FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Sensaslim Australia Pty Ltd (In Liquidation) (No 1) [2011] FCA 1012

THE COURT ORDERS THAT the orders made with respect to the fourth respondent on 17 August 2011 (comprising four paragraphs) cease to have effect from 10.00 am on 31 August 2011 and that, thereupon, the following orders take effect in substitution therefor:

1.    Until further or other order, the fourth respondent be restrained whether by himself, his agents, servants or howsoever otherwise, in trade or commerce, whether in Australia or between Australia and places outside Australia:

a.    from making representations in relation to the sale of a business opportunity for the promotion, sale or distribution of the Sensaslim Solution (Business Opportunity) to the effect that:

i.    the Business Opportunity, once acquired by a purchaser, has the potential to generate earnings for the purchaser in any particular amount; or

ii.    there is little or no risk involved in the investment in the Business Opportunity;

unless reasonable grounds exist for the making of such representations;

b.    from offering the Sensaslim Solution for sale or from offering a business opportunity for the promotion, sale or distribution of the Sensaslim Solution (Business Opportunity) without disclosing the involvement of the second respondent in the promotion or marketing of the Sensaslim Solution or in the set up, promotion or marketing of the business offering the Business Opportunity, if he is so involved;

c.    from:

i.    making representations regarding the efficacy of the Sensaslim Solution where the basis for the representation is a clinical trial or scientific report, unless the clinical trial was conducted or the scientific report exists; or

ii.    publishing testimonials or making other statements regarding the efficacy of the Sensaslim Solution where:

A.    those testimonials are not statements made by the person to whom it is attributed; or

B.    the statement or testimonial is false.

2.    Until further or other order, the fourth respondent be restrained whether by himself, his agents, servants or howsoever otherwise:

a.    from making representations in relation to the sale of a business opportunity for the promotion, sale or distribution of the Sensaslim Solution (Business Opportunity) to the effect that:

i.    the Business Opportunity, once acquired by a purchaser, has the potential to generate earnings for the purchaser in any particular amount; or

ii.    there is little or no risk involved in the investment in the Business Opportunity;

unless reasonable grounds exist for the making of such representations;

b.    from offering the Sensaslim Solution for sale or from offering a business opportunity for the promotion, sale or distribution of the Sensaslim Solution (Business Opportunity) without disclosing the involvement of the second respondent in the promotion or marketing of the Sensaslim Solution or in the set up, promotion or marketing of the business offering the Business Opportunity, if he is so involved;

c.    from:

i.    making representations regarding the efficacy of the Sensaslim Solution where the basis for the representation is a clinical trial or scientific report, unless the clinical trial was conducted or the scientific report exists; or

ii.    publishing testimonials or making other statements regarding the efficacy of the Sensaslim Solution where:

A.    those testimonials are not statements made by the person to whom it is attributed; or

B.    the statement or testimonial is false,

to the extent that such conduct involves the use of postal, telegraphic or telephonic services or takes place in a radio or television broadcast, wheresoever occurring.

3.    Costs are reserved of and in relation to the hearing on 17 August 2011 for the continuation of orders against the fourth respondent.

4.    These orders be entered forthwith.

THE COURT NOTES THAT:

5.    In these orders:

Sensaslim Solution has the same meaning as Sensaslim Spray in the Application dated 15 July 2011 and means the intra-oral solution marketed and distributed by the first respondent as a weight loss aid.

Note:    Settlement and entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. The text of entered orders can be located using Federal Law Search on the Court’s website.

REASONS FOR JUDGMENT

1    The applicant seeks the continuation of an injunction granted against the fourth respondent, Mr Adams, on 27 July 2011 (the injunction), which was in the following terms:

3.    Until and including 17 August 2011, the fourth respondent be restrained whether by himself, his agents, servants or howsoever otherwise, in trade or commerce:

(a)    from making representations in relation to the sale of a business opportunity for the promotion, sale or distribution of the Sensaslim Solution (Business Opportunity) to the effect that:

(i)    the Business Opportunity, once acquired by a purchaser, has the potential to generate earnings for the purchaser in any particular amount; or

    (ii)    there is little or no risk involved in the investment in the Business Opportunity;

unless the respondent has reasonable grounds for the making of such representations;

(b)    from offering the Sensaslim Solution for sale or from offering a business opportunity for the promotion, sale or distribution of the Sensaslim Solution (Business Opportunity) without disclosing the involvement of the second respondent in the promotion or marketing of the Sensaslim Solution or in the set up, promotion or marketing of the business offering the Business Opportunity, if he is so involved;

   (c)    from:

(i)    making representations regarding the efficacy of the Sensaslim Solution where the basis for the representation is a clinical trial or scientific report, unless the clinical trial was conducted and is the subject of a scientific report which has been published in a peer reviewed scientific journal; or

(ii)    publishing testimonials or making other statements regarding the efficacy of the Sensaslim Solution where:

(A)    those testimonials are not statements made by the person to whom it is attributed; or

     (B)    the statement or testimonial is false.

2    The reference in the injunction to the Sensaslim Solution is to the intra-oral solution marketed and distributed by the first respondent as a weight loss aid. It is the product around which the claims for relief in the application filed on 15 July 2011 are framed.

3    The fourth respondent opposes the continuation of the injunction on four bases.

4    First, the fourth respondent submits that, as granted on 27 July 2011, the injunction would include conduct of the fourth respondent in relation to the product in question where there was no nexus with Australia other than that the fourth respondent is an Australian citizen or person ordinarily resident within Australia. He submits that any injunction should be limited to conduct “in the stream of commerce within Australia or between Australia and other places”. In this connection the fourth respondent refers to the extended application of the Competition and Consumer Act 2010 (Cth) (the Act) (including the Australian Consumer Law) provided by ss 6(2)(a) and (h) of the Act.

5    Secondly, the fourth respondent submits that the qualification to sub-paragraph (a) of the injunction (“unless the respondent has reasonable grounds for the making of such representations”) is inappropriate as a matter of form, because it exposes the fourth respondent to the risk of being in contempt of the order if, having come to a bona fide view as to reasonableness, the Court later determines, objectively, that that view is not reasonable.

6    Thirdly, the fourth respondent submits that the condition contained in sub-paragraph (c)(i) of the injunction is unwarranted and disproportionate when regard is had to the object to be achieved by granting such an injunction.

7    Fourthly, the fourth respondent submits that, as a matter of general discretion, the injunction should not be continued because: (a) the fourth respondent has not worked for the first respondent since June 2011, with the consequence that there is no risk of him being knowingly concerned in any contravening conduct by the first respondent, and little risk of any ongoing conduct by him as a primary contravener; and (b) if contravening conduct is finally established against the fourth respondent then an appropriately moulded injunction, specific to the contravening conduct found, can be made at that time.

8    The second and third matters can be dealt with immediately. The fourth respondent’s objection to the qualification made in sub-paragraph (a) of the injunction can be accommodated by the expedient of a simple change in wording to make clear (should it not otherwise be clear) that the requirement of “reasonable grounds” is to be objectively determined.

9    As to the condition in sub-paragraph (c)(i) of the injunction, I am persuaded that the full extent of this condition is not necessary in the circumstances. The case brought by the applicant is that the respondents have been involved in conduct in which the Sensaslim Solution has been promoted by reference to a clinical trial that was never conducted and by reference to a report on that clinical trial that is, accordingly, bogus. It seems to me that the interests represented by the applicant are sufficiently protected by providing that the fourth respondent should not make representations regarding the efficacy of the Sensaslim Solution where the basis for the representation is a clinical trial or scientific report, unless the clinical trial was conducted or the report actually exists. No further condition is necessary for the purposes of interim relief.

10    After hearing oral argument from the applicant and the fourth respondent, I came to the view that it would be appropriate to continue the injunction on an interim basis, appropriately amended to reflect the two changes to which I have already referred, until such time as I had come to a decision on the fourth respondent’s objections based on the appropriate extended or extraterritorial reach of the injunction and the other discretionary matters to which he referred. I made orders accordingly.

11    I now turn to consider the remaining matters.

The extraterritorial reach of the interim injunction

12    As I have noted, the fourth respondent’s submission concerning the proper extraterritorial reach of the injunction fastens on to ss 6(2)(a) and (h) of the Act.

13    The effect of these provisions is that the Act has an extended application if references to “trade or commerce” in the Act and the Australian Consumer Law were, by express provision, confined, relevantly, to “trade or commerce between Australia and places outside Australia”; to “trade or commerce among the States”; and to “trade or commerce within a Territory, between a State and a Territory or between two Territories”; and certain references in the Act or the Australian Consumer Law to “a corporation” included a reference to “a person not being a corporation”.

14    Section 6(2)(a) also extends the reach of the Act and the Australian Consumer Law to the supply of goods or services to the Commonwealth or an authority or instrumentality of the Commonwealth, but it was not suggested in argument that that particular extension has any operation or other relevance on the facts of the present case. It can therefore be put to one side.

15    The fourth respondent submits that in all the cases on which the applicant relies that have considered the extraterritorial operation of the Act, there was a nexus between the conduct enjoined and “the stream of commerce within Australia or between Australia and other places”.

16    The applicant accepts that the injunction, in its current form, would operate to restrain the fourth respondent from engaging in future conduct, as sought to be restrained with respect to the Sensaslim Solution, where the conduct takes place in Australia or overseas. It submits that the extended or extraterritorial operation of the Act, and hence the Australian Consumer Law, is not limited as the fourth respondent contends.

17    In this connection, the applicant submits:

    Section 5(1)(c) of the Act provides that presently relevant provisions of the Australian Consumer Law extend to the engaging in conduct outside Australia by Australian citizens or persons ordinarily resident within Australia. The fourth respondent is such a person.

    Quite apart from ss 6(2)(a) and (h) of the Act, s 6(3) of the Act extends its operation to “a person not being a corporation” where presently relevant provisions of the Australian Consumer Law are confined to conduct of such a person that involves the use of postal, telegraphic or telephonic services or takes place in a radio or television broadcast. Thus, for example, conduct involving the use of the Internet would fall within the extended operation of the Australian Consumer Law by dint of this provision. This provision is not confined to “the stream of commerce within Australia or between Australia other places”.

    The combined operation of ss 5(1)(c) and s 6(3) of the Act in the present case means that the Australian Consumer Law applies to conduct outside Australia by an Australian citizen or person ordinarily resident within Australia where that conduct involves the use of postal, telegraphic or telephonic services or takes place in a radio or television broadcast.

    In the present case, there is clear evidence that the Sensaslim Solution, and business opportunities in relation to it, have been promoted over the Internet, and thus involve, at least, the use of telephonic services.

18    This aspect of the applicant’s submissions relies simply on the plain text of the relevant provisions of the Act.

19    The applicant nevertheless called in aid a number of observations made in cases dealing with the extraterritorial operation of the Act.

20    In Wells v John R Lewis (International) Pty Ltd (1975) 25 FLR 194 it was argued that the then Trade Practices Act 1974 (Cth) (the Trade Practices Act), and in particular the provisions of Part V which now find corresponding provisions in the Australian Consumer Law, was concerned only with the maintenance of competition and fair trade practices in relation to markets and consumers in Australia. The Australian Industrial Court rejected that argument in the following passage at 208 of the joint judgment of Spicer CJ, Dunphy and Smithers JJ:

Part V does not contain any express provision limiting the proscription of standards of conduct therein to conduct which may have an effect only in the market in Australia or which may affect only Australian consumers. Any such limitation must be found by implication from the other provisions of the Act.

Some provisions relating to particular trade practices are expressly limited to practices having effect only upon the Australian market. See for example s. 46 relating to monopolization; s. 49, price discrimination; and s. 50, mergers.

Provisions prohibiting or regulating various other trade practices are expressly made referable to conduct “in trade or commerce”. By definition that means trade or commerce within Australia or between Australia and places outside Australia.

21    In oral argument the fourth respondent drew particular attention to the last paragraph quoted above where it refers to trade or commerce within Australia or between Australia and places outside Australia. However it is clear that, in that passage, the Australian Industrial Court was only dealing with one aspect of the extended operation of the Trade Practices Act. Here, as I have noted, the applicant relies on the operation of ss 5(1)(c) and 6(3) of the Act, as well as ss 6(2)(a) and (h).

22    In Australian Competition and Consumer Commission v World Play Services Pty Ltd (2004) 210 ALR 562 Finn J observed that there was nothing in the language of the pyramid selling provisions of the Trade Practices Act that would require that a pyramid selling scheme operate within Australia’s territorial boundaries or that it otherwise have some nexus with Australia. It was unnecessary for his Honour to deliberate on that matter because the facts before him showed that the respondents’ impugned conduct had taken place in Australia, albeit that the scheme itself operated outside Australia. His Honour did say, however, that he did not consider that the pyramid selling provisions should not be read down so as to apply only to the protection of Australian consumers: see at [81]-[82].

23    On appeal (World Play Services Pty Ltd v Australian Competition and Consumer Commission (2005) 143 FCR 345), Ryan and Kiefel JJ (at [25]) said:

The objects section should not be taken to limit the operation of s 65AAC(1) to Australian consumers, contrary to the broad operation which that subsection is clearly intended to have. His Honour the primary judge held, correctly in our respectful view, that the Commonwealth has an obvious interest in the conduct of corporations in Australia. There would seem to be no reason to restrict it to effects upon Australian consumers. In Wells at 208–9, a Full Court of the Australian Industrial Court expressed the view that there were indications in the Act which might be thought to be “out of harmony with the suggestion that the TP Act was not concerned with conduct which may be detrimental to overseas consumers”. The later enactment of the objects section in its current form would not appear to us to have been likely to alter the view their Honours took, having regard to the scheme of the Act and a number of its provisions. And as Sackville J observed in Australian Competition and Consumer Commission v Chen (2003) 132 FCR 309 at [52], mechanisms have been put in place for international co-operation to protect consumers generally. It is well known that the internet has facilitated conduct adversely affecting consumers in any number of countries. The appellants’ approach would allow an Australian corporation taking part in a pyramid selling scheme to avoid the imposition of a penalty or injunctions by ensuring that the scheme is put into effect elsewhere.

24    In that case, Tamberlin J said (at [42]):

In s 5(1) of the TPA, the provisions concerning pyramid selling schemes are extended to the engaging in conduct outside Australia by bodies that are incorporated or carrying on business within Australia. In the present case, the act of participation in fact takes place in Australia so there is no need for any extension to provide a territorial basis for the law. Moreover, there is an additional nexus, namely, that the participating body corporate is incorporated in Australia. There is no evident reason why the Australian Government could not, for example, prohibit a pyramid selling scheme that was created and given effect in the United States but which targeted Australian citizens or corporations. Australia has an interest in regulating the situation where Australians are cheated overseas or where a corporation incorporated within Australia carries out an act in the United States that is contrary to Australian law.

25    Significantly, in Australian Competition and Consumer Commission v Hughes (2002) ATPR ¶41-863, the respondent (an individual) was restrained from offering for sale and from selling or supplying oral contraceptives both in Australia and in the United States of America: see, in particular, order 6 which was an injunction specifically directed to the sale of identified products to persons in the United States of America. The case concerned the use by the respondent of telephonic services to sell the relevant products over the Internet. Allsop J (as his Honour then was), at [77]-[79], said:

Mr Hughes makes the representations on the web-site available to consumers by the use of telephonic services in Australia and overseas. The evidence discloses that the website as at 30 August 2000 had an address “www.crowded.org” indicating a United States based site or domain name. The site itself contains the representations which I have earlier dealt with. They are placed on the site using postal, telegraphic or telephonic services and are made available for people to see by those people visiting the site. People can visit the site from all States in Australia, the United States and elsewhere by the use of telephonic services.

Thus, Mr Hughes places on a computer site overseas misleading or deceptive material with the intention that consumers in Australia, the United States and elsewhere will use telephonic services to access that information and rely upon it.

Thus, relief is available under the Trade Practices Act by reason of ss 5 and 6 of the Act, notwithstanding the lack of a presence of a corporation.

26    The fourth respondent relied on Australian Competition and Consumer Commission v Chen (2003) 132 FCR 309 for the proposition that the extraterritorial application of the Australian Consumer Law is limited to Australian consumers and an Australian market. The case concerned the conduct of an individual ordinarily resident in the United States of America who offered tickets to events at the Sydney Opera House over the Internet by conduct found to be misleading or deceptive. In that case Sackville J determined that an injunction should be granted that was limited to restraining the respondent from publishing on Internet sites accessible in Australia information or material relating to the Sydney Opera House or events at the Sydney Opera House that was misleading or deceptive or likely to mislead or deceive consumers in Australia.

27    The applicant submits that, notwithstanding that the injunction was so limited, the decision in Chen did not concern an application for an injunction involving, in part, the application of s 5(1) of the Act. The applicant also submits that the limited form of the injunction granted in Chen reflects the particular circumstances of the case rather than the legal limits of the scope of, for example, the Australian Consumer Law.

28    In my view, quite apart from ss 6(2)(a) and (h), the plain words of ss 5(1)(c) and 6(3) support the extended or extraterritorial application of the Act, and in particular the Australian Consumer Law, for which the applicant contends. I am satisfied on the material presently before me that there is no impediment to an interim injunction being granted in the present case against an Australian citizen or person ordinarily resident in Australia, such as the fourth respondent, in respect of future conduct engaged in outside Australia which falls within the proscriptions of relevant provisions of the Australian Consumer Law if it is otherwise appropriate, in all the circumstances, to grant such interim relief. Such an injunction should, however, be limited to the extended or extraterritorial operation for which the Act provides. Preferably, there should be an express qualification to that effect to the form of the injunction currently in force, in order to make that position clear.

29    I now turn to consider whether, as a matter of discretion, the injunction should be continued against the fourth respondent (with the amendments to which I have referred) in any event.

Discretion

30    For the purposes of the present application, the fourth respondent did not seek to call into question that there was a serious question to be tried in relation to the final relief sought against him in the application commencing this proceeding. His submissions were limited to the particular discretionary considerations to which I have referred.

31    The fourth respondent made an affidavit that was read in the present application in which he outlined the future work he intends to engage in. His affidavit made clear that the work in which he proposes to engage (which would involve conduct both inside and outside Australia) would not be with respect to the Sensaslim Solution but with respect to a new product, having different ingredients and a different formulation, that would be manufactured overseas and not be made available for sale in Australia.

32    If that be so, then a continuation of the injunction (with the amendments to which I have referred) will not impede those activities because it is clear that the injunction concerns representations made with respect to, or in connection with, or conduct involving, the Sensaslim Solution.

33    Furthermore, if the fourth respondent is shown, at a final hearing, to have contravened the Act or the Australian Consumer Law and if, in those circumstances, it is appropriate that final injunctive relief be granted, then undoubtedly the final injunction can be moulded to the contravention that is shown to have occurred. However, that is not a reason why an interim injunction should not be granted or continued.

34    Moreover, the fact that the fourth respondent no longer works for the first respondent does not stand as a reason why the injunction should not be continued. The final injunctions sought against the fourth respondent involve conduct engaged in by him as a principal, not merely as being a person knowingly concerned in or party to conduct engaged in by the first respondent.

35    In seeking a continuation of the injunction the applicant pointed to the scope of the power in s 232 of the Australian Consumer Law which permits the granting of the statutory injunction whether or not it appears to the Court that the person intends to engage again or to continue to engage in contravening conduct or whether or not there is an imminent danger of substantial damage to any other person if such conduct is engaged in: see s 232(4). Section 234 of the Australian Consumer Law provides that, if an application is made under s 232 (as is the case here) the Court “may, if it considers it desirable to do so”, grant an interim injunction.

36    In the present case I am satisfied that it is appropriate that the injunction should continue against the fourth respondent (subject to the amendments to which I have referred). The discretionary matters referred to by the fourth respondent do not point persuasively against that continuation.

Disposition

37    It follows from these reasons that I am satisfied that an injunction should be granted substantially along the lines of the injunction that I continued on 17 August 2011, with the extended or extraterritorial operation of the injunction being made explicit. The most convenient way of doing this is to substitute new orders for those made on 17 August 2011 incorporating the injunction. I will make orders accordingly.

38    I was asked to reserve the question of costs of and in relation to the hearing held on 17 August 2011. I will hear the applicant and the fourth respondent on that question after they have had an opportunity to consider these reasons.

Associate:

Dated:    31 August 2011