Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq) (formerly Advanced Medical Institute Pty Limited)
[2015] FCA 368
•22 April 2015
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 368SUMMARY
NORTH J
22 APRIL 2015
MELBOURNESUMMARY
1.In accordance with the practice of the Federal Court in some cases of public interest, importance or complexity, the following summary has been prepared to accompany the orders made today. This summary is intended to assist in understanding the outcome of this proceeding and is not a complete statement of the conclusions reached by the Court. The only authoritative statement of the Court's reasons is that contained in the published reasons for judgment which will be available on the internet at Court’s homepage together with this summary.
2.The Australian Competition and Consumer Commission (the ACCC) brought this case against companies trading as Advanced Medical Institute (AMI), its Chief Executive Officer, director and shareholder, Dr Jacov Vaisman and two doctors engaged by AMI.
3.AMI offered treatments for premature ejaculation (PE) and erectile dysfunction (ED) using nasal spray and later oral strips. It advertised that the treatment would result in longer lasting sex.
4.The ACCC alleged that AMI engaged in unconscionable conduct contrary to the Trade Practices Act and the Australian Consumer Law. It also alleged that a refund term in one version of its contract was unfair and void under the ACL.
5.In the 2008 financial year patients paid nearly $49 million to AMI for the treatment programs and in the 2009 financial year they paid nearly $55 million. In the 2010 financial year AMI reported a revenue of almost $40 million.
6.Men were treated usually over the phone. They spoke first to a salesperson, then to a doctor and then to a salesperson again.
7.The Court had a unique insight into the way AMI operated because the evidence included a selection of recordings of phone calls from the estimated 3 million recordings seized by the ACCC under a search warrant.
8.The main findings made by the Court include the following:
•AMI designed a selling strategy which targeted the anxiety and distress of men seeking treatment for ED and PE.
•Salespeople used high pressure selling techniques by telling men that their penis would shrink and they would suffer psychological impotence if they did not agree to the treatment.
•AMI charged patients from about $2500 - $4500 for the programs.
•Salespeople reassured patients that they could get a refund if the treatment did not work. But the salespeople did not say that patients had to try all treatment options including self-injection in the base of the penis in order to qualify for a refund.
•Salespeople were paid on commission but were trained to conceal the fact from patients.
•The nasal spray and oral strip medications were not the medications accepted in the medical profession as the first line treatment for PE and ED. The evidence from medical experts and the scientific literature demonstrated that there is no proper scientific evidence that these medications are effective to treat PE or ED.
•Men were told that the treatment was for 12 to 18 months. The medical and scientific evidence before the Court does not support the need for treatment of that period with these medications. However, longer periods of treatment cost more and hence suited the commercial interest of AMI.
•Doctors who worked for AMI were, in practice, required to prescribe the AMI medications even though there was no proper scientific basis that they were effective.
•Doctors failed to tell patients, adequately or at all, of the side effects of the medications. This encouraged them to agree to treatment.
•The business of AMI depended on the prescribing of medications. Only a doctor could do that. Evidence of the consultations showed that doctors were concerned only to obtain enough information so they could prescribe the medication. They did not diagnose the cause of the problem as would be usual in a conventional consultation with a doctor. That is particularly important in cases of ED which are often associated with cardiovascular disease, diabetes, or other underlying conditions.
•The doctors failed to provide patients with proper care and act in their best interests. They failed to meet the standards of proper practice established by the medical profession. In the service of AMI, the doctors elevated the commercial interests of AMI above the medical interests of the patients. That made the conduct unconscionable. In view of this finding, the judgment of the Court, will be forwarded to the medical disciplinary bodies for their attention.
•A clear picture emerged that the business of AMI was concerned to make money from vulnerable men with PE or ED. It targeted their vulnerability to sell highly priced treatments which had no proper scientific basis. AMI required doctors to compromise their professional standards to advance the commercial interest of AMI, and
•Dr Vaisman made all the critical decisions relating to the business of AMI and is responsible for the unconscionable conduct found against AMI.
9.The Court will therefore make orders against AMI including:
1.Declarations that the conduct was unconscionable.
2.Orders for compensation to be paid some of the 14 patients treated in 2011 whose cases were examined by the Court.
3.An order for corrective advertising.
4.Injunctions which require that:
A.Consultations with doctors be conducted face to face or by video link.
B.AMI provide the terms of any contract to patients in writing, by email, or in person before the agreement is made.
C.AMI tell patients that its doctors do not provide general medical advice but only consider whether to prescribe medication.
D.Patients have a 5 day cooling off period.
E.After the cooling-off period, patients have the right to cancel the contract on 14 days’ notice.
F.Patients be offered contracts of no more than 2 months duration.
G.AMI may not accept payment in advance for treatment of more than 2 months.
10.And against Dr Vaisman the Court will order, in effect, that he be excluded for seven years from continuing his main role in the business of AMI which involved the unconscionable conduct.
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 368
Citation: Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 368 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v ACN 117 372 915 PTY LIMITED ACN 117 372 915 (IN LIQUIDATION), ACN 095 238 645 PTY LIMITED ACN 095 238 645 (IN LIQUIDATION), JACOV VAISMAN, BRIAN LONERGAN, JAMES VANDELEUR, NRM CORPORATION PTY LTD ACN 151 468 601 and NRM TRADING PTY LTD ACN 151 469 493 File number: VID 1113 of 2010 Judge: NORTH J Date of judgment: 22 April 2015 Catchwords: CONSUMER LAW – Unconscionable conduct prohibited by statute – unfair contract terms – medical clinic – doctors prescribing medications and treatment for male sexual dysfunction over the telephone – statutory unconscionability not limited to the unwritten law –informed by equitable principles – not limited to circumstances where an individual is disadvantaged by the conduct – unconscionability involves degree of moral taint – reference to morality not to be substituted for the words of the section – unconscionability is conduct against conscience – conduct will not be unconscionable only because it is unfair or unreasonable – relevance of community standards and industry codes – finding of unconscionable conduct not to be based on personal morality of judicial officer – whether refund term was an unfair contract term – s 23 and s 24 Australian Consumer Law – whether third respondent aided, abetted, counselled, or procured, or was knowingly concerned in or party to the alleged contraventions
Legislation: Australian Consumer Law, Sch 2 to the Competition and Consumer Act 2010 (Cth) ss 21, 22, 23, 24, 25, 27, 232, 239, 240, 243, 246, 250
Evidence Act 1995 (Cth) s 97, s 140
Federal Court of Australia Act 1976 (Cth) s 21
Health Practitioner Regulation National Law Act 2009 (Qld) Sch, s 39, s 41
Trade Practices Act 1974 (Cth) s 51AB, s 80
Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth) Sch 7Cases cited: Attorney General (NSW) v World Best Holdings Limited (2005) 63 NSWLR 557
Australian Competition & Consumer Commission v 4WD Systems Pty Ltd [2003] FCA 850; (2003) 200 ALR 491
Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No. 2) [2009] FCA 17; (2009) 253 ALR 324
Australian Competition and Consumer Commission v CJ Berbatis Holdings Pty Ltd & Ors(No 2) (2000) 96 FCR 491
Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90; [2013] ATPR 42-447
Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378
Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292
Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Incorporated (1999) 95 FCR 114
Australian Competition and Consumer Commission v Simply No-Knead Franchising Pty Ltd (2000) 104 FCR 253
Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132
BMW Australia Limited v Australian Competition and Consumer Commission [2004] FCAFC 167; (2004) 207 ALR 452
Briginshaw v Briginshaw (1938) 60 CLR 336
Canon Australia Pty Ltd v Patton [2007] NSWCA 246; (2007) 244 ALR 759
Coggin v Telstar Finance Company (Q) Pty Ltd [2006] FCA 191; [2006] ATPR 42-107
Director of Consumer Affairs Victoria v Scully & Anor(No. 3) [2013] VSCA 292; (2013) 303 ALR 168
Director General of Fair Trading v First National Bank Plc [2002] 1 AC 481; [2001] UKHL 52
Hurley v McDonalds Australia Limited [1999] FCA 1728; [2000] ATPR 41-74
IMF (Australia) Ltd v Sons of Gwalia Ltd (administrator appointed) [2004] FCA 1390; (2004) 211 ALR 231Jacara Pty Ltd v Perpetual Trustees WA Ltd (2000) 106 FCR 51
Jenyns v Public Curator (Qld) (1953) 90 CLR 113
Jones v Dunkel (1959) 101 CLR 298
The Juliana [1822] EngR 235; (1822) 2 Dods 504; 165 ER 1560
Markarian v The Queen (2005) 228 CLR 357
Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50
Qantas Airways Limited v Cameron (1996) 66 FCR 246
Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53
Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; [2011] ASC 155-107
Yorke v Lucas (1985) 158 CLR 661Date of hearing: 18 – 21, 26 – 28 March, 3 – 5, 15 – 24 April, 22 – 26 July, 2 – 12 December 2013, 19 – 20 May 2014 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 1026 Counsel for the Applicant: Mr J Burnside QC with Ms L Nichols Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Third, Sixth and Seventh Respondents: Mr M Green with Dr E M Peden Solicitor for the Third, Sixth and Seventh Respondents: Bruce & Stewart Lawyers
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 1113 of 2010
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: ACN 117 372 915 PTY LIMITED ACN 117 372 915 (IN LIQUIDATION)
First RespondentACN 095 238 645 PTY LIMITED ACN 095 238 645 (IN LIQUIDATION)
Second RespondentJACOV VAISMAN
Third RespondentBRIAN LONERGAN
Fourth RespondentJAMES VANDELEUR
Fifth RespondentNRM CORPORATION PTY LTD ACN 151 468 601
Sixth RespondentNRM TRADING PTY LTD ACN 151 469 493
Seventh Respondent
JUDGE:
NORTH J
DATE OF ORDER:
22 ApRil 2015
WHERE MADE:
MELBOURNE
THE COURT DECLARES THAT:
1Each of the first and second respondents (together, AMI) during the period 2008 to 2010, in connection with the supply and possible supply of medications (AMI medications) and medical services for the treatment of male sexual dysfunction (together, the AMI treatments), engaged in conduct that was unconscionable in contravention of s 51AB of the Trade Practices Act 1974 (Cth) (TPA) in the circumstances set out below:
(a)AMI promoted its business as the “Advanced Medical Institute” and advertised extensively across the media, including television, radio, newspapers and billboards, with such advertisements containing statements encouraging men suffering from male sexual dysfunction to “call the doctors at Advanced Medical Institute” and thereby represented to men seeking treatment for male sexual dysfunction (patients) that they would receive a proper and objective medical assessment of their condition by a qualified medical doctor and would only be prescribed medication if consistent with that assessment;
(b)on contacting AMI, patients were offered the opportunity to be medically assessed in either a telephone consultation or a consultation at one of AMI’s clinics, and:
(i)patients who chose a telephone consultation spoke initially with a salesperson who described themselves as a “Clinical Coordinator”, “Medical Coordinator” or “Administrative Assistant” (Clinical Coordinator), then spoke to an AMI doctor, and then spoke to the Clinical Coordinator again;
(ii)patients who chose an in-clinic consultation met initially with a nurse at the clinic, then spoke to an AMI doctor by telephone, and then met with a Clinical Coordinator;
(c)the AMI doctors:
(i)in consultations with each of the patients identified in Annexure B to the Further Amended Statement of Claim (Annexure B patients):
(A)did not offer or prescribe any medication other than the AMI medications, which the AMI doctors had not selected from the range of all medications available for prescription by Australian medical practitioners, and did not inform the patient that they prescribed only the AMI medications;
(B)conducted a consultation by telephone only and did not see or conduct any physical examination of the patient;
(C)recommended to the patient treatment plans, including plans of a length of 12 or 18 months; and
(D)did not seek to diagnose whether it would have been medically appropriate to refer the patient to a specialist or other medical practitioner for treatment or diagnosis; and
(ii) in consultations with 150 of the Annexure B patients, did not seek to diagnose any underlying cause for the presenting problem and only questioned the patient to ascertain whether the AMI medications were contraindicated;
(iii)in consultations with most of the Annexure B patients, did not inform the patient about the common side-effects of the medications prescribed adequately or at all;
(d)the Clinical Coordinators:
(i)were salespeople who were not medically trained and were paid by AMI on a commission, calculated by reference to the cost of the treatment plans sold to patients (the longer the contract period, the greater the commission) but described themselves as “Clinical Coordinators”, “Medical Coordinators” or “Administrative Assistants”;
(ii)in conversations with:
(A)each of the Annexure B patients, did not disclose to the patient that they were salespeople paid on a commission;
(B)most of the Annexure B patients, made statements to the patient concerning the efficacy of the AMI treatments;
(C)most of the Annexure B patients, made statements to the patient that he needed treatment or would suffer adverse medical and social consequences if he did not get treatment, including that his penis may shrink or he may become impotent; and
(D)most of the Annexure B patients, represented to the patient that he would be entitled to a refund of money paid if the AMI treatment purchased was ineffective, and did not disclose the conditions on which a refund would be offered under AMI’s “satisfaction guarantee”;
(e)AMI sold the AMI treatments to patients pursuant to contracts under which:
(i)patients were bound to pay for the AMI treatments for a set period of time, whether or not the patients wished to continue with the AMI treatments, with payment either made upfront or by way of instalments;
(ii)if the AMI treatments did not successfully treat the patient’s condition or the patient experienced adverse side effects, then pursuant to the terms of its “satisfaction guarantee” AMI refused to give the patient a refund or to cancel the contract unless the patient tried at least one option from each of the available delivery mechanisms for which the patient was not contraindicated (including injections into the base of the penis), after which AMI would deduct the cost of the medication supplied and a 15% administration fee from any refund given; and
(iii)patients who had telephone consultations were only provided with a copy of the terms of the “satisfaction guarantee” after they had already agreed to purchase the AMI treatments; and
(f)AMI knew that:
(i)male sexual dysfunction is perceived by patients as embarrassing or humiliating; and
(ii) patients would have trust in the AMI doctors and would expect that those doctors would act in the patients’ best interests consistent with a doctor and patient relationship.
2 The third respondent:
(a)aided and abetted, counselled or procured; and
(b)was directly or indirectly knowingly concerned in, and party to,
the contraventions by AMI of s 51AB of the TPA referred to in paragraph 1 of this order by reason that he:
(c)was a director of each of the first and second respondents;
(d)was the Chief Executive Officer of the first and second respondents;
(e)had overall responsibility for the management of AMI;
(f) made all critical decisions concerning the business practices of AMI; and
(g)oversaw the business practices of AMI.
3The fourth respondent was knowingly concerned in, party to, and aided and abetted, counselled and procured the contraventions by AMI of s 51AB of the TPA, during the period 2008 to 2010, in the course of or in relation to his consultation with AMI patients, by:
(a)prescribing the AMI medications which he had not selected from the range of all medications available for prescription by Australian medical practitioners;
(b)not disclosing to patients that he was required by AMI to recommend only the AMI treatments and to prescribe only the AMI medications; and
(c)not seeing or conducting any physical examinations of all patients to whom he recommended the AMI treatments or prescribed the AMI medications.
4Each of the sixth and seventh respondents (together, NRM) in 2011 and 2012, in connection with the supply and possible supply of medications (NRM medications) and medical services for the treatment of male sexual dysfunction (together, the NRM treatments), engaged in conduct that was unconscionable in contravention of s 21 of the Australian Consumer Law (ACL), in the following circumstances:
(a)NRM promoted its business as the “Advanced Medical Institute” and advertised across the media, including radio, newspapers and billboards, with such advertisements containing statements encouraging men suffering from male sexual dysfunction to “call the doctors at Advanced Medical Institute” and thereby represented to patients that they would receive a proper medical assessment of their condition by a qualified medical doctor and would only be prescribed medication if consistent with that assessment;
(b)on contacting NRM, patients were offered the opportunity to be medically assessed in either a telephone consultation or a consultation at one of NRM’s clinics, and:
(i)patients who chose a telephone consultation spoke initially with a salesperson who described themselves as an “Administrative Assistant”, then spoke to an NRM doctor, and then spoke to the Administrative Assistant again;
(ii)patients who chose an in-clinic consultation met initially with a nurse at the clinic, then spoke to an NRM doctor by telephone, and then met with an Administrative Assistant;
(c)the NRM doctors:
(i)in consultations with each of the patients identified in Annexure C to the Further Amended Statement of Claim (Annexure C patients):
(A)did not offer or prescribe any medication other than the NRM medications, which the NRM doctors had not selected from the range of all medications available for prescription by Australian medical practitioners, and did not inform the patient that they prescribed only the NRM medications;
(B)only conducted the consultation by telephone;
(C)recommended to the patient treatment plans, including plans of a length of 12 or 18 months;
(D)did not seek to diagnose any underlying cause for the presenting problem but only questioned the patient to ascertain whether the NRM medications were contraindicated; and
(E)did not adequately diagnose whether it would have been medically appropriate to refer the patient to a specialist or other medical practitioner for treatment or diagnosis; and
(ii)in consultations with 14 of the Annexure C patients, did not adequately inform the patient about the common side-effects of the medications prescribed;
(d)the Administrative Assistants:
(i)were salespeople who were not medically trained and were paid on commission by NRM, calculated by reference to the cost of the treatment plans sold to patients (the longer the contract period, the greater the commission), but described themselves as “Administrative Assistants” thereby representing that they were acting impartially in relation to the patients’ medical interests in selling the NRM treatments;
(ii)in conversations with:
(A)each of the Annexure C patients, did not disclose to the patient that they were in fact salespeople paid on a commission; and
(B)six of the Annexure C patients, made statements to the patient concerning the efficacy of the NRM treatments, the effect of which was to apply pressure to the patient to purchase the NRM treatments;
(e)NRM sold the NRM treatments to patients pursuant to contracts which bound patients to pay for treatment for a set period of time, including terms ranging from 12 to 18 months, whether or not the patients wished to continue with the treatment, with payment either made upfront or by way of instalments;
(f)The contracts which NRM entered into with patients between June 2011 and February 2012 contained a term (the refund term) which provided that, on giving notice of termination of their contract to NRM, patients were only entitled to receive a refund after NRM had deducted the following amounts:
(A)an “administrative fee” of 15 per cent of the entire initial cost of the contract, regardless of when the contract was cancelled;
(B)a pro-rated amount representing the “expired” period of the program prior to receipt of written notice (regardless of whether the patient used NRM’s services or medications during that period);
(C)a pro-rated amount representing the next 30 days of the program after receipt of written notice (regardless of whether the patient used NRM’s services or medications during that period); and
(D)the cost of any medication already provided to or prepared for the patient, at a price not specified in the contract but determined by NRM; and
the terms of the contract were played over the telephone to patients by the Administrative Assistants or provided to patients in NRM’s clinics; and
(g)NRM knew that:
(i)male sexual dysfunction is perceived by patients as embarrassing or humiliating; and
(ii)patients would have trust in the NRM doctors and would expect that those doctors would act in the patient’s best interests consistent with a doctor and patient relationship.
5 The third respondent:
(a)aided and abetted, counselled or procured; and
(b)was directly or indirectly knowingly concerned in, and party to,
the contraventions by NRM of s 21 of the ACL referred to in paragraph 3 of this order by reason that he:
(c)was a director of each of the sixth and seventh respondents;
(d)was the Chief Executive Officer of the sixth and seventh respondents;
(e)had overall responsibility for the management of the NRM business;
(f)made or approved all critical decisions concerning the business practices of NRM; and
(g)oversaw the business practices of NRM.
6The refund term contained in the consumer contracts between NRM and its patients made during the NRM period, which provided that:
“Termination. Sexual dysfunction is a chronic condition and treatment can take some time. For this reason we stipulate that your contract with us for [sic] the period decided in the first consultation with the AMI doctor. You may cancel your treatment program with AMI at any time by giving AMI not less than 30 days notice. Cancelling your treatment program you will be entitled to a refund for the unexpired period of your treatment program less an administration fee of 15% and less the cost of any medication already provided to or prepared for you. No refund will be provided for the expired period of the treatment program or the 30 day notice period. All cancellation must be communicated to AMI in writing signed by you. Oral cancellation will not be accepted in any circumstances.”
was an unfair term within the meaning of sections 24 and 250 of the ACL because:
(a)the imposition of the administration fee was not reasonably necessary to protect NRM’s legitimate interests;
(b)the imposition of a charge for a pro-rated amount representing the expired portion of the treatment regardless of the quantity or effectiveness of the goods or services supplied by NRM to the patient during this period was not reasonably necessary to protect NRM’s legitimate interests;
(c)the imposition of a charge for a pro-rated amount for the additional thirty-day notice period regardless of whether the patient desired to continue receiving goods or services for this period and whether any goods or services provided by NRM were effective was not reasonably necessary to protect NRM’s legitimate interests;
(d)the imposition of a charge for an amount for the cost of any medication already provided by NRM when the method of calculation was not disclosed to the patient and regardless of the actual cost to NRM of providing the medication or whether the medication was effective was not reasonably necessary to protect NRM’s legitimate interests;
(e)the imposition of the fees referred to in sub-paragraphs (a) to (d) was not transparent when delivered in a pre-recorded telephone message; and
(f)the uncertainty and cost of terminating a contract would cause a financial and other detriment to a patient wishing to terminate,
and is void by operation of s 23 of the ACL.
THE COURT ORDERS THAT:
7The fourth respondent be released from the undertaking given by him to the Court on 21 June 2012.
8The fourth respondent be permanently restrained from being knowingly concerned in, party to, aiding and abetting, counselling or procuring the provision by a corporation of any medical treatment plan or medication for the treatment of male sexual dysfunction by contract which:
(a)provides for the supply or possible supply of any treatment or medication prior to the patient having been seen and physically examined by a qualified medical practitioner in relation to the medical condition for which the patient is seeking treatment;
(b)provides for the supply or possible supply for any treatment or medication which a qualified medical practitioner has not assessed as the most suitable or efficacious for the patient from the range of all appropriate medications available for prescription by Australian medical practitioners;
(c)provides for the supply or possible supply of any treatment or medication which he or another qualified medical practitioner has not discussed with the patient prior to entering into the contract;
(d)is for a period which exceeds the length of time which he or another qualified medical practitioner has determined the patient will necessarily require the treatment to entering into the contract;
(e)requires the patient to pay for treatment or medication for a period of more than two months; or
(f)provides for the supply of any treatment or medication, without prior consultation with a qualified medical practitioner who has provided information as to the efficacy, suitability, prior use and most common side effects of the treatment or medication.
9Each 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; and
(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 cancel any direct debit arrangement referrable to the patient;
(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.
10The third respondent be restrained, for a period of seven years from the date of this order (unless otherwise specified below), in trade or commerce, from:
(a)being in any way, directly or indirectly, knowingly concerned in, or a party to, or aiding and abetting, counselling or procuring conduct of the kind restrained in order 6 above; and
(b)from having a role in connection with training, supervising, counselling or terminating employees, agents or contractors of the sixth and seventh respondents and their related bodies corporate.
11Pursuant to s 239 of the ACL, the sixth and seventh respondents refund the total amount of money paid by the Annexure C patients, except for patients NRM 7 and NRM 9, pursuant to their contract with NRM, less any refund already provided by NRM.
12The sixth and seventh respondents cause to be published, at their own expense, within 21 days of the date of this order, a notice in the form contained in Annexure A to this order (website notice) on its website located at (AMI website) and, if the URL of such website is replaced, changed or redirected to another website, on the corresponding website, for a continuous period of 90 days and use its best endeavours to ensure that:
(a)the website notice shall be viewable by clicking a “click-through” icon located on the AMI website;
(b)the “click-through” icon referred to in (a) is located at the top of the homepage of the AMI website and any corresponding websites;
(c)the “click-through” icon shall appear as follows, with the words printed prominently in bold red text, in a font size no smaller than 14-point, on a white background:
Unconscionable Conduct by Advanced Medical Institute (AMI) –
Notice Ordered by Federal Court of Australia.
Click Here
13The 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.
14The applicant and the sixth and seventh respondents have liberty to apply in writing by 6 May 2015 in relation to the issues referred to in [975], [988], [989], [993], and [1026] of these reasons for judgment.
Note:Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
ANNEXURE A
CORRECTIVE NOTICE ORDERED BY FEDERAL COURT OF AUSTRALIA
UNLAWFUL CONDUCT BY ADVANCED MEDICAL INSTITUTE
Following legal action by the Australian Competition and Consumer Commission, the Federal Court of Australia has ruled that NRM Corporation Pty Ltd and NRM Trading Pty Ltd, (together, NRM), engaged in unconscionable conduct in contravention of section 21 of the Australian Consumer Law in its dealings with men seeking treatment for male sexual dysfunction in 2011 and 2012.
NRM promoted its business as the “Advanced Medical Institute”. It represented that its patients would receive a proper medical assessment of their condition by a qualified medical doctor and would only be prescribed medication if consistent with that assessment. It knew that its patients were vulnerable by virtue of their condition, and that patients would expect NRM and its doctors to act in their best interests consistent with a doctor/patient relationship. In fact, a number of NRM’s patients:
• were not physically examined by NRM’s doctors;
• were only prescribed NRM’s treatments, which were not selected from all relevant and available treatments in Australia;
• were not informed that NRM’s doctors would only prescribe treatments from NRM’s limited range of treatments, or that other treatments were available;
• were not adequately informed of the side effects of NRM’s treatments;
• were not properly diagnosed with the underlying cause of their condition, but rather were only questioned as to whether NRM’s treatments were contraindicated;
• were not referred to specialists or advised to see their general practitioner;
• were misled by NRM’s salespeople, who described themselves as “Administrative Assistants” but in fact were paid on commission;
• were told that they would receive a refund under NRM’s refund policy if the NRM treatments were ineffective, when in fact any refund was subject to significant limitations and deductions that were not adequately disclosed to the patient when they entered into the contract; and
• were sold NRM treatments pursuant to contracts which bound the patients to pay for treatment for a set period of time, including terms ranging from 12 to 18 months, whether or not the patients wished to continue with the treatment.The Court also found that NRM’s refund policy was an unfair term within the meaning of sections 24 and 250 of the ACL, because the imposition of fees and charges deducted from any refund to a patient was not transparent, was not necessary to protect NRM’s interests and would cause financial and other detriment to patients. The consequence of this declaration is that the refund policy is void.
The Court has also found that Jack Vaisman, Chief Executive Officer of NRM, was knowingly concerned in the unlawful conduct of NRM.
The Court has ordered declarations, injunctions and the refund of money to patients. A copy of the judgment, which details the Court’s findings and orders is located at [insert URL]
NRM purchased the AMI business from Advanced Medical Institute Pty Limited and AMI Australia Holdings Pty Ltd (together, AMI) in June 2011. The Court also declared that AMI had engaged in unconscionable conduct.
This notice has been placed because of an order of the Federal Court of Australia in a proceeding commenced by the Australian Competition and Consumer Commission.
IN THE FEDERAL COURT OF AUSTRALIA
VICTORIA DISTRICT REGISTRY
GENERAL DIVISION
VID 1113 of 2010
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
ApplicantAND: ACN 117 372 915 PTY LIMITED ACN 117 372 915 (IN LIQUIDATION)
First RespondentACN 095 238 645 PTY LIMITED ACN 095 238 645 (IN LIQUIDATION)
Second RespondentJACOV VAISMAN
Third RespondentBRIAN LONERGAN
Fourth RespondentJAMES VANDELEUR
Fifth RespondentNRM CORPORATION PTY LTD ACN 151 468 601
Sixth RespondentNRM TRADING PTY LTD ACN 151 469 493
Seventh Respondent
JUDGE:
NORTH J
DATE:
22 APRIL 2015
PLACE:
MELBOURNE
REASONS FOR JUDGMENT
1 INTRODUCTION
[1]
1.1 The claims
[12]
1.2 The relief sought by the ACCC
[16]
1.3 The hearing
[18]
1.4 The organisation of these reasons
[19]
2 APPLICABLE LEGAL PRINCIPLES
[20]
2.1 Unconscionable conduct
[20]
2.2 Unfair contract term
[62]
2.3 Accessorial liability
[66]
2.4 Standard of proof
[69]
3 THE SCOPE OF THE ACCC’S CASE
[71]
3.1 The Further Amended Statement of Claim
[71]
3.2 Is the ACCC’s case an individual-patients case or a business-system case?
[83]
4 FACT FINDINGS IN RESPECT OF AMI
[96]
4.1 Introduction
[96]
4.2 An overview of the AMI operation
[102]
4.3 Recordings of the consultations
[108]
4.4 Dr Vaisman’s evidence
[118]
4.5 The conduct alleged against AMI
[124]
4.5.1 Advertising medical treatment
[124]
4.5.2 The conduct of AMI salespeople
[134]
4.5.2.1 Introduction
[134]
4.5.2.2 Unqualified salespeople presenting as medically qualified
[136]
4.5.2.3 Failure of salespeople to disclose their remuneration by commission
[141]
4.5.2.4 High-Pressure sales techniques used by salespeople
[143]
4.5.2.4.1 Introduction
[143]
4.5.2.4.2 The sales scripts and materials
[145]
4.5.2.4.3 Targeting vulnerability
[156]
4.5.2.4.4 Emphasising adverse medical and social consequences of failing to treat
[171]
4.5.2.4.5 Statements about the efficacy of the AMI treatments
[202]
4.5.2.4.6 Downplaying side effects
[207]
4.5.2.4.7 Exaggerating dangers of alternative treatments
[208]
4.5.2.5 Recommending long-term contracts
[210]
4.5.2.6 Misleading patients about the refund term
[217]
4.5.3 Offering limited to AMI medications
[218]
4.5.3.1 Introduction
[218]
4.5.3.2 The conventional first-line treatment for ED and PE
[221]
4.5.3.3 The limitation by AMI on medications available for doctors to prescribe
[228]
4.5.3.4 The efficacy of apomorphine as a treatment for ED
[234]
4.5.3.5 The efficacy of clomipramine as a treatment for PE
[258]
4.5.3.6 The efficacy of alternative drug delivery systems
[279]
4.5.3.6.1 Dr Rowe’s first report
[281]
4.5.3.6.2 Dr Altman’s first report
[286]
4.5.3.6.3 Professor Pouton’s report
[290]
4.5.3.6.4 Dr Rowe and Dr Altman’s second reports
[301]
4.5.3.6.5 Cross-examination of Dr Rowe and Dr Altman
[312]
4.5.3.6.6 Conclusion
[321]
4.5.3.7 Standards applicable to off-label prescribing
[328]
4.5.3.8 Conclusion
[345]
4.5.4 The conduct of the doctors
[353]
4.5.4.1 Introduction
[353]
4.5.4.2 The evidence
[360]
4.5.4.2.1 Recordings and patients
[360]
4.5.4.2.2 Doctors
[366]
4.5.4.2.3 Expert evidence
[399]
4.5.4.3 The requirements for a reasonable standard of consultation for the treatment of ED and PE
[434]
4.5.4.4 Diagnosis of the underlying causes and referral of patients to specialists or other doctors for diagnosis or treatment
[460]
4.5.4.4.1 The standard of treatment required
[460]
4.5.4.4.2 The failure to diagnose underlying causes of ED and PE
[486]
4.5.4.4.3 The failure to refer patients to specialists or other doctors for diagnosis or treatment
[520]
4.5.4.5 The failure to warn of side effects
[522]
4.5.4.6 Consultation by phone
[559]
4.5.4.7 Recommending long-term contracts without medical basis
[600]
4.5.4.8 Prescribing only AMI medications
[601]
4.5.4.9 The failure to advise of the terms on which treatment would be provided
[607]
4.5.5 Contracts
[610]
4.5.5.1 Length of treatment
[610]
4.5.5.2 AMI refund term
[680]
4.5.6 Cost of medication
[737]
5 FACT FINDINGS IN RESPECT OF NRM
[742]
5.1 Introduction
[742]
5.2 Acquisition of the business by NRM
[743]
5.3 Continuation of the AMI business system
[759]
5.4 Continuity of personnel
[762]
5.5 The conduct alleged against NRM
[765]
5.5.1 Advertising medical treatment
[765]
5.5.2 The conduct of NRM salespeople
[766]
5.5.3 Offering limited to NRM medications
[782]
5.5.4 The conduct of the doctors
[783]
5.5.5 Contracts
[837]
5.5.5.1 Length of treatment
[837]
5.5.5.2 NRM Refund term
[840]
6 FACT FINDINGS IN RESPECT OF DR VAISMAN
[870]
6.1 Advertising
[873]
6.2 Selling methods
[874]
6.3 Contracts
[875]
6.4 Doctors’ consultations
[879]
7 WAS THE CONDUCT OF AMI, NRM, AND DR VAISMAN UNCONSCIONABLE?
[889]
7.1 Introduction
[889]
7.2 AMI and NRM
[890]
7.2.1 Targeting vulnerability
[891]
7.2.2 High-pressure sales techniques
[893]
7.2.3 Remuneration of salespeople by commission
[903]
7.2.4 The AMI refund term
[906]
7.2.5 Enforcement of the AMI refund term
[918]
7.2.6 The medications offered
[919]
7.2.7 Long-term contracts
[923]
7.2.8 The role of the doctors
[926]
7.2.9 The first NRM refund term
[936]
7.2.10 Conclusion
[939]
7.2.11 Liability of Dr Vaisman
[943]
8 WAS THE FIRST NRM REFUND TERM AN UNFAIR CONTRACT TERM?
[945]
9 A PLEADING POINT
[955]
10 RELIEF AGAINST AMI, NRM AND DR VAISMAN
[966]
10.1 Declarations
[966]
10.2 Injunctions
[982]
10.3 Refund to Annexure C patients
[1008]
10.4 Corrective notice
[1013]
11 RELIEF AGAINST DR LONERGAN
[1019]
12 COSTS
[1021]
1. INTRODUCTION
1 On 21 December 2010, the applicant, the Australian Competition and Consumer Commission (ACCC) commenced this proceeding against five respondents.
2 The first respondent was ACN 117 372 915 Pty Limited (ACN 117 372 915) (in liquidation) and was formerly known as Advanced Medical Institute Pty Limited. The second respondent was ACN 095 238 645 Pty Limited (ACN 095 238 645) (in liquidation) and was formerly known as AMI Australia Holdings Pty Ltd. Together they are referred to as AMI in these reasons for judgment. AMI conducted a business of providing treatment to men for erectile dysfunction (ED) and premature ejaculation (PE).
3 The third respondent was Dr Jacov Vaisman, who was the sole director and Chief Executive Officer of AMI. The fourth respondent was Dr Brian Lonergan, and the fifth respondent was Dr James Vandeleur. Both were doctors engaged by AMI to treat patients with ED and PE.
4 On 22 December 2010, both of the companies constituting AMI were placed into voluntary administration.
5 On 17 June 2011, the business of AMI was sold to NRM Corporation Pty Ltd and NRM Trading Pty Ltd.
6 On 19 July 2011, both of the companies constituting AMI were placed into voluntary liquidation.
7 On 21 July 2011, the ACCC discontinued the proceeding against Dr Vandeleur in accordance with a settlement reached with him.
8 On 17 August 2011, AMI filed a submitting appearance seeking to be heard only in respect of costs.
9 On 2 September 2011, the ACCC was granted leave to proceed against AMI under s 500(2) of the Corporations Act 2001 (Cth) and to join NRM Corporation Pty Ltd and NRM Trading Pty Ltd as the sixth and seventh respondents respectively. They are together referred to as NRM in these reasons for judgment.
10 On 21 June 2012, the ACCC and Dr Lonergan made an agreement including that Dr Lonergan would take no further part in the proceeding except as a witness, that there would be no order for costs between them, and that if the Court determined to make declarations against AMI, then there would be similar agreed orders and an injunction against Dr Lonergan.
11 As the only respondents who participated in the trial were NRM and Dr Vaisman, they are together referred to in these reasons for judgment as the respondents.
1.1 The claims
12 The ACCC alleged that in the period from 2008 to 2010, which is referred to as the AMI period, AMI engaged in unconscionable conduct in contravention of s 51AB of the Trade Practices Act 1974 (Cth) (TPA).
13 The ACCC alleged that NRM continued the business of AMI and engaged in unconscionable conduct after the purchase of the business on 17 June 2011 and during 2012. At those times unconscionable conduct was prohibited by s 21 of the Australian Consumer Law (ACL), contained in Sch 2 to the Competition and Consumer Act 2010 (Cth), in almost identical terms to s 51AB of the TPA.
14 The ACCC also alleged that a term of the contract between NRM and its patients concerning termination was unfair within the meaning of s 24 and s 250 of the ACL, and consequently void under s 23(1) of the ACL.
15 The ACCC alleged that Dr Vaisman made all the critical decisions in relation to the business and aided, abetted, counselled or procured, or was knowingly concerned in or party to, the contraventions by AMI and NRM.
1.2 The relief sought by the ACCC
16 The ACCC sought declarations against AMI, NRM, and Dr Vaisman that specified conduct was unconscionable, and that the term of the NRM contract regarding termination was unfair. The ACCC sought injunctions against NRM and Dr Vaisman restraining them from engaging in further such conduct. Against NRM, the ACCC also sought the publication of corrective advertising and the refund to certain patients of monies paid under contracts with NRM. The ACCC also sought an order for costs against NRM and Dr Vaisman.
17 Although AMI entered a submitting appearance, considerable time was taken by the ACCC in establishing the conduct of AMI between 2008 and 2010. That attention was necessary because the Court needed to be satisfied by evidence that AMI had engaged in unconscionable conduct if declarations were to be made against AMI, and further, because the conduct of AMI was relevant to the establishment of the case against NRM, in that both AMI and NRM were operated by the same people and NRM was said to have continued to use the same business model previously employed by AMI.
1.3 The hearing
18 The proceeding was contested on almost every issue of fact and law. The hearing occupied 33 sitting days and the record of the hearing is contained in 2,828 pages of transcript. Thirty-two witnesses were called to give evidence including patients of AMI and NRM, doctors, medical and pharmacological experts, and employees and management of AMI and NRM. The documentary evidence was provided in both electronic and hard-copy form. In hard copy, the documentary evidence occupied about 40 large lever-arch folders. The case involved a highly detailed investigation of the business practices of AMI and NRM, and of the appropriate pharmacological and medical treatment of ED and PE. In view of the large amount of material before the Court, these reasons for judgment have, for ease of reference, included in the text of the judgment the source of much of the evidence.
1.4 The organisation of these reasons
19 These reasons for judgment first set out the legal principles to be applied. Then, in separate sections, the reasons for judgment address the factual allegations against AMI, NRM, and Dr Vaisman, and make relevant fact findings. Following the fact findings, the reasons for judgment examine whether the proved facts constitute unconscionable conduct and whether those facts establish that a term of the NRM contract regarding termination was an unfair contract term. The reasons for judgment then conclude with sections relating to a pleading point raised by the respondents, the form of relief, and costs.
2. APPLICABLE LEGAL PRINCIPLES
2.1 Unconscionable conduct
20 The ACCC contended that the conduct of AMI was unconscionable and thereby infringed the prohibition on such conduct contained in s 51AB of the TPA, which relevantly provided as follows:
51AB Unconscionable conduct
(1)A corporation shall not, in trade or commerce, in connection with the supply or possible supply of goods or services to a person, engage in conduct that is, in all the circumstances, unconscionable.
(2)Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a corporation has contravened subsection (1) in connection with the supply or possible supply of goods or services to a person (in this subsection referred to as the consumer), the court may have regard to:
(a)the relative strengths of the bargaining positions of the corporation and the consumer;
(b)whether, as a result of conduct engaged in by the corporation, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the corporation;
(c)whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services;
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the corporation or a person acting on behalf of the corporation in relation to the supply or possible supply of the goods or services; and
(e)the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the corporation.
(3) A corporation shall not be taken for the purposes of this section to engage in unconscionable conduct in connection with the supply or possible supply of goods or services to a person by reason only that the corporation institutes legal proceedings in relation to that supply or possible supply or refers a dispute or claim in relation to that supply or possible supply to arbitration.
(4)For the purpose of determining whether a corporation has contravened subsection (1) in connection with the supply or possible supply of goods or services to a person:
(a)the court shall not have regard to any circumstances that were not reasonably forseeable at the time of the alleged contravention; and
(b)the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(5)A reference in this section to goods or services is a reference to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.
…
21 Section 51AB of the TPA was replaced by s 21 of the ACL. The ACCC contended that the conduct of NRM was unconscionable and thereby infringed s 21 of the ACL. Section 21 applied to the conduct of NRM between 1 January 2011 and 1 January 2012. At that time, it provided as follows:
(1) A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services to another person, engage in conduct that is, in all the circumstances, unconscionable.
(2)Without in any way limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened subsection (1) in connection with the supply or possible supply of goods or services to another person (the consumer), the court may have regard to:
(a)the relative strengths of the bargaining positions of the supplier and the consumer; and
(b)whether, as a result of conduct engaged in by the person, the consumer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c)whether the consumer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the consumer or a person acting on behalf of the consumer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
(e)the amount for which, and the circumstances under which, the consumer could have acquired identical or equivalent goods or services from a person other than the supplier.
(3)A person is not to be taken for the purposes of this section to engage in unconscionable conduct in connection with the supply or possible supply of goods or services to a person by reason only that the person institutes legal proceedings in relation to that supply or possible supply or refers a dispute or claim in relation to that supply or possible supply to arbitration.
(4)For the purpose of determining whether a person has contravened subsection (1) in connection with the supply or possible supply of goods or services to another person:
(a)the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b)the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(5)A reference in this section to goods or services is a reference to goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption.
(6)A reference in this section to the supply or possible supply of goods does not include a reference to the supply or possible supply of goods for the purpose of re-supply or for the purpose of using them up or transforming them in trade or commerce.
(7)Section 4 applies for the purposes of this section in the same way as it applies for the purposes of Division 1 of Part 3‑1.
22 Section 21 of the ACL was amended, taking effect from 1 January 2012. It governed the conduct of NRM in 2012. This new section is relevantly in the following terms:
(1) A person must not, in trade or commerce, in connection with:
(a)the supply or possible supply of goods or services to a person (other than a listed public company); or
(b)the acquisition or possible acquisition of goods or services from a person (other than a listed public company);
engage in conduct that is, in all the circumstances, unconscionable.
…
(3)For the purpose of determining whether a person has contravened subsection (1):
(a)the court must not have regard to any circumstances that were not reasonably foreseeable at the time of the alleged contravention; and
(b)the court may have regard to conduct engaged in, or circumstances existing, before the commencement of this section.
(4) It is the intention of the Parliament that:
(a)this section is not limited by the unwritten law relating to unconscionable conduct; and
(b)this section is capable of applying to a system of conduct or pattern of behaviour, whether or not a particular individual is identified as having been disadvantaged by the conduct or behaviour; and
(c)in considering whether conduct to which a contract relates is unconscionable, a court’s consideration of the contract may include consideration of:
(i)the terms of the contract; and
(ii)the manner in which and the extent to which the contract is carried out;
and is not limited to consideration of the circumstances relating to formation of the contract.
23 Section 22 of the ACL, also taking effect from 1 January 2012, contains the considerations previously contained in s 51AB(2) of the TPA and s 21(2) of the ACL, but added some further considerations. It is relevantly in the following terms:
(1)Without limiting the matters to which the court may have regard for the purpose of determining whether a person (the supplier) has contravened section 21 in connection with the supply or possible supply of goods or services to a person (the customer), the court may have regard to:
(a)the relative strengths of the bargaining positions of the supplier and the customer; and
(b)whether, as a result of conduct engaged in by the supplier, the customer was required to comply with conditions that were not reasonably necessary for the protection of the legitimate interests of the supplier; and
(c)whether the customer was able to understand any documents relating to the supply or possible supply of the goods or services; and
(d)whether any undue influence or pressure was exerted on, or any unfair tactics were used against, the customer or a person acting on behalf of the customer by the supplier or a person acting on behalf of the supplier in relation to the supply or possible supply of the goods or services; and
(e)the amount for which, and the circumstances under which, the customer could have acquired identical or equivalent goods or services from a person other than the supplier; and
(f)the extent to which the supplier’s conduct towards the customer was consistent with the supplier’s conduct in similar transactions between the supplier and other like customers; and
(g)the requirements of any applicable industry code; and
(h)the requirements of any other industry code, if the customer acted on the reasonable belief that the supplier would comply with that code; and
(i)the extent to which the supplier unreasonably failed to disclose to the customer:
(i)any intended conduct of the supplier that might affect the interests of the customer; and
(ii)any risks to the customer arising from the supplier’s intended conduct (being risks that the supplier should have foreseen would not be apparent to the customer); and
(j)if there is a contract between the supplier and the customer for the supply of the goods or services:
(i)the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer; and
(ii)the terms and conditions of the contract; and
(iii)the conduct of the supplier and the customer in complying with the terms and conditions of the contract; and
(iv)any conduct that the supplier or the customer engaged in, in connection with their commercial relationship, after they entered into the contract; and
(k)without limiting paragraph (j), whether the supplier has a contractual right to vary unilaterally a term or condition of a contract between the supplier and the customer for the supply of the goods or services; and
(l)the extent to which the supplier and the customer acted in good faith.
…
24 Section 51AB and s 21 in its two relevant forms prohibited unconscionable conduct, but the concept was not defined in the statute. However, other provisions shed light on what is meant by the concept.
25 For a start, it is clear that the assessment of unconscionable conduct involves a wide-ranging enquiry because the sections stipulate that the conduct be unconscionable in all the circumstances. Then, the provisions specify some matters which the Court may take into account in making the assessment. The specified matters are not exhaustive. They do not prevent the Court having regard to other matters if they are relevant.
26 Section 51AB(2), s 21(2) in the form applicable until 1 January 2012, and s 22(1) as applicable after 1 January 2012 all specify five matters to which the Court might have regard in determining whether the supplier engaged in unconscionable conduct. The considerations are:
1.the reality of bargaining strength of the parties;
2.whether the customers were required to comply with conditions that were not reasonably necessary to protect the supplier’s legitimate interests;
3.whether the customer was able to understand the documents relating to the transaction;
4.whether any undue influence or pressure was exerted on, or unfair tactics used against the customer; and
5.the price of or conditions for the provision of alternative or identical goods or services.
27 It was also established, before s 21 was amended, that the concept of unconscionable conduct in s 51AB was not limited by equitable doctrines concerning unconscionable conduct: Australian Competition and Consumer Commission v CJ Berbatis Holdings Pty Ltd (No 2) (2000) 96 FCR 491; [2000] FCA 2 at [24]; Australian Competition and Consumer Commission v Radio Rentals Ltd (2005) 146 FCR 292; [2005] FCA 1133 at [24]. That was put beyond argument by the 2012 amendment to s 21(4), which provided at the relevant time and currently provides that the section is not limited by the unwritten law relating to unconscionable conduct.
28 Section 21(4)(b) also makes clear that the concept of unconscionability is wide enough to apply to a system of conduct or pattern of behaviour, even if no individual is identified as having been disadvantaged. And in contract cases, by s 21(4)(c), the Court can examine the terms of the contract and the manner and extent to which it was carried out. The Court is not limited to a consideration of the circumstances relating to the formation of the contract.
29 Then, the amendment to s 22 added seven further considerations to which the Court may have regard when determining whether conduct is unconscionable (s 22(1)(f) – (l)). The width of the concept of unconscionability is further emphasised by these additional considerations which include, for instance, the requirements of an industry code, the extent to which the supplier was willing to negotiate the terms and conditions of the contract with the customer, whether the supplier has the right to vary unilaterally a term or condition of the contract, and the extent to which the supplier and the customer acted in good faith.
30 In order to explain how courts have understood the concept of unconscionable conduct, they have used alternative words and expressions which have tried to encapsulate the essence of the sections.
31 Most reviews commence with the judgment in Qantas Airways Limited v Cameron (1996) 66 FCR 246; [1996] FCA 1483 (Qantas) in which the Court relied on the dictionary definition of unconscionable conduct, that is to say, conduct which shows no regard for conscience, conduct which is irreconcilable with what is right or reasonable (at 262 per Davies J). In addition, Lindgren J, with whom Lehane J agreed at 298, said at 284 that victimisation, manipulation, exploitation, unfairness, unreasonableness, unscrupulous taking advantage and one person’s taking advantage of another’s special vulnerability or misadventure were all synonyms for unconscionable conduct, “all of them correctly imputing a pejorative moral judgment”. That approach was adopted by the Full Court of this Court in Hurley v McDonalds Australia Limited [1999] FCA 1728; [2000] ATPR 41-741 at [22] and was followed in a number judgments of single judges: Australian Competition and Consumer Commission v Simply No-Knead Franchising Pty Ltd (2000) 104 FCR 253; [2000] FCA 1365; Australian Competition & Consumer Commission v 4WD Systems Pty Ltd [2003] FCA 850; (2003) 200 ALR 491; and Australian Competition and Consumer Commission v Allphones Retail Pty Ltd (No. 2) [2009] FCA 17; (2009) 253 ALR 324.
32 The moral deficit involved in unconscionable conduct, mentioned in passing by Lindgren J in Qantas, was a vehicle used by Spigelman CJ in Attorney General (NSW) v World Best Holdings Limited (2005) 63 NSWLR 557; [2005] NSWCA 261 (World Best) as a means of imposing some limitation on the concept of unconscionable conduct as expressed in s 62B of the Retail Leases Act 1994 (NSW). His Honour said at [121]:
Unconscionability is a concept which requires a high level of moral obloquy. If it were to be applied as if it were equivalent to what was “fair” or “just”, it could transform commercial relationships in a manner which the Minister expressly stated was not the intention of the legislation. The principle of “unconscionability” would not be a doctrine of occasional application, when the circumstances are highly unethical, it would be transformed into the first and easiest port of call when any dispute about a retail lease arises.
33 In Tonto Home Loans Australia Pty Ltd v Tavares [2011] NSWCA 389; [2011] ASC 155 – 107 (Tonto), Allsop P, as he then was, said of the requirement of a high level of moral obloquy at [293]:
Whether that is too stringent and whether “significant” or “real” may be preferable need not be decided. What is required is some degree of moral tainting in the transaction of a kind that permits the opprobrium of unconscionability to characterise the conduct of the party.
34 In Australian Competition and Consumer Commission v Lux Distributors Pty Ltd [2013] FCAFC 90; [2013] ATPR 42-447 (Lux) at [41], the issue was revisited by the Full Court of this Court thus:
Notions of moral tainting have been said to be relevant, as often they no doubt are, as long as one recognises that it is conduct against conscience by reference to the norms of society that is in question.
35 The role of the element of moral taint was raised directly in Director of Consumer Affairs Victoria v Scully & Anor (No. 3) [2013] VSCA 292; (2013) 303 ALR 168 (Scully), in relation to the cognate provision of the Fair Trading Act 1999 (Vic). The Director of Consumer Affairs in Victoria argued on appeal that moral obloquy was not required to prove unconscionable conduct. The Director contended that the trial judge erred in rejecting this proposition. In dismissing the appeal, the Court of Appeal held at [58] that, “the trial judge understood statutory unconscionability as involving moral taint, and that absent such taint, conduct which might be thought otherwise to be unfair or unreasonable should not be held to be ‘unconscionable’.” The Court held that the trial judge applied the existing tests, which were not plainly wrong.
36 The Court of Appeal said at [48] that, “a distinctive quality of unconscionable conduct as against unreasonable or unfair conduct is that it is unethical.” It seems that this formulation was intended to parallel “some degree of moral tainting” referred to by Allsop P in Tonto. The Court of Appeal said at [18] that, “in every case in which there has been a holding of statutory unconscionability, there has been a finding that the conduct of the defendant showed a degree of moral taint: conduct which was unethical.”
37 At the same time the Court of Appeal cautioned against substituting the reference to the moral aspect of the unconscionable conduct for the words of the section. The Court referred to the judgment of Basten JA in Canon Australia Pty Ltd v Patton [2007] NSWCA 246; (2007) 244 ALR 759, in which his Honour said at [4]:
However, to treat the word “unconscionable” as having some larger meaning, derived from ordinary language, and then to seek to confine it by such concepts as high moral obloquy is to risk substituting for the statutory term language of no greater precision in an attempt to impose limits without which the Court may wander from well-trodden paths without clear criteria or guidance. That approach should not be adopted unless the statute clearly so requires.
38 This is the same point as made in Lux at [41], that the touchstone for the examination of evidence is the statutory concept of unconscionable conduct. And that means something against conscience or not done in good conscience: Lux at [41]; Australian Securities and Investments Commission v National Exchange Pty Ltd (2005) 148 FCR 132; [2005] FCAFC 226 (National Exchange) at [33].
39 Conduct which is unfair or unreasonable is not for those reasons alone unconscionable. By reference to what Spigelman CJ said in World Best to justify a requirement of a high moral obloquy, the Court of Appeal in Scully explained that such sections apply to conduct in trade and commerce and in that case, that factor had consequences for the interpretation of the relevant section. The Court of Appeal said at [46]:
That context is itself largely governed by existing legal principle. … The law of contract and that of property, and the principles that constitute them, are the very things which make trade and commerce possible. Without these legal principles, and the existence of institutions such as the courts that are constrained to apply them, the strong would prevail and the weak would go to the wall. It cannot have been the legislature’s intention to interfere with arm’s length commercial transactions by reference to loose notions of unreasonableness and unfairness. The contention favoured by the appellant that conduct may be found to be unconscionable within s 8(1) of the Act if it can be found to be irreconcilable with what was right and reasonable overlooks the force of the observation of Deane J in Muschinski v Dodds that judges in equity, whose jurisdiction was discretionary, had long since abandoned recourse to undefined notions of justice and what was fair.
[Footnotes omitted.]
40 In Lux, the Court identified the significance of community standards of conduct enacted in State consumer protection legislation in the evaluation of conduct for the purpose of the sections. The Court said at [23]:
The task of the Court is the evaluation of the facts by reference to a normative standard of conscience. That normative standard is permeated with accepted and acceptable community values. In some contexts, such values are contestable. Here, however, they can be seen to be honesty and fairness in the dealing with consumers. The content of those values is not solely governed by the legislature, but the legislature may illuminate, elaborate and develop those norms and values by the act of legislating, and thus standard setting. The existence of State legislation directed to elements of fairness is a fact to be taken into account. It assists the Court in appreciating some aspects of the publicly recognised content of fairness, without in any way constricting it. Values, norms and community expectations can develop and change over time. Customary morality develops “silently and unconsciously from one age to another”, shaping law and legal values: Cardozo, The Nature of the Judicial Process (Newhaven, Yale University Press, 1921) pp 104-105. These laws of the States and the operative provisions of the ACL reinforce the recognised societal values and expectations that consumers will be dealt with honestly, fairly and without deception or unfair pressure. These considerations are central to the evaluation of the facts by reference to the operative norm of required conscionable conduct.
41 After judgment was reserved in this case, the Full Court of this Court delivered judgment in Paciocco v Australia and New Zealand Banking Group Limited [2015] FCAFC 50 (ANZ). One claim made by the appellant was that certain fees charged by the ANZ Bank amounted to conduct which was unconscionable. This claim relied on provisions of the Australian Securities and Investment Commission Act 2001 (Cth) (ASIC Act) and the Fair Trading Act 1999 (Vic) which prohibited unconscionable conduct in similar terms to s 21 of the ACL. The terms of s 12CB of the ASIC Act, the central provision relied upon, were essentially the same as s 21 of the ACL, save that the section operated in the field of financial services.
42 The judgment of Allsop CJ, with whom Besanko and Middleton JJ agreed, added further to the learning concerning the proper approach to the construction of the statutory concept of unconscionability.
43 In a continuation of the debate about the relationship between the concepts of moral obloquy and unconscionability, there was a further warning concerning the substitution of synonyms for the words of the statute. At [262] the Chief Justice wrote:
That a degree of morality lies within the word “unconscionable” is clear. “Unconscionability” is a value-laden concept. “Obloquy” is “the condition of being spoken against; bad repute; reproach; disgrace; a cause of detraction or reproach,”; “obliquity” is “a deviation from moral rectitude, sound thinking or right practice; a delinquency; a fault or error.”: The Shorter Oxford English Dictionary on Historical Principles (3rd Ed, Oxford, 1969) Vol 2 p 1428. That unconscionability contains an element of deviation from rectitude or right practice or of delinquency can be readily accepted, as long as the phrase “moral obloquy” is not taken to import into unconscionability a necessary conception of dishonesty. The statutory language is “unconscionable”: that is, against conscience. A sense of moral obloquy or moral obliquity can be accommodated within the meaning or conception of unconscientious or unconscionable conduct. That said, an understanding of the meaning conveyed by the word “unconscionable” in the statute is not simply restated by substituting other words for those chosen by Parliament; danger easily lurks in the use of other words to capture the meaning of the statutory language.
44 And to similar effect, his Honour said at [305]:
The task is not limited to finding "moral obloquy"; such may only divert the normative inquiry from that required by the statute, to another, not tied to the words of the statute. The clearest example of the lack of need for dishonesty, at least in Equity in unconscionable conduct (in the unwritten law), is the lack of criticism of the bank manager in Amadio by Deane J: 151 CLR at 478. See also Johnson v Smith [2010] NSWCA 306 at [5] and Aboody v Ryan [2012] NSWCA 395 at [65]. Such is not to deny that, in many cases of unconscionable conduct in Equity, a degree of moral criticism may attend the evaluation that the relevant conduct was unconscionable.
45 Then, at [262] the judgment considered how the concept of unconscionability should be understood as follows:
The task involved is not the choice of synonyms; rather, it is to identify and apply the values and norms that Parliament must be taken to have considered relevant to the assessment of unconscionability: being the values and norms from the text and structure of the Act, and from the context of the provision. Parliament has given some guidance to its proper application (and to its meaning) by identifying in s 12CC [which is in relevantly the same terms as s 22 of the ACL] certain non-exhaustive factors that may be taken into account by a court in deciding whether conduct was unconscionable. Given the value-laden character of the word, it is necessary to ascertain and organise the relevant values and norms by reference to which the meaning of the word is to be ascertained, and by reference to which the application of the section is to be undertaken (the two tasks being distinct). It must, however, be emphasised at the outset that the values and norms that are relevant are those that Parliament has considered, or must be taken to have considered, as relevant. The following discussion should be understood as dealing with those matters, and not with any values or norms disembodied from, or unconnected with, the choice made by Parliament.
46 The judgment surveyed the values and the norms which have been recognised in the common law, equity, and in statutes. Reference was made to the comments on the difference in approach between equity and the common law by Lord Stowell in The Juliana [1822] EngR 235; (1822) 2 Dods 504 at 522; 165 ER 1560 at 1567, as cited by Dixon CJ, McTiernan and Kitto JJ in Jenyns v Public Curator (Qld) (1953) 90 CLR 113 at 119; [1953] HCA 2 at [3] as follows:
A court of law works its way to short issues, and confines its views to them. A court of equity takes a more comprehensive view, and looks to every connected circumstance that ought to influence its determination upon the real justice of the case.
47 Then, in a conclusion which applies equally to the consumer as to the business context, Allsop CJ said at [296]:
The working through of what a modern Australian commercial, business or trade conscience contains and requires, in both consumer and business contexts, will take its inspiration and formative direction from the nation's legal heritage in Equity and the common law, and from modern social and commercial legal values identified by Australian Parliaments and courts. The evaluation of conduct will be made by the judicial technique referred to in Jenyns. It does not involve personal intuitive assertion. It is an evaluation which must be reasoned and enunciated by reference to the values and norms recognised by the text, structure and context of the legislation, and made against an assessment of all connected circumstances. The evaluation includes a recognition of the deep and abiding requirement of honesty in behaviour; a rejection of trickery or sharp practice; fairness when dealing with consumers; the central importance of the faithful performance of bargains and promises freely made; the protection of those whose vulnerability as to the protection of their own interests places them in a position that calls for a just legal system to respond for their protection, especially from those who would victimise, predate or take advantage; a recognition that inequality of bargaining power can (but not always) be used in a way that is contrary to fair dealing or conscience; the importance of a reasonable degree of certainty in commercial transactions; the reversibility of enrichments unjustly received; the importance of behaviour in a business and consumer context that exhibits good faith and fair dealing; and the conduct of an equitable and certain judicial system that is not a harbour for idiosyncratic or personal moral judgment and exercise of power and discretion based thereon.
48 This collection of considerations taken from the review of the norms, values and principles applied in the common law, equity, and in statute is a helpful catalogue of the types of considerations which might illuminate the meaning of unconscionability. They reflect similar ideas to those expressed in the catalogue of synonyms referred to by Lindgren J in the early case of Qantas.
49 At [304] Allsop CJ referred to the margin allowable in the construction of the concept for differing views, and hence, differing outcomes in the assessment of what is or is not unconscionable conduct. His Honour said:
In any given case, the conclusion as to what is, or is not, against conscience may be contestable. That is inevitable given that the standard is based on a broad expression of values and norms. Thus, any agonised search for definition, for distilled epitomes or for shorthands of broad social norms and general principles will lead to disappointment, to a sense of futility, and to the likelihood of error. The evaluation is not a process of deductive reasoning predicated upon the presence or absence of fixed elements or fixed rules. It is an evaluation of business behaviour (conduct in trade or commerce) as to whether it warrants the characterisation of unconscionable, in the light of the values and norms recognised by the statute.
50 Two observations might be made about these issues addressed in ANZ.
51 The first relates to the purpose of statutory unconscionability provisions such as s 21 of the ACL. Whilst their construction is aided by reference to the values, principles, and norms applied in the development of the common law and equity, such provisions are designed to add to the protection already accorded by the law. They are not intended to codify existing law. Consequently, there is no case for restricting the scope of such provisions by reference to the existing law.
52 The second observation concerns the process by which the construction of such provisions occurs. Almost all of the judgment of Allsop CJ on this issue concerned what the process of construction does involve. Only at one point did he refer to what the process does not involve. On that matter his Honour said at [296]:
It does not involve personal intuitive assertion.
53 On the same subject Middleton J said:
402On the issue of statutory unconscionability, a rationally based system of law needs to set out the limits of acceptable commercial behaviour in order that persons can order their commercial affairs in advance. Such a system cannot depend on the personal approach of a judge, based upon his or her view of commercial morality.
54 And continued:
405Similarly, in the context of determining the content of statutory unconscionable conduct, as described by Allsop CJ, the task of a court is to make an evaluation of the facts and an ultimate determination by reference to a statutory standard of conduct, guided by the text and structure of the statute and its purpose. This task is a familiar one undertaken in the course of the judicial process.
991 But NRM also failed to disclose that apomorphine and clomipramine were not first-line treatments for ED and PE respectively and were being used off-label. In its interactions with patients, NRM also minimised the side effects of the medication. It may be that these matters should be disclosed as part of the procedure designated in [6(b)(i)] of the proposed injunction.
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.
994 The exercise of discretion should also take into account the impact of the injunctions on NRM. Although negative in form, the injunctions are in substance mandatory injunctions. Caution should be exercised in making orders of that type.
995 The injunctions impose significant changes for the operation of the NRM business. Despite this, NRM did not make any submissions of substance contesting the terms of the injunctions against it. The failure to make such submissions has particular significance because the Court directly raised with Mr Shrestha the potential impact on NRM of injunctions requiring face-to-face consultations. He explained that in 2001 AMI operated 38 clinics, but gradually reduced the number because the number of patients attending clinics declined [TS 2026]. Mr Shrestha said that NRM would not be able to trade if it had to provide face-to-face consultations. This bald assertion was not persuasive. NRM did not seek to make a case that such an order or an order for consultation via video-link would cause undue hardship on it. The evidence demonstrated that a significant proportion of patients in the NRM period attended clinics. Those clinics did not provide doctor consultations on-site but only by phone. NRM did not establish that providing doctors on-site or by video-link would place an unreasonable burden on it.
996 Paragraphs 6(b)(i)(A)(b) and (c) of the proposed injunction require a written statement to be provided to prospective patients stating that, inter alia, AMI does not seek to diagnose underlying causes of the condition. These references should be to NRM, given that the injunctions are to be made against the sixth and seventh respondents. The final form of orders will reflect this.
997 The ACCC sought an injunction against Dr Vaisman in the following terms:
7Vaisman be restrained, for a period of seven years from the date of this Order (unless otherwise specified below), in trade or commerce, from:
(a)being in any way, directly or indirectly, knowingly concerned in, or a party to, or aiding and abetting, counselling or procuring conduct of the kind restrained in paragraph 6 above; and
(b)from having a role in connection with training, supervising, counselling or terminating employees, agents or contractors of the Sixth and Seventh Respondents and their related bodies corporate.
998 The final written submissions of the respondents concerning Dr Vaisman argued against this injunction as follows:
230.The injunction in paragraph 7(a) is for the period of 7 years. Dr Vaisman is not well and is in his late sixties. He graduated in medicine in 1969 and has been involved in medicine for approximately 45 years. His role in the operational aspects of the business now is minimal. To prevent him from having any role in the business is inequitable and excessively punitive.
231.Dr Vaisman has clearly been passionate about assisting men seek treatment for sexual dysfunction. It is highly likely that his company has assisted in removing the stigma from this condition. There is no evidence that he ever wanted to cause any harm to any patient.
232. No order ought to be made in relation to Dr Vaisman
999 Mr Shrestha gave evidence in July 2013 about the role Dr Vaisman performed for NRM at that time. He responded to a question from the Court as follows:
HIS HONOUR: Just on that point, can you describe generally to me the role that [Dr Vaisman] plays and how it interlocks with the management team now in NRM?
MR SHRESTHA: Dr Vaisman, he mainly focuses on the medical side of the business, research and development, dealing with the doctors, training with the doctors. The rest of the operation, besides marketing, I am the person who makes all the decisions. The system, the CMS system is designed by me and the programmers has helped me to code it into the – put it into frame. With the financial side, I’m the person who makes all the decisions. And also a signatory of the council, I don’t take any approvals of Dr Vaisman of doing any fund transfers or paying any suppliers, creditors, putting orders. So day-to-day operations, I am the person who is in charge, unless there is a medical concern and that’s where I seek assistance from Dr Vaisman.
…
… he has been very sick recently and he has had very – issues with his health and also the – he is kept busy with his other family commitments and sickness at home. So all the business aspect of the NRM, I’m – I’m the one who’s dealing with the most.
…
And it’s actually increasing on a daily basis. So now in a nutshell, I’m the person who makes almost all the decisions.
[TS 1963 – 1964]
1000 And Dr Vaisman gave evidence thus:
HIS HONOUR: Dr Vaisman, how old are you now?
DR VAISMAN: 68.
HIS HONOUR: 68. And what do you see as your personal plan for involvement in the business in the next five years? What do you hope to do in that time?
DR VAISMAN: Definitely my health, not like it was even five years ago. Particularly my memory is suffering after this pneumonia – what I had half a year, particularly. And it became very difficult for me to run this business, and I’m considering to step down and to be the consultant for the business.
HIS HONOUR: And when would you plan to do that?
DR VAISMAN: This year [2013].
[TS 1855]
1001 The ACCC observed that the terms of the draft injunction do not intend to exclude Dr Vaisman from assisting NRM in a research capacity.
1002 In all of these circumstances, the terms of the proposed injunction do not impose undue hardship on Dr Vaisman. They may only crystallise his own intention to retreat from active involvement in the business.
1003 In any event, the injunction is most important for the protection of the public. Dr Vaisman was the architect of the business model and he operated AMI and NRM in accordance with that model. He devised a selling technique which manipulated the fears of patients suffering from ED and PE. He developed medication and delivery systems which had no proven efficacy and sold them as if they did. In practice, he controlled the prescribing practices of doctors which were contrary to accepted medical practice. He utilised contracts which locked patients into unjustified treatment periods. And he oversaw a refund system which operated in a way that deterred patients from claiming their money back when the circumstances justified their claims. Dr Vaisman was the central player in each of the elements of unconscionable conduct which have been found by the Court. He carries prime responsibility for the operation.
1004 The attempt made in [231] of the respondents’ final written submissions to paint Dr Vaisman as a public benefactor is not supported by the facts. The evidence established that Dr Vaisman used his scientific knowledge together with a certain entrepreneurial skill to design a system which would enable NRM to exploit patients so that it could profit at their expense. Dr Vaisman had an interest in the scientific aspects of treatment, but essentially for the value they had to produce profit for himself through AMI and NRM.
1005 Dr Vaisman’s attitude in the witness box demonstrated that unless he was restrained by orders of the Court, he would continue the business model he had designed. He stuck doggedly to beliefs about the treatments offered which were not supported by the literature on which he himself relied. He did not acknowledge any disadvantage caused to patients in the operation of the system despite many instances of patients who were placed under financial and emotional stress by the contracts into which they had entered. Dr Vaisman demonstrated no insight into the criticisms which gave rise to the proceeding. There is no realistic chance that he would change his views, and hence his actions, without the intervention of the Court.
1006 That Dr Vaisman will not be deterred from pursing his commercial interests without restraint imposed by the Court is illustrated by his involvement in cases in this Court in 1996, 2002, and 2004, in which relief including injunctions was granted, although in 2002 by consent, in respect of advertisements and representations about the treatments for sexual dysfunction offered by companies operated by Dr Vaisman.
1007 The duration of the orders effectively excludes Dr Vaisman from the conduct of the business of NRM for the rest of his working life. That is necessary to protect the public from his actions. Were he a younger man, a longer period of exclusion would have been justified given the seriousness of the conduct which has been found against him.
10.3 Refund to Annexure C patients
1008 The ACCC sought an order as follows:
10.Pursuant to section 239 of the ACL, the Sixth and Seventh Respondents must refund the total amount of money paid by the Annexure C patients, except for Patients 7 and 9, pursuant to their contract with NRM less any refund already provided by NRM.
1009 The order relies on the powers provided by s 239(1) – (4) of the ACL as follows:
(1) If:
(a) a person:
(i)engaged in conduct (the contravening conduct) in contravention of a provision of Chapter 2 [in which s 21 and s 23 appear], Part 3‑1, Division 2, 3 or 4 of Part 3‑2 or Chapter 4; or
(ii)is a party to a consumer contract who is advantaged by a term (the declared term) of the contract in relation to which a court has made a declaration under section 250; and
(b)the contravening conduct or declared term caused, or is likely to cause, a class of persons to suffer loss or damage; and
(c)the class includes persons who are non‑party consumers in relation to the contravening conduct or declared term;
a court may, on the application of the regulator, make such order or orders (other than an award of damages) as the court thinks appropriate against a person referred to in subsection (2) of this section.
(2) An order under subsection (1) may be made against:
(a)if subsection (1)(a)(i) applies—the person who engaged in the contravening conduct, or a person involved in that conduct; or
(b)if subsection (1)(a)(ii) applies—a party to the contract who is advantaged by the declared term.
(3) The order must be an order that the court considers will:
(a)redress, in whole or in part, the loss or damage suffered by the non‑party consumers in relation to the contravening conduct or declared term; or
(b)prevent or reduce the loss or damage suffered, or likely to be suffered, by the non-party consumers in relation to the contravening conduct or declared term.
(4)An application under subsection (1) may be made at any time within 6 years after the day on which:
(a)if subsection (1)(a)(i) applies—the cause of action that relates to the contravening conduct accrued; or
(b) if subsection (1)(a)(ii) applies—the declaration is made.
1010 The Court may make an order pursuant to s 243(d) that a person referred to in s 239(1)(a) refund money to a non-party consumer. The Court may have regard to the conduct of the person and the non-party consumer since the contravention occurred (s 240(1)).
1011 Each of the Annexure C patients sought refunds in circumstances in which, but for the unconscionable conduct and / or the unfair term, they either would not have entered into the agreement or they should have received their money back. On that basis there should be an order that NRM refund the amounts paid. The Court may take into account the refunds made by NRM since the contraventions in calculating the balance of the refunds payable to the relevant Annexure C patients. The amount of the refunds already paid to those patients should be taken into account. No refunds are sought in relation to NRM patients 7 and 9 who were officers of the ACCC.
1012 The respondents argued that no order should be made under s 239(1) because no loss or damage had been particularised. The circumstances of each of the NRM patients are set out in their witness statements and, in some cases, further evidence emerged in cross-examination. Those circumstances demonstrated that the patients suffered loss or damage by entering into the contracts with NRM. The damage suffered requires that the agreements be undone by the Court. By the Court requiring the refund of monies paid, the patients are put into the financial position as if they had not had been subjected to the contravening conduct. The damage suffered was entering into the contract with NRM and no further particularisation is necessary. It may be that only a more limited order would be justified under s 239(1)(a)(ii), because the loss and damage caused by the unfair term may be different from the loss and damage resulting from the unconscionable conduct more generally. The loss and damage suffered as a result of the unfair term was the inability to cancel the contract without incurring a financial penalty. An order which allows the patient to cancel the contract without incurring a penalty provides the redress referred to in s 239(3) of the ACL. In this case, that form of order is not required because the form of order sought by the ACCC, which should be granted, addresses the loss and damage resulting from the unconscionable conduct more broadly.
10.4 Corrective notice
1013 The ACCC sought an order that NRM publish a corrective notice. The form of the proposed order and notice are as follows:
The Sixth and Seventh Respondents cause to be published, at their own expense, within 21 days of the date of this Order, a notice in the form contained in Annexure A to this Order (website notice) on its website located at (AMI website) and, if the URL of such website is replaced, changed or redirected to another website, on the corresponding website, for a continuous period of 90 days and use its best endeavours to ensure that:
(a)the website notice shall be viewable by clicking a ‘click-through’ icon located on the AMI website;
(b)the ‘click-through’ icon referred to in the previous sub-paragraph is located at the top of the homepage of the AMI website and any corresponding websites;
(c)the ‘click-through’ icon shall appear as follows, with the words printed prominently in bold red text, in a font size no smaller than 14-point, on a white background:
Unconscionable Conduct by Advanced Medical Institute (AMI) –
Notice Ordered by Federal Court of Australia.
Click Here
UNLAWFUL CONDUCT BY ADVANCED MEDICAL INSTITUTE
Following legal action by the Australian Competition and Consumer Commission, the Federal Court of Australia has ruled that NRM Corporation Pty Ltd and NRM Trading Pty Ltd, (together, NRM), engaged in unconscionable conduct in contravention of section 21 of the Australian Consumer Law in its dealings with men seeking treatment for male sexual dysfunction in 2011 and 2012.
NRM promoted its business as the “Advanced Medical Institute”. It represented that its patients would receive a proper medical assessment of their condition by a qualified medical doctor and would only be prescribed medication if consistent with that assessment. It knew that its patients were vulnerable by virtue of their condition, and that patients would expect NRM and its doctors to act in their best interests consistent with a doctor/patient relationship. In fact, a number of NRM’s patients:
• were not physically examined by NRM’s doctors;
•were only prescribed NRM’s treatments, which were not selected from all relevant and available treatments in Australia;
•were not informed that NRM’s doctors would only prescribe treatments from NRM’s limited range of treatments, or that other treatments were available;
•were not adequately informed of the side effects of NRM’s treatments;
•were not properly diagnosed with the underlying cause of their condition, but rather were only questioned as to whether NRM’s treatments were contraindicated;
•were not referred to specialists or advised to see their general practitioner;
• were misled by NRM’s salespeople, who described themselves as
“Administrative Assistants” but in fact were paid on commission;
•were told by the salespeople that they would suffer adverse medical and social consequences if they did not purchase and use the NRM treatments;
•were told that they would receive a refund under NRM’s refund policy if the NRM treatments were ineffective, when in fact any refund was subject to significant limitations and deductions that were not adequately disclosed to the patient when they entered into the contract; and
•were sold NRM treatments pursuant to contracts which bound the patients to pay for treatment for a set period of time, including terms ranging from 12 to 24 months, whether or not the patients wished to continue with the treatment.
The Court also found that NRM’s refund policy was an unfair term within the meaning of sections 24 and 250 of the ACL, because the imposition of fees and charges deducted from any refund to a patient was not transparent, was not necessary to protect NRM’s interests and would cause financial and other detriment to patients. The consequence of this declaration is that the refund policy is void.
The Court has also found that Jack Vaisman, Chief Executive Officer of NRM, was knowingly concerned in the unlawful conduct of NRM.
The Court has ordered declarations, injunctions and the refund of money to patients. A copy of the judgment, which details the Court’s findings and orders is located at [insert URL]
NRM purchased the AMI business from Advanced Medical Institute Pty Limited and AMI Australia Holdings Pty Ltd (together, AMI) in June 2011. The Court also declared that AMI had engaged in unconscionable conduct.
This notice has been placed because of an order of the Federal Court of Australia in a proceeding commenced by the Australian Competition and Consumer Commission.
[Emphasis added.]
1014 The power to make such orders is found relevantly in s 246(1) and (2)(c) and (d) of the ACL as follows:
(1)A court may, on application of the regulator, make one or more of the orders mentioned in subsection (2) in relation to a person who has engaged in conduct that:
(a) contravenes a provision of Chapter 2, 3 or 4; or
(b) constitutes an involvement in a contravention of such a provision.
(2)The court may make the following orders in relation to the person who has engaged in the conduct:
…
(c)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;
(d)an order requiring the person to publish, at the person’s expense and in the way specified in the order, an advertisement in the terms specified in, or determined in accordance with, the order.
1015 The purpose of such an order is to advise visitors to the website of the outcome of the proceeding and thereby aid in the enforcement of the orders of the Court and prevent repetition of NRM’s contravening conduct: Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Incorporated (1999) 95 FCR 114; [1999] FCA 1387 at [49].
1016 The terms of the proposed notice are appropriate for these purposes, save for two issues which are discussed below. The respondents did not mount any argument against the Court making an order in this form.
1017 First, in the first highlighted passage in the proposed corrective notice it is stated that a number of NRM’s patients “were told by the salespeople that they would suffer adverse medical and social consequences if they did not purchase and use the NRM treatments”. However, the ACCC did not allege this in its pleading. Such a finding was not made in these reasons for judgment nor is it recorded in the declarations arising from them. A statement in those terms should not be included.
1018 Second, for the reasons explained in [974], the second highlighted passage in the proposed corrective notice should refer to contracts of 18 months rather than 24 months.
11. RELIEF AGAINST DR LONERGAN
1019 In June 2012, Dr Lonergan and the ACCC settled the proceeding between them. By that agreement Dr Lonergan was to take no further part in the proceeding except as a witness, there were to be no costs ordered between them, and Dr Lonergan agreed to the making of a declaration and injunction against him. The orders to which he agreed were similar to the orders sought against AMI. As the proceeding against AMI was continuing, it was not appropriate to make orders by consent without determining the case against AMI. Consequently, Dr Lonergan and the ACCC agreed that if the relevant orders were made against AMI after the trial, then the agreed orders would also be made against Dr Lonergan. In the meantime, Dr Lonergan gave an undertaking in effect not to engage in the conduct alleged against him.
1020 The evidence in the proceeding against AMI demonstrated that the agreed declaration and injunction against Dr Lonergan were justified. The form of the agreed orders was updated by the ACCC and Dr Lonergan and orders will be made in accordance with the minute dated 18 May 2014. Dr Lonergan will also be discharged from the undertaking given to the Court in the form of the document dated 21 June 2012.
12. COSTS
1021 In view of the outcome of this proceeding and the principle that costs should follow the event, the Court will order that the third, sixth, and seventh respondents pay the ACCC’s costs of the proceeding, except for the ACCC’s costs of and incidental to the proceeding against the fourth and fifth respondents.
1022 However, in the course of the trial there were various discussions about potential costs issues. They were not addressed in final submissions. From one of those discussions it may have been assumed that the detailed consideration of costs should await the outcome of the determination of issues of liability.
1023 The discussions in the course of the hearing related to the way in which the ACCC had structured its case. By relying on the 168 particular instances of unconscionable conduct as part of its case, the ACCC created the need for a large amount of evidence. At various times I raised the question whether it was necessary to multiply the instances of conduct rather than selecting several examples as representative. I suggested that declarations and injunctions in respect of several instances would serve the purpose of vindicating the ACCC’s claim of unconscionable conduct as effectively as relief based on the multitude of instances. In response, the ACCC explained that it was concerned that if too few cases were selected the claim for relief might be jeopardised because the respondents might argue that the selected consultations could be explained as aberrant and out of the ordinary, and consequently not deserving of declaratory or injunctive relief.
1024 On many occasions I pressed the parties to make an agreed selection of representative cases to render the proceeding more manageable. The parties reported that efforts had been made but had not yielded results. In an attempt to limit the scope of the Court’s enquiry, the ACCC made detailed final written submissions on 17 Annexure B patients and all of the Annexure C patients, but maintained its position that all the consultations were in issue.
1025 From what occurred in Court it appears that this situation may have arisen from the respondents’ failure to agree to a selection of representative patients. The respondents insisted that the case involved separate instances of conduct and that each transaction had to be examined. They criticised the way in which the group of Annexure B patients had been selected. Dr Berry said in her first statement that the consultations in which she was involved were atypical. The respondents were committed to contesting every consultation and sought to demonstrate that, taking account of all of the circumstances, the conduct in respect of each patient was not unconscionable. In this exercise the respondents failed. The way in which the parameters of the case were set thus may have resulted from a choice made by the respondents.
1026 Although there is probably no scope for further discussion, the parties should be given leave to apply within 14 days to vary the costs order if they have arguments about costs which they wish to put to the Court.
I certify that the preceding one thousand and twenty six (1026) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice North. Associate:
Dated: 22 April 2015
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