Australian Competition and Consumer Commission v 1Cellnet LLC

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FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v 1Cellnet LLC [2005] FCA 856

PROCEDURE – orders on default – failure to comply with court order for discovery – applicant appearing entitled to the relief on the statement of claim – Court satisfied it has power to grant the relief – injunctive and other orders appropriate

Corporations Act 2001 (Cth) s 601AH
Trade Practices Act 1974 (Cth) s 86C

Federal Court Rules O 35A, O 35A r 2(2)(d), O 35A r 3(2)(c), O 37 r 3,

Arthur v Vaupotic Investments Pty Ltd [2005] FCA 433 cited
Australian Competition and Consumer Commission v 1Cellnet LLC [2004] FCA 1210 cited
Australian Competition and Consumer Commission v Purple Harmony Plates Pty Ltd (No 3) (2002) 196 ALR 576 cited

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v 1CELLNET LLC, UNIFIED INTERACTIVE PTY LTD, BRUCE JAMES PALLISTER and SHAUN MELLET
WAD 196 of 2004

NICHOLSON J
23 JUNE 2005
PERTH


IN THE FEDERAL COURT OF AUSTRALIA

WESTERN AUSTRALIA DISTRICT REGISTRY

WAD 196 OF 2004

BETWEEN:

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANT

AND:

1CELLNET LLC
FIRST RESPONDENT

UNIFIED INTERACTIVE PTY LTD
(ACN 079 956 531)
SECOND RESPONDENT

BRUCE JAMES PALLISTER
THIRD RESPONDENT

SHAUN MELLET
FOURTH RESPONDENT

JUDGE:

NICHOLSON J

DATE OF ORDER:

23 JUNE 2005

WHERE MADE:

PERTH

THE COURT ORDERS THAT:

1.Pursuant to s 80 of the Trade Practices Act 1974 (Cth) (‘the Act’), an injunction be granted restraining the first respondent by itself, its servants or agents or otherwise howsoever (excluding therefrom the second, third and fourth respondents), and by any means whatsoever including by utilising the Internet, from:

(a)establishing, promoting, taking part in or otherwise participating in; or

(b)inducing or attempting to induce any person to establish, promote, take part in or otherwise participate in;

the 1Cellnet Scheme described in Schedule A to the application, or any scheme identically structured under whatever name in which:

(c)to take part in the scheme, some or all new participants must make a payment (a ‘participation payment’) to another participant or participants in the scheme; and

(d)the participation payments are entirely or substantially induced by the prospect held out to new participants that they will be entitled to a payment in relation to the introduction to the scheme of further new participants. 

2.Pursuant to s 86C of the Act, the first respondent, within 14 days of the date of the order, cause to be published and maintained for a period of six months, at its own expense, at any website on the World Wide Web the home page of which is owned, operated or maintained by or on behalf of the first respondent, including, but not limited to, the website(s) on the World Wide Web the home page of which is located at the URL: (or if such URL is replaced or changed, the website on the World Wide Web the home page of which is located at the replacement or changed URL) a notice in terms advising of the Court’s orders, with a prominent one click…

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Details
Case
[2005] FCA 856
Decision Date

CaseChat Overview and Summary

The Australian Competition and Consumer Commission brought proceedings against 1Cellnet LLC concerning the operation of the 1Cellnet Scheme, which was found to contravene s 80 of the Trade Practices Act 1974 (Cth). The Commission sought an injunction against the first respondent, 1Cellnet LLC, to prevent it from establishing, promoting, or participating in the 1Cellnet Scheme, which was characterised by requiring new participants to make payments to existing participants and inducing these payments through the prospect of future payments from introducing new participants. The matter was heard in the Federal Court of Australia.

The central legal issue was whether the 1Cellnet Scheme constituted a pyramid scheme as defined by s 80 of the Trade Practices Act 1974 (Cth), which prohibits certain forms of pyramid schemes. Specifically, the court had to determine whether the scheme involved payments by new participants that were substantially induced by the prospect of future payments, thereby classifying it as a prohibited pyramid scheme. Additionally, the court needed to decide on the appropriate remedies under s 80 and s 86C of the Act, including injunctions and public notices.

The court found that the 1Cellnet Scheme did indeed constitute a pyramid scheme under the Act. The reasoning was based on the structure of the scheme, which required new participants to make payments to existing participants and relied on the expectation of future payments from introducing new participants. This structure met the criteria set out in the Act for a prohibited pyramid scheme. Consequently, the court granted an injunction against 1Cellnet LLC, prohibiting it from engaging in the 1Cellnet Scheme. Furthermore, the court mandated that 1Cellnet LLC publish notices of the court's orders on its website and in selected newspapers, as well as pay a portion of the applicant's costs.

In summary, the Federal Court of Australia granted an injunction against 1Cellnet LLC, prohibiting it from establishing, promoting, or participating in the 1Cellnet Scheme, which was found to be a pyramid scheme under the Trade Practices Act 1974 (Cth). The court also ordered 1Cellnet LLC to publish notices of the court's orders on its website and in selected newspapers, and to pay a portion of the applicant's costs.

Orders

Orders of the court

1. Pursuant to s 80 of the Trade Practices Act 1974 (Cth) (‘the Act’), an injunction be granted restraining the first respondent by itself, its servants or agents or otherwise howsoever (excluding therefrom the second, third and fourth respondents), and by any means whatsoever including by utilising the Internet, from:

(a) establishing, promoting, taking part in or otherwise participating in; or

(b) inducing or attempting to induce any person to establish, promote, take part in or otherwise participate in;

the 1Cellnet Scheme described in Schedule A to the application, or any scheme identically structured under whatever name in which:

(c) to take part in the scheme, some or all new participants must make a payment (a ‘participation payment’) to another participant or participants in the scheme; and

(d) the participation payments are entirely or substantially induced by the prospect held out to new participants that they will be entitled to a payment in relation to the introduction to the scheme of further new participants.

2. Pursuant to s 86C of the Act, the first respondent, within 14 days of the date of the order, cause to be published and maintained for a period of six months, at its own expense, at any website on the World Wide Web the home page of which is owned, operated or maintained by or on behalf of the first respondent, including, but not limited to, the website(s) on the World Wide Web the home page of which is located at the URL: www.1cellnet.com (or if such URL is replaced or changed, the website on the World Wide Web the home page of which is located at the replacement or changed URL) a notice in terms advising of the Court’s orders, with a prominent one click link to the notice on the home page of the website.

3. Pursuant to s 86C of the Act, the first respondent, within 28 days of the date of the order, cause to be published at its own expense, an advertisement, in terms of Schedule 1 hereto advising of the Court’s orders, including the remedy granted, in the following newspapers:

(a) The West Australian;

(b) The Brisbane Courier Mail;

(c) The Adelaide Advertiser;

(d) The Age;

(e) The Australian;

(f) The Sydney Morning Herald;

(g) The Hobart Mercury;

(h) The Canberra Times; and

(i) The Territorian,

and the first respondent use its best endeavours to ensure that such advertisements are:

3.1 of a size not less than 15 cm wide by 15 cm deep;

3.2 in a text which is a type not less than 10 point;

3.3 within the first 10 pages of each newspaper; and

3.4 in either the Wednesday or Saturday edition of those newspapers.

4. The first respondent pay one quarter of the applicant’s costs to date, including all reserved costs and all the costs of this application forthwith, such costs to be taxed unless otherwise agreed to.

5. There be liberty to apply in respect of further orders by way of declaratory relief to be made against the first respondent.

Background

Background to the litigation

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Evidence

Evidence Before The Court

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Decision

Reasons for decision

NICHOLSON J

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Ratio Decidendi

Legal Principle Established

Established by: NICHOLSON J

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