FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Adepto Publications Pty Ltd [2013] FCA 247

THE COURT DECLARES THAT:

1.    The First Respondent contravened s 64 of the Trade Practices Act 1974 (Cth) (‘the TPA’) by sending businesses invoices and making other demands for payment for placing unsolicited advertisements for those businesses in magazines published by the First Respondent and by demanding payment for those services, in circumstances where the First Respondent did not have reasonable cause to believe that there was a right to payment.

2.    The First Respondent contravened ss 52 and 53(bb) of the TPA by representing to businesses the existence of an agreement between the First Respondent and the businesses in relation to the placing of advertisements in magazines published by the First Respondent in circumstances where no such agreement existed.

3.    The First Respondent contravened s 53(c) of the TPA in representing that publications published by the First Respondent had an affiliation with charities and community groups when in fact no such affiliation existed.

4.    The First Respondent contravened s 53(d) of the TPA in representing that the First Respondent had an affiliation with charities and community groups when in fact no such affiliation existed.

5.    The First Respondent contravened s 52 of the TPA in representing that the magazines published by the First Respondent were widely distributed, including to public libraries, community groups and businesses in the surrounding area, when in fact they were not.

6.    The First Respondent contravened s 52 of the TPA in representing that the magazines published by the First Respondent had a wide readership when in fact they did not.

7.    The Second Respondent was knowingly concerned in the contraventions of the First Respondent described in declarations 1 to 6 above.

8.    The Second Respondent aided, abetted, counselled or procured the contraventions of the First Respondent described in declarations 1 to 6 above.

9.    The Third Respondent was knowingly concerned in the contraventions of the First Respondent described in declarations 1 to 6 above.

10.    The Third Respondent aided, abetted, counselled or procured the contraventions of the First Respondent described in declarations 1 to 6 above.

THE COURT ORDERS THAT:

11.    The First, Second and Third Respondents be restrained, whether by themselves or by their servants or agents or howsoever, from requesting payment from consumers for advertisements in:

11.1    The National Emergency Relief Guide;

11.2    The Underprivileged Children’s Guide; or

11.3    The Volunteer Organisations Guide,

or any other publication (‘a publication’) without written confirmation from the consumer that the consumer requests an advertisement to be published.

12.    The First, Second and Third Respondents be restrained, whether by themselves or by their servants or agents or howsoever, from pursuing payment from consumers who have, before the date of these orders, been sent an invoice in connection with the publication of an advertisement in a publication.

13.    The First, Second and Third Respondents be restrained, whether by themselves or by their servants or agents or howsoever, from representing to persons the existence of an agreement in relation to the placing of an advertisement in a publication when no such agreement exists.

14.    The First, Second and Third Respondents be restrained, whether by themselves or by their servants or agents or howsoever, from representing that a publication has an affiliation with charities or community groups when there is no such affiliation.

15.    The First, Second and Third Respondents be restrained, whether by themselves or by their servants or agents or howsoever, from making false representations about the distribution or readership of a publication.

16.    The Respondents pay pecuniary penalties arising from their contraventions of the TPA as described above as follows:

16.1    The First Respondent pay $500,000.00;

16.2    The Second Respondent pay $150,000.00;

16.3    The Third Respondent pay $100,000.00.

17.    The Respondents pay the Applicant’s costs as agreed or taxed.

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

REASONS FOR JUDGMENT

1    These proceedings were instituted by the Australian Competition and Consumer Commission (‘the ACCC’) against Adepto Publications Pty Ltd (‘Adepto’) and the second respondent (‘Mr Mitchell’) who was the sole director and sole shareholder of Adepto. The proceedings alleged that Adepto had engaged in misleading and deceptive conduct contrary to the provisions of s 52 of the Trade Practices Act 1974 (Cth) (‘the TPA’) at least in the period from March 2007 until 15 October 2010 (‘the relevant period’) and that Mr Mitchell directed and managed the business of Adepto during the relevant period and had knowledge of and was a party to Adepto’s conduct.

2    In summary, the conduct complained of was constituted by deceiving small business proprietors into believing that they had agreed to purchase advertising space for the publication of advertisements and had thereby incurred a liability to make payment when there was no such obligation.

3    Further, to induce proprietors to place advertisements, Adepto represented that it had affiliations to charities which were false and were known by Adepto and Mr Mitchell to be false. False representations were also made by Adepto and Mr Mitchell concerning the extent of the distribution of publications in which the advertisements were to be published. This conduct will, for convenience, be referred to as the ‘Adepto business model’.

4    The third respondent (‘Ms McKay’) was later joined into the proceedings. Ms McKay was employed by Adepto as the office manager for approximately eight years. During the relevant period, Mr Mitchell directed Ms McKay to run the Adepto business on a daily basis and to manage the recruitment and training of Adepto representatives.

5    Ms McKay applied the Adepto business model, prepared and implemented by Mr Mitchell, and collaborated in the conduct of the business which included the making of the knowingly false representations.

6    In consequence of its investigations, the ACCC seek in these proceedings declarations pursuant to the provisions of the TPA and injunctive relief. The ACCC alleges breach by the respondents of ss 52(bb), 53(c), 53(d) and 64 of the TPA. Further, injunctive relief is sought under s 80 of the TPA to restrain further breaches of those sections. By virtue of Schedule 7, Item 7 of the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth) proceedings commenced under the TPA as in force immediately before the commencement of the amending act are preserved. However where the relief sought in such proceedings include an injunction under s 80 of the TPA, those proceedings became proceedings for an injunction under s 232 of the Australian Consumer Law (‘the ACL’) which commenced operation from 1 January 2011.

7    Each of the respondents have, for the purposes of r 39.11 of the Federal Court Rules 2011 (Cth) (‘the Rules’), consented to the making of declarations and injunctions against them arising from their conduct. The Court is now requested to make such declarations and injunctions, and to approve the pecuniary penalties which the parties have negotiated and agreed.

THE CONDUCT

Sale of Advertisements

8    In the relevant period Adepto carried on business using three business names, each of which were registered in Queensland, namely The National Emergency Relief Guide, The Underprivileged Children’s Guide and The Volunteer Organisations Guide (‘the Publications’). During that time, Adepto was engaged in trade or commerce, namely the selling of advertising space in the Publications.

9    Adepto conducted its business from premises located on the Queensland Gold Coast. The premises comprised a small call centre staffed by Adepto’s representatives. Each representative was trained in Adepto’s business model by Ms McKay, who was in turn directed by Mr Mitchell. During the relevant period Adepto identified small businesses throughout Australia as being suitable to be snared in what might colloquially be described as the scam. These businesses were then targeted by Adepto’s representatives, who would embark upon a carefully contrived script which would, if successful, result in Adepto receiving payment for advertisements which the business proprietors were tricked into believing they had requested.

10    The agreed statement of facts relied upon by the parties describes the modus operandi and the Court extracts the relevant facts in detail hereunder.

The Cleansing Call

9.     At the start of each work day, Adepto representatives were given a selection of advertisements for businesses cut from other publications in which the businesses were promoted. Adepto representatives were directed by McKay to make a telephone call to each business (the Cleansing Call) which was designed to check (or ‘cleanse’) the details of the business that appeared in the cut-out advertisement, including the name of the business, its address, its telephone number and any other details that appeared in the advertisement. Adepto representatives confirmed each detail with the business and were instructed by McKay to obtain any missing information.

10.     Adepto representatives were directed by McKay not to reveal to the businesses that they worked for Adepto or were selling advertising in the Publications. Instead McKay directed the Adepto representatives to say that they were calling from an organisation called ‘Australian Business Listings’.

11.     McKay also advised Adepto representatives that, if they wished, they could use a pseudonym rather than their real name.

The Sales Call

12.     Once a Cleansing Call had been made to a business, an Adepto representative made a 'sales call' (the Sales Call).

13.     McKay gave a direction to Adepto representatives that a period of time should be left between the Cleansing Call and the Sales Call.

14.     Adepto required that in the Sales Call, Adepto representatives were to assert to the business that the business had previously agreed to place an advertisement in one of the Publications in circumstances where no agreement had been entered into.

15.     Adepto also advised Adepto representatives what responses might be given to questions businesses might ask during the telephone calls. The proposed responses were called ‘rebuttals’. For example, if a person said they were not interested in placing an advertisement, Adepto advised the representative to respond by saying that the business had already agreed to place an advertisement. Similarly, there were specific rebuttals for other common questions and comments such as, ‘I don’t remember agreeing to this’, or ‘When was this organised?’ The rebuttals were designed to convince the business that it had already agreed to place an advertisement in circumstances where there was in fact no such agreement.

Checking Call

16.    The checking call (the Checking Call) followed the Sales Call and was designed to check the payment details and finalise the sale of the advertisement.

17.     McKay provided Adepto representatives with a script to use for the Checking Call (the Script).

18.     Adepto representatives were directed by McKay to always use the Script when making the Checking Call to businesses.

19.     Adepto Representatives were directed by McKay and Mitchell to make a sound recording of the Checking Call.

20.     The script for the Checking Call required Adepto representatives to say words to the following effect:

“I am recording this part of the call to confirm that you have taken out a [e.g. one quarter] page ad, at a cost of [e.g. $398] plus GST in the next edition of the [e.g. Volunteer Organisations Guide]. We are advertising [insert name of company] and it is [name of person from company] that we have been speaking to.”

21.     The Adepto representative was then to ask for confirmation of the spelling of the surname, to confirm the address that the publication was to be sent to, and to confirm how payment was to be made.

Follow up letters

22.     Following the telephone calls outlined above, Adepto:

a)    prepared and inserted an advertisement for the business into one of the Publications; and

(b)    sent a copy of that publication to the business together with a letter (the Letter):

(i)    representing that an advertisement for the business had been published in the publication in accordance with an agreement reached for the publication of the advertisement in circumstances where the business had not agreed to the publication of the advertisement;

(ii)    asserting a right to payment for the advertisement; and

(iii)    enclosing a copy of a document that purported to be a demand for payment for the advertisement in circumstances where it was known by each of the Respondents that no right to payment existed (the ‘Demand for Payment’).

23.     Each Demand for Payment:

(a)    prominently stated it was a tax invoice;

(b)    set out the “cost” of the advertisement; and

(c)    was an invoice stating the amount demanded in payment for the provision of a service.

24.     The Demand for Payment did not as prominently or as clearly state that the Demand for Payment was a solicitation as opposed to an invoice. The Demand for Payment could not have been reasonably understood to be a solicitation.

…

28.     If the business did not comply with the Demand for Payment, further demands for payment were made over the telephone by McKay until payment was made.

29.     Each Demand for Payment was for an amount of between approximately $195 and $437, depending on the size of the advertisement.

Distribution and Affiliations of the Publications

30.     During the Relevant Period, Adepto represented to businesses from which it was seeking payment for advertisements that:

(a)    the monthly distribution of the Publications was at least 2,000 copies;

(b)    the monthly readership of the Publications was between 10,000 and 20,000 readers;

(c)    the Publications were widely distributed in the local area in which businesses were located; and/or

(d)    the Publications were widely distributed to schools, libraries and community groups,

(the Distribution Representations).

…

33.    During the Relevant Period, Adepto represented to businesses from which it was seeking payment for advertisements that:

(a)    it and the Publications had an affiliation with charities and community groups; and

(b)    such charities and community groups would benefit from the sale of advertisements in the Publications,

(the Affiliation Representations).

34.     The Affiliation Representations were implied and were made in e-mails and telephone conversations between the businesses and Adepto representatives.

35.     Contrary to the Affiliation Representations, neither Adepto nor the Publications were affiliated with any charities or community groups, and charities and community groups did not benefit from the sale of advertisements in the Publications

36.     The Springvale Library in Victoria held a copy of the Volunteer Organisations Guide in early 2011, but have subsequently removed it from their holdings.

C.    Conduct of Mitchell

38.     Mitchell directed and managed the business of Adepto during the Relevant Period.

39.     Mitchell prepared, implemented and monitored the business model of Adepto.

40.     During the Relevant Period, Mitchell had knowledge of, and was a party to Adepto’s conduct, namely:

(a)    deceiving businesses into paying for advertising they did not agree to purchase by:

(i)    falsely representing the existence of an agreement by the business to purchase an advertisement in one of the Publications in circumstances where no such agreement existed; and

(ii)    demanding payment for services in circumstances where there was no right to payment,

(b)    making the Distribution Representations, in circumstances where Mitchell knew those representations were false; and

(c)    making the Affiliation Representations, in circumstances where Mitchell knew those representations were false.

D.    Conduct of McKay

41.     McKay was employed by Adepto as the office manager of Adepto for eight years. During the Relevant Period, Mitchell directed McKay to run the Adepto business on a day-to-day basis and manage the recruitment and training of Adepto representatives.

42.     McKay implemented the Adepto business model prepared and implemented by Mitchell and collaborated with Mitchell in regard to the running of the business.

43.     McKay engaged in day-to day supervision of Adepto Representatives, including supervision of the telephone calls made by Adepto Representatives to businesses in relation to the Publications.

44.     McKay gave Adepto Representatives the Scripts to use when making the Checking Calls to businesses and ensured all employees and contractors used the Scripts when making Checking Calls to businesses.

45.     During the Relevant Period, McKay had knowledge of, and was a party to, Adepto’s conduct, namely:

(a)    deceiving businesses into paying for advertising they did not agree to purchase by:

(i)    representing the existence of an agreement by the business to purchase advertisements in one of the Publications in circumstances where no such agreement existed; and

(ii)    demanding payment for services in circumstances where there was no right to payment,

(b)    making the Distribution Representations, in circumstances where McKay knew those representations were false; and

(c)    making the Affiliation Representations, in circumstances where McKay knew those representations were false.

Summary

11    The Adepto business model was contrived to deceive the targeted business by the use of carefully crafted scripts. Mr Mitchell and Ms McKay knew that Adepto had no right to receive any payment and that their representations to the business proprietors were false. The contact made with the business was designed by use of the carefully crafted scripts to deceive consumers. Further, the representations that were made as to affiliation with charities and the extent of the distribution of the publications were also false.

12    The follow up correspondence, namely the letter representing that the business had agreed to place an advertisement, the tax invoice asserting the right to payment and a copy of the advertisement, were contrived to deceive the proprietors. The tax invoice submitted by Adepto was understood by the targeted businesses as the assertion of a right to payment when in fact no right to payment existed.

13    Based upon the agreed statement of facts, the Court is satisfied that ACCC has established that Adepto has contravened ss 52, 53(bb), 53(c), 53(d) and 64 of the TPA.

14    Further, the agreed statement of facts satisfies the Court that both Mr Mitchell and Ms McKay were knowingly concerned in the said conduct and that both Mr Mitchell and Ms McKay aided, abetted, counselled or procured the conduct within the meaning of s 76(c) of the TPA and s 232(1) of the ACL.

PRINCIPLES

Declaratory Relief

15     Pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) (‘the FCA Act’), the Court is empowered to make declarations. However, before the Court may make a declaration, certain requirements must be fulfilled, as referred to in Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 at 437-438. The subject of the declaration must be real and not hypothetical or theoretical, the applicant must have a ‘real interest in raising it’ and there must be a proper contradictor: see also the discussion in Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd (2007) 236 ALR 665 at [52]-[59].

16    These proceedings concern an alleged contravention of the TPA and the facts contained in the agreed statement of facts satisfy the Court that the ACCC has clearly identified the alleged contraventions. Further, the Court is satisfied that the public interest will be served by the making of the declarations. Significantly, this Court has held in Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609 that even though agreement has been reached between the parties concerning declaratory relief, the ACCC may still proceed to obtain declarations of contravention (see Perram J at [9]-[43]).

17    There are numerous examples in which the Court has made declarations by consent on the basis of agreed facts: see for example Australian Competition and Consumer Commission v Australian Medical Association Western Australia Branch Inc (2001) 114 FCR 91; and the numerous authorities referred to in Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [2011] FCA 372 at [13]. Further, if an agreed statement of facts exists, it has been recognised that there is no requirement to produce evidence to verify such facts to found the basis for the making of declaratory relief: see Australian Competition and Consumer Commission v EDirect Pty Ltd (in liq) [2012] FCA 976 at [39]. Although there exists some doubt concerning the acceptance by the Court of a agreed statement of facts as establishing the basis for the grant of relief, the Court respectfully adopts the logic of Reeves J in EDirect at [39]-[58]. Consistent with his Honour’s conclusions, where the content of the agreed facts goes no further than supporting the case as pleaded by the ACCC, such a statement may be used as a substitute for sworn testimony. The facts in the agreed statement, deemed to be admitted by r 5.23(2)(c) of the Rules, state the conduct alleged by the respondents in contravention of the TPA. Further, there are proper contradictors, being Mr Mitchell, Ms McKay and Adepto. The contradictors defended the claims against them, but have now agreed to the making of the declarations and orders sought by the ACCC. It does not follow that by virtue of their consent they are not proper contradictors.

18    The declarations sought by the ACCC are not hypothetical, since they relate to the respondents’ conduct in respect of the numerous persons and entities who were misled, and the ACCC as the regulator has a direct interest in enforcing the provisions of the TPA (and now the ACL). With these requirements satisfied, the Court considers that it is appropriate for the Court to rely upon the agreed statement of facts.

The Court’s injunctive powers

19    Section 232(1) of the ACL empowers a court to grant injunctions where the Court is satisfied that a person has engaged, or is proposing to engage, in conduct which constitutes or would constitute, inter alia, a contravention of a provision of Chapter 2, 3 or 4 of the ACL. The equivalent provisions to ss 52, 53 and 64 of the TPA are now contained in Chapter 2 of the ACL. The Court is empowered to also grant an injunction where a person has aided, abetted, counselled or procured another person to contravene such a provision: see s 232(1)(c). Section 232(2) empowers the Court to grant an injunction on the application by the regulator or any other person.

20    By virtue of s 232(4), the power of the Court to grant an injunction under s 232(1) may be exercised whether or not it appears to the Court that the person intends to engage in the conduct again, or to continue to engage in such conduct.

21    Section 233 of the ACL provides:

Consent injunctions

If an application is made under section 232, the court may, if it considers that it is appropriate to do so, grant an injunction under this section by consent of all the parties to the proceedings, whether or not the court is satisfied as required by section 232(1).

22    The power contained in s 232 of the ACL is similar to the power of the Court to grant an injunction under the former s 80 of the TPA: see ACCC v MSY Technology Pty Ltd (No 2) at [6]. It is therefore convenient for the Court to refer to the jurisprudence which has developed in relation to the Court’s approach to the grant of injunctions under s 80 of the TPA when considering the present proceedings.

23    Whilst the discretion conferred by s 80 of the TPA as described is as wide as the phrase ‘as the Court determines to be appropriate’ (see French J (as he then was) in OD Transport Pty Ltd v WA Government Railways Commission (1987) 13 FCR 500 at 508) three limitations exist, as considered in Australian Competition and Consumer Commission v TPG Internet Pty Ltd (No 2) [2012] FCA 629 at [17], which applied Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 at 203-204. These limitations are that:

(a)     The relief should be designed to prevent a repetition of the contravening conduct;

(b)     There must be a sufficient nexus or relationship between the contravention and the injunction;

(c)     The injunction must relate to the case or controversy.

24    Applying such principles, the Court is satisfied that the relief sought by the ACCC and consented to by the respondents satisfies all of the necessary criteria. The injunctions proposed are plain in their meaning, they are capable of ready compliance, do not require court supervision, and they are appropriate: see Australian Competition and Consumer Commission v Real Estate Institute of Western Australia (1999) 161 ALR 79 at [26]; Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 at [1]; Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd at [10]. Accordingly the Court will make the declarations and injunctions as sought by the parties.

Pecuniary penalty

25    The Court will now address its consideration of the pecuniary penalty proposed. In this respect Adepto agrees to the imposition of a penalty of $500,000. Mr Mitchell has agreed to the imposition of a pecuniary penalty of $150,000 and Ms McKay has indicated she will agree to the imposition of a penalty of $100,000. Before determining the penalty, the Court will refer to the general principles applicable when the Court is asked by the parties to impose pecuniary penalties.

26    Section 76E of the TPA authorises the imposition of penalties in respect of breaches of various provisions of the TPA. Such section was in operation from 15 April 2010 until 31 December 2010. On 1 January 2011, the provisions contained in s 76E were enacted, with amendments, as s 224 of the ACL. In Trade Practices Commission v CSR Limited (1991) ATPR 41-076, French J at 52,152–52,153 stated the following factors relevant to the imposition of a pecuniary penalty under s 76 of the TPA (the predecessor to s 76E and s 224 of the ACL):

(a)     the nature and extent of the contravening conduct;

(b)     the amount of loss or damage caused;

(c)     the circumstances in which the conduct took place;

(d)     the size of the contravening company;

(e)     the degree of power it has, as evidenced by its market share and ease of entry into the market;

(f)     the deliberateness of the contravention and the period over which it extended;

(g)     whether the contravention arose out of the conduct of senior management or at a lower level;

(h)     whether the company has a corporate culture conducive to compliance with the Act as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention; and

(i)     whether the company has shown disposition to cooperate with the authorities responsible for the enforcement of the Act in relation to the contravention.

27    The observations of French J were approved by the Full Court of the Federal Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 292, and in J McPhee & Son (Aust) Pty Ltd v Australian Competition and Consumer Commission (2000) 172 ALR 532. However the Full Court in J McPhee provided a further four criteria for consideration, namely:

(j)     similar conduct in the past;

(k)     effect on the functioning of the market and other economic effects of the conduct;

(l)     the financial position of the contravening company; and

(m)     whether the conduct was systematic, deliberate or covert.

28    In recent decisions of this court requiring the imposition of a penalty under s 76E of the TPA, no reason has been found to depart from the above principles: see Global One Mobile Entertainment Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 134 at [119]-[123]; Australian Competition and Consumer Commission v Harvey Norman Holdings Limited [2011] FCA 1407 at [18]-[21]; TPG Internet Pty Ltd (No 2) [59]-[61]. It should be observed that considerations (e) and (k) above are more relevant to breaches involving anti-competitive conduct rather than conduct of a misleading and deceptive nature: see Global One Mobile Entertainment Pty Limited at [121].

Principles applicable to consent penalties

29    In criminal proceedings, the imposition of a sentence lies in the sole discretion of the Court except where express legislative provisions as to a sentence apply: see Markarian v The Queen (2005) 228 CLR 357 at [27]. Such principle has been applied to the imposition of penalties under consumer law: see Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd (2005) ATPR 42-070 at [68]. Where parties have agreed upon penalties, the Court has its own responsibility to determine whether they are appropriate. In doing so, the Court must have regard to the surrounding circumstances of the particular case: see Australian Competition and Consumer Commission v McMahon Service Pty Ltd (2004) ATPR 42-022 per Lander J at [14].

30    The approach of the Court to agreed penalties was considered in Australian Competition and Consumer Commission v FChem (Aust) Limited [2008] FCA 344 (‘FChem’) at [20]-[27]. Generally, provided that the proposed penalties are found by the Court to be appropriate, and there is a clear statement of the matters relevant for the Court’s consideration, the Court will make orders in terms that have been agreed between the parties. Such course may serve to encourage parties to assist the ACCC in its investigations, as was observed in NW Frozen Foods at 291 per Burchett and Kiefel JJ with Carr J concurring.

31    In FChem the Court stated at [23]:

Having expressed this word of caution, the Court is mindful that, by virtue of the settlement, there is a public interest in the Court encouraging appropriate settlements to avoid long and costly litigation. In this respect the Court concurs with and respectively [sic] adopts the observations of Mansfield J in Australian Competition and Consumer Commission v Woolworths (South Australia) Pty Ltd (t/as Mac’s Liquor) and Others [2003] FCA 530; (2003) 198 ALR 417 at [20]-[22] where his Honour said:

In considering whether the court should make the proposed consent orders, with certain reservations, I think the principles are clear.

There is an important public policy in the court encouraging fair and appropriate settlement of litigation. See, for example, per French J in Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc [1999] FCA 18; (1999) 161 ALR 79 at 80 [1] (REIWA); NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission [1996] FCA 1134; (1996) 71 FCR 285 at 291; 141 ALR 640 at 644-5 per Burchett and Keifel JJ [sic], Carr J concurring (NW Frozen Foods). It is a general principle of judicial restraint in the scrutiny of proposed settlements, particularly in the case of settlements between parties legally represented and able to understand and evaluate the desirability of agreeing to a settlement, that the court will not refuse to give effect to terms of settlement which may be made within the court’s jurisdiction and are otherwise unobjectionable: see REIWA at 87 [20] and cases cited therein.

On the other hand, the court must be satisfied that, by making the orders which it is being asked to make, it is not exceeding its jurisdiction and that the orders are appropriate: Thomson Australia Holdings Pty Ltd v Trade Practices Commission [1981] HCA 48; (1981) 148 CLR 150; 37 ALR 66 (Thomson); REIWA, where French J said (at 80 [1]):

[The courts] must also be conscious, however, that the laws they apply are public laws. It is in the public interest that, in considering agreements between parties requiring orders of the court, the court does not act as a mere rubber stamp. What is proposed must always be scrutinised to determine whether undertakings or consent orders are within power and are appropriate. There is sometimes a tension between these components of the public interest...

It was pointed out in Thomson that the parties cannot by consent confer power upon the court to make orders which the court otherwise lacks power to make.

32    French J, in Australian Competition and Consumer Commission v Real Estate Institute of Western Australia said at [18], inter alia:

The Court has a responsibility to be satisfied that what is proposed is not contrary to the public interest and is at least consistent with it … Consideration of the public interest, however, must also weigh the desirability of non-litigious resolution of enforcement proceedings. (Emphasis added)

Prescribed penalties

33    As referred to earlier in this decision, s 76E of the TPA was in force from 15 April 2010 until 31 December 2010, and on 1 January 2011, s 76E became (as amended) s 224 of the ACL. Since these proceedings arise under the TPA, the penalties provided by the ACL will not be considered. For a contravention of s 53 the penalty is not to exceed 10,000 penalty units for a corporation, and in the case of a natural person it is not to exceed 2,000 penalty units. The same penalties apply in respect of a breach of s 64 of the TPA. At the dates of the offences, s 4AA(1) of the Crimes Act 1914 (Cth) prescribed a penalty unit in the amount of $110. Accordingly, in respect of each contravention of s 53 or of s 64 of the TPA, the penalty is not to exceed $1,100,000 in the case of a body corporate and in the case of a natural person $220,000.

FINANCIAL AFFAIRS

Adepto

34    The gross and net income for the financial years 30 June 2007, 2008, 2009 and 2010 have been provided to the Court. Those details are as follows:

35    During the period 1 April 2010 to 15 October 2010 Adepto sold advertisements in its three publications generating $450,243 in revenue, which provides some indication of the magnitude of the scam. Based upon advertising rates of between $195 and $437 per advertisement, the Court can infer that many hundreds of proprietors were victims over the duration of the relevant period.

36    As at June 2010 Adepto’s net assets amounted to $987,686.56. However, the Court is informed that Adepto now has no assets, and is not trading. There is no evidence that Adepto has been liquidated. No evidence has been provided to show the Court how such assets have been disposed of or otherwise dealt with which is scarcely satisfactory. Adepto owned Lot 15, 2 Calabro Way, Burleigh Heads, which was purchased on 9 April 2008 for $489,000. The Court does not know, for example, whether Adepto’s assets have been dissipated for the sole purpose of evading payment of any penalty. Indeed there is no evidence whether any pecuniary penalty imposed might be paid by a liquidator of Adepto, if appointed, or by a third party.

Mr Mitchell

37    Mr Mitchell disclosed an income from Adepto of $292,027 for the financial year ended 30 June 2010 and $32,857 in dividends. It is an agreed fact that Mr Mitchell earned approximately $850,000 from 2007 to 2010 including dividends. Since Adepto stopped trading on 15 October 2010 he has not worked. The parties could not agree whether Adepto ceased operations on 15 October 2010 or during 2011, but irrespective it is common ground that Adepto has ceased operations.

38    Mr Mitchell resides with his partner Ms Jackie Incandela and their four children. Between 14 June 2011 and 22 February 2012, Mr Mitchell received $119,405.25 from One Path Life Limited in the form of income protection insurance payments which have now ceased. Otherwise he has no income, except for rental income of $14,367 in the financial year 2010 to 2011.

39    Mr Mitchell is the primary beneficiary of the Adepto Trust, the trust deed for which was signed on 19 May 2010. It is a discretionary trust, with Ms Incandela appointed as sole trustee, pursuant to which all of the assets and liabilities of Adepto were acquired by the Trust. The assets held by Adepto, as recorded in its financial statements for the year ended 30 June 2011, included a factory unit, a Lexus motorcar, computers and office equipment.

40    The financial statement for the Trust for the year ended 30 June 2011 recorded that the trust had net liabilities of $318,703.78. In that year the Trust made a net loss of $318,713.78. The financial statement of the Trust for the year ended 30 June 2012 records net liabilities of $411,301.96.

41    As at November 2012 Mr Mitchell owns two properties, being a residence and a vacant parcel of land at Robina. Two mortgages are secured over the residence located at 10 Wyangan Valley Road, Mudgeeraba, which has an approximate value of $750,000. The first mortgage was granted to the ANZ Bank in respect of which $550,686.59 is owing. The second registered mortgage is to Janice Mitchell, the mother of Mr Mitchell, who also resides in the residence. The mortgage granted in favour of Mr Mitchell’s mother secured the amount of $400,000 lent from her to Mr Mitchell on or about 24 July 2009.

42    The vacant land at Robina, which has a value of $695,000, is the subject of three mortgages. The first is a mortgage to the ANZ Bank in the amount of $328,643.50. The second mortgage is registered to Janice Mitchell, but there is no information of the amount secured under such mortgage. The third mortgage is registered to an entity only known to the Court as Talon Pty Ltd in the amount of $123,993.05. The Court has no evidence of any relationship between Talon Pty Limited and Mr Mitchell.

43    As at June 2010 Mr Mitchell owned a third property, located at 62 Arnold Palmer Drive, Parkwood. The property was sold for $560,000 on 6 August 2012, but it was encumbered with a mortgage in the amount of $532,677.94.

44    As at 28 October 2012, Mr Mitchell had an ANZ credit card with a current balance of $8,286.19 in debit. He also held an AMEX credit card with a debit balance of $35,275.16 as at 26 September 2012. As at 30 June 2010 Mr Mitchell owned a Suzuki motorcycle.

45    Other than set out above, the Court has no evidence of the present financial position of Mr Mitchell. The agreed facts relating to such issue do not extend beyond June 2010, which, as the Court has already referred to in respect of Adepto, is barely satisfactory.

Ms McKay

46    Ms McKay is a single parent and lives in rented accommodation at 20 Morfontaine Terrace, Parkwood, Queensland. She has resided there since 28 February 2012 with her infant daughter, who was born in 2011.

47    In the financial years 2007 to 2010 Ms McKay received approximately $420,000 from Adepto, being approximately $100,000 for each of the financial years ended 30 June 2007 to 2010 inclusive. Between 28 December 2011 and May 2012 Ms McKay received $10,609 (less tax of $1,584) from Centrelink in the form of parental leave pay which ceased on 1 May 2012. She receives no income support from her previous partner, the father of her child. She has one bank account, being an ANZ Access Account in which, as at 20 November 2012, a credit of $1,481.03 was recorded.

48    As to Ms McKay’s income, her tax return for the period 2010-2011 financial year records a taxable income from Adepto in the amount of $64,621. An estimated tax refund of $5,447.55 was given for that year.

49    Ms McKay sold a residence owned by her on 2 March 2012 for $460,000. It was encumbered by a mortgage to ING Bank (Australia) Limited for $398,041.11. She received the net amount of $36,070.85 which was used for living expenses. Ms McKay has one asset (apart from household items) being a Subaru WRX motorcar. She currently has credit card debts of $1,129.38 as at 19 October 2012 owing to ME, and $468.30 as at 16 November 2012 owing on an ANZ Visa card.

Respondents’ submissions

50    Mr Mitchell and Ms McKay initially submitted to this Court that they would be exposed to serious financial hardship if the penalties agreed to were imposed, particularly in respect of Ms McKay. However such submissions were abandoned during the final hearing.

CONSIDERATION

51    The Court has had regard to the maximum penalties that might be imposed under the ACL with specific reference to the factors referred to by French J in CSR.

52    The conduct engaged in by Adepto continued over several years. The conduct would probably have continued save for the intervention of the ACCC. Not only was the conduct misleading and deceptive but it was blatantly and knowingly deceitful. There is no suggestion that Ms McKay was overborne by Mr Mitchell. Rather, she was a willing participant, who in concert with Mr Mitchell, carried on the scam for their personal gain.

53    It has been recognised that deterrence is a prime consideration in determining penalties under the TPA and there is no reason not to adopt such principles in determining the penalty under the ACL. In the Trade Practices Commission v Stihl Chain Saws (Aust.) Pty Ltd (1978) ATPR 40-091 Smithers J said (of the TPA) at 17,896:

The penalty should constitute a real punishment proportionate to the deliberation with which the defendant contravened the provisions of the Act. It should be sufficiently high to have a deterrent quality, and it should be kept in mind that the Act operates in a commercial environment where deterrence of those minded to contravene its provisions is not likely to be achieved by penalties which are not realistic. It should reflect the will of Parliament that the commercial standards laid down in the Act must be observed, but not be so high as to be oppressive.

54    In CPSU, The Community and Public Sector Union v Telstra Corporation Limited (2001) 108 IR 228, Finkelstein J, in considering the imposition of a penalty in a workplace relations matter, said, inter alia, at [9]:

On the other hand, the basic objective of punishment should be to enhance social welfare by minimising the net social cost of wrongdoing. This is achieved by deterrence. Here I speak not only of specific deterrence but also general deterrence. In a case such as the present, that may be of some importance. The reason is that Telstra submits that there is no need to impose any penalty because it will not offend again. That may be true. But even if there be no need for specific deterrence, there will be occasions when general deterrence must take priority, and in that case a penalty should be imposed to mark the law's disapproval of the conduct in question, and to act as a warning to others not to engage in similar conduct: R v Thompson (1975) 11 SASR 217. It is also important to remember that proscribed conduct is often engaged in because it is profitable, or will enhance the profitability of the company. To deter conduct engaged in with that purpose, any penalty imposed must have the potential to render the conduct unprofitable.

55    The authorities referable to the imposition of penalties are comprehensively set out in FChem at [31]. The Court endeavours to achieve even handedness in the penalties it awards (see FChem at [32]). See also Toohey J in Trade Practices Commission v Mobil Oil Australia Ltd (1985) 4 FCR 296 at 297-298; Trade Practices Commission v Prestige Motors Pty Ltd & Ors [1994] ATPR 41-359 at 42,699; Pye Industries Sales Pty Ltd v Trade Practices Commission [1979] ATPR 40-124 at 18,326; Trade Practices Commission v Carlton United Breweries Ltd (1990) 24 FCR 532 at 542; and Australian Competition and Consumer Commission v Leahy Petroleum (No 3) (2005) ATPR 42-052 at 42,648. In the present circumstances, the Court takes into account the extent of the scam, involving 312 complaints in the period from March 2007 to 15 October 2010, and the substantial number of small business proprietors who incurred loss as a result of the conduct.

56    There is no reason why such principle should not extend to the imposition of penalties for breaches of consumer law. The principles, developed in criminal law, relating to general deterrence have been applied in Dataline.net.au (at [20]) and in EDirect (at [8] and [54]) and by the Full Court in proceedings under the Occupational Health and Safety Act 1991 (Cth) relating to the imposition of civil penalty: see Comcare v Post Logistics Australasia Pty Limited [2012] FCAFC 168 at [49]-[53]. The public has an interest in knowing the penalties which have been imposed, as the penalties may act as a general deterrent against such conduct being engaged in in the future.

57    The Court also takes into consideration the fact that although the agreement reached by the respondents and by the ACCC was not achieved until almost two years after the proceedings were commenced, there has recently been a degree of co-operation by the respondents. Further, the Court takes into consideration the fact that the conduct complained of has now ceased. There is also no evidence that any of the respondents had been engaged in such conduct previously.

58    The sole discretion in the determination of penalty lies with the Court. However the Court must be mindful that the penalty to be imposed is a civil penalty, not a criminal penalty and, in accordance with the principle referred to by the Full Court in NW Frozen Foods at 291, the Court ‘will not depart from an agreed figure merely because it might otherwise have been disposed to select some other figure’ (see Burchett and Kiefel JJ).

59    The Court observes that the parties have reached consensus in respect of the admission of the contraventions, the declaratory relief, the injunctive relief and the pecuniary penalties. As has been referred to above, evidence of the present financial position of each respondent might have been of great assistance to the Court in assessing the appropriateness of the penalties which the Court is asked to impose.

60    However to make orders requiring further evidence would be to ignore fiscal and temporal practicalities. It may well be that but for the agreement as to the appropriateness of the penalties, no agreement would have been concluded at all. In this event, the savings in time and costs of a contested hearing gained from the agreement of the parties in the other matters would be rendered nugatory. Furthermore, the maintenance of the agreement between the parties is consistent with s 37M of the FCA Act, which requires the Court to resolve disputes as efficiently as possible.

61    Taking into account all of these considerations in combination with the evidence submitted by the parties, the Court finds that the proposed declaratory relief, injunctive relief and the pecuniary penalties are within an appropriate range for the contravening conduct of the respondents.

62    The Court makes the orders accordingly.

Associate: 

Dated:    25 March 2013