Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (In Liquidation)
[2005] FCA 1212
•2 SEPTEMBER 2005 (CORRIGENDUM 12 SEPTEMBER 2005)
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (in liquidation) [2005] FCA 1212
CORRIGENDUM
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v CHASTE CORPORATION PTY LTD (IN LIQUIDATION) (ACN 089 837 329) & ORS
QUD 252 of 2001
LANDER J
2 SEPTEMBER 2005 (CORRIGENDUM 12 SEPTEMBER 2005)
ADELAIDE (HEARD IN BRISBANE)
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD 252 OF 2001
BETWEEN:
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANTAND:
CHASTE CORPORATION PTY LTD (IN LIQUIDATION) (ACN 089 837 329)
FIRST RESPONDENTBRADDON RALPH WEBB
SECOND RESPONDENTORLAWOOD PTY LTD (ACN 059 294 334)
THIRD RESPONDENTPETER CLARENCE FOSTER
FOURTH RESPONDENTSEAN PETRIE ALLEN COUSINS
SIXTH RESPONDENTKEVIN ANTHONY MCMULLAN
EIGHTH RESPONDENTALAN KENNETH COOPER
NINTH RESPONDENTSTEPHEN D’ALTON
TENTH RESPONDENTJUDGE:
LANDER J
DATE OF ORDER:
2 SEPTEMBER 2005 (CORRIGENDUM 12 SEPTEMBER 2005)
WHERE MADE:
ADELAIDE (HEARD IN BRISBANE)
CORRIGENDUM
1.In paragraphs 20.1 and 20.2 of the orders replace ‘the second respondent’ with ‘the third respondent’ in each of those paragraphs.
2.On page 69, par [301] of the reasons for judgment, at paragraphs 20.1 and 20.2 of the orders, replace ‘the second’ respondent’ with the ‘third respondent’ in each of those paragraphs.
I certify that the preceding two (2) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.
Associate:
Dated: 12 September 2005
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Chaste Corporation Pty Ltd (in liquidation) [2005] FCA 1212
TRADE PRACTICES – resale price maintenance – misleading and deceptive conduct – application for injunctions, declarations and pecuniary penalties arising out of the operation of a scheme whereby products were distributed through a network of sales representatives – penalties to be imposed for contravening conduct – factors to be considered in determining appropriate penalties.
Trade Practices Act 1974 (Cth), ss 4, 48, 51AD, 52, 53(a), 53(c), 75B, 76, 80, 82, 83, 88(8A), 96
Corporations Act 2001 (Cth), s 553B
Therapeutic Goods Act 1989 (Cth), s 26AACCC v Goldy Motors Pty Ltd (2001) ATPR 41-801 cited
ACCC v Chen (2003) 201 ALR 40 cited
ACCC v Francis [2004] FCA 487 cited
Mathers & Anor v Commonwealth of Australia (2004) 134 FCR 135 cited
ACCC v SIP Australia Pty Ltd (2003) ATPR 41-937 cited
ACCC v Fila Sport Oceania Pty Ltd (2004) ATPR 41-983 cited
ACCC v The Vales Wine Company Pty Ltd (1996) ATPR 41-528 cited
ACCC v GIA Pty Ltd (2002) ATPR 41-902 cited
TPC v Stihl Chainsaws (Aust) Pty Limited (1978) ATPR 40-091 cited
TPC v CSR Ltd (1991) ATPR 41-076 cited
ACCC v Leahy Petroleum Pty Ltd (No 3) (2005) 215 ALR 301 cited
ACCC v Midland Brick Co Pty Ltd (2004) 207 ALR 329 cited
TPC v TNT Australia Pty Ltd (1995) ATPR 41-375 cited
ACCC v Australian Safeway Stores Pty Ltd (1997) 145 ALR 36 cited
NW Frozen Foods Pty Ltd v ACCC (1996) 141 ALR 640 cited
J McPhee & Son (Aust) Pty Ltd v ACCC (2000) 172 ALR 532 cited
Richardson & Wrench (Holdings) Pty Ltd v Ligon No 174 Pty Ltd (1994) 123 ALR 681 cited
ACCC v Black on White Pty Ltd (2001) 110 FCR 1 cited
Matheson Engineers Pty Ltd v El Raghy (1992) ATPR 41-192 cited
TPC v Allied Mills Industries Pty Ltd (No 4) (1981) 37 ALR 256 cited
Minister for Industry, Tourism and Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993 citedAUSTRALIAN COMPETITION AND CONSUMER COMMISSION v CHASTE CORPORATION PTY LTD (IN LIQUIDATION) (ACN 089 837 329) & ORS
QUD 252 of 2001
LANDER J
2 SEPTEMBER 2005
ADELAIDE (HEARD IN BRISBANE)
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD 252 OF 2001
BETWEEN:
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANTAND:
CHASTE CORPORATION PTY LTD (IN LIQUIDATION) (ACN 089 837 329)
FIRST RESPONDENTBRADDON RALPH WEBB
SECOND RESPONDENTORLAWOOD PTY LTD (ACN 059 294 334)
THIRD RESPONDENTPETER CLARENCE FOSTER
FOURTH RESPONDENTSEAN PETRIE ALLEN COUSINS
SIXTH RESPONDENTKEVIN ANTHONY MCMULLAN
EIGHTH RESPONDENTALAN KENNETH COOPER
NINTH RESPONDENTSTEPHEN D’ALTON
TENTH RESPONDENTJUDGE:
LANDER J
DATE OF ORDER:
2 SEPTEMBER 2005
WHERE MADE:
ADELAIDE (HEARD IN BRISBANE)
THE COURT DECLARES AND ORDERS THAT:
In relation to the first respondent, Chaste:
1. I declare that:
1.1The first respondent, between December 1999 and November 2001, by in trade or commerce offering and entering into agreements for the supply of goods, namely weight loss tablets, together with point of sale material and other related products, under an agreement, one of the terms of which was that area managers to whom the goods were supplied would not sell the said goods at a price less than the price specified from time to time by Chaste, has engaged in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
1.2The first respondent by, between December 1999 and November 2001, using in trade or commerce in relation to goods supplied by Chaste to area managers for resale, the statements:
(a)‘… the company will be solely responsible for fixing, from time to time, the recommended retail price and the price at which the Area Manager purchases stock’;
(b)‘… it is most important that a regulated price policy be adhered to in the interest of all parties involved.’;
(c)‘… we have therefore established the following as the costing structure to be applied in all markets:
PROFIT STRUCTURE
TRIMitTM
Area Manager Cost $19.50 Profit $10.00 51% Retailer Cost $29.50 Retailer Profit $20.45 70% Recommended Retail $49.95
(d)‘15. Who determines the price at which I sell my stock?
The company will set the recommended retail price and wholesale price that must be adhered to by all Area Managers. There must be no discounting or price cutting without the written permission of the company. This ensures that everyone is protected from unnecessary price wars.’
(e)‘Cost to you…
What will TRIMit cost you?
Retailer Cost $32.45
Recommended Retail $54.95
Retailer profit $22.50
PROFIT 70%’
being statements of prices that were likely to be understood by area managers as the prices below which the goods were not to be sold, has engaged in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
I order that:
2.The first respondent pay to the Commonwealth of Australia a penalty of $600,000 in respect of its conduct which constituted engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
In relation to the second respondent, Mr Webb:
I declare that:3.The second respondent, having directed the operations of the first respondent, being a corporation engaged in the supply or possible supply in trade or commerce, through distributors (area managers) of a purported weight loss aid named TRIMit, by making on behalf of Chaste, or causing or permitting to be made on behalf of Chaste:
3.1a representation in documents provided to area managers and potential area managers that Chaste would promote TRIMit by an extensive national television, radio and magazine campaign with a forecast expenditure of over $1.5 million in the first year of sales and would further provide a national team of marketing, management and advertising experts to assist area managers when in fact and to his knowledge Chaste had no such plans or arrangements in place, had no apparent means of executing them, had not engaged in the represented marketing, management and advertising experts, and to the second respondent’s knowledge had no financial means to fund the represented expenditure;
3.2representations to area managers that delays in commencement of the said campaign were due to the actions of persons other than Chaste and its officers when in fact and to his knowledge the campaign had not proceeded because it had not been arranged or agreed to by Chaste and Chaste at his direction continually refused to pay deposits or other payments required for aspects of the campaign to proceed;
3.3a representation to area managers and potential area managers that if they wished to discontinue their distribution arrangement with Chaste, Chaste would upon ninety days notice, repurchase all unsold stock and point of sale material supplied to the area manager and arrange a new area manager for the distribution area when in fact and to his knowledge during the period when Chaste was making the representation, Chaste and the second respondent had no intention of making good the representation but wrote correspondence to area managers who sought to terminate their agreements, requiring them to continue to perform their obligations under the agreements, or refusing to refund their deposits in full, until such time as their areas were re-sold;
3.4Representations that:
3.4.1 TRIMit was a thoroughly researched and scientifically tested product;
3.4.2 TRIMit’s efficacy as a weight loss product was without question;3.4.3TRIMit (or an equivalent product) had been successfully launched in the United States and had been scientifically tested at eleven universities;
when in fact and to the knowledge of the second respondent TRIMit was a new and unique formulation and none of these matters was true;
3.5Representations that:
3.5.1clinical studies had shown the combination of ingredients in TRIMit were 700% more effective than hydroxycytric acid alone;
3.5.2Chaste had the results of independent clinical trial of TRIMit (or an equivalent product) which proved it was a quality product, safe to use and effective as a weight loss aid;
when in fact and to the knowledge of the second respondent, Chaste did not have such results, and such clinical trials as were conducted for Chaste were conducted without scientifically acceptable protocols or design, without scientifically controlled conditions, and largely involved subjects who had an interest in the business of Chaste;
3.6Representations that claims made by Chaste as to TRIMit’s potency, use and effectiveness had a scientific basis and Therapeutic Goods Act approval, when in fact and to the knowledge of the second respondent, the claims did not have a scientific basis, and such approval as was obtained under the Therapeutic Goods Act did not provide verification of the product’s efficacy;
3.7A representation to area managers and to the public that Chaste was a genuine business conducted on an ordinary commercial basis and that the opportunity offered by it to area managers was a genuine business opportunity when:
3.7.1It was the fact that the fourth respondent had extensive involvement in the management and marketing of Chaste which involvement was, at the direction of the second respondent, deliberately concealed from the public and area managers;
3.7.2It was the fact that the fourth respondent had convictions in relation to the unlawful sale and promotion of weight loss products, and a reputation as the instigator of dubious and failed schemes for profit for the conduct of businesses promoting and selling or purporting to sell purported slimming or weight loss products, and that Chaste and the second respondent were deliberately concealing the involvement of the fourth respondent in Chaste because the public and potential area managers of Chaste would be unlikely to buy its weight loss products or become its distributors if they knew of the involvement of the fourth respondent in Chaste;
3.7.3It was the fact and he knew, but did not inform area managers or the public that it was his intention and the intention of the fourth respondent as the controllers of Chaste that gross income from sale of distributorships and goods by Chaste would be distributed to, or at the direction of the second and fourth respondents, and Chaste would not retain adequate funds to make good on representations of future expenditure by Chaste;
3.7.4It was the fact and he knew, but did not inform area managers or the public, that gross income from sale of distributorships and goods by chaste had been distributed to, or at the direction of the second and fourth respondents, and Chaste did not retain adequate funds to make good on representations of future expenditure by Chaste;
3.7.5It was fact, and the second respondent knew, that Chaste was operated by him and others for the purpose of:
3.7.5.1Extracting the maximum revenue from area managers without regard for the long term viability of Chaste;
3.7.5.2Inducing persons to become area managers and purchase TRIMit only so that Chaste would receive money from those persons;
3.7.5.3Distributing to the second respondent and others the maximum possible gross income of Chaste whilst retaining the minimum funds in Chaste necessary for Chaste to maintain the appearance in the short term of conducting a genuine business;
3.8Representations to potential area managers that Chaste was a good business opportunity; while deliberately not revealing the involvement of the fourth respondent to area managers and potential area managers, and thereby misrepresenting the risks associated with Chaste’s business opportunity;
has, in respect of each representation, been directly knowingly concerned in Chaste engaging in conduct that was misleading and deceptive in contravention of section 52 of the Trade Practices Act 1974 (Cth).
4.The second respondent, by representing to area managers and potential area managers of Chaste that the area management agreements offered by Chaste were not franchise agreements when in fact and to his knowledge under those agreements:
4.1Chaste granted to the area manager, the right to carry on the business of offering, supplying or distributing TRIMit in a specified geographical territory in Australia under a system or marketing plan which was substantially determined, controlled or suggested by Chaste;
4.2The operation of the above business was substantially or materially associated with the trade mark, advertising or commercial symbol, known as TRIMit, which is or was owned, used or licensed by Chaste; and
4.3Before starting the business, the area manager was required to pay Chaste an amount including a payment for TRIMit and associated franchise services;
and the agreements were thereby franchise agreements within the meaning of subcl 4(1) of the Franchising Code of Conduct, has, in respect of each representation, been directly knowingly concerned in Chaste engaging in conduct that was misleading and deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth).
5.The second respondent, by on behalf of Chaste, on 6 February 2001:
5.1threatening to suspend advertising by Chaste in New South Wales unless area managers cancelled a proposed meeting between them;
5.2threatening to terminate without further notice the area management agreements of area managers who attended any gathering of area managers to discuss Chaste’s business unless such gathering had been sanctioned by Chaste;
5.3thereby directing area managers not to associate with one another for a lawful purpose;
was knowingly concerned in and aided, abetted, counselled or procured Chaste, in trade or commerce, to contravene cl 15 of the Franchising Code of Conduct, and thereby to contravene an applicable industry code in contravention of s 51AD of the Trade Practices Act 1974 (Cth).
6.The second respondent, between December 1999 and November 2001, knowingly permitting, assisting and authorising Chaste in trade or commerce to enter into agreements for the supply of goods, namely, weight loss tablets, together with point of sale material and other related products, under an agreement, one of the terms of which was that area managers to whom the goods were supplied would not sell the said goods at a price less than the price specified from time to time by Chaste, which term was known to the second respondent, has been directly knowingly concerned in Chaste engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
7.The second respondent by, between December 1999 and November 2001, knowingly permitting, assisting and authorising Chaste to use in trade or commerce in relation to goods supplied by Chaste to area managers for resale, the statements:
(a)‘… the company will be solely responsible for fixing, from time to time, the recommended retail price and the price at which the area manager purchases stock’;
(b)‘… it is most important that a regulated price policy be adhered to in the interest of all parties involved.’
(c)‘… we have therefore established the following as the costing structure to be applied in all markets
PROFIT STRUCTURE
TRIMitTM
Area Manager Cost $19.50 Profit $10.00 51% Retailer Cost $29.50 Retailer Profit $20.45 70% Recommended Retail $49.95 (d)‘15. Who determines the price at which I sell my stock?
The company will set the recommended retail price and wholesale price that must be adhered to by all area managers. There must be no discounting or price cutting without the written permission of the company. This ensures everyone is protected from unnecessary price wars.’
(e)‘Cost to You…
What will TRIMit cost you?
Retailer Cost $32.45
Recommeded Retail $54.95
Retailer Profit $22.50
PROFIT 70%’
being statements of prices that were likely to be understood by area managers as the prices below which the goods were not to be sold, has been directly knowingly concerned in Chaste engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
I order that:
8.The second respondent pay to the Commonwealth of Australia, within 45 days of the date of this order, a penalty of $150,000 in respect of being knowingly concerned in the conduct of a corporation engaging in the practice of resale price maintenance in contravention of section 48 of the Trade Practices Act 1974 (Cth), as alleged in paragraphs 106 and 112(c) of the statement of claim.
9.The second respondent be restrained, for five years from the date of this order, from being directly or indirectly knowingly concerned in the promotion or conduct by a corporation of any business relating to weight loss, cosmetic or health industry products or services of any kind.
10.The second respondent be restrained, for five years from the date of this order, from promoting or taking part in any business in relation to weight loss or health industry products or services with which the second respondent knows or believes the fourth respondent to be directly or indirectly involved, unless he discloses to any prospective customer or franchisee of the business with whom he deals in the course of or in the promotion of the business, his knowledge or belief as to the fact of, and the nature of, the involvement of the fourth respondent.
11.The second respondent be restrained, for five years from the date of this order, from being directly or indirectly knowingly concerned in or party to, or aiding, abetting, counselling or procuring, a corporation, which supplies to another person products said to have health, weight loss or cosmetic benefits:
11.1inducing or attempting to induce that other person not to sell those products at a price less than a price specified by that corporation; or
11.2using in relation to those products a statement of price likely to be understood by that other person as a price below which the products are not to be sold.
12.The second respondent be restrained for five years from the date of this order from in any manner being knowingly concerned in any corporation in trade or commerce, making, or permitting to be made, any representation as to the nature, quality, fitness for any purpose, testing, history, composition, standard, approval by any person, performance characteristics, uses or benefits of any goods or services unless, prior to making the representation:
12.1the respondent believes the representation to be true and accurate;
12.2the respondent informs the representee in writing of all information of which he is aware that refutes, qualifies or contradicts any part of the representation; and
12.3the respondent provides the representee with a copy of these orders or informs the representee of the existence of these orders and gives the representee the address of the Federal Court website, namely from which a copy of these orders can be obtained.
13.The second respondent be restrained for five years from the date of this order from in any manner being knowingly concerned in any corporation in trade or commerce making any representation as to the future payment by it of any sum to any person or the future giving by it of any benefit to any person unless:
13.1the second respondent has made all necessary enquiries to satisfy himself that the corporation intends to make the payment or give the benefit and has reasonable grounds to believe it can make the payment or give the benefit; and
13.2the second respondent has fully recorded in writing the details of all matters he has relied upon in so satisfying himself (including the source of the information and the time it was obtained) and has retained copies of all documents relied upon.
14.The second respondent shall retain the records and copies of documents prepared by or relied on by him pursuant to order 13 or above for at least six years from the date of this order and shall produce a complete and true copy of such material to the applicant upon request within 7 days of receiving any such request.
15.The seal of the Court be affixed to the reasons for judgment for the purposes of s 83 of the Act.
16.The second respondent pay the applicant’s costs of and incidental to these proceedings, such costs to be taxed if not agreed within 28 days of the date of this order.
In relation to the third respondent Orlawood:
I declare that:17.The third respondent, between December 1999 and November 2001, to the extent that the conduct of the second respondent in respect to the declarations in paragraph 3 hereof constituted consultancy services provided by the second respondent, via the third respondent, to the first respondent, for which payments were made to the third respondent by the first respondent, pursuant to arrangements between them dated 6 October 1999, has, in respect of each representation, been directly knowingly concerned in Chaste engaging in conduct that was misleading and deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth).
I order that:
18.The third respondent be restrained, for five years from the date of this order, from being directly or indirectly knowingly concerned in the promotion or conduct by a corporation of any business relating to weight loss, cosmetic of health industry products or services of any kind.
19.The third respondent be restrained, for five years from the date of this order, from in any manner being knowingly concerned in any corporation in trade or commerce, making, or permitting to be made, any representation as to the nature, quality, fitness for any purpose, testing, history, composition, standard, approval by any person, performance characteristics, uses or benefits of any goods or services unless, prior to making the representation:
19.1 the respondent believes the representation to be true and accurate;
19.2the respondent informs the representee in writing of all information of which he is aware that refutes, qualifies or contradicts any part of the representation; and
19.3the respondent provides the representee with a copy of these orders or informs the representee of the existence of these orders and gives the representee the address of the Federal Court website, namely from which a copy of these orders can be obtained.
20.The third respondent be restrained, for five years from the date of this order, from in any manner being knowingly concerned in any corporation in trade or commerce making any representation as to the future payment by it of any sum to any person or the future giving by it of any benefit to any person unless:
20.1the second respondent has made all necessary enquiries to satisfy himself that the corporation intends to make the payment or give the benefit and has reasonable grounds to believe it can make the payment or give the benefit;
20.2the second respondent has fully recorded in writing the details of all matters he has relied upon in so satisfying himself (including the source of the information and the time it was obtained) and has retained copies of all documents relied upon.
21.The seal of the Court be affixed to the reasons for judgment for the purposes of s 83 of the Act.
22.The third respondent pay the applicant’s costs of and incidental to these proceedings, such costs to be taxed if not agreed within 28 days of the date of this order.
In relation to the fourth respondent, Mr Foster:
I declare that:23.The fourth respondent, having controlled and directed the operations of the first respondent (Chaste), being a corporation engaged in the supply or possible supply in trade or commerce, through distributors (area managers) of a purported weight loss aid named TRIMit, by making on behalf of Chaste, or causing or permitting to be made on behalf of Chaste:
23.1a representation in documents provided to area managers and potential area managers that Chaste would promote TRIMit by extensive national television, radio and magazine campaign with a forecast expenditure of over $1.5 million in the first year of sales and would further provide a national team of marketing, management and advertising experts to assist area managers when in fact and to his knowledge Chaste had no such plans or arrangements in place, had no apparent means of executing them, had not engaged the represented marketing, management and advertising experts, and to the fourth respondent’s knowledge had no financial means to fund the represented expenditure;
23.2representations to area managers that delays in commencement of the said campaign were due to the actions of persons other than Chaste and its officers when in fact and to his knowledge that campaign had not proceeded because it had not been arranged or agreed to by Chaste and Chaste at his direction continually refused to pay deposits or other payments required for aspects of the campaign to proceed;
23.3a representation to area managers and potential area managers that if they wished to discontinue their distribution arrangement with Chaste, Chaste would, upon ninety days notice, repurchase all unsold stock and point of sale material supplied to the area manager and arrange a new area manager for the distribution area when in fact and to his knowledge during the period when Chaste was making the representation, Chaste and the fourth respondent had no intention of making good the representation but wrote correspondence to area managers who sought to terminate their agreements, requiring them to continue to perform their obligations under the agreements, or refusing to refund their deposits in full, until such time as their agreements were re-sold;
23.4representations that:
23.4.1TRIMit was a thoroughly researched and scientifically tested product;
23.4.2TRIMit’s efficacy as a weight loss product was without question;
23.4.3TRIMit (or an equivalent product) had been successfully launched in the United States and had been scientifically tested at eleven universities;
when in fact and to the knowledge of the fourth respondent TRIMit was a new and unique formulation and none of those matters were true;
23.5representations that:
23.5.1clinical studies had shown the combination of ingredients in TRIMit were 700% more effective than hydroxycitric acid alone;
23.5.2Chaste had the results of independent research into, scientific testing of, or independent clinical trials of TRIMit (or an equivalent product) which proved it was a quality product, safe to use and effective as a weight loss aid;
when in fact and to the knowledge of the fourth respondent, Chaste did not have such results, and such clinical trials as were conducted for Chaste were conducted without scientifically accepted protocols or design, without scientifically controlled conditions, and largely involved subjects who had an interest in the business of Chaste;
23.6representations that claims made by Chaste as to TRIMit’s potency, use and effectiveness had a scientific basis and Therapeutic Goods Act approval, when in fact and to the knowledge of the fourth respondent, the claims did not have a scientific basis, and such approval as was obtained under the Therapeutic Goods Act did not provide verification of the product’s efficacy;
23.7a representation to area managers and the public that Chaste was a genuine business conducted on an ordinary commercial basis and that the opportunity offered by it to area managers was a genuine business opportunity when:
23.7.1it was the fact that the fourth respondent had extensive involvement in the management and marketing of Chaste which involvement was, at the direction of the fourth respondent, deliberately concealed from the public and area managers;
23.7.2it was the fact that the fourth respondent had convictions in relation to the unlawful sale and promotion of weight loss products, and a reputation as the instigator of dubious and failed schemes for profit for the conduct of businesses promoting and selling or purporting to sell purported slimming or weight loss products, and that Chaste and the fourth respondent were deliberately concealing the involvement of the fourth respondent in Chaste because the public and potential area managers of Chaste would be unlikely to buy its weight loss products or become its distributors if they knew of the involvement of the fourth respondent in Chaste;
23.7.3it was the fact and he knew, but did not inform area managers or the public that it was his intention and the intention of the second respondent as the controllers of Chaste that gross income from sale of distributorships and goods by Chaste would be distributed to, or at the direction of the second and fourth respondents, and Chaste would not retain adequate funds to make good on the representations of future expenditure by Chaste;
23.7.4it was the fact and he knew, but did not inform area managers or the public that gross income from sale of distributorships and goods by Chaste had been distributed to, or at the direction of the second and fourth respondents, and Chaste did not retain adequate funds to make good on representations of future expenditure by Chaste;
23.7.5it was the fact, and the fourth respondent knew, that Chaste was operated by him and others for the purpose of:
23.7.5.1extracting the maximum revenue from area managers and purchase TRIMit only so that Chaste would receive money from those persons;
23.7.5.2inducing persons to become area managers and purchase TRIMit so that Chaste would receive money from those persons;
23.7.5.3distributing the fourth respondent and others the maximum possible gross income of Chaste necessary for Chaste to maintain the appearance in the short term of conducting a genuine business;
23.8representations to potential area managers that Chaste was a good business opportunity, while deliberately not revealing the involvement of the fourth respondent to area managers and potential area managers, and thereby misrepresenting the risks associated with Chaste’s business opportunity’
has, in respect of each representation, been directly knowingly concerned in a corporation engaging in conduct that was misleading and deceptive in contravention of section 52 of the Trade Practices Act 1974 (Cth).
24.The fourth respondent by, between December 1999 and November 2001, knowingly permitting, assisting and authorising a corporation in trade or commerce to enter into agreements for the supply of goods, namely weight loss tablets, together with point of sale material and other related products, under an agreement, one of the terms of which was that area managers to whom the goods were supplied would not sell the said goods at a price less than the price specified from time to time by Chaste, which term was drafted by the fourth respondent, has been directly knowingly concerned in Chaste engaging in the practice of resale price maintenance in contravention of s 48 of the Act.
25.The fourth respondent by, between December 1999 and November 2001, knowingly permitting, assisting and authorising a corporation to use in trade or commerce in relation to goods supplied by that corporation to area managers for resale, the statements:
(a)‘… the company will be solely responsible for fixing, from time to time, the recommended retail price and the price at which the area manager purchases stock’;
(b)‘… it is most important that a regulated price policy be adhered to in the interest of all parties involved.’
(c)‘… we have therefore established the following as the costing structure to be applied in all markets
PROFIT STRUCTURE
TRIMitTM
Area Manager Cost $19.50 Profit $10.00 51% Retailer Cost $29.50 Retailer Profit $20.45 70% Recommended Retail $49.95
(d)‘15. Who determines the price at which I sell my stock?
The company will set the recommended retail price and wholesale price that must be adhered to by all area managers. There must be no discounting or price cutting without the written permission of the company. This ensures everyone is protected from unnecessary price wars.’
(e)‘Cost to You…
What will TRIMit cost you?
Retailer Cost $32.45
Recommeded Retail $54.95
Retailer Profit $22.50
PROFIT 70%’being statements of prices that were likely to be understood by area managers as the prices below which the goods were not to be sold, has been directly knowingly concerned in Chaste engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
I order that:
26.The fourth respondent pay to the Commonwealth of Australia, within 45 days of the date of this order, a penalty of $150,000 in respect of his being knowingly concerned in the conduct of a corporation engaging in the practice of resale price maintenance in contravention of section 48 of the Trade Practices Act 1974 (Cth), as alleged in paragraphs 106 and 113(c) of the statement of claim.
27.The fourth respondent be restrained, for five years from the date of this order, from being directly or indirectly knowingly concerned in the promotion or conduct by a corporation of any business relating to weight loss, cosmetic or health industry products or services of any kind.
28.The fourth respondent be restrained, for five years from the date of this order from being directly or indirectly knowingly concerned in or party to, or aiding, abetting, counselling or procuring, a corporation, which supplies to another person products said to have health, weight loss or cosmetic benefits:
28.1inducing or attempting to induce that other person not to sell those products at a price less than the price specified by that corporation; or
28.2using in relation to those products a statement of price likely to be understood by that other person as a price below which the products are not to be sold.
29.The fourth respondent be restrained for a period of five years from the date of this order from in any manner being knowingly concerned in any corporation in trade or commerce, making, or permitting to be made, any representation as to the nature, quality, fitness for any purpose, testing, history, composition, standard, approval by any person, performance characteristics, uses or benefits of any good or service unless, prior to making the representation:
29.1he believes the representation to be true and accurate;
29.2the corporation informs the representee in writing of all information of which he is aware that refutes, qualifies or contradicts any part of the representation; and
29.3the corporation provides the representee with a copy of these orders or informs the representee of the existence of these orders and gives the representee the address of the Federal Court website, namely from which a copy of these orders can be obtained.
30.The fourth respondent be restrained for five years from the date of this order from being knowingly concerned in any corporation in trade or commerce making any representation as to the future payment by it of any sum to any person or the future by giving by it of any benefit to any person unless:
30.1he has made all necessary enquiries to satisfy himself that the corporation intends to make the payment or give the benefit and has reasonable grounds to believe it can make the payment or give the benefit; and
30.2he has fully recorded in writing the details of all matters he has relied upon in so satisfying himself (including the source of the information and the time it was obtained) and has retained copies of all documents relied upon.
31.The fourth respondent shall retain the records and copies of documents prepared by or relied on by him pursuant to order 30 above for at least six years from the date of this order and shall produce a complete and true copy of such material to the applicant upon request within seven days of receiving such a request.
32.The fourth respondent pay the applicant’s costs of and incidental to these proceedings as against him, such costs to be taxed if not agreed within 28 days of the date of this order.
In relation to the sixth respondent, Mr Cousins:
I declare that:33.The sixth respondent, having been engaged by and acted:
(a)from approximately March 2000 to April 2000 as a retained legal adviser to;
(b)from May 2000 to November 2000 as the manager and Chief Executive Officer of; and
(c)from November 2000 to November 2001 as legal advisor to:
a corporation engaged in the supply or possible supply in trade or commerce, through distributors (area managers) of a purported weight loss aid named TRIMit and having held himself out, and having permitted the corporation to hold him out as having these positions, by making on behalf of the corporation, or causing or permitting to be made on behalf of the corporation:
33.1a representation in documents provided to area managers and potential area managers that the corporation would promote TRIMit by an extensive national television, radio and magazine campaign with a forecast expenditure of over $1.5 million in the first year of sales and would further provide a national team of marketing, management and advertising experts to assist area managers when in fact and to his knowledge the corporation had no such plans or arrangements in place, had no apparent means of executing them, had not engaged the represented marketing, management and advertising experts, and the sixth respondent deliberately refrained from making the necessary enquiries to ascertain whether the corporation had the financial means to fund the represented expenditure;
33.2representations to area managers that delays in commencement of the said campaign were due to the actions of persons other than the corporation and its officers when in fact and to his knowledge the campaign had not proceeded because it had not been arranged or agreed to by the corporation and the corporation continually refused to pay deposits or other payments required for aspects of the campaign to proceed;
33.3a representation to area managers and potential area managers that if they wished to discontinue their distribution arrangement with the corporation, the corporation would, upon ninety days notice, repurchase all unsold stock and point of sale material supplied to the area manager and arrange a new area manager for the distribution area when in fact and to his knowledge during the period when the corporation was making the representation, the corporation and the sixth respondent wrote correspondents to area managers who sought to terminate their agreements, requiring them to continue to perform their obligations under the agreements, or refusing to refund their deposits in full, until such time as their areas were re-sold.
33.4representations that:
33.4.1 TRIMit was a thoroughly researched and scientifically tested product;
33.4.2 TRIMit’s efficacy as a weight loss product was without question;
33.4.3TRIMit (or an equivalent product) had been successfully launched in the United States and has been scientifically tested at eleven universities;
when in fact and to the knowledge of the sixth respondent TRIMit was a new and unique formulation and none of these matters were true;
33.5representations that:
33.5.1clinical studies had shown the combination of ingredients in TRIMit were 700% more effective than hydroxycitric acid alone;
33.5.2the corporation had the results of independent research into, scientific testing of, or independent clinical trials of TRIMit (or an equivalent product) which proved it was a quality product, safe to use and effective as a weight loss aid;
when in fact and to the knowledge of the sixth respondent, the corporation did not have such results, and such clinical trials as were conducted for the corporation were conducted without scientifically controlled conditions, and largely involved subjects who had an interest in the business of the corporation;
33.6representations that claims made by the corporation as to TRIMit’s potency, use and effectiveness had a scientific basis and Therapeutic Goods Act approval, when in fact and to the knowledge of the sixth respondent, the claims did not have a scientific basis, and such approval as was obtained under the Therapeutic Goods Act did not provide verification of the product’s efficacy;
33.7a representation to area managers and to the public that the corporation was a genuine business conducted on an ordinary commercial basis and that the opportunity offered by it to area managers was a genuine business opportunity when:
33.7.1it was the fact and he knew, but did not inform the pubic and area managers, that the fourth respondent had extensive involvement in the management and marketing of the said corporation;
33.7.2it was the fact and he was aware that the fourth respondent had convictions in relation to the unlawful sale and promotion of weight loss products;
33.7.3he was aware that the fourth respondent had a reputation as the instigator of dubious and failed schemes for profit for the conduct of businesses promoting and selling or purporting to sell purported slimming or weight loss products;
33.7.4he believed that if the public and potential area managers of the corporation knew of the involvement of the fourth respondent in the said corporation that they would be unlikely to buy its weight loss products or become its distributors;
33.7.5it was the fact and he knew that while allowing himself to be held out as chief executive officer of the corporation he was not authorised or empowered to make routine or day to day decisions in relation to the running of the company or to incur expenses or authorise payments without the express instruction of the second and fourth respondents;
33.7.6it was the fact and he knew that instructions given to him by the second and fourth respondents with which he complied, including as to correspondence to be sent to potential area managers, area managers and advertising agencies with whom the corporation was dealing, were contrary to what he believed to be proper business standards contrary to his own business ethics;
33.7.7it was the fact and he knew that communications to area managers which described him as being the chief executive officer and having the full authority of the role were untrue;
33.7.8it was the fact and he knew that invoices sent to the corporation by external persons who had carried out services for it were routinely not paid, or were partially paid or were queried or contested on grounds that he believed to be unreasonable and not genuine;
33.7.9it was the fact and he knew, but did not inform area managers or the public, that gross income from sale of distributorships and goods by the corporation had been distributed to, or at the direction of the second and fourth respondents but refrained from making any enquiry, as he should have in all the circumstances, as to whether there were any, or any adequate, funds to make good on representations on future expenditure by the corporation;
33.8representations to potential area managers that the corporation was a good business opportunity, while deliberately not revealing the involvement of the fourth respondent to area managers and potential area managers, and thereby misrepresenting the risks associated with the corporation’s business opportunity
has, in respect of each representation, been directly knowingly concerned in a corporation engaging in conduct that was misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth).
34.The sixth respondent by, between at least May 2000 and November 2001, knowingly permitting, assisting and authorising a corporation in trade or commerce to enter into agreements for the supply of goods, namely weight loss tablets, together with point of sale material and other related products, under an agreement, one of the terms of which was that area managers to whom the goods were supplied would not sell the said goods at a price less than the price specified from time to time by the corporation, has been directly knowingly concerned in the corporation engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
35.The sixth respondent by, between at least May 2000 and November 2001, knowingly permitting, assisting and authorising a corporation to use in trade or commerce in relation to goods supplied by that corporation to area managers for resale, the statements:
(a)‘… the company will be solely responsible for fixing, from time to time, the recommended retail price and the price at which the area manager purchases stock’;
(b)‘… it is most important that a regulated price policy be adhered to in the interest of all parties involved.’
(c)‘… we have therefore established the following as the costing structure to be applied in all markets
PROFIT STRUCTURE
TRIMitTM
Area Manager Cost $19.50 Profit $10.00 51% Retailer Cost $29.50 Retailer Profit $20.45 70% Recommended Retail $49.95 (d)‘15. Who determines the price at which I sell my stock?
The company will set the recommended retail price and wholesale price that must be adhered to by all area managers. There must be no discounting or price cutting without the written permission of the company. This ensures everyone is protected from unnecessary price wars.’
(e)‘Cost to You…
What will TRIMit cost you?
Retailer Cost $32.45
Recommeded Retail $54.95
Retailer Profit $22.50
PROFIT 70%’
being statements of prices that were likely to be understood by area managers as the prices below which the goods were not to be sold, has been directly knowingly concerned in Chaste engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
I order that:
36.The sixth respondent pay the Commonwealth of Australia a penalty of $100,000 in respect of his being knowingly concerned in the conduct of a corporation engaging in resale price maintenance in contravention of s 48 of the Trade Practices Act 1948 (Cth), as alleged in paragraphs 106 and 116(c) of the statement of claim. The $100,000 penalty to be payable over two years by four instalments of $25,000, the first to be made sixth months from 16 December 2005, and each of the further three instalments every six months thereafter. In default of any instalment, the full balance will be immediately due.
37.The sixth respondent be restrained, for five years from the date of this order, from being directly or indirectly knowingly concerned in or party to, or aiding, abetting, counselling or procuring, a corporation, which supplies to another person products said to have health, weight loss or cosmetic benefits:
37.1inducing or attempting to induce that other person not to sell those products at a price less than a price specified by that corporation; or
37.2using in relation to those products a statement of price likely to be understood by that other person as a price below which the products are not to be sold.
38.The sixth respondent be restrained, for five years from the date of this order, from promoting or taking part in any business in relation to weight loss or health industry products or services with which he knows or believes the fourth respondent to be directly or indirectly involved, unless he discloses to any prospective customer or franchisee of the business with whom he deals in the course of or in promotion of the business, his knowledge or belief as to the fact of, and the nature of, the involvement of the fourth respondent.
39.The sixth respondent be restrained for a period of five years from the date of this order from in any manner being knowingly concerned in any corporation (other than an incorporated legal practice) in trade or commerce, making or permitting to be made, any representation as to the nature, quality, fitness for any purpose, testing, history, composition, standard, approval by any person, performance characteristics, uses or benefits of any good or service unless, prior to making the representation, he:
39.1believes the representation to be true and accurate;
39.2informs the representee of his qualifications and expertise relevant to the subject matter of the representation;
39.3informs the representee of all information of which he is aware that refutes or contradicts any part of the representation; and
39.4provides the representee with a copy of these orders or informs the representee of the existence of these orders and gives the representee the address of the Federal Court website, namely from which a copy of these orders can be obtained.
40.The sixth respondent be restrained for five years from the date of this order from being knowingly concerned in any corporation in trade or commerce making any representation as to the future payment by it of any sum to any person or the future giving by it of any benefit to any person unless:
40.1he has made all necessary enquiries to satisfy himself that the corporation intends to make the payment or give the benefit and has reasonable grounds to believe it can make the payment or give the benefit; and
40.2he has fully recorded in writing the details of all matters he has relied upon in so satisfying himself (including the source of the information and the time it was obtained) and has retained copies of all documents relied upon.
41.The sixth respondent shall retain the records and copies of documents prepared by or relied on by him pursuant to order 40 above for at least six years from the date of this order and shall produce a complete and true copy of such material to the applicant upon request within seven days of receiving any such request.
42.The sixth respondent pay the applicant’s costs of and incidental to these proceedings as against him in the agreed amount of $25,000, which amount is from the date of these orders a debt due and payable to the applicant on 2 September 2005.
In relation to the eighth respondent, Mr McMullan:
I order that:43.The eighth respondent pay to the Commonwealth of Australia, a penalty of $30,000 in respect of his ancillary involvement in a corporation engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth), as alleged in paragraphs 106 and 117(c) of the statement of claim, such penalty to be paid as follows:
43.1the amount of $15,000 on or before 14 June 2008;
43.2the further amount of $15,000 on or before 14 June 2010;
save that should the first instalment not be paid on or before the due date, the full amount of $30,000 becomes due and payable immediately.
44.The eighth respondent be restrained, for a period of three years, from being directly or indirectly knowingly concerned in or party to, or aiding, abetting, counselling or procuring, a corporation, which supplies to another person products said to have health, weight loss or cosmetic benefits:
44.1inducing or attempting to induce the other person not to sell those products at a price less than a price than a price specified by that corporation; or
44.2using in relation to those products a statement of price likely to be understood by that other person as a price below which the products are not to be sold.
45.The eighth respondent be restrained, for a period of three years, from promoting or taking part in any business in relation to weight loss or health industry products or services with which he knows or believes the fourth respondent to be directly or indirectly involved, unless he discloses to any prospective customer or franchisee of the business with whom he deals in the course of or in promotion of the business, his knowledge or belief as to the fact of, and the nature of, the involvement of the fourth respondent.
46.The eighth respondent pay the applicant’s costs of an incidental to these proceedings in the agreed amount of $20,000, to be paid as follows:
46.1the amount of $10,000 on or before 14 June 2008;
46.2the further amount of $10,000 on or before 14 June 2010;
save that should the first instalment not be paid on or before the due date, the full amount of $20,000 becomes due and payable immediately.
In relation to the ninth respondent, Mr Cooper:
I order that:47.The ninth respondent be restrained, for a period of three years, from promoting or taking part in any business in relation to weight loss or health industry products or services with which he knows or believes the fourth respondent to be directly or indirectly involved, unless he discloses to any prospective customer or franchisee of the business with whom he deals in the course of or in promotion of the business, his knowledge or belief as to the fact of, and the nature of, the involvement of the fourth respondent.
48.The ninth respondent pay the applicant’s costs of and incidental to these proceedings in the agreed amount of $3,000, such amount to be paid in equal monthly instalments of $50 on or before the 15 day of each month, commencing on 15 September 2005 and concluding 15 August 2010, save that if any instalment is not paid on or before the due date the entire amount of the $3,000 then unpaid becomes immediately due and payable.
In relation to the tenth respondent, Dr D’Alton:
I declare that:
49.The tenth respondent, having been between December 1999 and November 2001 engaged by a corporation as a consultant to assist with the supply or possible supply in trade or commerce of a purported weight loss aid called TRIMit and at all material times permitting that corporation to hold him out, and holding himself out, to the public and to area managers of that corporation as its Research Director and as Chairman of its Market Research and Development Committee; and
49.1assisting that corporation in the drafting of, and authorising and consenting to the publication and making by that corporation the following representations, namely:
49.1.1that the corporation was marketing a new product, TRIMit, which had been successfully launched in the United States, when in fact and to his knowledge the TRIMit tablet had not been launched in the United States successfully or at all;
49.1.2that TRIMit had been scientifically tested at 11 Universities and was found to be safe and effective, when in fact and to his knowledge the TRIMit tablet, or a product with the specifications of the TRIMit tablet, had not been scientifically tested at 11 universities or at all;
49.1.3that the efficacy of TRIMit as a diet pill was beyond question, that TRIMit was an effective weight loss aid, and that TRIMit was a quality product thoroughly researched and scientifically proven as a weight loss aid, when in fact and to his knowledge the corporation had not conducted and was not in receipt of results of independent research into specific testing or independent clinical trails of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was a quality product, safe to use and effective as a weight loss aid;
49.1.4that the unique combination of ingredients in TRIMit ensured that the pill was 700% more effective than if it contained HCA only, when in fact and to his knowledge the corporation was not in receipt of results of independent research to this effect, but he complied a report summarising the findings of some overseas research reports on products none of which had the specifications or comparable specifications of TRIMit;
49.1.5that comprehensive clinical trials had been conducted by the tenth respondent on patients in Australia with respect to the use of the product TRIMit, and the clinical trials scientifically proved that the product TRIMit is an effective diet pill or weight loss aid, when in fact and to his knowledge the corporation had not conducted independent clinical trials of TRIMit; and the human trials conducted by him were in fact and to his knowledge conducted without scientifically controlled conditions and largely amongst persons who had an interest in the success of the corporation business or their associates;
49.1.6that Australian scientists analysed the research, conducted over three decades, into the three active ingredients in TRIMit, when in fact and to his knowledge he compiled a report summarising the findings of some overseas research reports on products none of which had the specifications or comparable specifications of TRIMit;
49.1.7that he was the leader of a scientific research team which:
(a)for three years, investigated the formulation of TRIMit;
(b)devised an effective blend of compounds used in the formulation of TRIMit;
(c)devised a manufacturing process that resulted in the most effective diet tablet in the world;
when in fact and to his knowledge he did not lead any scientific research team which accomplished these tasks or any other tasks and he had no scientific qualification to undertake such research.
49.1.8That:
(a)the use of the product TRIMit generates rapid weight loss, and inhibits the production of fat in the body;
(b)TRIMit had been thoroughly researched, and tested worldwide; and
(c)TRIMit was a potent pill with no side effects;
when in fact and to his knowledge the corporation and not conducted and was not in receipt of results of the independent research into or scientific testing or independent clinical trials of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was effective as a weight loss aid;
49.1.9That he had conducted controlled clinical trials of TRIMit, using 24 persons randomly selected, when the human trials were in fact and to his knowledge conducted without scientifically controlled conditions and largely amongst persons who had an interest in the success of the corporation business or their associates;
49.1.10That the methodology of the trial followed established protocols that are accepted by the Therapeutic Goods Administration and the Australian Bureau of Statistics, when in fact and to his knowledge the corporation had not conducted independent clinical trials in accordance with protocols established under the Therapeutic Goods Act 1989 (Cth) or used by the Australian Bureau of Statistics.
49.1.11That:
(a)scientific evidence supported the finding that taking the recommended dosage of TRIMit without a specific dietary regime or exercise plan would result in weight loss;
(b)that the product had been scientifically tested; and
(c)that the product had been scientifically and statistically proven to be effective as a diet pill or a weight loss aid;
when in fact and to his knowledge the corporation had not conducted and was not in receipt of results of independent research into or scientific testing or independent clinical trials of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was effective as a weight loss aid;
49.1.12that the research results of eight trials reported on by him were analogous to the use of TRIMit and supported the use of TRIMit as a weight loss aid, when in fact and to his knowledge:
(a)he compiled a report summarising the findings of some overseas research reports on products none of which had the specifications of TRIMit;
(b)he did not include or mention in his report, published reports by the American Medical Association and the Australian Medical Association which contradicted the reports he summarised;
(c)he did not mention in his report that the research reports suggesting efficacy of ingredients that were components of TRIMit to which he referred, had been prepared by employees of the manufacturers of those ingredients;
(d)he knew that, even if the purportedly active ingredient HCA had a weight loss effect, TRIMit contained half or less than half of the amount of HCA than tablets used in research overseas;
49.2assisting the corporation in drafting the test of, and making as spokesperson for the corporation the following representations, namely:
49.2.1that clinical trials under scientifically controlled conditions were currently being conducted to test the effectiveness of TRIMit as a weight loss aid, when in fact and to his knowledge the human trials were conducted without scientifically controlled conditions and largely amongst persons who had an interest in the success of the coporation business or their associates;
49.2.2that taking TRIMit promoted the burning of fact, and inhibited the production of fat through inhibiting the enzyme citrate lyase, when in fact and to his knowledge the corporation had not conducted and was not in receipt of results of independent research into or scientific testing or independent clinical trials of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was effective as a weight loss aid;
49.2.3that TRIMit and the claims made of its use and effectiveness were approved under the Therapeutic Goods Act 1989 (Cth) when in fact and to his knowledge the claims did not have that approval;
49.2.4that TRIMit had been developed and perfected in Australia over three years of tedious trial and error, when in fact this was not true and the tenth respondent had no knowledge of any basis for this assertion;
49.2.5that TRIMit was the most effective diet pill possible with the science then available, when in fact and to his knowledge the corporation had not conducted and was not in receipt of results of independent research into or scientific testing or independent clinical trials of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was effective as a weight loss aid;
49.2.6that controlled clinical trials had been conducted in Australia, and the clinical trials followed the protocols accepted by the Therapeutic Goods Administration and the Australian Bureau of Statistics, when in fact and to his knowledge the corporation had not conducted research or scientific testing or independent clinical trials in accordance with protocols established under the Therapeutic Goods Act 1989 (Cth) or used by the Australian Bureau of Statistics or at all;
has:
49.3in respect of each representation, been knowingly concerned in the corporation, in trade or commerce, engaging in conduct that is misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth);
49.4in respect of representations 49.1.1, 49.1.3, 49.1.4, 49.1.7, 49.1.10, 49.2.2, 49.2.4 and 49.2.5, been knowingly concerned in the corporation in trade or commerce, in connection with the supply or possible supply of goods made false representations as to the quality and composition of those goods in contravention of s 53(a) of the Trade Practices Act 1974 (Cth);
49.5in respect of representations 49.1.1 to 49.1.4, 49.1.7, 49.1.10, 49.2.2, 49.2.4 and 49.2.5, been knowingly concerned in the corporation, in trade or commerce, represented that goods have approval, performance characteristics, uses and benefits they do not have in contravention of s 53(c) of the Trade Practices Act 1974 (Cth).
50.The tenth respondent, by representing and permitting and assisting others to represent, on behalf of a corporation, in trade or commerce, to the public and to area managers of the corporation that the corporation was a genuine business conducted on an ordinary commercial basis and that the opportunity offered by it to area managers was a genuine business opportunity when:
50.1the circumstances set out in the preceding declaration, to his knowledge, obtained;
50.2it was the fact and he knew, but did not inform the public and area managers, that the fourth respondent had extensive involvement in the management and marketing of the said corporation;
50.3he believed that if the public and area managers of the corporation knew of the involvement of the fourth respondent in the said corporation they would be unlikely to buy its weight loss products or remain its distributors;
has been directly knowingly concerned in a corporation engaging in conduct that was misleading and deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth).
I order that:
51.The tenth respondent be restrained for 5 years from the date of this order from in any manner being knowingly concerned in any corporation in trade or commerce, making, or permitting to be made, any representation as to the nature, quality, fitness for any purpose, testing, history, composition, standard, approval by any person, performance characteristics, uses or benefits of any good or service unless, prior to making the representation, he:
51.1believes the representation to be true and accurate;
51.2informs the representee of his qualifications and expertise relevant to the subject matter of the representation;
51.3informs the representee of all information of which he is aware that refutes or contradicts any part of the representation; and
51.4provides the representee with a copy of these orders or informs the representee of the existence of the orders and gives the representee the address of the Federal Court website, namely from which a copy of these orders can be obtained.
52.The tenth respondent pay the applicant’s costs of and incidental to these proceedings as against him agreed in the sum of $20,000 to be paid in the following instalments:
52.1$5,000 on or before 14 September 2005;
52.2$5,000 on or before 14 October 2005;
52.3$5,000 on or before 14 November 2005;
52.4$5,000 on or before 14 December 2005,
save that if any instalment is not paid on or by the due date the whole amount outstanding is immediately due and payable.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
QUEENSLAND DISTRICT REGISTRY
QUD 252 OF 2001
BETWEEN:
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANTAND:
CHASTE CORPORATION PTY LTD (IN LIQUIDATION) (ACN 089 837 329)
FIRST RESPONDENTBRADDON RALPH WEBB
SECOND RESPONDENTORLAWOOD PTY LTD (ACN 059 294 334)
THIRD RESPONDENTPETER CLARENCE FOSTER
FOURTH RESPONDENTSEAN PETRIE ALLEN COUSINS
SIXTH RESPONDENTKEVIN ANTHONY MCMULLAN
EIGHTH RESPONDENTALAN KENNETH COOPER
NINTH RESPONDENTSTEPHEN D’ALTON
TENTH RESPONDENT
JUDGE:
LANDER J
DATE:
2 SEPTEMBER 2005
PLACE:
ADELAIDE (HEARD IN BRISBANE)
REASONS FOR JUDGMENT
THE HISTORY OF THE PROCEEDINGS
This case concerns an application for injunctions, declarations and pecuniary penalties in relation to contraventions of the Trade Practices Act 1974 (Cth) (the Act) that arose in relation to the supply of, and services in connection with, a weight loss product called TRIMit and associated goods.
On 16 September 2002 the applicant filed an amended application in these proceedings in which it sought:
‘… injunctions, declarations, pecuniary penalties and other orders pursuant to ss 76 and 80 of the Trade Practices Act 1974 (“the Act”) and s 21 of the Federal Court of Australia Act 1976 against the first respondent in respect of conduct in connection with the supply of weight loss products, in contravention of ss 48, 51AA or 51AC, 51AD, 52, 53(a), 53(aa), 53(c), 53(g) and 59(2) of the Act, and the second, third, fourth, fifth, sixth, seventh, eighth, ninth and tenth respondents being involved in that conduct for the purposes of ss 76 and 80 of the Act.’
When this matter came before me on 14 June 2005, the applicant indicated that it did not wish to proceed with claims in respect of contraventions of ss 51AA or 51AC of the Act.
There are two quite separate aspects to the applicant’s case. The first is that some, but not all, of the respondents contravened Part IV of the Act and, in particular, s 48 of the Act by engaging in the practice of resale price maintenance with the first respondent’s area managers. None of the respondents are former area managers. A contravention of Part IV of the Act makes the contravener liable to a civil penalty. The applicant seeks a civil penalty against those respondents who the applicant claims breached Part IV of the Act. The second aspect of the applicant’s claim concerns alleged contraventions of Part V of the Act and, in particular s 52 of the Act. It is alleged that some of the respondents breached Part V of the Act in making or been knowingly concerned in making misleading and deceptive statements to those persons who became area managers. In this aspect of the applicant’s case, the area managers are treated as the victims. The applicant does not seek damages in regard to these contraventions but declarations and injunctions.
At the trial, the applicant indicated that it had reached agreement as to appropriate terms of the resolution of the proceedings with almost all of the respondents.
In relation to the first respondent, the applicant did not press for injunctive relief nor for declaratory or other relief in relation to claims pertaining to the alleged contraventions by the first respondent of Part V of the Act. Rather, the applicant limited its claim to a pecuniary penalty and declarations in relation to the s 48 (resale price maintenance) contraventions.
By letter dated 31 July 2003 the liquidator of the first respondent advised the applicant that it did not have the funds to appear, defend or contest this matter at trial. By facsimile dated 16 June 2005 the liquidator further advised that he had no objection to the applicant’s submissions and proposed orders being put before the Court by way of resolution of the proceedings against the first respondent. There was no appearance by the first respondent.
The second and third respondents filed defences in the proceedings but neither filed any affidavit material to support the defences. Neither appeared at the hearing to make submissions or contest the applicant’s case. The applicant sought declaratory and injunctive relief against both the second and third respondents and a pecuniary penalty against the second respondent only.
Both claims remained against the fourth respondent, Mr Foster. However, at trial the fourth respondent conceded that he had contravened s 48 of the Act. The only issue in relation to the resale price maintenance claim was thus the quantum of the pecuniary penalty. In relation to the s 52 claim, the applicant sought declaratory and injunctive orders. The fourth respondent objected to the making of the declaratory orders. However, he indicated that he agreed to the terms of the injunctive orders sought.
On 14 November 2003, pursuant to orders made by Spender J, the proceedings were discontinued against the fifth respondent.
At the trial, the applicant and the sixth respondent presented joint submissions in relation to the injunctions and declarations sought in respect of the s 48 and the s 52 contraventions. The sixth respondent agreed that he had contravened s 48 of the Act and that a penalty of $100,000 should be imposed. The only issue that remained was the sixth respondent’s capacity to pay the agreed penalty. On the third day of trial, joint submissions were presented in relation to the quantum of the penalty and the time frame within which it was agreed to be paid. In light of this, it was put to me that it was unnecessary to make findings in relation to the sixth respondent’s conduct.
At the commencement of the trial, the applicant advised that the action against the seventh respondent had been disposed of.
The eighth respondent did not enter an appearance in the proceedings. On 1 August 2003, pursuant to an order made by Spender J, the applicant was given liberty to apply in three working days’ notice for summary judgment against the eighth respondent. At the commencement of trial, the applicant indicated that it intended to proceed and prove the case against the eighth respondent. The eighth respondent filed a defence to the action four days prior to the commencement of the trial. On the first day of the trial, he indicated that he did not have the funds to defend the action. I adjourned the trial to give the applicant and the eighth respondent an opportunity to resolve the matter between themselves. On the resumption of the hearing, the applicant indicated that agreement had been reached with the eighth respondent in relation to the applicant’s claim that the eighth respondent had contravened s 48 of the Act. The applicant and the eighth respondent presented the Court with a statement of agreed facts and joint submissions in relation to penalty and consent orders for injunctions.
The ninth respondent did not appear at the trial. In an affidavit sworn on 12 June 2005 the ninth respondent deposed that he did not have the funds to travel from New Zealand to appear at the hearing. Arrangements were put in place for him to appear via video-link. However, the video-link became unnecessary when the ninth respondent indicated that he would consent to orders in the terms that were presented on the third day of the trial. The applicant did not allege that the ninth respondent had contravened Part IV of the Act and, accordingly, no penalty was sought.
The tenth respondent appeared at the first day of trial and indicated that he had reached substantial agreement as to terms of settlement with the applicant and that he would like to resolve the matter as quickly as possible. The claim against the tenth respondent was limited to Part V contraventions. On the second day of hearing, the applicant presented me with declarations and orders to which the tenth respondent consented.
In light of the above, it is only necessary for me to make findings in relation to the first, second, third and fourth respondents.
BACKGROUND FACTS
From 5 October 1999 until 3 December 2001 the first respondent, Chaste Corporation Pty Ltd (in liquidation) (‘Chaste’) carried on a business as the manufacturer of a weight loss tablet called TRIMit and associated goods and services in accordance with a scheme devised by the fourth respondent, Mr Peter Foster and the second respondent, Mr Braddon Webb.
Mr Webb was the sole registered director and secretary of Chaste. The third respondent, Orlawood Pty Ltd (‘Orlawood’) was the company’s sole registered shareholder. Orlawood was also the trustee for the Webb Family Discretionary Trust (‘WFDT’). WFDT was the registered beneficial owner of the sole share in Chaste. Orlawood was a family company of Mr Webb.
On 6 October 1999 a number of agreements were entered into between Chaste, WFDT and an entity known as the World Maps Marketing Trust (‘WMMT’). Pursuant to one of the agreements, WMMT purportedly licensed to Chaste the intellectual property in the product TRIMit within Australia and New Zealand. The licence was said to be ‘irrevocable’ and included the right to sub-license the intellectual property to market, inter alia, TRIMit within Australia and New Zealand. Mr Webb signed the agreement as director of Chaste. The fifth respondent, Jill Foster, the sister of the fourth respondent, signed on behalf of WMMT. The fourth respondent has admitted that he controlled WMMT.
The sole shareholder of Chaste was Orlawood. The disclosed beneficial owner was WFDT. However, on 6 October 1999, WMMT and WFDT entered into an agreement whereby they would hold the issued capital of Chaste beneficially in the ratio 75:25. The agreement provided that WMMT would provide ‘marketing, promotional and selling expertise’. WFDT was to provide $96,000 together with ‘marketing, promotional and selling expertise’. WFDT would act as managing director, secretary and public officer of the company. On the same day, Chaste entered into an agreement with WMMT whereby WMMT was to become Chaste’s consultant in return for 75 per cent of Chaste’s ‘operating profits’ and reimbursement of all expenses.
Yet another agreement was entered into, again on the same day, in which Chaste employed WFDT as a consultant on similar terms to those in the agreement between Chaste and WMMT in return in this case for WFDT receiving 25 per cent of the company’s operating profits and reimbursement of all expenses.
Thus it was that Chaste was entirely controlled by the fourth respondent, Mr Foster and the second respondent, Mr Webb, and those two gentlemen, through the entities which they controlled, namely, WMMT and WFDT, would receive respectively 75 per cent and 25 per cent of the profits.
The initial capital was provided by WFDT (Mr Webb) in the sum of $96,000.
As far as a bystander was concerned, Chaste was entirely controlled by Mr Webb. No bystander could have known that there were agreements in place between the second and third respondents and the fourth respondent, and an entity controlled by the fourth respondent which gave control of Chaste to Mr Foster.
In relation to the sixth respondent, Mr Cousins:
I declare that:
33. The sixth respondent, having been engaged by and acted:
(a)from approximately March 2000 to April 2000 as a retained legal adviser to;
(b)from May 2000 to November 2000 as the manager and Chief Executive Officer of; and
(c) from November 2000 to November 2001 as legal advisor to:
a corporation engaged in the supply or possible supply in trade or commerce, through distributors (area managers) of a purported weight loss aid named TRIMit and having held himself out, and having permitted the corporation to hold him out as having these positions, by making on behalf of the corporation, or causing or permitting to be made on behalf of the corporation:33.1a representation in documents provided to area managers and potential area managers that the corporation would promote TRIMit by an extensive national television, radio and magazine campaign with a forecast expenditure of over $1.5 million in the first year of sales and would further provide a national team of marketing, management and advertising experts to assist area managers when in fact and to his knowledge the corporation had no such plans or arrangements in place, had no apparent means of executing them, had not engaged the represented marketing, management and advertising experts, and the sixth respondent deliberately refrained from making the necessary enquiries to ascertain whether the corporation had the financial means to fund the represented expenditure;
33.2representations to area managers that delays in commencement of the said campaign were due to the actions of persons other than the corporation and its officers when in fact and to his knowledge the campaign had not proceeded because it had not been arranged or agreed to by the corporation and the corporation continually refused to pay deposits or other payments required for aspects of the campaign to proceed;
33.3a representation to area managers and potential area managers that if they wished to discontinue their distribution arrangement with the corporation, the corporation would, upon ninety days notice, repurchase all unsold stock and point of sale material supplied to the area manager and arrange a new area manager for the distribution area when in fact and to his knowledge during the period when the corporation was making the representation, the corporation and the sixth respondent wrote correspondents to area managers who sought to terminate their agreements, requiring them to continue to perform their obligations under the agreements, or refusing to refund their deposits in full, until such time as their areas were re-sold.
33.4representations that:
33.4.1TRIMit was a thoroughly researched and scientifically tested product;
33.4.2TRIMit’s efficacy as a weight loss product was without question;
33.4.3TRIMit (or an equivalent product) had been successfully launched in the United States and has been scientifically tested at eleven universities;
when in fact and to the knowledge of the sixth respondent TRIMit was a new and unique formulation and none of these matters were true;
33.5representations that:
33.5.1clinical studies had shown the combination of ingredients in TRIMit were 700% more effective than hydroxycitric acid alone;
33.5.2the corporation had the results of independent research into, scientific testing of, or independent clinical trials of TRIMit (or an equivalent product) which proved it was a quality product, safe to use and effective as a weight loss aid;
when in fact and to the knowledge of the sixth respondent, the corporation did not have such results, and such clinical trials as were conducted for the corporation were conducted without scientifically controlled conditions, and largely involved subjects who had an interest in the business of the corporation;
33.6representations that claims made by the corporation as to TRIMit’s potency, use and effectiveness had a scientific basis and Therapeutic Goods Act approval, when in fact and to the knowledge of the sixth respondent, the claims did not have a scientific basis, and such approval as was obtained under the Therapeutic Goods Act did not provide verification of the product’s efficacy;
33.7a representation to area managers and to the public that the corporation was a genuine business conducted on an ordinary commercial basis and that the opportunity offered by it to area managers was a genuine business opportunity when:
33.7.1it was the fact and he knew, but did not inform the pubic and area managers, that the fourth respondent had extensive involvement in the management and marketing of the said corporation;
33.7.2it was the fact and he was aware that the fourth respondent had convictions in relation to the unlawful sale and promotion of weight loss products;
33.7.3he was aware that the fourth respondent had a reputation as the instigator of dubious and failed schemes for profit for the conduct of businesses promoting and selling or purporting to sell purported slimming or weight loss products;
33.7.4he believed that if the public and potential area managers of the corporation knew of the involvement of the fourth respondent in the said corporation that they would be unlikely to buy its weight loss products or become its distributors;
33.7.5it was the fact and he knew that while allowing himself to be held out as chief executive officer of the corporation he was not authorised or empowered to make routine or day to day decisions in relation to the running of the company or to incur expenses or authorise payments without the express instruction of the second and fourth respondents;
33.7.6it was the fact and he knew that instructions given to him by the second and fourth respondents with which he complied, including as to correspondence to be sent to potential area managers, area managers and advertising agencies with whom the corporation was dealing, were contrary to what he believed to be proper business standards contrary to his own business ethics;
33.7.7it was the fact and he knew that communications to area managers which described him as being the chief executive officer and having the full authority of the role were untrue;
33.7.8it was the fact and he knew that invoices sent to the corporation by external persons who had carried out services for it were routinely not paid, or were partially paid or were queried or contested on grounds that he believed to be unreasonable and not genuine;
33.7.9it was the fact and he knew, but did not inform area managers or the public, that gross income from sale of distributorships and goods by the corporation had been distributed to, or at the direction of the second and fourth respondents but refrained from making any enquiry, as he should have in all the circumstances, as to whether there were any, or any adequate, funds to make good on representations on future expenditure by the corporation;
33.8representations to potential area managers that the corporation was a good business opportunity, while deliberately not revealing the involvement of the fourth respondent to area managers and potential area managers, and thereby misrepresenting the risks associated with the corporation’s business opportunity
has, in respect of each representation, been directly knowingly concerned in a corporation engaging in conduct that was misleading or deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth).
34.The sixth respondent by, between at least May 2000 and November 2001, knowingly permitting, assisting and authorising a corporation in trade or commerce to enter into agreements for the supply of goods, namely weight loss tablets, together with point of sale material and other related products, under an agreement, one of the terms of which was that area managers to whom the goods were supplied would not sell the said goods at a price less than the price specified from time to time by the corporation, has been directly knowingly concerned in the corporation engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
35.The sixth respondent by, between at least May 2000 and November 2001, knowingly permitting, assisting and authorising a corporation to use in trade or commerce in relation to goods supplied by that corporation to area managers for resale, the statements:
(a)‘… the company will be solely responsible for fixing, from time to time, the recommended retail price and the price at which the area manager purchases stock’;
(b)‘… it is most important that a regulated price policy be adhered to in the interest of all parties involved.’
(c)‘… we have therefore established the following as the costing structure to be applied in all markets
PROFIT STRUCTURE
TRIMitTM
Area Manager Cost $19.50 Profit $10.00 51% Retailer Cost $29.50 Retailer Profit $20.45 70% Recommended Retail $49.95
(d) ‘15. Who determines the price at which I sell my stock?
The company will set the recommended retail price and wholesale price that must be adhered to by all area managers. There must be no discounting or price cutting without the written permission of the company. This ensures everyone is protected from unnecessary price wars.’
(e)‘Cost to You…
What will TRIMit cost you?
Retailer Cost $32.45
Recommeded Retail $54.95
Retailer Profit $22.50
PROFIT 70%’
being statements of prices that were likely to be understood by area managers as the prices below which the goods were not to be sold, has been directly knowingly concerned in Chaste engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth).
I order that:
36.The sixth respondent pay the Commonwealth of Australia a penalty of $100,000 in respect of his being knowingly concerned in the conduct of a corporation engaging in resale price maintenance in contravention of s 48 of the Trade Practices Act 1948 (Cth), as alleged in paragraphs 106 and 116(c) of the statement of claim. The $100,000 penalty to be payable over two years by four instalments of $25,000, the first to be made sixth months from 16 December 2005, and each of the further three instalments every six months thereafter. In default of any instalment, the full balance will be immediately due.
37.The sixth respondent be restrained, for five years from the date of this order, from being directly or indirectly knowingly concerned in or party to, or aiding, abetting, counselling or procuring, a corporation, which supplies to another person products said to have health, weight loss or cosmetic benefits:
37.1inducing or attempting to induce that other person not to sell those products at a price less than a price specified by that corporation; or
37.2using in relation to those products a statement of price likely to be understood by that other person as a price below which the products are not to be sold.
38.The sixth respondent be restrained, for five years from the date of this order, from promoting or taking part in any business in relation to weight loss or health industry products or services with which he knows or believes the fourth respondent to be directly or indirectly involved, unless he discloses to any prospective customer or franchisee of the business with whom he deals in the course of or in promotion of the business, his knowledge or belief as to the fact of, and the nature of, the involvement of the fourth respondent.
39.The sixth respondent be restrained for a period of five years from the date of this order from in any manner being knowingly concerned in any corporation (other than an incorporated legal practice) in trade or commerce, making or permitting to be made, any representation as to the nature, quality, fitness for any purpose, testing, history, composition, standard, approval by any person, performance characteristics, uses or benefits of any good or service unless, prior to making the representation, he:
39.1 believes the representation to be true and accurate;
39.2informs the representee of his qualifications and expertise relevant to the subject matter of the representation;
39.3informs the representee of all information of which he is aware that refutes or contradicts any part of the representation; and
39.4provides the representee with a copy of these orders or informs the representee of the existence of these orders and gives the representee the address of the Federal Court website, namely from which a copy of these orders can be obtained.
40.The sixth respondent be restrained for five years from the date of this order from being knowingly concerned in any corporation in trade or commerce making any representation as to the future payment by it of any sum to any person or the future giving by it of any benefit to any person unless:
40.1he has made all necessary enquiries to satisfy himself that the corporation intends to make the payment or give the benefit and has reasonable grounds to believe it can make the payment or give the benefit; and
40.2he has fully recorded in writing the details of all matters he has relied upon in so satisfying himself (including the source of the information and the time it was obtained) and has retained copies of all documents relied upon.
41.The sixth respondent shall retain the records and copies of documents prepared by or relied on by him pursuant to order 40 above for at least six years from the date of this order and shall produce a complete and true copy of such material to the applicant upon request within seven days of receiving any such request.
42.The sixth respondent pay the applicant’s costs of and incidental to these proceedings as against him in the agreed amount of $25,000, which amount is from the date of these orders a debt due and payable to the applicant on 2 September 2005.
In relation to the eighth respondent, Mr McMullan:
I order that:
43.The eighth respondent pay to the Commonwealth of Australia, a penalty of $30,000 in respect of his ancillary involvement in a corporation engaging in the practice of resale price maintenance in contravention of s 48 of the Trade Practices Act 1974 (Cth), as alleged in paragraphs 106 and 117(c) of the statement of claim, such penalty to be paid as follows:
43.1 the amount of $15,000 on or before 14 June 2008;
43.2 the further amount of $15,000 on or before 14 June 2010;
save that should the first instalment not be paid on or before the due date, the full amount of $30,000 becomes due and payable immediately.44.The eighth respondent be restrained, for a period of three years, from being directly or indirectly knowingly concerned in or party to, or aiding, abetting, counselling or procuring, a corporation, which supplies to another person products said to have health, weight loss or cosmetic benefits:
44.1inducing or attempting to induce the other person not to sell those products at a price less than a price than a price specified by that corporation; or
44.2using in relation to those products a statement of price likely to be understood by that other person as a price below which the products are not to be sold.
45.The eighth respondent be restrained, for a period of three years, from promoting or taking part in any business in relation to weight loss or health industry products or services with which he knows or believes the fourth respondent to be directly or indirectly involved, unless he discloses to any prospective customer or franchisee of the business with whom he deals in the course of or in promotion of the business, his knowledge or belief as to the fact of, and the nature of, the involvement of the fourth respondent.
46.The eighth respondent pay the applicant’s costs of an incidental to these proceedings in the agreed amount of $20,000, to be paid as follows:
46.1 the amount of $10,000 on or before 14 June 2008;
46.2 the further amount of $10,000 on or before 14 June 2010;
save that should the first instalment not be paid on or before the due date, the full amount of $20,000 becomes due and payable immediately.In relation to the ninth respondent, Mr Cooper:
I order that:
47.The ninth respondent be restrained, for a period of three years, from promoting or taking part in any business in relation to weight loss or health industry products or services with which he knows or believes the fourth respondent to be directly or indirectly involved, unless he discloses to any prospective customer or franchisee of the business with whom he deals in the course of or in promotion of the business, his knowledge or belief as to the fact of, and the nature of, the involvement of the fourth respondent.
48.The ninth respondent pay the applicant’s costs of and incidental to these proceedings in the agreed amount of $3,000, such amount to be paid in equal monthly instalments of $50 on or before the 15 day of each month, commencing on 15 September 2005 and concluding 15 August 2010, save that if any instalment is not paid on or before the due date the entire amount of the $3,000 then unpaid becomes immediately due and payable.
In relation to the tenth respondent, Dr D’Alton:
I declare that:
49.The tenth respondent, having been between December 1999 and November 2001 engaged by a corporation as a consultant to assist with the supply or possible supply in trade or commerce of a purported weight loss aid called TRIMit and at all material times permitting that corporation to hold him out, and holding himself out, to the public and to area managers of that corporation as its Research Director and as Chairman of its Market Research and Development Committee; and
49.1assisting that corporation in the drafting of, and authorising and consenting to the publication and making by that corporation the following representations, namely:
49.1.1that the corporation was marketing a new product, TRIMit, which had been successfully launched in the United States, when in fact and to his knowledge the TRIMit tablet had not been launched in the United States successfully or at all;
49.1.2that TRIMit had been scientifically tested at 11 Universities and was found to be safe and effective, when in fact and to his knowledge the TRIMit tablet, or a product with the specifications of the TRIMit tablet, had not been scientifically tested at 11 universities or at all;
49.1.3that the efficacy of TRIMit as a diet pill was beyond question, that TRIMit was an effective weight loss aid, and that TRIMit was a quality product thoroughly researched and scientifically proven as a weight loss aid, when in fact and to his knowledge the corporation had not conducted and was not in receipt of results of independent research into specific testing or independent clinical trails of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was a quality product, safe to use and effective as a weight loss aid;
49.1.4that the unique combination of ingredients in TRIMit ensured that the pill was 700% more effective than if it contained HCA only, when in fact and to his knowledge the corporation was not in receipt of results of independent research to this effect, but he complied a report summarising the findings of some overseas research reports on products none of which had the specifications or comparable specifications of TRIMit;
49.1.5that comprehensive clinical trials had been conducted by the tenth respondent on patients in Australia with respect to the use of the product TRIMit, and the clinical trials scientifically proved that the product TRIMit is an effective diet pill or weight loss aid, when in fact and to his knowledge the corporation had not conducted independent clinical trials of TRIMit; and the human trials conducted by him were in fact and to his knowledge conducted without scientifically controlled conditions and largely amongst persons who had an interest in the success of the corporation business or their associates;
49.1.6that Australian scientists analysed the research, conducted over three decades, into the three active ingredients in TRIMit, when in fact and to his knowledge he compiled a report summarising the findings of some overseas research reports on products none of which had the specifications or comparable specifications of TRIMit;
49.1.7that he was the leader of a scientific research team which:
(a)for three years, investigated the formulation of TRIMit;
(b)devised an effective blend of compounds used in the formulation of TRIMit;
(c)devised a manufacturing process that resulted in the most effective diet tablet in the world;
when in fact and to his knowledge he did not lead any scientific research team which accomplished these tasks or any other tasks and he had no scientific qualification to undertake such research.
49.1.8That:
(a)the use of the product TRIMit generates rapid weight loss, and inhibits the production of fat in the body;
(b)TRIMit had been thoroughly researched, and tested worldwide; and
(c)TRIMit was a potent pill with no side effects;
when in fact and to his knowledge the corporation and not conducted and was not in receipt of results of the independent research into or scientific testing or independent clinical trials of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was effective as a weight loss aid;
49.1.9That he had conducted controlled clinical trials of TRIMit, using 24 persons randomly selected, when the human trials were in fact and to his knowledge conducted without scientifically controlled conditions and largely amongst persons who had an interest in the success of the corporation business or their associates;
49.1.10That the methodology of the trial followed established protocols that are accepted by the Therapeutic Goods Administration and the Australian Bureau of Statistics, when in fact and to his knowledge the corporation had not conducted independent clinical trials in accordance with protocols established under the Therapeutic Goods Act 1989 (Cth) or used by the Australian Bureau of Statistics.
49.1.11That:
(a)scientific evidence supported the finding that taking the recommended dosage of TRIMit without a specific dietary regime or exercise plan would result in weight loss;
(b) that the product had been scientifically tested; and
(c)that the product had been scientifically and statistically proven to be effective as a diet pill or a weight loss aid;
when in fact and to his knowledge the corporation had not conducted and was not in receipt of results of independent research into or scientific testing or independent clinical trials of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was effective as a weight loss aid;
49.1.12that the research results of eight trials reported on by him were analogous to the use of TRIMit and supported the use of TRIMit as a weight loss aid, when in fact and to his knowledge:
(a)he compiled a report summarising the findings of some overseas research reports on products none of which had the specifications of TRIMit;
(b)he did not include or mention in his report, published reports by the American Medical Association and the Australian Medical Association which contradicted the reports he summarised;
(c)he did not mention in his report that the research reports suggesting efficacy of ingredients that were components of TRIMit to which he referred, had been prepared by employees of the manufacturers of those ingredients;
(d)he knew that, even if the purportedly active ingredient HCA had a weight loss effect, TRIMit contained half or less than half of the amount of HCA than tablets used in research overseas;
49.2assisting the corporation in drafting the test of, and making as spokesperson for the corporation the following representations, namely:
49.2.1that clinical trials under scientifically controlled conditions were currently being conducted to test the effectiveness of TRIMit as a weight loss aid, when in fact and to his knowledge the human trials were conducted without scientifically controlled conditions and largely amongst persons who had an interest in the success of the coporation business or their associates;
49.2.2that taking TRIMit promoted the burning of fact, and inhibited the production of fat through inhibiting the enzyme citrate lyase, when in fact and to his knowledge the corporation had not conducted and was not in receipt of results of independent research into or scientific testing or independent clinical trials of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was effective as a weight loss aid;
49.2.3that TRIMit and the claims made of its use and effectiveness were approved under the Therapeutic Goods Act 1989 (Cth) when in fact and to his knowledge the claims did not have that approval;
49.2.4that TRIMit had been developed and perfected in Australia over three years of tedious trial and error, when in fact this was not true and the tenth respondent had no knowledge of any basis for this assertion;
49.2.5that TRIMit was the most effective diet pill possible with the science then available, when in fact and to his knowledge the corporation had not conducted and was not in receipt of results of independent research into or scientific testing or independent clinical trials of the TRIMit tablet or a product with the specifications of the TRIMit tablet proving that the TRIMit weight loss tablet was effective as a weight loss aid;
49.2.6that controlled clinical trials had been conducted in Australia, and the clinical trials followed the protocols accepted by the Therapeutic Goods Administration and the Australian Bureau of Statistics, when in fact and to his knowledge the corporation had not conducted research or scientific testing or independent clinical trials in accordance with protocols established under the Therapeutic Goods Act 1989 (Cth) or used by the Australian Bureau of Statistics or at all;
has:
49.3in respect of each representation, been knowingly concerned in the corporation, in trade or commerce, engaging in conduct that is misleading or deceptive or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth);
49.4in respect of representations 49.1.1, 49.1.3, 49.1.4, 49.1.7, 49.1.10, 49.2.2, 49.2.4 and 49.2.5, been knowingly concerned in the corporation in trade or commerce, in connection with the supply or possible supply of goods made false representations as to the quality and composition of those goods in contravention of s 53(a) of the Trade Practices Act 1974 (Cth);
49.5in respect of representations 49.1.1 to 49.1.4, 49.1.7, 49.1.10, 49.2.2, 49.2.4 and 49.2.5, been knowingly concerned in the corporation, in trade or commerce, represented that goods have approval, performance characteristics, uses and benefits they do not have in contravention of s 53(c) of the Trade Practices Act 1974 (Cth).
50.The tenth respondent, by representing and permitting and assisting others to represent, on behalf of a corporation, in trade or commerce, to the public and to area managers of the corporation that the corporation was a genuine business conducted on an ordinary commercial basis and that the opportunity offered by it to area managers was a genuine business opportunity when:
50.1the circumstances set out in the preceding declaration, to his knowledge, obtained;
50.2it was the fact and he knew, but did not inform the public and area managers, that the fourth respondent had extensive involvement in the management and marketing of the said corporation;
50.3he believed that if the public and area managers of the corporation knew of the involvement of the fourth respondent in the said corporation they would be unlikely to buy its weight loss products or remain its distributors;
has been directly knowingly concerned in a corporation engaging in conduct that was misleading and deceptive in contravention of s 52 of the Trade Practices Act 1974 (Cth).
I order that:
51.The tenth respondent be restrained for 5 years from the date of this order from in any manner being knowingly concerned in any corporation in trade or commerce, making, or permitting to be made, any representation as to the nature, quality, fitness for any purpose, testing, history, composition, standard, approval by any person, performance characteristics, uses or benefits of any good or service unless, prior to making the representation, he:
51.1believes the representation to be true and accurate;
51.2informs the representee of his qualifications and expertise relevant to the subject matter of the representation;
51.3informs the representee of all information of which he is aware that refutes or contradicts any part of the representation; and
51.4provides the representee with a copy of these orders or informs the representee of the existence of the orders and gives the representee the address of the Federal Court website, namely from which a copy of these orders can be obtained.
52.The tenth respondent pay the applicant’s costs of and incidental to these proceedings as against him agreed in the sum of $20,000 to be paid in the following instalments:
52.1$5,000 on or before 14 September 2005;
52.2$5,000 on or before 14 October 2005;
52.3$5,000 on or before 14 November 2005;
52.4$5,000 on or before 14 December 2005,
save that if any instalment is not paid on or by the due date the whole amount outstanding is immediately due and payable.
I certify that the preceding three hundred and nine (309) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lander.
Associate:
Dated: 2 September 2005
Counsel for the Applicant:
Mr S Couper QC with Ms M Brennan
Solicitor for the Applicant:
Australian Government Solicitor
Counsel for the First, Second, Third and Ninth Respondents:
The First, Second, Third and Ninth Respondents did not appear
Counsel for the Fourth Respondent:
Mr D Savage QC with Mr M Taylor
Solicitor for the Fourth Respondent:
Patrick Murphy
Counsel for the Sixth Respondent:
Mr S Cousins appeared in person
Counsel for the Eighth Respondent:
Mr K McMullan appeared in person
Counsel for the Tenth Respondent:
Dr S D’Alton appeared in person
Date of Hearing:
14, 15, 16 and 17 June 2005
Date of Judgment:
2 September 2005
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