FEDERAL COURT OF AUSTRALIA

ACCC v Halkalia Pty Ltd [2012] FCA 534

THE COURT ORDERS BY CONSENT THAT:

1.     Pursuant to s 232 of the Australian Consumer Law, the fifth respondent be restrained, for a period of seven years from the date of the Court’s order, whether by herself, her servants, agents or otherwise, from being directly or indirectly knowingly concerned in, or a party to, the conduct, in trade or commerce, of the second respondent or any other corporation, in making representations in relation to a business activity or opportunity to the effect that:

(a)    the business, once acquired by a purchaser, has the potential to generate earnings for the purchaser in any particular amount (“projected earnings”); or

(b)    there is a realistic prospect that the business, once acquired by a purchaser, would generate the projected earnings; or

(c)    there is a reasonable basis for potential purchasers to expect that the business would generate the projected earnings;

unless the second respondent or the corporation has reasonable grounds for the making of such representations.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011

REASONS FOR JUDGMENT

1    The Australian Competition and Consumer Commission (“the ACCC”) has made application for various orders to be made against three companies and two individuals arising out of alleged contraventions of ss 52 and 59(2) of the Trade Practices Act 1974 (Cth) (“the Act”).

2    The three companies conducted the business of producing, branding, marketing and selling “Heartlink” products. These products included household goods such as cleaning products. The fourth respondent, Mr Laurence Hann, had established the Heartlink business and the infrastructure which supported it. The fifth respondent, Ms Vicki Lowe, was, between 25 June 2007 and 16 September 2010, the sole director, shareholder and secretary of the second respondent, Heartlink Enterprises Pty Ltd (“Heartlink Enterprises”).

3    Ms Lowe was also the marketing manager of the Heartlink business from about 2006 to 2008. From about 2007 to 2008 she was the office manager of the business.

4    It was necessary for the business to establish a distribution network in order to place its products in retail outlets. To this end advertisements were placed in newspapers around the country. Those advertisements contained statements to the effect that:

“Sales Distribution Business, part time light parcels, genuine unique opportunity for purchase amount of $XXX. Potential earnings for 3 to 4 days per week approximately $800-1000.”

5    Persons who responded to this advertisement were offered the opportunity of purchasing a “distribution area” within which they would have exclusive rights to transport Heartlink products to retail outlets. The distributors were to order and collect the products and would be paid a fixed percentage of the gross sales in their areas. The distributors were told that they would be supported by sales people who would arrange for retailers in the particular areas to purchase the products.

6    Mr Hann, and others acting at his direction, arranged for the publication of the advertisements. Between October 2007 and October 2009 738 such advertisements were placed in various publications. Ms Lowe was aware of the terms of the advertisements. She also authorised payments for many of them by signing cheques drawn on a Westpac bank account operated by Heartlink Enterprises.

7    Those who responded to the advertisements were sent promotional material by Mr Hann. Some of that material contained a photograph of Ms Lowe. Typically, distributorships were sold for $10,000 or $15,000.

8    From time to time Ms Lowe prepared circular letters on instructions from Mr Hann. Those letters were sent on behalf of “Mature Age Group (Vic)” and “SA Heartlink Group” to distributors who had lodged complaints about the conduct of the business. The letters were sent at the end of 2007 and early in 2008. They attributed the parlous state of the SA Heartlink Group to Mr Hann’s ill health but sought to offer some reassurance that the distributors would ultimately recoup their investment.

9    Until mid-2007 there were, to Ms Lowe’s knowledge, difficulties in ensuring the delivery of Heartlink’s products to the distribution areas. This problem persisted thereafter.

10    By October 2007 Ms Lowe was aware and thereafter remained aware that the Heartlink business in South Australia was struggling, that Mr Hann had been suffering from ill health and was unable to run the business, that the business’ only asset was stock and that that stock could only be liquidated in discount shops.

11    Despite what appeared in the advertisements which offered distributorships, Ms Lowe, by dint of experience, considered that a person who was not experienced in sales would be unlikely to be capable of earning the forecast $800 to $1,000 per week. She had earlier purchased a distributorship having read an advertisement which quantified potential earnings for a three to four day week at approximately $600 to $800. She found, however, that she only had the potential to earn $300 to $400 per week, working on three days and then only after building up her business over the course of a year to a year and a half. In fact she only earned approximately $200 per week. She was not aware of any other distributor who had earned in the range of $800 to $1,000 per week.

12    On the eve of the trial the ACCC and Ms Lowe filed a statement of agreed facts from which the foregoing account is substantially derived. Ms Lowe consented to the making of orders pursuant to s 232 of the Australian Consumer Law that would prevent her from making representations that a particular business activity would or might generate a particular level of earnings or that a reasonable basis existed for potential purchasers to harbour a particular expectation as to projected earnings, unless there were reasonable grounds for the making of such representations. It is proposed that the restraint remain in force for seven years.

13    Ms Lowe implicitly accepts that she had been knowingly involved in the making of representations which contravened ss 52 and 59(2) of the Act. The injunctions to which she has consented have been carefully framed in order to prevent a recurrence of similar conduct on her part. It is in the public interest that they should be granted.

14    No order for costs has been sought. None will be made.

Associate:

Dated:    28 May 2012