcedo, there is, on the evidence, a higher level of active involvement by Mr Salcedo, and this occurred notwithstanding that there was in place a disqualification against his managing corporations at the behest of the Australian Securities and Investments Commission at the time. Mr Owen, on the other hand, had been the subject of litigation in respect of analogous behaviour: Dancertext. Further, he was the director of IMP at the time when it was the recipient of a Spam Act infringement notice. Thus, one can see that there are factors which interplay as to whose is the more intimate involvement and whose involvement has occurred against a background of aggravating factors. In the end, such comparisons become too fine to admit of anything other, in my opinion, than regarding each of them as equally culpable.
81 It is by no means impossible to conceive of a slightly higher – perhaps even more than slightly higher – maximum for the range that would be apt having regard to the totality principle. However, the range which has been the subject of submissions is also that which was put to each of the Respondents today as the range that the Authority would seek, in its submissions, to submit as appropriate. In those circumstances, in my opinion, unless I were of the view that that range, in its maximum, was so inappropriate as not to be germane to a just imposition of penalty, I ought not to depart from that range so far as maximum is concerned. Reasonable minds might reasonably differ in relation to maximum. The minimum, having regard to the aggravating factors, is, indeed, a minimum in the circumstances of this case.
82 The range submitted by the Authority is, subject to the observations that I have made, one which I regard as an appropriate range for the imposition of penalties. I have already, though, used particular adjectives to describe the conduct concerned, both corporate and, by involvement as a party to corporate conduct, individual. I have deliberately used strong adjectives to express, on behalf of the community, disapproval, and strong disapproval, of the conduct concerned.
83 The aggravating factors that I have mentioned and the need to ensure, insofar as general deterrence can ever, that this type of conduct is not repeated, in my opinion calls for the imposition of the maximum penalty in each case in the ranges proposed.
84 The penalties, therefore, that I impose in this matter are as follows. In respect of Mobilegate I impose one penalty. That penalty will be a civil penalty of $5 million. In respect of Winning Bid I again impose one penalty in respect of the contravening conduct, and that penalty is $3.5 million. In respect of Mr Owen I again impose one penalty in respect of the contravening conduct, and that civil penalty is $3 million. In respect of Mr Salcedo, I again impose one penalty, and that civil penalty is $3 million. In respect of Mr Maughan I again impose one penalty in respect of the contravening conduct, and that civil penalty is $1.25 million.
85 The Respondents ought to be allowed some time to digest the reasons for judgment and, further, to make such inquiries as they can with their bankers or to make such checks as they can of their own finances in relation to ability to pay. Some time, therefore, in my opinion, ought to be allowed. I therefore allow twenty-eight (28) days for payment in each instance. In each instance the civil penalty which I have imposed is to be paid to the Commonwealth of Australia.
86 In respect of the civil penalty hearing today I order that the First, Second, Fourth, Fifth and Seventh Respondents pay the Authority’s costs, of and incidental to the penalty hearing, to be taxed.
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I certify that the preceding eighty-six (86) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan. |
Associate:
Dated: 5 November 2009
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Counsel for the Applicant: |
Mr S Couper QC with Ms M Brennan |
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Solicitor for the Applicant: |
Australian Government Solicitor |
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Solicitor for the Respondents: |
No appearance by the Respondents |
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Date of Hearing: |
23 October 2009 |
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Date of Judgment: |
23 October 2009 |
