FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 1087

THE COURT ORDERS THAT:

1.    The application made by the third, sixth and seventh respondents to vary [13] of the orders made on 22 April 2015 is dismissed.

2.    The sixth and seventh respondents must:

(a)    within six months of the date of this order:

(i)    appoint an independent reporter with expertise in consumer law, at their own cost, to specify in writing, in respect of the following matters referred to in [9] of the orders made on 22 April 2015:

(A)    the systems or practices in place to provide that a prospective patient or patient cannot enter into an agreement with the sixth and seventh respondents for or in respect of the supply of medications or medical services for the treatment of male sexual dysfunction unless the prospective patient or patient has had a consultation with a duly qualified medical practitioner either in person or by video-link;

(B)    the form of written statements provided by the sixth and seventh respondents to prospective patients or patients ;

(C)    the systems or practices in place to provide that a prospective patient or patient cannot enter into an agreement with the sixth and seventh respondents for or in respect of the supply of medications or medical services for the treatment of male sexual dysfunction unless the prospective patient or patient has first received a written statement setting out the terms of the agreement by post, electronic mail or in person and communicated their written acceptance to the terms of the agreement;

(D)    the terms of the standard form of agreement entered into by the sixth and seventh respondents with patients;

(E)    the systems or practices in place to provide that the term of agreements with patients for supply of treatments offered during pre-contractual negotiations will be no more than two months; and advance payments or other consideration from patients in connection with the supply of treatments will not be accepted for a future period of more than two months;

(F)    a random sample of not less than 50 patient agreements and for those patients, any written statements provided to them, and the terms of and the financial records of the payments made under each agreement;

(G)    the business records and/or correspondence relating to any requests made by patients to terminate their agreements with the sixth and seventh respondents;

(ii)    provide a copy of the independent reporter's report to the ACCC for the purpose of assisting the ACCC to determine whether action by it is necessary to enforce [9] of the orders made on 22 April 2015, and to support any subsequent enforcement action;

(b)    allow the independent reporter to attend any of the premises where the sixth and seventh respondents' conduct the business of providing medical services relating to the supply of medications for the purpose of carrying out the review, provided that the independent reporter gives notice in writing (to be sent to the registered office of the sixth and seventh respondents) of not less than 24 hours of their intention to attend such premises; and

(c)    ensure that the independent reporter has access to the sixth and seventh respondents' business records for the purpose of carrying out the review.

3.    The application made by the applicant on 6 May 2015 for the appointment of an independent auditor is otherwise dismissed.

4.    The third, sixth and seventh respondents pay two thirds of the applicant’s costs of this application.

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

REASONS FOR JUDGMENT

1    These reasons for judgment address two outstanding issues which arise from reasons for judgment delivered in the proceeding and orders made on 22 April 2015.

THE COSTS ISSUE

2    The orders made on 22 April 2015 provided that:

13    The third, sixth, and seventh respondents pay the applicant’s costs of the proceeding, except for the applicant’s costs of and incidental to the proceeding against the fourth and fifth respondents.

3    The orders in [14] gave liberty to the parties to apply to vary the order for costs in [13] for the reason explained at [1021] to [1026]. In essence, the reason was that the issue of costs may not have been fully explored in the submissions of the parties at the trial.

4    In exercise of the liberty to apply, the third, sixth and seventh respondents (who will be referred to in these reasons for judgment as the respondents) applied to vary [13] of the orders to read:

13.    The third, sixth and seventh respondents pay the applicant’s costs of the proceeding, except for the applicant’s costs of and incidental to proceeding against the first, second, fourth and fifth respondents.

5    On 17 June 2015, the respondents filed written submissions in support of the application for variation of [13]. On 2 July 2015, the applicant in the proceeding, the Australian Competition and Consumer Commission, the ACCC, filed written submissions opposing the variation of [13]. The parties agreed that the issue should be determined on the papers without a further oral hearing.

The Respondents’ Submissions

6    The respondents argued that, applying the ordinary rule that costs follow the event, the first and second respondents would be liable for the costs of the ACCC because the ACCC succeeded in the case against them.

7    The respondents argued that the primary discretionary factor in favour of relieving them from the payment of the ACCC’s costs of the case against the first and second respondents was that the ACCC pursued the case against them knowing that they were insolvent and assuming the commercial risk that they would not be able to pay costs if the ACCC succeeded against them.

8    The respondents then contended that the ACCC pursued the case against the first and second respondents so that the outcome would provide guidance to the commercial community about the legality of the conduct of the first and second respondents. The respondents argued that it was unnecessary to proceed against the first and second respondents in order to achieve this purpose and hence it was unjust for the respondents to bear the costs of the ACCC's case against the first and second respondents.

9    Then it was said that it would be unfair to order the respondents to pay the ACCC’s costs of the proceedings against the first and second respondents because the respondents had no control over the case against the first and second respondents.

The ACCC’s Submissions

10    The ACCC contended that it was artificial to draw a distinction between the business practices of the first and second respondents and the respondents.

11    The first and second respondents entered into voluntary administration on 22 December 2010. On 17 June 2011, the business was sold to the sixth and seventh respondents. Dr Vaisman, the third respondent, controlled the business of the first and second respondents before they went into administration. He continued to control the business of the sixth and seventh respondents following the sale to them. On 6 September 2011, the Court gave leave to join the sixth and seventh respondents to the proceeding. Thereafter, the respondents defended the proceeding both against them and against the first and second respondents. The ACCC submitted in its written submission dated 2 July 2015:

7.    This is not a proceeding in which the allegations made against NRM [the sixth and seventh respondents] (and Dr Vaisman in respect of NRM) were separated from, or unrelated to, the allegations made against AMI. NRM and Dr Vaisman had acquired the AMI business and were continuing to trade the business in the same or very similar way. They had taken the position that they were not prepared to materially vary the business in the way sought by the ACCC unless ordered to by a court.

8.    Continuing the proceeding against AMI was necessary to secure relief against NRM and Dr Vaisman in relation to the ongoing AMI business. In addition, the evidence against AMI was evidence against NRM because the business model of each was relevantly identical, apart from later changes to the contract terms.

Consideration

12    The liquidators of the first and second respondents did not contest the case against those respondents. However, the ACCC sought to establish the conduct of the first and second respondents as the basis for the claim that Dr Vaisman was liable as an accessory for that conduct. He defended himself against that liability by contesting the case against the first and second respondents. He failed in this defence. The interests of justice require that he pay the costs of the ACCC against the first and second respondents because he unsuccessfully opposed the case against the first and second respondents on which his own liability depended.

13    The position of the sixth and seventh respondents is similar although not identical. Unlike Dr Vaisman, proof of the conduct of the first and second respondents was not a necessary precondition to the establishment of the liability of the sixth and seventh respondents. Nevertheless, the ACCC alleged that the conduct of the sixth and seventh respondents under the same management as the management of the first and second respondents was a continuation of the same business practices. The fact that the business practices of the sixth and seventh respondents could be traced to the prior practices of the first and second respondents was a method by which the ACCC chose to prove its case against the sixth and seventh respondents. No doubt for this reason the sixth and seventh respondents contested the allegations concerning the conduct of the first and second respondents and the issue whether the business practices of those respondents continued into the period during which the sixth and seventh respondents operated the business. The sixth and seventh respondents failed in that contest. The interests of justice also require the respondents to pay the costs of the ACCC's case against the first and second respondents.

14    These considerations entirely outweigh the matters raised by the respondents in support of the variation. Whilst it is true that the ACCC knew of the insolvency of the first and second respondents before the trial commenced, the ACCC cannot be said to have assumed the risk of the costs of proceeding against them if the respondents, in practice, ran a case dependent on defending the actions of the first and second respondents. Further, to contend that the respondents did not have control of the case of the first and second respondents is to close ones eyes to the reality. In particular, Dr Vaisman was the central figure in the conduct of the first and second respondents. He had the knowledge of the facts and circumstances to challenge the allegations made against the first and second respondents. That is to say nothing of the necessity for him to challenge those allegations in order to defend himself against the allegations of accessorial liability.

15    The application by the respondents for variation of [13] of the orders made on 22 August 2015 is dismissed.

THE INDEPENDENT AUDIT ISSUE

16    Paragraph 14 of the orders made on 22 April 2015 provided that the applicant and the sixth and seventh respondents had liberty to apply in writing by 6 May 2015 in relation to the issues referred to in [993] in the reasons for judgment.

17    The reasons for judgment provided:

992    It may also be appropriate in this case to require a report to the ACCC by an independent auditor after, say six months, as to compliance by NRM in accordance with the injunction.

993    If it is regarded as appropriate to include provisions in accordance with the remarks made in the last two paragraphs, an application in writing should be made within 14 days to vary the injunction in those ways. The invitation to consider whether the injunction should be varied does not mean that any application made in response will necessarily be granted. Rather, the Court would hear argument and determine the issues following a consideration of the submissions made by the parties.

18    In accordance with the liberty reserved, the ACCC applied for the appointment of an independent auditor. It filed written submissions in support of the appointment on 17 June 2015. The sixth and seventh respondents filed written submissions in response on 1 July 2015.

19    On 20 July 2015, I raised two issues relating to the application by email to the parties, namely, whether the purpose for the appointment had been sufficiently exposed in the submissions, and whether the order proposed by the ACCC was, in view of the sixth and seventh respondents’ submissions dated 1 July 2015, an appropriate order for the purpose.

20    On 3 August 2015, the ACCC filed supplementary submissions in response to these questions, including a revised proposed form of the order. On 7 August 2015, the sixth and seventh respondents filed a response to the supplementary submissions of the ACCC. On 12 August 2015, the ACCC filed a submission in reply and on 13 August 2015, the sixth and seventh respondents filed a final submission in response. The parties agreed that the independent audit issue should also be determined on the papers without a further oral hearing.

21    The revised proposed form of the order sought by the ACCC reads as follows:

11.    The sixth and seventh respondents must:

(a)    within six months of the date of this order:

(i)    appoint, at their own cost, an independent auditor with expertise in consumer law to conduct a review and report in writing on the following matters in respect of the sixth and seventh respondents' compliance with Order 9:

(A)    the systems or practices in place to provide that a prospective patient or patient cannot enter into an agreement with the sixth and seventh respondents for or in respect of the supply of medications or medical services for the treatment of male sexual dysfunction unless the prospective patient or patient has had a consultation with a duly qualified medical practitioner either in person or by video-link;

(B)    the written statements provided by the sixth and seventh respondents to prospective patients or patients in compliance with order 9(b)(i);

(C)    the systems or practices in place to provide that a prospective patient or patient cannot enter into an agreement with the sixth and seventh respondents for or in respect of the supply of medications or medical services for the treatment of male sexual dysfunction unless the prospective patient or patient has first received a written statement setting out the terms of the agreement in compliance with order 9(b)(i) by post, electronic mail or in person and communicated their written acceptance to the terms of the agreement;

(D)    whether the terms of the standard form of agreement entered into by the sixth and seventh respondents with patients comply with order 9(b)(ii);

(E)    the systems or practices in place to provide for compliance with orders 9(d) and (e);

(F)    a random sample of not less than 50 patient agreements and for those patients, any written statements provided to them in compliance with order 9(b)(i), the terms of and the financial records of the payments made under each agreement and whether there is any evidence of any failure by the sixth and seventh respondents to comply with order 9 in respect of those agreements;

(G)    the business records and/or correspondence relating to any requests made by patients to terminate their agreements with the sixth and seventh respondents and whether these requests evidence any failure by the sixth and seventh respondents to comply with the terms of the written statement in order 9(b)(i) or the terms of the agreement in order 9(b)(ii) or otherwise comply with Order 9;

(ii)    provide a copy of the independent auditor's report of the Review to the ACCC for the purpose of assisting the ACCC to determine whether action by it is necessary to enforce Order 9, and to support any subsequent enforcement action;

(b)    allow the independent auditor to attend any of the premises where the sixth and seventh respondents' conduct the business of providing medical services relating to the supply of NRM medications for the purpose of carrying out the review, provided that the independent auditor gives notice in writing (to be sent to the registered office of the sixth and seventh respondents) of not less than 24 hours of their intention to attend such premises; and

(c)    ensure that the independent auditor has access to the sixth and seventh respondents' business records for the purpose of carrying out the review.

22    The revised proposed form of order was intended to address compliance with [9] of the orders made on 22 April 2015, in the form as amended pursuant to the unopposed application by the ACCC made on 6 May 2015, which provided:

9    Each of the sixth and seventh respondents be permanently restrained, whether by themselves, their servants or agents or otherwise, in trade or commerce, from:

(a)    making an agreement with a patient for or in respect of the supply of medications or medical services for the treatment of male sexual dysfunction, unless the patient for whom the medications or medical services are intended has had a consultation with a duly qualified medical practitioner either in person or by video-link;

(b)    making an agreement with a patient for the supply of medications or medical services for the treatment of male sexual dysfunction unless:

(i)    before the agreement is made:

(A)    the patient has been provided with a written statement by the sixth and seventh respondents by post, electronic mail, or in person:

a.    setting out in plain English the terms of the agreement including a description of the medication or medical services to be provided, the total cost of the agreement, the proposed payment plan (if any), the period of treatment, and a statement that the patient has a right to terminate the agreement during the period of five business days commencing on the date on which the agreement is made (Cooling-Off Period);

b.    stating that male sexual dysfunction may be a symptom of other medical conditions but NRM does not seek to diagnose those other medical conditions; and

c.    stating that NRM does not provide general medical advice and that NRM's doctors only consider whether the patient is suitable for NRM medications; and

(B)    the sixth and seventh respondents receive from the patient a written acceptance of the terms of the agreement; and

(ii)    the agreement contains terms which:

(A)    give the patient a right to terminate the agreement, by notice in writing to the sixth and seventh respondents dispatched during the Cooling-Off Period; and

(B)    provide that if the patient exercises the right to terminate the agreement during the Cooling-Off Period, the agreement is taken to be rescinded by mutual consent with all payments made refunded;

(C)    provide that the patient may at any time after the Cooling-Off Period terminate the agreement by giving 14 days' notice, and that once this notice has been provided, the sixth and seventh respondents will:

a.    cancel any direct debit arrangement referrable to the patient; and

b.    if the patient has paid any money in advance of terminating the agreement, refund to the patient the amount of money paid by the patient for the unexpired period of the patient's agreement after the 14 days' notice. calculated on a pro-rated basis.

(c)    making any statement or representation to any patient or prospective patient as to:

(i)    the efficacy of NRM treatments;

(ii)    the efficacy of any medications or medical services offered by parties other than the sixth and seventh respondents; or

(iii)    the patient's need for the NRM treatments and any adverse consequences that might result if the patient:

(A)    does not acquire the NRM treatments, or

(B)    does not receive NRM treatments for male sexual dysfunction.

except if that statement is made directly to a patient or potential patient by a duly qualified medical practitioner during a consultation either in person or by video-link;

(d)    making an agreement with a patient for the supply of NRM treatments, unless during pre-contractual negotiations, the patient is offered an agreement with a term of no more than two months; and

(e)    accepting in advance any payment or any other consideration from a patient in connection with the supply of NRM treatments for a future period of more than two months.

Relevant Statutory Provisions

23    Section 23 of the Federal Court of Australia Act 1976 (Cth) (FCA) provides:

The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate.

24    Section 232 of the Australian Consumer Law (ACL) provides:

1.    A court may grant an injunction, in such terms as the court considers appropriate, if the court is satisfied that a person has engaged, or is proposing to engage, in conduct that constitutes or would constitute:

a.    a contravention of a provision of Chapter 2, 3 or 4; or

b.    attempting to contravene such a provision; or

c.    aiding, abetting, counselling or procuring a person to contravene such a provision; or

d.    inducing, or attempting to induce, whether by threats, promises or otherwise, a person to contravene such a provision; or

e.    being in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of such a provision; or

f.    conspiring with others to contravene such a provision.

2.    The court may grant the injunction on application by the regulator or any other person.

3.    Subsection (1) applies in relation to conduct constituted by applying or relying on, or purporting to rely on, a term of a consumer contract that has been declared under section 250 to be an unfair term as if the conduct were a contravention of a provision of Chapter 2.

4.    The power of the court to grant an injunction under subsection (1) restraining a person from engaging in conduct may be exercised:

a.    whether or not it appears to the court that the person intends to engage again, or to continue to engage, in conduct of a kind referred to in that subsection; and

b.    whether or not the person has previously engaged in conduct of that kind; and

c.    whether or not there is an imminent danger of substantial damage to another person if the person engages in conduct of that kind.

5.    Without limiting subsection (1), the court may grant an injunction under that subsection restraining a person from carrying on a business or supplying goods or services (whether or not as part of, or incidental to, the carrying on of another business):

a.    for a specified period; or

b.    except on specified terms and conditions.

6.    Without limiting subsection (1), the court may grant an injunction under that subsection requiring a person to do any of the following:

a.    refund money;

b.    transfer property;

c.    honour a promise;

d.    destroy or dispose of goods.

7.    The power of the court to grant an injunction under subsection (1) requiring a person to do an act or thing may be exercised:

a.    whether or not it appears to the court that the person intends to refuse or fail again, or to continue to refuse or fail, to do that act or thing; and

b.    whether or not the person has previously refused or failed to do that act or thing; and

c.    whether or not there is an imminent danger of substantial damage to any other person if the person refuses or fails to do that act or thing.

25    The predecessor to s 232 of the ACL was s 80 of the Trade Practices Act 1974 (Cth) (TPA) which was relevantly in the same terms.

26    Section  246(2)(c) of the ACL empowers the Court to make :

an order requiring the person to disclose, in the way and to the persons specified in the order, such information as is so specified, being information that the person has possession of or access to.

27    The predecessor to s 246(2)(c) was s 86C(2)(c) of the TPA which was in the same terms.

Consideration

28    The respondents contended that s 232 of the ACL does not empower the Court to make an order for an independent auditor to audit compliance by the sixth and seventh respondents with the orders made by the Court on 22 April 2015.

29    Prior to 2001 when s 86C was introduced into the TPA it was accepted that the Court had power under s 80 of the TPA to make orders for the implementation of compliance schemes: See Australian Competition and Consumer Commission v N W Frozen Foods Pty Ltd (1996) ATPR 41-515, Australian Competition and Consumer Commission v Woolworths (Federal Court of Australia, Hill J, 3 July 1996, unreported), Trade Practices Commission v Amatek (Federal Court of Australia, Lockhart J, 24 November 1994, unreported), Australian Competition and Consumer Commission v Pioneer Concrete Qld Ltd (1996) ATPR 41-457, Trade Practices Commission v Monier Roofing Limited (1996) ATPR 41-464, Australian Competition and Consumer Commission v Hymix Industries Pty Ltd (1996) ATPR 41-465, and Australian Competition and Consumer Commission v Z-Tek Computer Pty Ltd [1997] FCA 871 (Z-Tek).

30    In most of these cases the orders were made by consent and there was no discussion about the power to make the orders. It appears to have been assumed that such orders were within power.

31    In Z-Tek it was held that the power to grant injunctions was limited in three respects. The Court could only make orders within the scope and purpose of the statute, if there was a sufficient nexus between the relief and the contravening conduct, and if the orders related to the controversy the subject of the proceeding. Applied to that case, those limitations meant that the proposed orders by consent for a compliance program were rejected insofar as they related to compliance with provisions of the TPA which had not been the subject of any allegation of contravention. It is noteworthy that [5] of the orders which were made provided:

The respondent shall ensure that the documentary records of the compliance reviews of all advertising are available to the Australian Competition and Consumer Commission to be reviewed from time to time. Such records are to be available from one week after the date of publication of the advertisement for a period of three years after that date. Such records are to be provided to the Australian Competition and Consumer Commission within five working days of a written request for those records.

32    In ACCC v Rural Press Ltd [2001] FCA 1065 (Rural Press) Mansfield J considered whether, as a matter of discretion, he would require the contravener to report to the ACCC about compliance with a compliance program. He said at [33]:

I also have reservations about ordering, as an element of a trade practices compliance program, that the person or entity the subject of the order notify the ACCC of steps taken to comply with that program, where such a requirement is opposed. The need for such a direction highlights that the Court is being asked to make an order which requires ongoing or regular supervision to ensure it is being complied with, as there will be (absent any further contravention) no external indication of its compliance….The reporting process which the ACCC suggests is clearly aimed at providing a mechanism by which an external third party may measure the performance of the primary obligations proposed. Presumably, then, if it were not satisfied that the trade practices compliance program was being properly implemented, the ACCC would then move the Court for an order that the non-complying party would be dealt with for contempt of Court. It should not be a means of empowering the ACCC to negotiate privately about the proper means of implementing the order of the Court. I am not confident that it is appropriate for the Court, which has directed a party to undertake certain conduct such as a trade practices compliance program over a number of years, which conduct may be in part exhortatory and in part of only generally described, to impose the ACCC in effect as a supervisor of compliance with that order.

[Emphasis added.]

33    On appeal, in Rural Press Ltd v Australian Competition & Consumer Commission [2002] FCAFC 213, the Full Court agreed with these reservations at [173] as follows:

We agree with the reasons given by the primary Judge for refusing to grant a mandatory injunction. In particular, his Honour was correct to draw attention (at [33]; 43,294) to difficulties inherent in the terms of the mandatory injunction sought by the ACCC. It would have obliged Rural Press and Bridge Printing to implement a program that had not yet been developed and which was, in any event, to be approved by a person appointed by Rural Press with “expert knowledge of trade practices law”. The Court should not delegate to a third person the task of specifying the obligations that are the subject of injunctive orders. Accordingly, there was no error in the primary Judge’s refusal to grant the mandatory injunctions sought under s 80 of the TP Act.

[Emphasis added.]

34    In BMW Australia Limited v Australian Competition & Consumer Commission [2004] FCAFC 167 (BMW Australia), following the introduction of s 86C of the TPA, the Full Court held that the section did not empower the Court to make an order appointing an external auditor to audit a compliance program. The Court, however, left it open whether s 80 of the TPA or s 23 of the FCA may provide for such power. The Court said at [51]:

It may be that s 80 of the Act, or s 23 of the Federal Court of Australia Act 1976 (Cth), considered separately or together, provides a statutory basis for the appointment of an auditor of a compliance program. However no submissions were made by reference to those sections and we limit our conclusion to the opinion that s 86C does not provide a legislative basis for the appointment of an external auditor to audit a compliance program.

35    In ACCC v Humax Pty Ltd [2005] FCA 706 Merkel J said at [13] - [15]:

13.    Initially, the parties proposed that the trade practices compliance program include a requirement that Humax:

(d)    appoint, within three months of the date of this order, and retain for a period of three years, an independent external auditor with experience in trade practices law and approved by the Applicant to:

(i)    at the end of each twelve month period from the date of this order until the third anniversary of the date of this order, audit the Compliance Program and the Training Program; and

(ii)    provide written reports to the Applicant and the First Respondent in relation to each audit within fourteen days of the completion of the audit.

14.    In BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452 at 466-469 ([42]-[53]) the Full Court explained why it had concluded that s 86C of the Act did not provide legislative authority for an order to be made for an external audit. While the Full Court left open the question of whether such an order might be authorised by s 80 of the Act or by s 23 of the Federal Court of Australia Act 1976 (Cth), I doubt that the order would be authorised by those sections. The difficulties with external audit orders were discussed by the Full Court in the passages cited above and need not be repeated.

15.    After indicating to the parties some of the difficulties with the external audit order which they proposed, they agreed that an order requiring expert input into the content of the trade practice compliance program prior to its establishment and implementation was more appropriate. Accordingly, I propose to make such an order, which, in my view, is an order that is “for the purpose of ensuring that the [contravening party] does not engage in the contravening conduct, similar conduct or related conduct” and is therefore authorised by s 86C of the Act.

36    The sixth and seventh respondents relied on the doubt expressed by Merkel J as to the legislative power to make the orders sought. The reference to the difficulty with such orders, however, is a reference to discretionary considerations not to the power of the Court to make such orders. The basis of the doubt about power is not explained, and the issue did not arise for determination.

37    In Australian Competition and Consumer Commission v Harbin Pty Ltd ACN 005 339 328 [2008] FCA 1792 (Harbin) Finn J said at [18]:

I note in passing that there is a body of opinion in decisions of this Court which questions both whether there is a legislative authority for the Court acting under s 86C of the TP Act to order a respondent to instruct an expert to audit a compliance program and to deliver to the ACCC audit reports: see BMW Australia Ltd v Australian Competition and Consumer Commission (2004) 207 ALR 452 at [42]–[52]; Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329 at [50]; or if there be some other source of power to do so: see BMW Australia at [51]; whether it would ordinarily be appropriate to make such orders: see Visy Paper (No 2) at [56]. I share these doubts.

38    The respondents contended that, in this passage, Finn J doubted the legislative power to order the appointment of an auditor of a compliance program and to order that the auditor deliver audit reports to the ACCC. Properly read in the light of the judgments referred to, Finn J was expressing doubts about the exercise of discretion only. In any event, the basis of the doubts is not explained, and hence provides little guidance for the resolution of the present issue.

39    On the other hand, the remarks of Mansfield J in Rural Press approved by the Full Court in BMW Australia provide some useful reference to matters which might be relevant to the exercise of discretion when determining whether to make an order requiring the reporting of compliance through an independent auditor.

40    Mansfield J had reservations in Rural Press because the Court was being asked to make an order, which:

    required ongoing supervision;

    required a third party to measure performance of obligations imposed by the Court;

    imposed the ACCC as the supervisor of compliance with the orders;

    applied to generally described and partly exhortatory obligations imposed by a compliance program.

41    In the proposed order in this case the main function of an independent auditor is to ascertain and report to the ACCC on facts. For instance, proposed 11(a)(i)(A) of the orders requires the auditor to ascertain what systems are in place to ensure that a patient has a face to face consultation, in person or by video-link, with a doctor. If the auditor reports that there are no systems in place the ACCC would need to assess whether it would bring an application for contempt of the order requiring such consultations. If an application for contempt were filed, the Court would determine whether the sixth and seventh respondents had contravened the order.

42    An order of this type does not give rise to the problems identified by Mansfield J. The order does not involve ongoing supervision. Rather, the order provides for the appointment of auditor with a specific and defined role. The auditor is much less supervised by the Court than, for instance, liquidators, administrators, receivers, trustees of bankrupt estates or the like. The auditor is not required to measure performance of the obligations imposed by the Court, but rather is required to make a report on a factual matter. The ACCC is not imposed to supervise compliance any more than any litigant in whose favour an order is made may seek to enforce the order by filing an application for contempt on receipt of information which suggests non-compliance. The obligations are not generally described and are not exhortatory. The obligations require the doing of specific acts which are precisely defined.

43    That said, some parts of the proposed orders do require the auditor not only to ascertain facts but also make an assessment whether the facts amount to compliance with the orders of the Court. As a matter of discretion I would not provide for the latter function because it is the function of the Court in the administration of justice to determine whether there has been compliance with its orders. Once the facts are known to the ACCC it can determine whether to utilise the judicial system to enforce compliance. The ACCC at that point will have the information it needs to make that decision. The assessment made by an independent auditor would serve no purpose. The auditor’s opinion would not bind the parties or the Court and is not necessary for the ACCC in order to allow it to determine whether to institute proceedings for contempt. The factual circumstances will determine whether proceedings may be instituted. Modifying the proposed order to omit an assessment role, but rather to provide for a reporting function, would mean that the order would read as follows, and would refer to a ‘reporter’ rather than an auditor:

The sixth and seventh respondents must:

(a)    within six months of the date of this order:

(i)    appoint, at their own cost, an independent reporter with expertise in consumer law to specify in writing, in respect of the following matters referred to in [9] of the orders made on 22 April 2015:

(A)    the systems or practices in place to provide that a prospective patient or patient cannot enter into an agreement with the sixth and seventh respondents for or in respect of the supply of medications or medical services for the treatment of male sexual dysfunction unless the prospective patient or patient has had a consultation with a duly qualified medical practitioner either in person or by video-link;

(B)    the form of written statements provided by the sixth and seventh respondents to prospective patients or patients ;

(C)    the systems or practices in place to provide that a prospective patient or patient cannot enter into an agreement with the sixth and seventh respondents for or in respect of the supply of medications or medical services for the treatment of male sexual dysfunction unless the prospective patient or patient has first received a written statement setting out the terms of the agreement by post, electronic mail or in person and communicated their written acceptance to the terms of the agreement;

(D)    the terms of the standard form of agreement entered into by the sixth and seventh respondents with patients;

(E)    the systems or practices in place to provide that the term of agreements with patients for supply of NRM treatments offered during pre-contractual negotiations will be no more than two months; and advance payments or other consideration from patients in connection with the supply of NRM treatments will not be accepted for a future period of more than two months;

(F)    a random sample of not less than 50 patient agreements and for those patients, any written statements provided to them, and the terms of and the financial records of the payments made under each agreement;

(G)    the business records and/or correspondence relating to any requests made by patients to terminate their agreements with the sixth and seventh respondents;

(ii)    provide a copy of the independent reporter's report of the review to the ACCC for the purpose of assisting the ACCC to determine whether action by it is necessary to enforce Order 9, and to support any subsequent enforcement action;

(b)    allow the independent reporter to attend any of the premises where the sixth and seventh respondents' conduct the business of providing medical services relating to the supply of NRM medications for the purpose of carrying out the review, provided that the independent reporter gives notice in writing (to be sent to the registered office of the sixth and seventh respondents) of not less than 24 hours of their intention to attend such premises; and

(c)    ensure that the independent reporter has access to the sixth and seventh respondents' business records for the purpose of carrying out the review.

44    The question then is whether an order in that form serves any useful purpose.

45    The ACCC has processes available under the ACL to obtain information where it suspects a contravention of the Competition and Consumer Act 2010 (Cth) (CCA). For instance, it may serve a notice under s 155 of the CCA for the production of documents or the attendance at a hearing.

46    However, the modified form of order has a more targeted operation. The Court has made orders moulded to prevent the repetition of specific contravening conduct. The orders were made after a detailed investigation at trial of the conduct of the sixth and seventh respondents' business practices. It is important that the sixth and seventh respondents adhere to the obligations imposed by the orders which are framed in a detailed way to address the contravening practices of the business. In this respect the enforcement of the orders is a narrower and more focused procedure than the processes available to the ACCC under the statute. The statutory procedures are available at the stage of and for the purpose of investigation. After a trial is concluded and orders have been made the processes of investigation necessary to determine whether to institute proceedings have been overtaken by the need to enforce the orders of the Court. Thus, the existence of investigatory tools available to the ACCC is not an appropriate substitute for the processes in aid of the enforcement of orders of the Court.

47    The particular circumstances of this case call for some measures to ensure compliance with the orders of the Court. In the course of the trial, Dr Vaisman and Mr Shresthra gave extensive evidence. As explained in the reasons for judgment delivered on 22 April 2015, Dr Vaisman presented as an untrustworthy business operator. His evidence was focused on self-interest and the interest of his companies. He had little regard for the truth. He also had little insight into his and his companies' wrong doings. There is a high likelihood that he will not comply with the orders of the Court unless there is a process in place which makes it likely that his non-compliance will be exposed. Mr Shresthra said that he had taken over running much of the business. It was not necessary to deal in detail with his evidence in the judgment delivered on 22 April 2015. However, I have a similar lack of confidence in the likelihood of Mr Shresthra complying with the orders of the Court as I have with Dr Vaisman. Whilst Dr Vaisman was at times genuinely confused about questions, Mr Shresthra often feigned a lack of understanding in order to evade answering simple questions. He mostly avoided being blatantly untruthful, but did so by giving answers which were non-responsive. I formed a clear view that if Mr Shresthra thought that he could get away with not complying with orders of the Court he would do so.

48    The fact that I have formed a strong adverse view of the honesty of Dr Vaisman and Mr Shresthra and that they are in charge of the business of the sixth and seventh respondents is a compelling reason to arm the ACCC with instruments to ensure that it can take action to enforce the orders of the Court if necessary.

49    This feature distinguishes the present case from many of the others in which orders were made requiring the reporting of adherence to a compliance program. In many of those cases, the contravener demonstrated a genuine commitment to rectifying the circumstances which led to the contravention: Harbin at [20].

50    A further important factor for consideration in the exercise of discretion is that most of the orders made on 22 April 2015 impact on private transactions which are not observable publicly. The ACCC will not be able to know whether those orders are being complied with unless information is provided to it. In contrast, some orders impact on business practices, such as advertising, which are in open public view. The ACCC can monitor advertising from the outside. It cannot know without information from the inside, for instance, whether patients are accorded a face to face consultation with the doctor.

51    Then, the sixth and seventh respondents contended that the Court should not make an order for the appointment of an independent auditor because the ACCC did not initially ask for it. There would be more force in this argument if the ACCC had not now sought the order. However, it has not only sought the order but has argued strongly that it should be made. There is little merit in the argument that the initial invitation to seek such orders came from the Court. The invitation included a warning that the order would not necessarily be made. Rather, it was an invitation to the parties to consider whether arguments should be put to the Court on the issue.

52    In a small enterprise the requirement to appoint an independent auditor or reporter might impose obligations which were too onerous when balanced against the value of making such orders. However, that is not the case in the present proceeding. No substantial argument was raised by the sixth and seventh respondents that the order would impose an unreasonable burden on them.

53    The sixth and seventh respondents argued that it would be contrary to the principle of finality in litigation to permit the ACCC to contend for an order which was open in the proceedings and which was not sought. As set out above, [14] of the orders provided for liberty to apply in relation to whether it may be appropriate to require a report to the ACCC by an independent auditor as to compliance by the respondents with the injunctive orders. The question of whether the appointment of an auditor was appropriate was therefore left open by the Court at the time of judgment, and submissions were invited on this point. The respondents’ arguments in relation to finality in litigation do not apply.

54    As a matter of discretion, I would make the order for the appointment of an independent reporter in the modified form referred to in [43]. The modified form of order requires the sixth and seventh respondents to disclose information held by them to the independent reporter, and consequently falls within the power granted by s 246(2)(c) of the ACL.

55    Additionally, the modified form of order falls within the power of the Court to grant injunctions under s 232 of the ACL, in such terms as the Court considers appropriate. None of the three accepted limitations on the power, as set out in Z-Tek in relation to the predecessor section, s 80, are infringed. On the contrary, the purpose of the order is to prevent a repetition of the contravening conduct by ensuring a level of scrutiny of the conduct of the sixth and seventh respondents following the making of the orders of the Court.

56    Finally, it may be questioned whether it is necessary to provide for an independent reporter rather than to stipulate that the sixth and seventh respondents provide the material directly to the ACCC.

57    On balance, there is a role for an independent reporter. The function of the independent reporter is to collect and compile the information required. Although the function does not involve assessing compliance with the orders of the Court, placing the function in the hands of a third party provides for a level of scrutiny which is likely to enhance the prospects of compliance with the orders of the Court.

Costs

58    As the applicant has succeeded in relation to the application for variation of the costs order and has succeeded to a significant degree, but not entirely, in the application for appointment of an independent auditor, the third, sixth and seventh respondents should pay two thirds of the ACCC's costs of this application.

Associate:

Dated:    9 October 2015