FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Ozdirect Online Brands
Pty Ltd [2009] FCA 1604

AUSTRALIAN COMPETITION & CONSUMER COMMISSIONER v OZDIRECT ONLINE BRANDS PTY LTD and ALBRIGHT

NSD 704 of 2009

RARES J

11 DECEMBER 2009

SYDNEY

THE COURT DECLARES THAT:

1          The First Respondent, in the period from about 1 September 2008 until about 21 July 2009, accepted payment for certain goods when, at the time of the acceptance, there were reasonable grounds, of which the First Respondent was aware or ought reasonably to have been aware, for believing that it would not be able to supply the goods within a reasonable time and thereby engaged in conduct in contravention of s 58 of the Trade Practices Act 1974 (the Act).

2          The First Respondent, from time to time in the period from about 1 September 2008 until about 25 July 2009,  by means of statements published on the websites www.ozdirect.com, www.ozdirect.com.au, www.ausbuys.com and www.ausbuys.com.au (the Ozdirect websites) and in correspondence with certain consumers, made representations to the effect that certain goods advertised for sale on the Ozdirect websites:

2.1       were currently available for dispatch by the First Respondent's suppliers to        consumers within a reasonable period;

2.2       would be dispatched to certain consumers within a reasonable period and / or    within a minimum of 6 days;

which representations were misleading or deceptive by reason of the fact that:

2.3       the First Respondent had been placed on credit hold by the relevant supplier (that is, the First Respondent had exceeded the terms of its credit arrangements, either by reason of owing outstanding invoices or because the volume of its orders exceeded its credit limit) at the time the representation was made;

2.4       goods were not available for dispatch by the relevant supplier until the First Respondent had paid sufficient outstanding invoices to fall beneath the credit limit allowed by the relevant supplier and, as a result, was taken off credit hold;

2.5       goods were not available for dispatch by the relevant supplier until the First Respondent was no longer on credit hold;

and thereby, in trade and commerce:

2.6       engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s52 of the Act.

3          The First Respondent, in the period from about 1 September 2008 until at least 3 July 2009, in correspondence with certain consumers, made representations to the effect that:

3.1       delays in supply of goods purchased by the consumer were due to a large influx of orders recently causing a significant backlog in order processing by its suppliers;

which representations were misleading or deceptive by reason of the fact that:

3.2       the delays were not due to a large influx of orders recently causing a significant backlog in order processing by the First Respondent's suppliers;

3.3       the delays were in fact due to the First Respondent being placed on credit hold by one or more of its suppliers;

and thereby, in trade and commerce:

3.4       engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s 52 of the Act.

4          The First Respondent, in the period from about December 2008 until about April 2009, by means of statements published on the Ozdirect websites and in correspondence with customers, as follows:

"You agree that where Ozdirect is obliged to provide you with a refund either pursuant to these Terms and Conditions of Sale or operation of law, such obligation is restricted to issuing of a credit note for such refund, which you may spend on further purchases with Ozdirect."

made representations to the effect that:

4.1       it was only obliged to provide a refund by way of credit note;

4.2       it was permissible to exclude, restrict or modify by agreement the exercise of a right conferred by Div 2 of Pt V of the Act;

in circumstances where:

4.3       having regard to s 68 of the Act, it is not permissible to exclude, restrict or modify by agreement the exercise of a right conferred by Div 2 of Pt V or s 75A of the Act;

and thereby, in trade and commerce:

4.4       engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s 52 of the Act; and

4.5       made false or misleading representations concerning the existence, exclusion or effect of a condition, right or remedy, in contravention of s 53(g) of the Act.

5          The First Respondent, in the period from about 1 September 2008 until at least 21 July 2009 made representations, in correspondence with customers and orally, to the effect that:

5.1       refunds would be provided in due course;

5.2       refunds could take up to 30 days to process from the date of cancellation with the First Respondent's suppliers; or

5.3       refunds could take up to two to three weeks to process because of a backlog in the First Respondent's refunds department, due to daily refund limits through its merchant gateway;

in circumstances where:

5.4       any daily refund limits on the First Respondent's merchant gateway did not apply to customers from whom it had accepted payment by direct deposit or transfer into its bank accounts;

5.5       the First Respondent had a policy that cash refunds would not be provided until the customer had made a second request;

5.6       the First Respondent had a policy that it would not provide a refund to any customer until such time as it had obtained a refund from the relevant supplier for the goods ordered by that customer; and

5.7       the First Respondent had a policy of instructing employees not to refund customers who had requested a credit card charge back through their bank, but to let the bank process the charge back, even though it was aware that this would take at least 14 days to occur;

and thereby, in trade and commerce:

5.8       engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s 52 of the Act;  and

5.9       made false or misleading representations concerning the existence, exclusion or effect of a right or remedy, in contravention of s 53(g) of the Act. 

6          The First Respondent, on or about 19 March 2009, made a representation to a customer, Arik Nguyen, to the effect that:

6.1       the Applicant has a policy whereby it allows all businesses 30 days to provide a refund;

in circumstances where:

6.2       the Applicant did not at the relevant time (and does not currently) have a policy whereby it allows all businesses 30 days, or any other specified timeframe, for the provision of refunds to consumers;

and thereby, in trade and commerce:

6.3       engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s 52 of the Act; and

6.4       made a false or misleading representation concerning the existence, exclusion or effect of a right or remedy, in contravention of s 53(g) of the Act.

7          The First Respondent, in the period from about December 2008 until about April 2009, by statements published on the Ozdirect websites and / or in correspondence to customers, made representations to the effect that:

7.1       the First Respondent could refuse to provide a refund in respect of faulty or defective goods if a customer failed:

7.1.1.   to give written notice of an intention to obtain a refund within 3 days of receiving the goods; or

7.1.2.   to comply with the First Respondent's instructions on the repackaging and sending of the goods;

which representations were false, misleading or deceptive by reason of the fact that:

7.2       having regard to s 68 of the Act, it is not permissible to exclude, restrict or modify by agreement the exercise of a right conferred by Div 2 of Pt V of the Act;

and thereby, in trade and commerce:

7.3       engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of s 52 of the Act; and

7.4       made false or misleading representations concerning the existence, exclusion or effect of a condition, right or remedy, in contravention of s 53(g) of the Act.

8          The Second Respondent was directly or indirectly knowingly concerned in or party to the conduct of the First Respondent constituting each of the contraventions specified in Orders 1 to 5 and 7 above by reason of being sole director, secretary and managing director of the First Respondent.

THE COURT ORDERS THAT:

9          The First Respondent be restrained, for a period of five years, by itself, its agents or otherwise, from accepting payment for goods from any customer when:

9.1       there are reasonable grounds, of which the First Respondent is aware or ought reasonably to be aware, for believing that it would not be able to supply the goods within a reasonable time;  or

9.2       the First Respondent has been placed on credit hold by the supplier of the goods in relation to which the First Respondent seeks or proposes to accept payment, and the First Respondent has not been informed by the supplier that the supplier is prepared to supply those goods notwithstanding that the First Respondent is on credit hold; or

9.3       there are reasonable grounds to anticipate that the First Respondent will be placed on credit hold by the supplier of the goods in relation to which the First Respondent seeks or proposes to accept payment:

9.3.1    by the time of placing the order with the relevant supplier;  or

9.3.2    by the time the order is due to be dispatched by the relevant supplier

and the First Respondent has not been informed by the supplier that the supplier is prepared to supply those goods notwithstanding that the First Respondent is on credit hold.

10        The First Respondent be restrained, for a period of five years, by itself, its agents or otherwise, from representing to consumers, on any website or by other means, that:

10.1     goods advertised for sale by the First Respondent are available for dispatch by the First Respondent's suppliers to consumers within a specified period;

at any time after 24 hours:

10.2     of the goods becoming unavailable for dispatch by the First Respondent's relevant suppliers within the specified period; or

10.3     where the First Respondent has breached, or if it were to accept any order for the goods advertised it will cause the First Respondent to breach, its arrangements for credit with the supplier of the relevant goods, and the First Respondent has not been informed by the supplier that the supplier is prepared to supply those goods notwithstanding that breach.

11        The First Respondent be restrained, for a period of five years, by itself, its agents or otherwise, from representing to consumers, on any website or by other means, that:

11.1     delays in supply are due to a large influx of orders recently causing a significant backlog in order processing by its suppliers;

unless

11.2     such delays are in fact due to a large influx of orders recently causing a significant backlog in order processing by the First Respondent's suppliers.

12        The First Respondent be restrained, for a period of five years, by itself, its agents or otherwise, from representing to consumers, on any website or by other means, that:

12.1     it is only obliged to provide consumers with a refund by way of credit note;

12.2     the First Respondent can refuse to provide a refund in respect of faulty or defective goods if a customer fails:

12.2.1  to give written notice of an intention to obtain a refund within 3 days of receiving the goods; or

12.2.2  to comply with the First Respondent's instructions on the repackaging and sending of the goods; or

12.3     it is permissible to exclude, restrict or modify by agreement the exercise of a right conferred by Div 2 of Pt V of the Act.

13        The First Respondent be restrained, for a period of five years, by itself, its agents or otherwise, from representing to consumers, on any website or by other means, that:

13.1     refunds will be provided;

13.2     refunds will be provided within a specified timeframe; or

13.3     there is a backlog in the First Respondent's refunds department, due to daily refund limits through its merchant gateway;

unless (as the case requires)

13.4     the First Respondent in fact intends to provide refunds;

13.5     the First Respondent in fact intends to provide the refunds within the specified timeframe;

13.6     any such:

13.6.1  backlog in the First Respondent's refunds department is in fact due to a daily refund limit on the First Respondent's merchant gateway; and

13.6.2  daily refund limit applies to the method by which the First Respondent has accepted payment from the consumers.

14        The First Respondent be restrained, for a period of five years, by itself, its agents or otherwise, from representing to consumers, on any website or by other means, that:

14.1     the Applicant has a policy whereby it allows all businesses 30 days, or another specified period, to provide a refund;

unless

14.2     the Applicant in fact has stated, whether in a publication or in correspondence with the First Respondent, that it is acceptable for businesses to provide refunds to consumers within 30 days or the specified period.

15        The Second Respondent be restrained, for a period of five years, by himself, his agents or otherwise, from being directly or indirectly knowingly concerned in or party to the First Respondent or any other corporation accepting payment for goods from any customer when:

15.1     there are reasonable grounds, of which the Second Respondent is aware or ought reasonably to be aware, for believing that the First Respondent or the other corporation would not be able to supply the goods within the specified period, or if no period is specified, within a reasonable time;  or

15.2     the Second Respondent is aware or ought reasonably to be aware that the corporation is in breach of its arrangements for credit with the supplier of the relevant goods, or if it accepts payment from any such customer in circumstances in which it will become in breach of such arrangements, and that such corporation has not been informed by the supplier that the supplier is prepared to supply those goods notwithstanding that breach.

16        The Second Respondent be restrained, for a period of five years, by himself, his agents or otherwise, from being directly or indirectly knowingly concerned in or party to the First Respondent, or any other corporation, representing to consumers, on any website or by other means, that:

16.1     goods advertised for sale by the First Respondent or that other corporation are available for dispatch by the First Respondent's suppliers to consumers within a specified period;

at any time after 24 hours

16.2     of the goods becoming unavailable for dispatch by that corporation’s relevant suppliers within the specified period; or

16.3     where such corporation has breached, or if it were to accept any order for the goods advertised it will cause that corporation to breach, its arrangements for credit with the supplier of the relevant goods, and that corporation has not been informed by the supplier that the supplier is prepared to supply those goods notwithstanding that breach.

17        The Second Respondent be restrained, for a period of five years, by himself, his agents or otherwise, from being directly or indirectly knowingly concerned in or party to the First Respondent, or any other corporation, representing to consumers, on any website or by other means, that:

17.1     delays in supply are due to a large influx of orders recently causing a significant backlog in order processing by suppliers of the First Respondent or the other corporation;

unless

17.2     such delays are in fact due to a large influx of orders recently causing a significant backlog in order processing by suppliers of the First Respondent or the other corporation.

18        The Second Respondent be restrained, for a period of five years, by himself, his agents or otherwise, from being directly or indirectly knowingly concerned in or party to the First Respondent, or any other corporation, representing to consumers, on any website or by other means, that:

18.1     the First Respondent or the other corporation is only obliged to provide consumers with a refund by way of credit note;

18.2     the First Respondent or the other corporation can refuse to provide a refund in respect of faulty or defective goods if a customer fails:

18.2.1  to give written notice of an intention to obtain a refund within 3 days of receiving the goods; or

18.2.2  to comply with the First Respondent's or the other corporation's instructions on the repackaging and sending of the goods; or

18.3     it is permissible to exclude, restrict or modify by agreement the exercise of a right conferred by Div 2 of Pt V of the Act.

19        The Second Respondent be restrained, for a period of five years, by himself, his agents or otherwise, from being directly or indirectly knowingly concerned in or party to the First Respondent, or any other corporation, representing to consumers, on any website or by other means, that:

19.1     refunds will be provided;

19.2     refunds will be provided within a specified timeframe; or

19.3     there is a backlog in the refunds department of the First Respondent or the other corporation, due to daily refund limits through its merchant gateway;

unless (as the case requires)

19.4     the First Respondent or the other corporation in fact intends to provide refunds;

19.5     the First Respondent or the other corporation in fact intends to provide the refunds within the specified timeframe;

19.6     any such:

19.6.1  backlog in the First Respondent's or the other corporation's refunds department is in fact due to a daily refund limit on the First Respondent's or the other corporation's merchant gateway; and

19.6.2  daily refund limit applies to the method by which the First Respondent or the other corporation has accepted payment from the consumers.

20        A copy of the final order of the court and the reasons for judgment, with the seal of the Court applied, be placed on the Court file for the purposes of s 83 of the Act.

21        The Respondents pay the Applicant's costs of this proceeding.

22        Leave be granted to the Applicant to file an Amended Application.

Note pursuant to Order 37 Subrule 2(3) of the Federal Court Rules

1          The Second Respondent (Paul Albright) may be liable to imprisonment or sequestration of property unless he abstains from the conduct referred to in the above orders;  and

2          The First Respondent (Ozdirect Online Brands Pty Limited) may be liable to sequestration of property unless it abstains from the conduct referred to in the above orders.

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.

REASONS FOR JUDGMENT

(REVISED FROM THE TRANSCRIPT)

1                          This is the final hearing of an application to prevent the respondents, Ozdirect Online Brands Pty Limited and its sole director and a shareholder, Paul Albright, from engaging in online marketing practices and subsequent dealings with consumers that contravene a number of provisions of the Trade Practices Act (1974) (Cth).

PROCEDURAL BACKGROUND

2                          Earlier this year, the Commission received a large number of complaints concerning the alleged conduct of Ozdirect’s business.  It then began an investigation that led to an interlocutory application.  On 24 July 2009, the proceedings came before me when the Australian Competition and Consumer Commission, as applicant, sought interlocutory injunctions.  It was then represented by senior and junior counsel.  Although they did not formally appear by having filed a notice of appearance, Ozdirect and Mr Albright were represented by their then solicitor.  During the course of the interlocutory proceedings, the legal representatives were able to negotiate a set of interlocutory injunctions and certain other orders that restrained Ozdirect and Mr Albright from engaging in a number of practices that appeared on the evidence before me (which is also before me today) to contravene ss 52, 53(g) and 58 of the Act in various ways that I shall shortly describe.

3                          After the hearing on 24 July, the content of Ozdirect’s websites was removed so that they no longer enabled members of the public or Ozdirect’s customers to acquire goods using those sites.  The Commission does not contend that Ozdirect or Mr Albright has engaged in any contravention of the injunctions that were in place on and from 24 July.  And following the grant of the interlocutory injunctions, by early August 2009, Ozdirect appears to have ceased carrying on the business of supplying electronic goods to members of the public in Australia and overseas through the internet or otherwise.

4                          The Commission has now filed a very significant amount of further evidentiary material, spanning over 10 lever arch folders of affidavits and exhibits, in support of its application for final relief.  Since the hearing on 24 July 2009, neither Ozdirect or Mr Albright has appeared in the proceedings or taken any role in their preparation for final hearing.  Counsel for the Commission has prepared detailed written submissions that identify the evidence upon which the Commission seeks declarations and injunctions by way of final relief.  In the course of argument today, some refinement of the orders the Commission now seeks has occurred and it has also filed an amended application that was prepared before the final form of the orders had been settled. 

CONDUCT OF OZDIRECT

5                          Ozdirect conducted some of its business on internet sites that incorporated its principal name.  These offered electronic products across a range of brands on two internet sites, which incorporated Ozdirect’s name in them, and two of which incorporated the word “Ausbuys” in them. 

6                          The business had been conducted, at least, from about September 2008, in the following manner.  After receiving contact on the internet from a person seeking to become one of its customers, Ozdirect required the prospective customer to create an account on its website before ordering products it was offering.  Customers could place the orders on their internet account and they were required to make payment via credit card or other electronic means to Ozdirect.  Payment had to be made in advance of dispatch of the goods.  Ozdirect had links on its website, identifying its terms and conditions, applicable to the customer’s purchases.  It emailed a copy of the terms and conditions, or a link to them, to persons who created accounts with Ozdirect.

DROP SHIPPING

7                          One principal complaint about Ozdirect’s conduct was that it engaged in a practice that the Commission has described as “drop shipping”.  This practice involved the customer placing an order with Ozdirect for a product and paying for it.  Ozdirect then ordered that product from a third party supplier by email or an online facility, with instructions to the supplier to ship the product directly to Ozdirect’s customer.  The instructions to the supplier were subject to two provisos, first, the supplier had to have the goods in stock and available for such a sale and, secondly, significantly, for these purposes, the amount of credit which the supplier extended to Ozdirect at the time of the placing of the order had not been exceeded by orders already placed by Ozdirect.  The second proviso required that Ozdirect was then adhering to its credit arrangements with that supplier so that credit was available.

8                          The Commission does not contend that drop shipping itself involved any contravention of the Act.  The problem that arose here was that, on a large variety of occasions, when Ozdirect placed orders using this technique, it did so at a time that it was outside the credit arrangements it had with the supplier.  Thus, the supplier was not obliged to, and did not immediately, ship the products ordered to the customer.  Understandably, customers complained.  Shortly before the interlocutory proceedings, the Commission had identified over 250 complaints it had received of failures by Ozdirect to supply goods at all or within a reasonable time after it had received payment for them.  Since the interlocutory proceedings, over 350 further complaints of this nature have been made to the Commission and a large number of other complaints of a similar nature had been made to Fair Trading agencies of the States of the same nature.

OTHER CONDUCT COMPLAINED OF

9                          A small, but not insignificant, number of complaints also have been received by the Commission relating to misleading and deceptive conduct and the way in which Ozdirect asserted that members of the public had rights and the benefit of warranties that did not correspond, and in some cases may directly have conflicted, with the provisions of the Act.  A small number of complaints also concerned misrepresentations as to price and bait advertising.

ACCEPTING PAYMENT FOR GOODS WHEN OZDIRECT HAD EXCEEDED ITS CREDIT WITH SUPPLIER OF GOODS

10                        The most significant area of these contraventions involves the acceptance of orders and payments from customers in circumstances where Ozdirect had exceeded its credit terms with the suppliers, so that it could not reasonably have considered that it was in a position to supply the goods, within any identifiable or reasonable time after accepting the orders and payments.  This gives rise to two species of contravention.  First, the well-known formula in s 52(1) of the Act:

“The corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or likely to mislead or deceive.”

And, secondly, in contravention of s 58 of the Act, which provides relevantly that:

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

…

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

11                        As is usual in business relationships, Ozdirect’s suppliers imposed credit limits on their dealings with Ozdirect.  These varied between the different suppliers.  In essence, the limit would be exceeded if, on the day of the particular order, Ozdirect’s liability to that supplier would exceed the amount which the supplier said it was prepared to provide by way of credit, once the value of the order was added to it.  When that happened, in most instances, the supplier would initiate a cessation of both credit and the supply of the goods most recently ordered until Ozdirect brought its account back into conformity with the earlier agreed arrangements.  Often, suppliers would remind Ozdirect of its exceeding of its credit limit and request payment to regularise the accounts.

12                        If employees of Ozdirect inquired with the supplier concerned about the status of particular orders, they would be informed that the order could not be despatched while Ozdirect remained in a position where its account exceeded its credit limit.  Once Ozdirect was able, fully or partly, to regularise its credit account with the particular supplier, the supplier despatched the oldest orders first, unless Ozdirect instructed it to the contrary.  This meant that the persons who, at the earliest point of time, had placed, as then, unfilled orders would get their orders filled, while others may or may not have their order supplied depending on whether Ozdirect’s accounts were sufficiently in credit to allow that to happen. 

13                        In the case of one supplier, there were over 15 instances when Ozdirect exceeded its credit limit.  In another case, Ozdirect exceeded its credit limit with the supplier so that it remained in default for about two months and then, shortly afterwards, again defaulted for almost another month.  A similar situation applied with a third supplier, although in that case the periods of default were shorter, but occurred on about six occasions.  Ozdirect submitted over 900 orders to these three major suppliers while on credit hold.

14                        The most egregious breaches occurred with a fourth supplier.  Ozdirect exceeded its credit limit in the seven months between November and June 2009 on about 28 occasions, resulting in delays in orders from the fourth supplier being filled from one day to five months.  Ozdirect submitted over 1700 orders to the fourth supplier while it was on credit hold.

15                        It is no surprise that this behaviour led to the degree of consumer dissatisfaction that brought the matter to the attention of the Commission.  The use of the internet by business to sell goods and services has rapidly become a common feature of our commercial life in a way that would have been unimaginable 15 years ago.  The consuming public tend to trust organisations that sell goods and services with which they deal on the internet.  This trust is particularly evident in circumstances where a supplier, such as Ozdirect, asks a customer to pay for the goods or services in full before any supply or appropriation of the goods or services to meet the order takes place. 

16                        Here, Ozdirect was conducting a business that necessarily involved it placing itself in the position of accepting money and undertaking contractual engagements to supply goods in circumstances where it did not have the goods athand so as to be able immediately to exchange goods for the cash.  Rather, it organised its business in a way that – perhaps unbeknown to the customer – put it in the position of undertaking to obtain supply of the goods to the customer from a third party.  Because it took the money immediately on the making of the order, in ordinary circumstances there was a reasonable inference that the customers understood that the goods would be supplied within a reasonably short time.  After all, the items that were offered for sale were ordinary consumer items readily obtainable, but perhaps at higher prices, in shops or through other means.

17                        Because it was essential to the smooth flow of Ozdirect’s commerce that after receiving payment it supplied the goods, it was incumbent upon it to ensure that its credit accounts with its suppliers were kept in order so that the contract and legitimate expectations of purchasers from Ozdirect could be fulfilled.  This is particularly so where it was requiring them to pay immediately for the goods.  Hence the concern for the purposes of consumer protection evinced by s 58(b) of the Act.

18                        Obviously, in circumstances involving the kind of credit arrangements which Ozdirect maintained with its suppliers, there were inherent advantages for it in organising its cash flows and obligations in a way that, while remaining within its limits, it could take advantage of having its customers’ cash before it had actually to pay for and acquire the goods to supply to them in answer to their orders.  If it did not ensure that that supply occurred within a reasonable time after acceptance of the payment, Ozdirect would contravene s 58(b) of the Act.  I find that it did so on a significant number of occasions.

19                        This manner of doing business in which Ozdirect engaged, if properly conducted within the credit arrangements, can be of benefit to all the parties concerned.  But if it is mismanaged or not carefully managed, the significant contravention of s 58(b) that has occurred in this case will inevitably occur.  It is important that business not be conducted in such a manner.  There will, of course, be stressors on businesses large and small in terms of their cash flows at times, so that it may be said that the corporation could have had reasonable grounds at the time of accepting payment, which became falsified through no fault of its own, when it became unable to supply the goods within a reasonable time of that acceptance of payment.  But on the material before me this does not appear to be a case in that category.

20                        In addition, the Commission complains that the very act of taking payment for goods in circumstances where Ozdirect was either on credit hold, or likely to go into that position with the supplier, could constitute engaging in conduct that was misleading or deceptive because it would create an untrue expectation in the consumer that the goods would be supplied within a reasonable time after the payment.  In the kind of commerce in which Ozdirect was engaged, such a time would be a relatively short time, involving simply the packaging and posting of the goods to the consumer’s address after the making of payment.

21                        I am satisfied that the evidence summarised in the submissions by counsel for the Commission and that tendered on the interlocutory application (re-read before me at hearing) establishes that Ozdirect has contravened the ss 52 and 58(b) of the Act in the way in which I have described.

OZDIRECT’S FALSE EXCUSES FOR DELAY IN, IN OR NON-SUPPLY, OF ORDERS

22                        The second category of complaint on which the Commission relies is one that flows from the general course of dealing I have described where Ozdirect was outside its credit limits at the time various customers ordered particular goods from it.  The Commission contends that representations were made to particular consumers who ordered the goods from Ozdirect that the goods were, in fact, in stock and available for purchase.  There are a number of individual consumer affidavits that detail representations of this nature and Ozdirect’s failure to meet those representations.  On some occasions, the customers were subsequently informed by Ozdirect that the particular goods that he or she had ordered were “temporarily out of stock”, the order was on “back order” to a later date, and they sometimes were not informed of those things but were simply not supplied with the goods.

23                        The Commission informed me that it was not in a position to demonstrate in every case that at the moment a particular order from a particular customer was accepted, Ozdirect was then in excess of its credit limit or would, by that order, exceed it so that suppliers would not provide the goods until Ozdirect had brought itself within its proper credit arrangements.  However, the Commission contended that an inference should be drawn that Ozdirect had been unable to supply timeously or at all, the particular customers who have complained on affidavit in these proceedings of delay in supply or non-supply of the products, because goods were not available for supply as a result of Ozdirect having exceeded its credit arrangements with the supplier.

24                        I am satisfied that the absence of any explanation by Ozdirect or Mr Albright and the scale and number of contraventions of s 58(b) justifies me inferring that Ozdirect contravened s 52 of the Act by falsely representing to its customers that goods were in stock or available for purchase.  This conduct was misleading or deceptive because Ozdirect’s cash flow difficulties meant that it was at least likely not to be in a position that it held any stock or that it was likely to have held sufficient stock to fill that customer’s order when he or she was told the goods were in stock or available for purchase.

FALSE REPRESENTATIONS THAT GOODS WOULD BE DELIVERED PROMPTLY

25                        The third category of complaint by the Commission concerned representations on Ozdirect’s website that a number of its products were in stock and could be supplied if an extra payment were made within a short time.  These representations asserted that delivery would occur sometimes one to two days from the date of dispatch by the supplier;  at other times, by next day delivery;  and on other occasions, about by three days after the clearance of the customer’s funds subject of their electronic form of payment, namely, about six days from the date of payment.  Ozdirect also represented that customers would have their product delivered more quickly if they paid by direct deposit into Ozdirect’s bank account.  These representations were made in emails to the customers.

26                        The effect of these various representations was that if a customer paid in a particular way, he or she would receive supply of the goods within a specified short timeframe.  A number of consumer complaints are in evidence about significant delays in the supply of goods and obfuscation by Ozdirect when the customer sought an explanation for their non-delivery.  On other occasions, customers paid but never received delivery, and on yet other occasions the customers paid, there was delay in delivery and finally, they were lucky enough to receive a refund.  One example, perhaps an egregious one, was a customer who ordered a laptop computer and notebook case in early February 2009.  When he had not received the laptop by early March, Ozdirect told him he would receive it in the next couple of days.  By mid-March he was told that the laptop he had ordered had been discontinued, and that the notebook case he had ordered at the same time was on “back order” to 26 March.  Shortly afterwards, he was told that the notebook case would be despatched.  About a week later, he was told the case would be despatched later that afternoon or the next morning.  He never received either the laptop or the notebook case, but in mid-April received a refund for his purchase.

27                        Obviously, such conduct is commercially unacceptable as well as being misleading or deceptive.  The Commission again does not contend it can prove that on any particular day when an order was made Ozdirect was outside its credit limits.  But as I indicated above, it says that this inference is readily available, and I agree that this must have been the position.

OZDIRECT’S EXCUSES FOR ITS DELAY

28                        The fourth category of complaint which the Commission makes is that when confronted by the customer with a failure to adhere to the contract, Ozdirect informed the customer of a reason for the delay.  The Commission contends that the reasons that were so given were misleading or deceptive.  For example, from early March to early July 2009, Ozdirect made representations to customers that it had been experiencing a large influx of orders that had caused a significant backlog in order processing, and that the suppliers were processing the orders as quickly as possible.  Another excuse was that Ozdirect was awaiting a reply from the supplier with more information and would contact the customer with the information as soon as they had it.  One example in the evidence was a customer who was told in early April 2009 about the supposed backlog in order processing in circumstances where the goods ordered by the customer were those of a supplier who had placed Ozdirect on credit hold in late March and it remained in that position until late April.

29                        I infer that the only problem was that Ozdirect had not paid its suppliers for goods it had contracted with its customers to supply and for which Ozdirect itself had been paid in full.  I also infer that Ozdirect had made a profit margin on such a sale and payment.

30                        It is obvious why Ozdirect would not wish to tell its customers that, although they had paid it in full for the goods, it had not paid the supplier, not only for those goods but for a substantial number of other goods so that it was outside its credit limits.  Such dishonest conduct cannot be permitted or encouraged.  It is plainly a breach of s 52 of the Act.

OZDIRECT’S OBFUSCATION AND FAILURE TO GIVE REFUNDS

31                        The fifth category of complaints involved what might be seen as the logical progression of customer dissatisfaction, namely, the way in which Ozdirect dealt with customers, or sought to avoid having to give customers refunds for the breaches of its representations that it would supply the goods that they had paid for within a reasonable time. 

32                        There is one, but only one, example of a particular kind of misrepresentation that was made by an employee of Ozdirect to a customer, Erik Nguyen.  There is no evidence to link this misrepresentation to Mr Albright.  On 19 March 2009, Ozdirect wrote Mr Nguyen saying:

“Please be advised that our company’s refund time is within 30 days, which the ACCC allows all businesses.”

33                        The Commission has proved that it made no such allowance for businesses to delay payment of refunds. Nor is it likely that the Commission’s functions involve it doing so.  It is understandable that the Commission is concerned that such statements not be made by business, albeit that it recognises that in this case, it was an isolated occasion.  I am satisfied that that representation was false and contravenes s 52 of the Act.

34                        Within the broader category of the fifth species of complaints, however, there is a number of other misrepresentations in evidence.  This concerns obfuscation by Ozdirect in its dealings with customers concerning refunds.  About six consumers gave evidence that they had not received any refunds at all, while seven others were fortunate enough to have received refunds, but only after some months of delay and obfuscation by Ozdirect.  One customer was told in the middle of January 2009 that his request for a refund would be dealt with as quickly as possible and the money would be paid back into his account.  The employee of Ozdirect informed the customer that his refund was being processed manually at the moment of the request.  He was promised the money would be paid within about two days.  By mid-February the customer had not received any payment but was told that Ozdirect’s employee had taken the matter up with the manager and marked it as very urgent.

35                        It is obviously unsatisfactory that such misrepresentations are made.  It is equally obvious that the reason for them was Ozdirect’s cash flow problems caused by its exceeding its credit limit with its suppliers while continuing to take money from members of the public in circumstances where it could neither pay for what it had already been supplied, far less for the liabilities it was assuming by accepting payments and more orders from customers.

36                        The introduction of electronic commerce into financial dealings has not always produced instantaneous payment from recalcitrant debtors.  Ozdirect’s representations to customers of some basis for its delay in making refunds of their purchase payments for unfulfilled orders need to be understood in the context that Ozdirect had a practice or internal policy.  This stated that:

·           a customer was not to be provided with a cash refund for any purchase price of Ozdirect products, until he or she had requested the refund for a second time;

·           a refund ought not to be provided for a product until the relevant supplier had given Ozdirect a refund for it.

37                        Ozdirect’s representations to the effect that the refund would be forthcoming within a short time when customers complained and sought a refund can be seen to have had a misleading or deceptive character.  This arises particularly in light of, first, the experience of all 13 customers, whether or not they received refunds and the significant delays that they experienced, and in some cases, continue to experience, and, secondly, the policies of Ozdirect that required repetition of requests and prior refunds by the supplier to Ozdirect. I am satisfied that Ozdirect’s conduct in making the representations as to how it would deal with refunds, was misleading or deceptive.

CONDITIONS OF SALE

38                        The sixth area of complaint concerned representations that Ozdirect made in its terms and conditions of sale.  The Commission argued that these contravened both ss 52 and 53(g) of the Act.  The latter provides that:

“A corporation shall not in trade or commerce in connection with the supply or possible supply of goods relevantly make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.”

39                        Ozdirect’s terms and conditions of sale were varied after April 2009.  The first version of the terms and conditions contained a term in which the customer was said to agree that, where Ozdirect was obliged to provide him or her with a refund, either pursuant to those terms and conditions or operation of law, this obligation was restricted to the issue of a credit note for the refund, which the customer could spend on further purchases with Ozdirect.  It then set out a large number of restrictive requirements, including that the customer had to give written notice of intention to ask for a refund within three days, and had to comply with Ozdirect’s instructions on repackaging and sending of products.

40                        A potential problem with this method of dealing is that it conflicts with s 68 of the Trade Practices Act.  That renders void any term of a contract that purports to exclude, restrict or modify, or have the effect of excluding, restricting or modifying the application of any or all the provisions of Div 2 of Pt V of the Act, (that contains the various consumer protection provisions to which I have referred), the exercise of any right conferred by such provision, any liability of the corporation for breach of a condition or warranty implied by such a provision, and the application of s 75A.  However, s 68(2) provides that the term will not be taken to exclude, restrict or modify the application of a provision of the Division, or the application of s 75A, unless it does so expressly, or is inconsistent with the provision or section.

41                        Section 75A relevantly provides that where a corporation supplies goods to a consumer in the course of the business of a corporation, and a condition implied in the contract for the supply of those goods by virtue of a provision of Div 2 of Pt V the Act is breached, the consumer has a right in accordance with s 75A to rescind the contract by a notice in writing served on the corporation, giving particulars of the breach or causing return of the goods, and giving the corporation either orally or in writing those particulars.  There are some restrictions on the consumer’s rights that s 75A also provides.  In particular, s 75A(2)(a) provides that if the consumer purports to rescind a contract for the supply of goods by a corporation under the section, the rescission will not be effective if notice is not served, or the goods not returned within a reasonable time after the consumer has had a reasonable opportunity of inspecting the goods.

42                        By requiring the customer to give written notice of an intention within three days of delivery to request a refund, Ozdirect sought to exclude the operation of s 75A.  The section does not require notice to be written.  It offers alternatives of providing written notice within an unspecified timeframe, or causing the goods to be returned to the corporation, and giving it either orally or in writing, particulars of the breach.  Ozdirect’s first version of its terms and conditions contravened s 75A.  Ozdirect’s imposition of a period of three days in which the customer could give notice of his or her intention to seek a refund, and the attempt in cl 7.5 of terms to have the consumer agree that three days was a reasonable period in which to identify any faults, defects or other issue in relation to the goods, does not appear to me on the evidence to be inherently a reasonable period in all circumstances.  For example, computers sometimes take some time before faults with them appear in their operation.  The provisions of s 68 manifest a legislative intention that there should be no power to contract out of the provisions of the Act:  see Akai Pty Ltd v People’s Insurance Co Ltd (1996) 188 CLR 488 at 433 per Toohey, Gaudron and Gummow JJ

43                        Nor have I been able to ascertain any authority in the Act entitling Ozdirect to impose terms about the manner in which the goods can be repackaged and returned to it as a condition of the availability of a refund.  For example, the implied condition that goods were of merchantable quality in s 71(1) of the Act could not be excluded or contracted out of by the arbitrary imposition of a time limit of three days in which the customer could complain about the goods lacking that quality where, for example, more time was required before it became apparent from use that they were not of that quality.  However, these matters do not presently arise for there is no evidence of any complaint made about quality of the relevant goods or their conformity with representations. 

44                        The second version of the terms of conditions in use by Ozdirect from May 2009 until the interlocutory injunctions came into force sought to give a meaning to the word “consumer” that appears to depart from the definition in s 4B of the Act.  Ozdirect sought to exclude from the class of persons who could complain as “consumers” all persons who had acquired the product to sell it or make a profit and, consequently, identified such persons as not being eligible to receive a refund.

45                        The Commission argued that s 4B did not exclude a person who acquired a product to “make a profit.”  It pointed to the definition in s 4B(1) that excluded persons who had acquired the goods from the definition of  “consumer” where their purpose in acquiring them was:

“… resupply, using the goods up in or transforming them in trade or commerce in the course of a process of production or manufacture or repairing or treating other goods or fixtures on land.”

46                        The Commission argued that the new definition adopted by Ozdirect would have the effect of precluding a customer from seeking a refund from it who had purchased a printer to use in his or her business, (other than a person who was a printer themselves) simply because the customer wished to make a profit from their business.  It gave the example of a barrister purchasing a printer for use in his or her chambers who may wish to make a profit from the provision of their professional services, but not, at least, directly from the use of the printer.

47                        As a practical matter I am not sure how telling the exclusion in Ozdirect’s terms of a customer who purchased in order to make a profit might be.  It is a departure from the definition of “consumer” in s 4B(1) and may misrepresent the class of persons who could properly be said to be able to ask for a refund in accordance with the Act.  However, the part of terms and conditions with which I am concerned makes no direct reference to the Act.  The Commission argued that the restricted definition of “consumer” in the second version of the terms and conditions was a representation that attracted avoidance under s 68 read with s 75A.  Because of that, the Commission argued both ss 52 and 53(g) of the Act had been contravened.

48                        I am inclined to the view that the inclusion, in Ozdirect’s most current version of its terms and conditions, of the wide specifications of “consumer”, as including a person who acquires a product to make a profit, could be potentially misleading.  But, I am not persuaded that in this particular case it is sufficiently demonstrated that Ozdirect made any misleading or deceptive representation.  I am not satisfied that I should grant relief in respect of this particular usage.

RELIEF AGAINST MR ALBRIGHT

49                        The Commission also seeks relief against Mr Albright.  From at least the beginning of November 2008, Mr Albright has been the sole director, secretary and managing director of Ozdirect, and, as I have said, he is also a shareholder.  In that context, he can fairly be seen to be a person who, ordinarily, would have been aware of Ozdirect’s financial position at all relevant times and have set its policies and practices.  The functions of a managing director vary between different corporations depending on their activities and/or policies.  But, on the material before me, Ozdirect was not such a large and complex organisation that its managing, and sole, director was unlikely to have been involved in the day-to-day conduct of its business and affairs.

50                        I infer that Mr Albright was aware of all of the aspects of Ozdirect’s conduct complained of other than the misrepresentation as to the Commission’s view on the time in which refunds could be made (being 30 days) simply because these matters went to the heart of the way in which Ozdirect carried on its business.  For these reasons, I am satisfied that Mr Albright was, within the meaning of s 75B(1)(c) of the Act, in some way directly or indirectly knowingly concerned in or party to the contraventions that I am satisfied Ozdirect committed.

RELIEF

51                        The Commission has sought declaratory relief to reflect the contraventions that I have found established, and corresponding injunctive relief against Ozdirect, and, to the extent he was concerned in the contraventions, Mr Albright.  It asks for the injunctions to be continued for a period of five years.

52                        On 24 August 2009, Mr Albright incorporated a company called Axisoft Pty Limited of which he is the sole director and shareholder.  He has registered the domain name “axisoft.com.au”. The Commission also points to Mr Albright having previously registered other companies which were deregistered in February 2002 at the instigation of the Australian Securities and Investments Commission.  The Commission does not assert that those matters provide categorical evidence that Mr Albright had engaged, or would engage in the future, in the creation of companies that would, in effect, recommence the same kind of business as Ozdirect conducted.  But, it contends that these matters are relevant to the exercise of a discretion to grant injunctive relief and the duration of that relief.

53                        It is, in one sense, apparently anomalous that a regulator should seek, without opposition from the respondents, very wide-ranging declaratory relief about the conduct of a business that has ceased and a prohibition on that business, and its director or principal, engaging in similar conduct in the future, where there is no present indication that he or it will do so.  On the other hand, there is a utility in exposing significant contraventions of consumer protection legislation, both through the decisions of the courts and in the Commission bringing those decisions to the community’s attention.  Moreover, there is utility in preventing, by injunction, persons who have shown a willingness to be involved in significant contraventions of the consumer protection provisions of the Act from committing similar contraventions in the future.  These can properly be seen as protective of the public and the public interest.  For these reasons, I am of opinion that it is appropriate to make orders reflecting these reasons.

Associate:

Dated:         24 February 2010