Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd
[2005] FCA 1703
•25 NOVEMBER 2005
FEDERAL COURT OF AUSTRALIA
Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2005] FCA 1703
TRADE PRACTICES - misleading or deceptive conduct - certain Slendertone electronic muscle stimulation machines – whether representations of performance characteristics in promotion and advertising misleading or deceptive – supply of research and leaflets by overseas supplier - express representations – no implied representations - reasonableness of reliance on supplied information – liability of each of the respondents – cross-claim by respondents against supplier not made out
Trade Practices Act 1974 (Cth) ss 51A, 51A(2), 52, 53(c), 75B, 80(1)(a)(i), 80(1)(c), 80(1)(e), 82, 84(2), 87, 87(1)(A)
The Australian Concise Oxford Dictionary (2nd ed, Oxford University Press, Melbourne, 1992)
The New Shorter Oxford English Dictionary (Clarendon Press, Oxford, 1993)‘Comparison of Isometric Exercise and High Volt Galvanic Stimulation on Quadriceps Femoris Muscle Strength’ (1985) 65(5) Physical Therapy 149
‘Effects of Electrical Muscle Stimulation on Body Composition, Muscle Strength, and Physical Appearance’ (2002) 16(2) Journal of Strength and Conditioning Research 165
‘Effects of Electrical Stimulation or Voluntary Contraction for Strengthening the Quadriceps Femoris Muscles in an Aged Male Population’ (1994) 20(1) Journal of Orthopaedic and Sports Physical Therapy 22
‘Electrical Stimulation in Exercise of the Quadriceps Femoris Muscle’ (1979) 59(12) Physical Therapy 117
‘Neuromuscular Electrical Stimulation’ (1992) 13(5) Sports Medicine 320
‘Neuromuscular Extra Stimulation and Voluntary Exercise’ (1992) 13(5) Sports Medicine Journal 320
‘Strength Changes in the Normal Quadriceps Femoris Muscle as a Result of Electrical Stimulation’ (1983) 63(4) Physical Therapy 123
AL Baker, Neuromuscular Electrical Stimulation: A Practical Guide (4th ed)
HJ Appell and M Cabric, Institute of Experimental Morphology of Cologne University Sports Academy, ‘The Use of Electrical Stimulation for Strengthening of Muscles in Therapy and Rehabilitation’ (1987) Physikalische TherapieAustotel Management Pty Ltd v Jamieson (1996) 57 FCR 411
Australia and New Zealand Banking Group Ltd v Turnbull & Partners (1991) 33 FCR 265
Australian Competition and Consumer Commission v Black on White Pty Ltd (2001) 110 FCR 1
Australian Competition and Consumer Commission v Danoz Direct Pty Ltd (2003) 60 IPR 296
Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2001] FCA 595
Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (No 2) (1999) 95 FCR 302
Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17
Australian Competition and Consumer Commission v IMB Group Pty Ltd (1999) ATPR 41-704
Australian Competition and Consumer Commission v Optell Pty Ltd (1998) ATPR 41-640
Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276
Australian Securities and Investments Commission v National Exchange Pty Ltd (2003) 202 ALR 24
Bialkower v Acohs Pty Ltd (1998) 83 FCR 1
Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242
Bowler v Hilda Pty Ltd (1998) 80 FCR 191
Burke v LFOT Pty Ltd (2002) 209 CLR 282
Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45
Cassidy v NRMA Health Pty Ltd (2002) ATPR 41-891
City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94
CRW Pty Ltd v Sneddon [1972] A R (NSW) 17
Cummings v Lewis (1993) 41 FCR 559
Dorrough v Bank of Melbourne Ltd (1995) ATPR (Digest) 46-152
Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (No 2) (1987) 16 FCR 410
Emerald Ocean Distributors Pty Ltd v Australian Competition & Consumer Commission [2001] FCA 1920
Gardam v George Wills & Co Ltd (No.1) (1988) 82 ALR 415
Giorgianni v R (1985) 156 CLR 473
Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82
Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546
Henville v Walker (2001) 206 CLR 459
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Limited (1978) 140 CLR 216
Keen Mar Corporation Pty Ltd v Labrador Shopping Centre Pty Ltd (1989) ATPR 46-048
Re La Rosa; Norgard v Rodpat Nominees Pty Ltd (1991) 31 FCR 83
Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535
Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191
Pavich v Bobra Nominees Pty Ltd [1988] FCA 425
Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211
Sharp v Ramage (1995) 12 WAR 325
Siddons Pty Ltd v Stanley Works Pty Ltd (1991) 29 FCR 14
Sykes v Reserve Bank of Australia (1998) 88 FCR 511
Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444
Ting v Blanche (1993) 118 ALR 543
Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1
Trade Practices Commission v Manfal Pty Ltd (in liq) (No.3) (1991) 33 FCR 382
Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940
Yorke v Lucas (1985) 158 CLR 661
Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v EMERALD OCEAN DISTRIBUTORS PTY LTD, SLENDERTONE HEALTH AND BEAUTY PTY LTD and SEAN O’DONOGHUE
WAD 118 of 2000NICHOLSON J
25 NOVEMBER 2005
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 118 OF 2000
BETWEEN:
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANTAND:
AND:
EMERALD OCEAN DISTRIBUTORS PTY LTD
(ACN 074 316 304)
FIRST RESPONDENTSLENDERTONE HEALTH AND BEAUTY PTY LTD
(ACN 059 362 542)
SECOND RESPONDENTSEAN O'DONOGHUE
THIRD RESPONDENTEMERALD OCEAN DISTRIBUTORS PTY LTD
(ACN 074 316 304)
FIRST CROSS-CLAIMANTSLENDERTONE HEALTH AND BEAUTY PTY LTD
(ACN 059 362 542)
SECOND CROSS-CLAIMANTSEAN O'DONOGHUE
THIRD CROSS-CLAIMANTBIO MEDICAL RESEARCH LIMITED
CROSS-RESPONDENTJUDGE:
NICHOLSON J
DATE OF ORDER:
25 NOVEMBER 2005
WHERE MADE:
PERTH
THE COURT ORDERS THAT:
1.Within 10 days the applicant file and serve draft orders to give effect to the reasons delivered on 25 November 2005.
2.Within a further 10 days the respondents/cross-claimants file and serve any written submission in support of any variations to the applicant’s draft.
3.Within a further 4 days the applicant file and serve any written submissions in response.
4.From compliance with the above directions the proceeding stand reserved for the making of orders.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
TABLE OF CONTENTS
PART A: THE CLAIM
ADMISSIONS AND ISSUES
CROSS-CLAIM
RELEVANT LAW
MISLEADING OR DECEPTIVE CONDUCT
FUTURE REPRESENTATIONS
CORPORATE LIABILITY
ACCESSORIAL LIABILITY
EVIDENCE
EXPERT WITNESSES
Applicant’s experts
Dr Coombes
Dr Bakker
Mr WrightRespondents’ experts
Cross-respondent’s expertOTHER WITNESSES
EXPRESS REPRESENTATIONS: s 52 AND s 53(c)
‘WORK OUT WITHOUT WORK’
‘NO PAIN’
EQUIVALENCE TO NORMAL EXERCISE
TONING, FIRMING AND FLATTENINGHow muscle size and strength is achieved in a healthy person
Will the Slendertone products increase muscle strength in healthy muscle in an ordinary consumer?
What is body tone and the effect of body fat on body toneApplication to this group of representations
ABILITY TO REDUCE, ELIMINATE OR ‘CONQUER’ CELLULITE
GIRTH REDUCTION – INCH LOSS, REDUCTION IN WAIST AND BODY MEASUREMENTS AND CHANGES IN BODY SHAPE
TIME FOR IMPROVEMENTS
PERFORMANCE CHARACTERISTICS: s 53(c)
IMPLIED REPRESENTATIONS
ABSENCE OF EFFORT, EXERTION OR DISCOMFORT
NEED FOR DIET AND EXERCISE
SCIENTIFIC EVIDENCE ON PRODUCT EXPECTATIONS
FUTURE REPRESENTATIONS: s 51A
ONUS OF PROOF ON FUTURE MATTERS
REASONABLE GROUNDS
INFORMATION FROM BMRResearch papers
Point of sale leaflets
Whether information known at time of representations
Whether representor relied on BMR information
Whether reliance objectively reasonable
Whether information was capable of supporting the representationsCUSTOMER STATEMENTS
Whether opinions known at time of representations
Whether evidence of reliance on opinions
Whether reliance objectively reasonable
Whether the representations could have been supportive
LIABILITY
SLENDERTONE’S DIRECT LIABILITY
EOD’S DIRECT LIABILITY
MR O’DONOGHUE'S ACCESSORIAL LIABILITY
ORDERS ON CLAIM
PART B: THE CROSS-CLAIM
INDEMNITY FOR LOSSES BEING DAMAGES
VIABILITY OF CLAIM FOR CONTRIBUTIONWHETHER CONTRIBUTION AVAILABLE UNDER ACT
WHETHER CONTRIBUTION AVAILABLE UNDER GENERAL LAW
ABSENCE OF CAUSATIVE CONDUCT OF CROSS-RESPONDENT
WHETHER LOSSES AS PARTICULARISED ESTABLISHEDLOSS OF SALARY
SALE OF MOTOR VEHICLE
LOSS OF RENTAL
LIFE INSURANCE POLICY
GOODS RETURNED TO BMR
WASTED EXPENDITURE
NON-APPLICATION OF ACT
EXCLUSION OF ACT
CONCLUSION ON CROSS-CLAIM
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
WAD 118 OF 2000
BETWEEN:
AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
APPLICANTAND: EMERALD OCEAN DISTRIBUTORS PTY LTD
(ACN 074 316 304)
FIRST RESPONDENTSLENDERTONE HEALTH AND BEAUTY PTY LTD
(ACN 059 362 542)
SECOND RESPONDENTSEAN O'DONOGHUE
THIRD RESPONDENTEMERALD OCEAN DISTRIBUTORS PTY LTD
(ACN 074 316 304)
FIRST CROSS-CLAIMANTSLENDERTONE HEALTH AND BEAUTY PTY LTD
(ACN 059 362 542)
SECOND CROSS-CLAIMANTSEAN O'DONOGHUE
THIRD CROSS-CLAIMANTBIO MEDICAL RESEARCH LIMITED
CROSS-RESPONDENT
JUDGE:
NICHOLSON J
DATE:
25 NOVEMBER 2005
PLACE:
PERTH
REASONS FOR JUDGMENT
PART A: THE CLAIM
These proceedings relate to representations made in Australia-wide advertising and promotion of various electronic muscle stimulation (‘EMS’) products. In its pleadings the applicant sought to rely on the lack of utility in certain EMS products of the first, or alternatively the second, respondents. However, as the applicant’s case is now pressed following the hearing of evidence, the applicant does not dispute that, when used under appropriate clinical conditions, the EMS products may have a number of benefits. Therefore, in this proceeding the central issue is whether the EMS products in question will produce results consistent with advertised representations when used by a consumer at home in the manner specified in the instructions without more (including a healthy diet and exercise). The case of the applicant is that certain representations concerning the EMS products were false because the advertisements did not make clear under what conditions the products have to be used. Consequently it is claimed the first respondent (‘EOD’) and the second respondent (‘Slendertone’) engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) (‘the Act’) and made representations in contravention of s 53(c) of the Act. In the case of the third respondent (‘Mr O’Donoghue’) it is claimed that he aided, abetted, counselled or procured or, alternatively, was knowingly concerned in or party to the contraventions: s 75B of the Act. These issues were litigated with an agreed statement of facts.
EOD and Slendertone are incorporated companies. Mr O’Donoghue admits that he was at all material times the sole director, secretary and member of EOD and Slendertone. He was in effect the managing director of both companies.
It is common ground that Slendertone was engaged in trade or commerce and was the retailer of EMS products marketed under the trade name of Slendertone. They comprised the Sequence 16, the Supreme, the Top Tone 12, the Gymbody 8 and the Celluforme (collectively referred to as the ‘Slendertone products’). It is agreed that the Slendertone products all operate on the same or similar principles and have the same or similar effects. These products comprise a boxed battery (or other larger power source) attached to a belt from which cords connect to electrodes contained in pads having a circumference of approximately 9 cm. The belt can be tied around the waist or a limb. The user is instructed to place the electrodes on the muscles intended to be exercised and select the required level of exercise by choosing the power level. This is intended to provide electronic stimulation to the selected muscle, causing it to contract.
It is important that any reader of these reasons appreciates that these reasons for judgment do not relate to any other Slendertone products than those defined above and do not relate to any of the named Slendertone products save as that product existed at the date relevant to this proceeding. It would therefore be wrong to extract any sentence referring to the Slendertone products without making clear precisely which products were being referred to at that point of the reasons.
The communications in which the contravening conduct is said to be evidenced consists of the following:
i.Advertisements in Women’s Health Magazine in February, March and April 2000, published Australia-wide (‘the Women’s Health advertisement’).
ii.An advertisement in Ultrafit Magazine in March 2000 (‘the Ultrafit advertisement’).
iii.A pamphlet promoting the Top Tone 12 issued prior to and in June 2000 (‘the pamphlet’).
iv.A website with the web address ‘ promoting Slendertone products (‘the website’).
These are collectively described as ‘the communications’.
The applicant’s closing submissions summarise the circumstances from which the contraventions are alleged to arise as follows:
1.The Women’s Health advertisements promoted the products known as the Gymbody 8 and the Top Tone 12 and made express representations as to the use of these products as follows:
1.1 ‘Workout without the work’;
1.2in relation to the Gymbody 8:
(a)‘The power to tone and firm any part of your body with absolutely no effort’;
(b)‘The Gymbody 8 … can … tighten slack tummy muscles, shape and lift your body; reduce waist measurements and improve your posture’;
1.3‘40 minutes per day is equivalent to 300 general exercises’;
1.4‘Be toned and firmer within 3-4 weeks’; and
1.5in relation to the Top Tone 12, ‘Help conquer cellulite with Celluforme’.
2.The Ultrafit advertisement promoted the Gymbody 8 product and made the following express representations:
2.1‘Workout without the work’;
2.2‘In just 3 weeks you’ll have a six pack all worked out’;
2.3‘In just three weeks this revolutionary exerciser can give you washboard abs you’ll be proud to bare’;
2.4‘[I]n only 40 minutes it contracts and relaxes your muscles 240 times – just like sit-ups’;
2.5‘The powerful, fast, effective way to tone and firm your body with absolutely no effort’; and
2.6‘Be toned and firmer within 3 – 4 weeks’;
3.The pamphlet was made available and distributed to members of the public from premises at 118 Wray Avenue, Fremantle, Western Australia, and also with the delivery of any Slendertone product purchased by a member of the public. In promoting the Top Tone 12 it referred to Celluforme by making the following express representations:
3.1‘Workout without the work’;
3.2‘Top Tone 12 gives you the benefits of 180 sit ups in just 30 minutes’;
3.3‘slack tummy muscles become flatter’;
3.4‘Flabby thighs are toned and tightened’;
3.5‘Stubborn cellulite is smoothed away’;
3.6‘[R]emarkable inch loss can be measured in as little as 3 weeks’; and
3.7‘Conquer cellulite with Celluforme’.
4.The website made the following express representations about all the Slendertone products:
4.1‘No Pain No Gain? NOT ANY MORE! With Slendertone you can gain that perfectly toned figure without the strain and pain’;
4.2‘By using an EMS system from Slendertone, you can sit back and relax while you do the equivalent of approx 300 sit ups in just 40 minutes’;
4.3‘Sleek in just 3 weeks without strain, you can flatten your stomach with absolutely no effort whatsoever’; and
4.4‘Tone and firm any problem area without the hard slog of going to a gym for endless sweat and strain sessions’.
The applicant added that individual representations were also made about each product, repeating the representations set out in pars 1.1 to 1.3 above and setting out new claims.
In addition to these alleged express representations, it is pleaded that there are various implied representations. These implied representations give rise to issues, namely:
A.whether each of the promised results from the Slendertone products can be achieved without the need for a healthy diet and exercise;
B.whether there is a significant, valid and reliable body of scientific evidence demonstrating that the Slendertone products are able to produce the promised results; and
C.whether the time stated as to how long it would take to achieve the promised results is valid.
The applicant’s case, as argued, groups the promised results which are in issue as a consequence of the express and implied representations, as follows:
a.the product can and will produce an improvement in the user’s body and their appearance without any work or effort, e.g. ‘workout without the work’;
b. the use of the product is equivalent to regular exercise;
c. the use of the product can and will tone and firm the body;
d. the use of the product can and will reduce waist and body measurements; and
e. the product can and will reduce, eliminate or ‘conquer’ cellulite.The applicant’s case against Slendertone is that it has breached s 52 (with or without the aid of the application of s 51A) and s 53(c) of the Act by making misleading or deceptive statements as to present fact, being the performance characteristics, uses or benefits of the Slendertone products, and future matters, being the results which a user of the Slendertone products will achieve. It is common ground that the communications were made on behalf of Slendertone and distributed to the public.
The applicant’s case against EOD is that it either made the misleading or deceptive statements in the Women’s Health and Ultrafit advertisements or aided, abetted, counselled or procured or was knowingly concerned in or a party to the contraventions by Slendertone in those advertisements. This case is based on the appearance of EOD’s name and logo in each of the advertisements along with the express statement that it is a subsidiary of Slendertone and in the light of evidence of the association between the two companies, their common directorship, shared premises, joint invoices and letterhead. It is in issue whether in these circumstances the communications were also published on behalf of EOD.
The applicant’s case against Mr O’Donoghue is that he aided, abetted, counselled or procured, or was knowingly concerned in or a party to all the contraventions by Slendertone or alternatively EOD: cf s 75B of the Act. He was the sole director, secretary and member of EOD and Slendertone and worked from Slendertone’s premises (it being in issue whether such premises were also the premises of EOD). It is agreed that he was knowingly concerned in arranging the publication of the Women’s Health and Ultrafit advertisements, the distribution of the pamphlet and the production of the website.
The applicant’s case, although made with reference to the Act, applies equally in relation to the equivalent provisions of the Fair Trading Act 1987 (WA) as set out in the second further re-amended statement of claim (‘the claim’).
In Australian Competition and Consumer Commission v Danoz Direct Pty Ltd (2003) 60 IPR 296, Dowsett J decided another claim in relation to an EMS device known as the AbTronic. The respondents submit the findings made there are to be distinguished. It is apparent from the reasons for judgement delivered by his Honour that both the pleaded circumstances and the expert and other evidence were specific to that case and cannot have any binding application here. However, it is the case that regard does not seem to have been had by the applicant to what was said by Dowsett J at [79]-[90] of his reasons in Danoz concerning the Byzantine character of the pleadings and the consequent effect which they have on the length of trial and time for judgement writing. Had the applicant accepted in respect of most of the pleaded misrepresentations that no determinative answer could be given on whether the Slendertone products had the performance characteristics claimed and invoked s 51A of the Act, the evidence would have been confined to whether there was a respectable body of opinion or other information of which the respondent had knowledge such that the respondent had reasonable grounds for making the representations.
In the context of the pleaded allegations two principal issues emerge, namely (1) whether EMS has efficacy and (2) whether the Slendertone products are efficacious in delivering EMS.
ADMISSIONS AND ISSUES
The proceeding was conducted in the context of an agreed statement of facts, which identified matters still to be litigated.
Slendertone admits that it placed the advertisements including the express words complained of and that the magazines containing the advertisements were distributed to the public. However, it contests the applicant’s pleaded meaning given to express statements and denies the implied representations.
In relation to the pamphlet, Slendertone admits it arranged for the production or delivery of copies of it to members of the public, these including the express words pleaded. The applicant’s pleaded meanings to the pamphlet are denied and alternative meanings put forward. Again Slendertone denies the implied representations.
Slendertone admits it caused the website to be produced for access by the public. The express words pleaded are admitted but again the applicant’s pleaded meanings are denied and alternative meanings put forward. Whether the advertisements, the pamphlet and the website contain implied representations, promissory or future representations, and representations concerning performance characteristics, uses or benefits is in issue. The false or misleading character of the representations is also in issue.
EOD denies its direct involvement as alleged by the applicant.
Mr O’Donoghue adopts the defence of Slendertone and denies the allegations of ancillary involvement in the breaches as so alleged while admitting that he was concerned in arranging publication of the advertisements and pamphlet on behalf of Slendertone and the establishment of its website in his capacity as managing director of Slendertone.
The respondents therefore see the outstanding issues on the pleadings as being:
i. the liability of EOD;
ii.the meaning of the express words contained in the advertisements, the pamphlet and on the website; whether the meaning is affected by context and whether the words are to be understood as referring to the words ‘alone’ (specifically without reference to usage in conjunction with a healthy diet and exercise) so as to give rise to falsity as pleaded;
iii. whether the implied representations were made and, if so, their extent;
iv. the liability of the Mr O’Donoghue;
v. the scope of the remedies, if any.
CROSS-CLAIM
In the event that the applicant is entitled to relief, the cross-claimants (the respondents to the application) claim against the cross-respondent (‘BMR’) an indemnity and damages. BMR is a company incorporated in the Republic of Ireland. The claim is made on the basis that BMR, as the manufacturer of Slendertone products, was the author of all the representations complained of and sold the Slendertone products to the cross-claimants with a view to their sale to consumers. Therefore the cross-claimants say they were a conduit of BMR and they relied on the correctness of the representations made by it. The cross-claim pleads that the products were delivered with representations concerning them with a view to the use of those representations in advertisements to promote sales.
RELEVANT LAW
MISLEADING OR DECEPTIVE CONDUCT
The action is brought in reliance upon s 52 of the Act which prohibits a corporation from engaging in conduct in trade or commerce that is ‘misleading or deceptive or likely to mislead or deceive’.
It is a question of fact whether conduct falls within that description: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199. In Australian Securities and Investments Commission v National Exchange Pty Ltd (2003) 202 ALR 24 at [13], Finkelstein J summarised instances where this may be so by reference to four categories: (1) where the statement is a half-truth by removal from its context; (2) where the statement has more than one meaning; (3) where the statement is framed in such a setting as to mislead or deceive; (4) where regard is had to its ultimate impression and its effect gauged. Evidence of persons actually being misled is possibly persuasive but not determinative: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87; Australian Competition and Consumer Commission v Optell Pty Ltd (1998) ATPR 41-640 at 41,081 and 41,082. It is the objective nature of the conduct which is in issue and not intention: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Limited (1978) 140 CLR 216 at 228; Parkdale at 197; Bowler v Hilda Pty Ltd (1998) 80 FCR 191 at 206.
An advertisement may be misleading even though it fails to deceive more wary readers: CRW Pty Ltd v Sneddon [1972] A R (NSW) 17 at 28; Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 at 49-50. Nevertheless its effect must be tested against ordinary or reasonable members of prospective purchasers, excluding those assumptions by persons whose reactions are extreme or fanciful: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at [102], [103] and [105]. Where the advertisement is directed to the general public by inclusion in a publication with a wide circulation, the applicant can rely on any meaning reasonably open to a significant number of readers: Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444 at 446. If it is capable of more than one meaning, it will be misleading or deceptive if any reasonable interpretation of it would lead into error a (ordinary and reasonable) member of the class who can be expected to read it: Tobacco Institute at 49-50. The circumstances in which the advertisements are read needs also to be kept in mind, including that many readers would read it fleetingly and loosely: Tobacco Institute at 64; Siddons Pty Ltd v Stanley Works Pty Ltd (1991) 29 FCR 14 at 18.
The advertisement must be read in context and the meaning of critical words and phrases should not be ascertained in isolation: Tobacco Institute at 49-50. The approach to interpretation of words should be that stated by Gibbs CJ in Parkdale at 199:
‘The conduct of a defendant must be viewed as a whole. It would be wrong to select some words or acts, which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. It is obvious that where the conduct complained of consists of words it would not be right to select some words only and ignore others which provided the context which gave meaning to the particular words.’
Express representations may be misleading although factually correct. It is for the court to determine whether an advertisement, even if literally true, conveys a false impression. This involves consideration of whether terms are reasonably to be implied in the representation.
It is relevant also that s 53(c) of the Act provides that false representations concerning therapeutic effects of goods may constitute representations that the goods have performance characteristics, uses or benefits that they do not have: Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (No 2) (1999) 95 FCR 302.
The onus of proof of all allegations made in terms of past or existing facts rests on the applicant.
FUTURE REPRESENTATIONS
Where a corporation is alleged to have made representations with respect to any future matter and does not have reasonable grounds for making it, s 51A of the Act deems that the representation shall be taken to be misleading. The effect of the section is to cast the burden of proof on the respondent corporation to show that it had reasonable grounds for making the representation: Ting v Blanche (1993) 118 ALR 543 at 552-533. To establish this the corporation must show (1) some facts and circumstances (2) existing at the time of the representation (3) on which the representor in fact relied (4) which are objectively reasonable and (5) which support the representation made: Sykes v Reserve Bank of Australia (1998) 88 FCR 511 at 513 per Heerey J; City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 at [83]-[85]. It is, however, for the Court to form a judgement on the balance of probabilities having regard to all the evidence on the issue of whether the corporation in fact had reasonable grounds for making the representations: Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276. It is sufficient for a respondent to rely on evidence adduced by others for it to rebut the statutory presumption in s 51A(1): Cummings v Lewis (1993) 41 FCR 559 at 565-566 per Sheppard and Neaves JJ.
CORPORATE LIABILITY
Conduct by a director, servant or agent of a company within actual or apparent authority is deemed by operation of s 84(2) of the Act to be conduct of the company: Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940 at 50,256 per Lee J.
ACCESSORIAL LIABILITY
Injunctive relief may extend to persons involved in another’s contravention of the provisions of Pt V of the Act. Such involvement will arise if the other person has aided, abetted, counselled or procured the contravention or was knowingly concerned in, or a party to, the contravention: s 80(1)(c) and 80(1)(e). This requires that the person has knowledge of the essential elements that make up the contravention (whether or not he knows that those matters constitute a contravention): Yorke v Lucas (1985) 158 CLR 661 per Mason ACJ, Wilson, Deane and Dawson JJ at 667, and at 670; Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 at [135]; Australian Competition and Consumer Commission v Giraffe World (No 2) at [190]-[194]; Wheeler Grace and Pierucci Pty Ltd v Wright at 50,257; Australian Competition and Consumer Commission v Black on White Pty Ltd (2001) 110 FCR 1. Wilful blindness will not protect the person against inference of knowledge. Knowledge can be inferred from wilful blindness, that is the deliberate shutting of one’s eyes to what it going on: Giorgianni v R (1985) 156 CLR 473 at 482-483 and at 507-508; and Australian Competition and Consumer Commission v IMB Group Pty Ltd at [135].
EVIDENCE
EXPERT WITNESSES
It is convenient later in these reasons to summarise the effect of the evidence of expert witnesses in conjunction with consideration of particular alleged representations. The following is the background of each of the experts together with a description of the general character of their evidence.
Applicant’s experts
The applicant called as experts Dr Coombes, Dr Bakker and Mr Wright.
Dr Coombes
Dr Coombes has a Bachelor of Applied Science and a PhD obtained in 1958. He is the senior lecturer in Exercise Science at the University of Queensland, teaching and conducting research in exercise physiology, nutrition and exercise and muscle physiology. His publications include a number of studies using electrical stimulation to activate muscle contraction to test the effects of different treatments on force production and fatigue. He has worked in the health and fitness industry for over 10 years in various capacities including fitness assessor, personal trainer and gym manager. He has experience in EMS products and has studied the literature and review articles concerning EMS.
In his report Dr Coombes said he was supplied with three Slendertone products, the Gym Body 8, Top Tone 12 and Sequence 16. He was instructed by the applicant’s lawyers to test the devices and comment on the truthfulness of the representations made concerning the Slendertone products. He was instructed to prepare a report that detailed the nature of the tests carried out and the methodology used by him in conducting the tests. Dr Coombes said that the aim of the test was to determine the effect of using the EMS devices on metabolic rate. Because of problems with the sequence 16 that was supplied only two devices were tested, the Gym Body 8 and the Top Tone 12.
According to Dr Coombes, the result of the test was that both the Gym Body 8 and the Top Tone 12 resulted in a very small increase in metabolic expenditure. Dr Coombes described the changes as so relatively small as to have no significant effect on overall energy expenditure.
In cross-examination a number of factors emerged which are relevant to the weight to be given to the evidence of Dr Coombes. The two subjects on whom the machines were tested were not called to give evidence. He did not base the test on a control group but accepted that a minimum of 30 participants selected at random and examined over a period of time would have been preferable. His tests did not endure for 40 minutes on any day or extend over 3-4 weeks. He had not obtained a certificate from the manufacturer that the two Slendertone products he tested were operating correctly or have them otherwise tested. He had no previous clinical experience in the use of the Slendertone products. He had not undertaken measurement of muscle size changes. He had stopped his tests on the two Slendertone products after 20 minutes usage because of his preconceived view that they were unlikely to achieve the benefits claimed and even though he had received data which showed that use of them resulted in a slight increase in metabolic rate. Nevertheless he accepted that, as stated by Dr Crowe, EMS was a well established technology in medicine and physiotherapy.
Dr Bakker
Dr Bakker holds a Bachelor of Science, a Master of Science Preliminary and a PhD in physiology from La Trobe University, earned through the School of Zoology. He lectures in physiology in the Department of Physiology at The University of Western Australia. Additionally he has published papers and research conducted on skeletal muscle issues.
In his first report he set out the aims of his study as being to qualitatively examine the ability of two Slendertone products, namely, the Gym Body 8 and the Top Tone 12, to trigger muscle contractions and to investigate whether use of the devices in the manner specified in the instructions provided with the devices increased the heart rate in the test subject. The Gym Body 8 was tested on two male subjects. The Top Tone 12 was tested on one female subject.
In respect of the two male subjects there was no increase in the heart rate after 40 minutes of muscle activation using the Gym Body 8. The third subject experienced what was described as a very small and insignificant increase in her heart rate after 40 minutes of muscle activation using the Top Tone 12. From these results Dr Bakker concluded that in areas of low subcutaneous fat or in people with a lower percentage of body fat, the Gym Body 8 and the Top Tone 12 can produce muscle contractions reported as being equivalent to 60% of maximal voluntary contraction.
If the Gym Body 8 and the Top Tone 12 were causing significant contraction of the abdominal muscles, some flexions of the trunk should be observed. The amount of body fat seemed to be a significant factor that limited the size of the contractions, with high abdominal fat content resulting in reduced contractions. The Slendertone products were unlikely to produce any significant contractile responses in people that are moderately overweight, especially in areas such as the abdomen and the buttocks in women and that it is these areas of the body that are most likely to be targeted by the purchase of these devices.
Dr Bakker also prepared a second report responding to the report of Dr Crowe. The essence of that report was that electrical stimulation is effective under conditions where the muscles are activated to produce relatively large forces against a resistance, but because the EMS devices contained no limb or body immobilisation resulting in no substantial form of resistance training they could not have the effects intended.
Questioned by his counsel, Dr Bakker said there were a number of good reviews that showed that EMS can reduce the amount of atrophy in a limb that is immobilised. He also said there were some studies showing that in healthy muscles there can also be strengthening benefits with the use of EMS, the amount of stimulation was described as being somewhere between 30% and 70% of maximum voluntary force. He described the benefits of EMS as being no better than voluntary exercise and that the experiments in the studies found some evidence that, in addition to helping atrophied muscle, it also helped healthy muscle.
In cross-examination the following matters arose relevant to the credibility of his evidence. He had not obtained a manufacturer’s certificate to determine that the tested machines were in proper working order nor had he tested them. He had not tested the strength of the muscle following the use of the Slendertone product, although an increase in the size and strength of the muscles would be sufficient to tone and firm the body.
Mr Wright
Mr Wright holds a Masters degree in exercise physiology (physical education) from The University of Western Australia. He has worked as Managing Director of Lifechoice, delivering medically-based weight management programs to overweight and obese individuals for over 10 years. His experience is based on the observation of overweight or obese people and he has not used any electrical treatments in his practice. The applicants relied on his report in relation to the issue of cellulite.
Respondents’ experts
The respondents called Ms Cadariu and Dr Rosenbaum as experts. Their evidence is summarised principally in connection with the issue of cellulite.
Ms Cadariu has a Diploma of Beauty Therapy and a Bachelor of Health Science. Her primary qualification is one of dermal therapy. In her beauty therapy practice her focus is on external topical application and beauty treatments.
Dr Rosenbaum is medically qualified. He has expertise in cosmetic surgery and was called solely in relation to his experience on the issue of cellulite. He has used EMS treatment in his practice for over 6 years.
Cross-respondent’s expert
BMR called its medical director Dr Crowe as an expert. He is a doctor of medicine. His evidence relied mainly upon 4 studies carried out and paid for by BMR and conducted by him. His report was not prepared for peer review.
In his report Dr Crowe states that to support its advertising claims BMR relied on published scientific literature, consumer trials commissioned by BMR, and trials commissioned by outside bodies, for example media companies and customer feedback. He stated that EMS is a well-established technology in medicine and physiotherapy. He described the process of EMS in the following terms:
‘In electrical stimulation small impulses are sent from one electrode pad placed on the skin to another. These impulses alter the electric field surrounding a nerve. This triggers a nerve to fire. If the nerve’s function is to contract a muscle, (a motorneuron), the muscle will contract as if the signal had come from a reflex or the brain. The muscle is unable to differentiate between an electrically induced contraction and a normal or ‘voluntary’ contraction. The products principally work by exercising muscle. (There are differences to voluntary exercise particularly in relation to the pattern of muscle recruitment and the contraction frequency elicited at the individual muscle fiber. The neurological training effects are also somewhat different).’
He said that EMS had the following well-documented benefits:
(a)increase in muscular strength;
(b)reduction of disuse atrophy;
(c)increased local blood circulation;
(d)increased range of motion;
(e)muscle pump, prevention of deep vein thrombosis; and
(f)pain relief.
Dr Crowe said that on the basis of his study and research he did not believe weight loss was a direct outcome of EMS. However, he said the product is very strongly associated with significant weight loss because users rarely use them in isolation and use them in conjunction with dieting and exercise and that the gains the products bring may be confused with weight loss. For instance, improvements in abdominal flatness, girth or fit of clothing may frequently, but inaccurately, be thought to be due to weight loss.
Dr Crowe’s evidence was that the products in issue in the proceedings, the Sequence 16, Supreme, Top Tone 12, Gym Body 8 and Celluforme, though dissimilar in appearance and packaging, employed the same EMS technology throughout. The output and range of stimulation were broadly similar with the main differences being in the number of channels of stimulation, some minor program variations and accessories available.
OTHER WITNESSES
An outline of Mr O’Donoghue’s evidence is as follows. In 1984 he commenced on his own account to sell electro-therapeutic massage and beauty related equipment in Western Australia. In 1987 he set up his business under the name of Slendertone Electro Therapeutic Health Services. In 1989 or 1990 he was approached by a person who invited him to make contact with BMR, which was looking for an Australian distributor. He understood it to be a company doing medical research and manufacturing and distributing internationally EMS products under the brand name Slendertone as well as other similar products for hospitals and rehabilitation. BMR sent him information about the company and sample products. He inquired about the medical approvals, manufacturing warranty and public liability insurance on the Slendertone products and was sent information on these matters, including research approvals. His evidence was that the information convinced him to sell the Slendertone products.
Following negotiations, Mr O’Donoghue was then orally authorised by BMR to sell Slendertone products for it in Australia. For that purpose he incorporated Slendertone. He claims to have been authorised on an exclusive basis. Although he sought written confirmation of his appointment, it was not forthcoming. The website of BMR referred to ‘Slendertone Australia’ and gave the address of Mr O’Donoghue. It was similarly referred to in BMR’s international products instruction booklet.
Mr O’Donoghue therefore set up Slendertone and advertised and promoted Slendertone products, incurring expenditures exceeding $1.029m from 1993 to 2002 and expending over $897 510 in purchasing products from BMR. His evidence was that profits which he made were reinvested in advertising and promoting the Slendertone brand name. BMR assured him on numerous occasions that it would continue to supply him with products.
In establishing the business Mr O’Donoghue refurbished premises in Fremantle. This was particularly to provide training and in-house treatment. He engaged Suzanne Chalkley as National Sales and Training Manager. She conducted seminars to educate students from various beauty colleges on the benefits of Slendertone products. By the mid-1990s Mr O’Donoghue was presenting Slendertone products at most of the national beauty exhibitions in Sydney, Melbourne, Adelaide and Perth.
From 1993 to 28 February 1995 he received invoices from BMR. On the latter date he noticed that the invoice he received now contained Terms and Conditions of Sale. He did not read them nor did he discuss them with BMR.
In 1997 he found that BMR had been supplying Slendertone products to another company in Sydney. After discussions with BMR, he received a written contract but for a non-exclusive appointment, which he did not sign. From 1999 he limited his advertising of the Slendertone products and reduced his staff because his confidence in BMR declined.
In the course of conducting this business the respondents received about 65 complaints, although most of these related to the mechanical problems rather than the effectiveness of EMS. They also received some letters from satisfied customers. Mesdames Molnarffy, Bannister, Good, Carslake, De Preston, Chapman, Talacko and McConkey gave evidence as satisfied customers.
It was in May 2000 that he received correspondence from the applicant in relation to matters now the subject of this proceeding.
EXPRESS REPRESENTATIONS: s 52 AND s 53(c)
The numbers in respect of any representations pleaded as future representations are placed in square brackets and will also be dealt with later under the heading of ‘Future representations.’
‘WORK OUT WITHOUT WORK’
The representations made in this category to the effect that the Slendertone products can and will produce an improvement in the users’ body and their appearance without any work or effort, are (the relevant paragraph of the claim appears in bold and italics next to each statement):
1.‘workout without the work’: [8.1], 19.1, [31.1];
2.‘the power to tone and firm any part of your body with absolutely no effort’: 8.2.1, 43.1.3, 43.4.1;
3.‘the power to tone and firm with absolutely no effort’: 43.4.3;
4.‘the powerful, fast, effective way to tone and firm you body with absolutely no effort’: 19.5;
5.‘No Pain No Gain? Not any more! With Slendertone you can gain that perfectly toned figure without the strain or pain’: [42.1];
6.‘Sleek in just 3 weeks without strain, you can flatten your stomach with absolutely no effort whatsoever’: [42.3];
7.‘by using the EMS…system from Slendertone, you can sit back and relax while you do the equivalent of approx 300 sit-ups in just 40 minutes’: [42.2];
8.‘Tone and firm any problem area without the hard slog of going to a gym for endless sweat and strain sessions’: 42.4;
9.‘sit back and relax while (the product) goes to work in daily 30 minute sessions’: 43.2.3.
The verb ‘work out’ means to ‘engage in physical exercise and training’: The New Shorter Oxford English Dictionary (Clarendon Press, Oxford, 1993) at p 3719. Such a meaning necessarily implies that some physical benefit or improvement is expected from the activity: Danoz.
Although accepting that the Slendertone products can produce muscle contractions, the applicant contends that the use of them is inaccurately described as ‘workout without the work’. Reliance is placed on the evidence of Dr Bakker and Dr Coombes.
Dr Bakker’s evidence was that during exercise, fatty acids are released from fat storage sites for use as an energy supply, therefore exercise can lead to utilisation of fat reserves and result in weight loss. Oxygen is required for breakdown of fats and breakdown of carbohydrates during prolonged exercise. Therefore, at the onset of exercise, oxygen requirements of the body become greater and the heart rate increases rapidly to provide blood flow to muscles to provide for increased demand for oxygen and nutrients. However, the Slendertone products do not change heart-rate and therefore do not activate a level of activity which would normally be considered as exercise or its equivalent. He considered there was not really any benefit at all in the use of the products for a healthy person, although he agreed there was a respectable opinion held by scientists supporting the efficacy of EMS machines. He accepted in cross-examination for BMR that EMS may have some effects of voluntary exercise but that in some circumstances it might have benefits that voluntary exercise did not have (as in the case of muscular atrophy), so that comparison was like comparing chalk and cheese. His views were based on a test of three people for 40 minutes on one day.
Dr Coombes' evidence was that exercise is defined as structured physical activity. Physical activity is defined as any body movement produced by muscles that results in increased energy expenditure. Exercise is about movement.
He testified that involuntary contraction of muscle (e.g. with the EMS machines) uses very little energy because it is working against almost no resistance except that provided by the muscle itself and surrounding tissue. There is almost no change to energy expenditure when muscle is made to contract involuntarily. He said the use of the Slendertone products did not increase energy expenditure and therefore could not be regarded as equivalent to conventional exercise.
Additionally, the evidence of Dr Crowe was that statements like the representation presently under examination have never been made by BMR. He also testified that the Slendertone products do not bring about any increase in heart rate; EMS is not a form of aerobic exercise; and there is no direct comparability in all respects with exercise.
BMR submits that the evidence of Drs Bakker and Coombes should not generally be accepted because they have not examined EMS from the perspective of what occurs to the nerve stimuli. I do not consider that is a reason to discredit their evidence on this particular issue, especially in the light of the evidence of Dr Crowe.
The weight of the above evidence supports the applicant’s submission that the assertions in the above representations concerning generally ‘work out without work’ do not accurately describe the effect of EMS and so are false in that respect. It is to be noted that the pleading, for instance in [9] of the second further re-amended statement of claim, is that the express statements ‘were false’ rather than ‘misleading or deceptive or likely to mislead or deceive’ (s 52) or ‘false and misleading’ (s 53(c)).
‘NO PAIN’
Marian Wright was employed by Slendertone for 18 months from 1995 to 1997. She was trained as a beauty therapist. She deposed that the Slendertone products could be painful when used if turned up too high. That was in circumstances where ‘great chunks of electric current’ were put through or the machine had been used for longer than recommended. The sensation could be avoided by turning down the dial. She considered it was an individual thing whether persons liked very strong current or something more comfortable. It could be operated pain-free and still produce its result in relation to the muscle. If the product was used according to the recommendations made in relation to it, it would not produce muscle stiffness or soreness.
The applicant’s witness Karen Wright, a user of a Gym Body 8 machine, felt a burning sensation when using the machine but only if she moved around rather than lay still; the sensation was one of discomfort rather than pain.
Dr Bakker stated in his report that increasing the stimulation intensity of the EMS products produced a painful sensation at higher levels, the level of pain increasing more quickly than the intensity of the contraction. In some instances the pain could be reduced by changing the position of the electrodes although that would not eliminate the pain.
Dr Coombes reported that a novice may experience an amount of pain but that the settings could be changed to meet the requirements of the user. In his test he had experienced one minute of pain out of twenty minutes of use and this occurred when he was testing the parameters of the machine by putting it up too high. When the frequency of the stimulus was reduced, it occurred without pain. He stated that the level of pain might vary from person to person.
Dr Crowe in his exhibited report drew attention to the statement in the Top Tone 12 manual that the user should ensure the intensity of the stimulus is comfortable and does not exceed tolerance levels. He deposed that intensity was able to be increased with experience of usage.
The respondents’ expert Ms Cadariu testified that some people could experience pain when using EMS but the equipment was not devised to cause pain, that settings could be reduced and then increased to avoid discomfort and that it was used differently to treat sporting injuries rather than providing muscle stimulation.
The only pleaded future representation in this group is 42.1. I consider the evidence of Ms Cadariu establishes for Slendertone that it had reasonable grounds for making the representation.
In the application of s 52 of the Act, I am not satisfied that the evidence establishes the falsity of the claim in representations that the Slendertone products will operate without pain. The evidence is highly qualified as to the instances when pain may be experienced and addresses usage not in accord either with instructions, in the case of the Top Tone 12, or normal care to be expected from ordinary and reasonable members of prospective purchasers.
EQUIVALENCE TO NORMAL EXERCISE
The representations made in this category are as follows:
As to general exercise:
1.‘40 minutes per day is equivalent to 300 general exercises’: 8.2.3, 43.1.1;
2.‘Tone and firm any problem area without the hard slog of going to a gym for endless sweat and strain sessions’: 42.4;
3.‘sit back and relax while (the product) goes to work in daily 30 minute sessions’: 43.2.3;
4.‘the ultimate workout for even the most figure conscious’: 43.3.3.
As to abdominal exercise:
5.‘by using an EMS (electronic muscles stimulation) system from Slendertone, you can sit back and relax while you do the equivalent of approx 300 sit-ups in just 40 minutes’: [42.2];
6.‘in just 3 weeks you’ll have a six pack all worked out’: [19.2];
7.‘in just three weeks this revolutionary exerciser can give you washboard abs you’ll be proud to bare’: [19.3];
8.‘in only 40 minutes contracts and relaxes your muscles 240 times – just like sit-ups’: 19.4;
9.‘gives you the benefits of 180 sit-ups in just 30 minutes’: 31.2.
In relation to general exercise, the evidence has been referred to above in connection with the representation ‘no work’. Evidence of Dr Bakker and Dr Crowe was against the equivalence. Dr Coombes’ evidence supported the view that if muscles are working in an exercise cycle, it would be expected they would burn calories. However, all experts were of the view that use of the Slendertone products would not burn large amounts of calories.
On the issue of abdominal exercise, Dr Bakker’s evidence was that exercise such as sit ups require energy and result in an increase in heart rate because the energy is dissipated around all the muscles that are used. The exercise of only one muscle by EMS would not lead to an expectation of the same level of heart rate. Likewise Dr Crowe stated in his report that it is not possible to make a direct comparison that a session of EMS is equivalent to a specific number of sit-ups because the sit-up involves a greater cardiovascular effort, and also involves other muscles like hip flexors. His evidence in cross-examination was that it is not possible to make a comparison between EMS exercise and sit-ups just as a direct comparison between sit-ups and weight training abdominal exercise is not possible.
Reference has already been made to Dr Crowe’s evidence that BMR no longer makes statements of equivalence because of the confusion they can cause in the mind of the consumer. In his report he stated that the consensus from review of articles and books on electrode therapy and on exercise physiology was that electrical stimulation can give results broadly equivalent to voluntary exercise. Equally some muscles which can easily be activated with EMS are difficult to voluntarily activate. The applicant relies upon this particularly to support its submission that representations made concerning equivalence of the use of the Slendertone products to both general and abdominal exercise are false and misleading.
BMR accepts that the assertions of exercise equivalence in the claim that ‘40 minutes a day is equivalent to approximately 300 general exercises’ and in the claim of providing strong abdominal muscles cannot be maintained. However, the evidence relating to the equivalence issue is wider than just those two representations.
In my view the evidence of Dr Crowe and the concession by BMR as well as the other evidence establishes that the representations of equivalence generally were false.
TONING, FIRMING AND FLATTENING
The representations made in this category are as follows:
1.‘the power to tone and firm any part of your body with absolutely no effort’: 8.2.1, 43.1.3, 43.4.1;
2.‘the power to tone and firm with absolutely no effort’: 43.4.3;
3.‘the powerful, fast, effective way to tone and firm your body with absolutely no effort’: 19.5;
4.‘tighten slack tummy muscles’: 8.2.2.1, [10.1.2], [12.1.2], [31.3];
5.‘slack tummy muscles become flatter’: [31.3];
6.‘Tone and firm any problem area without the hard slog of going to a gym for endless sweat and stain sessions’: 42.4;
7.‘be toned or firmer within 3-4 weeks’: [8.2.4], [19.6];
8.‘in just 3 weeks you’ll have a six pack all worked out’: [19.2];
9.‘in just three weeks this revolutionary exerciser can give you washboard abs you’ll be proud to bare’: [19.3];
10.‘flabby thighs are toned and tightened’: [31.4];
11.for ‘in depth toning’: 43.5.1;
12.‘more than just a muscle toner’: 43.5.4.
The applicant accepts that this is the area which has caused the greatest divergence in opinion between the experts for all parties. The position adopted by Dr Crowe and by the respondents is that the representations concerning the ability to tone were justifiable because the Slendertone products have the ability to strengthen muscle, independently of the fat layer. Dr Crowe testified there is a large body of evidence to support the claims that EMS can give rise to improvements in muscle strength. The applicant submits that this raises three subsidiary issues, which are now addressed.
How muscle size and strength is achieved in a healthy person
The applicant submits that on the basis of conventional scientific thinking and accepted definitions, muscle contraction alone, whether by the use of EMS or the voluntary contraction of muscle by a person, is not sufficient to cause an increase in size and strength of a healthy muscle. It is said in support that to produce muscle hypertrophy requires chronic resistance training, where the muscles act against some force; that is, some isometric exercise or resistance. The applicant’s submissions rely upon the evidence of Dr Bakker and Dr Coombes whose evidence, it is submitted, was not challenged on this point.
Dr Bakker testified that the standard position taken in every textbook and article is that hypertrophy occurs through resistance training, whether isometric or lifting a load. In cross-examination, he said that a muscle cannot become stronger without becoming bigger. Resistance causes internal changes to the chemistry of the muscle that increase protein synthesis creating new muscle proteins that swell the size of the muscle fibre. He considered there was not any difference between the pathway stimulated by the brain or that stimulated by EMS so that they both create the same neural pathway to activate the muscle. The proportion of the fibres activated by EMS would undergo the same changes as voluntary exercise at the same intensity and under the same conditions. In re-examination he stated that all the tests of EMS working to strengthen muscles were done under isometric conditions, that is, with the limb or muscle in question under resistance training conditions. He did not doubt the possibility that EMS would cause strength training if used under those conditions.
Dr Coombes’ evidence was that the major principle for increasing muscle size is the principle of overload, of continually stressing the muscle by resistance. Continual overload produced continual adaptation which increased the synthesis of more proteins which in turn led to muscle hypertrophy. On the basis of his testing, Dr Coombes’ opinion was that as the ability to tone, trim and firm required a change in body composition such that there is less fat over muscle, and that there was little or no evidence that the devices would significantly affect metabolic rate such that it will result in a loss of body fat. Dr Coombes said that whilst an EMS device will increase the size of a muscle that has wasted away there is no evidence that muscle size can be increased in active muscle. In cross-examination Dr Coombes stated that he no longer held to his view in his report that there was no evidence that muscle size can be increased in active muscle with EMS. He agreed that some studies have demonstrated that EMS does give rise to strength improvements in normal muscle levels which are comparable to voluntary strength exercises.
Will the Slendertone products increase muscle strength in healthy muscle in an ordinary consumer?
Dr Bakker’s evidence for the applicant was that the fact of a muscle contraction does not mean that it is strengthening in the absence of any resistance. He testified that the consensus in the scientific articles and literature is that there is some effect from the use of EMS on healthy muscles under certain specific conditions. Those conditions are that the limb to which EMS is applied is immobilised or attached to some form of weight system so that the muscle is working against resistance or under isometric conditions. The studies had all been done on the quadriceps at the top of the upper leg. EMS was found to have a minimising effect in cases of muscular atrophy where the persons concerned were unable to exercise. He said that in the case of a healthy person EMS did not really bring any benefit better than those obtainable by voluntary exercise.
His report says that in order to tone and firm particular parts of the body it was necessary to reduce subcutaneous body fat and increase the size of the muscles in the particular area and it was highly unlikely that the Gym Body 8 and Top Tone 12 would achieve those aims in the absence of any resistance, the absence of any elevation in heart rate and with decreased effectiveness of the units in regions of higher subcutaneous body fat.
Dr Coombes’ evidence, as previously stated, is that to increase muscle size it is necessary to continually stress the muscle by overload through resistance. He said there was minimal evidence in a couple of studies published in lower level journals that slight increases in muscle size result from EMS. However, it was necessary to understand these firstly in the context of stimulation parameters and electrode size. Also, in most of those studies the muscle is being contracted against an isometric device so that it is working against a resistance.
Therefore both Dr Bakker and Dr Coombes were of the opinion that the Slendertone products could not cause any change to muscle size or strength because they did not cause muscles to contract isometrically or against any resistance.
Both Dr Bakker and Dr Coombes were challenged in cross-examination on the basis of general articles and studies, which supported the assertion that the use of EMS alone can strengthen muscle. A number of these sources also arose in the evidence of Dr Crowe. These included a study by Currier and Mann as well as a text by Wilmore and Costill. Dr Bakker stated that the authors of the text were referring to EMS under conditions where there are high levels of stimulation under conditions of resistance (e.g. leg or hip strapped at a certain joint articulation). He regarded this as supported by the description of the chapter in which the passage relied upon appears as dealing with ‘Neuromuscular Adaptations to Resistance Training’.
Dr Crowe’ s evidence for BMR was that authors of books on EMS and exercise physiology as well as the writers of review articles in respected journals and regulatory bodies are in consensus that there are strengthening and physiological effects of EMS and that these are comparable to voluntary exercise. He cited an article by Lake titled ‘Neuromuscular Extra Stimulation and Voluntary Exercise’ (1992) 13(5) Sports Medicine Journal 320 based on examination of 142 pieces of research. This article considers investigations which have looked at EMS ‘under isometric conditions’ compared to voluntary isometric exercise and non-exercise groups. It states ‘there is a consensus that the force increases induced by [EMS] are similar to, but not greater than those induced by voluntary training’. It stated that ‘it appears that when [EMS] and voluntary exercise are combined there is no significant difference in muscle strength after training when compared to either [EMS] or voluntary exercise alone’ (at 320).
Dr Crowe also cited AL Baker, Neuromuscular Electrical Stimulation: A Practical Guide (4th ed) at 48 where it is stated:
‘It can now be said unequivocally that [EMS] can, by itself, strengthen normal healthy muscle, and can even enhance the force generating capability of the athlete exhibiting some degree of hypertrophy.’ (emphasis added)
He relied on this to support the view that EMS can by itself strengthen normal healthy muscle. Against this the applicant points to the statement in the same text at 49 that ‘the significance of [EMS] programs for the healthy individual who has not sustained injury needs to be carefully evaluated’, asking whether it adds anything not attainable by other means. Further at 49-50 the same article states that:
‘Addition of a stimulation program does not appear to alter the strengthening profile quantitatively beyond that which can be achieved through standard voluntary exercise in a well defined pattern in healthy individuals. If an individual can exercise, there is only a hint of evidence that the addition of [EMS] to a voluntary exercise program will provide an altered outcome.’ (emphasis in original)
Reference was made by Dr Crowe to the graph in the Baker text at 50 referring to the effects of EMS compared to voluntary muscle strengthening. The graph is based on data compiled from four studies of normal individuals subject to strength training programs of voluntary or EMS induced exercise. The applicant contends that examination of the studies clearly shows that EMS was applied under isometric conditions involving strapping or restraint of limbs. The studies were those by Currier and Mann; Lai, De Domenico and Strauss; Selkowitz; and Szeto, Strauss and De Domenico (cited at footnotes 50, 115, 189 and 205 of the Baker text). Examination of these supports the applicant’s contention.
In his evidence Dr Crowe expressed the opinion that the Slendertone products were in fact used isometrically. He testified that contracting the muscle using the body’s own force is an isometric exercise so that EMS is a form of isometric exercise.
In cross-examination a definition of ‘isometric’ was put to Dr Crowe from The Australian Concise Oxford Dictionary, (2nd ed, Oxford University Press, Melbourne, 1992) at 599 where the word is relevantly defined to mean ‘developing tension while the muscle is prevented from contracting’. He disagreed with this definition on the basis that he considered it envisages gross joint movement and this was not a necessary part. He preferred the definition of ‘isometrics’ at the same page (similar to that in The New Shorter Oxford English Dictionary at 1425) defining isometrics as ‘a system of physical exercises in which muscles are caused to act against each other or against a fixed object’. He considered that the use of the body’s co-contraction supplied the counteracting force so that the contraction of the muscle by EMS was a form of isometric exercise.
The applicant submits this is clearly inconsistent with other evidence of Dr Crowe. Elsewhere Dr Crowe had agreed that Slendertone products do not use strapping or restraints. . Additionally the applicant submits that the view is inconsistent with the studies of EMS which describe the use of EMS as a distinct form of exercise. Further, the applicant submits that it is contrary to the evidence of Dr Bakker, which should be preferred. In my view, the weight of evidence is that use of EMS is not considered to be an isometric exercise and I accept that evidence in preference to that of Dr Crowe on this issue.
A further issue which arose in the evidence of Dr Crowe is whether the Slendertone products were to be regarded as superior to machines which had been the subject of some of the studies of EMS. Dr Crowe was referred to a study by Porcari and others (‘Effects of Electrical Muscle Stimulation on Body Composition, Muscle Strength, and Physical Appearance’ (2002) 16(2) Journal of Strength and Conditioning Research 165-172). The authors there found no statistical difference in body composition, waist girth, muscle strength and physical appearance of subjects after the use of a consumer EMS product 3 times a week for 8 weeks. He was also referred to the passage from Lake, ‘Neuromuscular Electrical Stimulation’ (1992) 13(5) Sports Medicine 320-327 that ‘multiple muscle group [EMS] as used in muscle toning clinics has proven totally ineffective in muscle strengthening’ citing (Lake 1988, Lake and Gillespie 1988). He dismissed this evidence on the basis that the products there being tested were not products regulated like Slendertone products. He testified that it could be argued that Slendertone products were not consumer products but rather medical products because there are produced in a medically accredited factory audited by the US Food and Drug Administration and controlled by the Medical Device directive.
In forming his view of the Slendertone products Dr Crowe relied heavily on trials which BMR had conducted on its products in 1999, 2000, 2001 and 2002. The 1999 study tested the Slendertone Gymbody 8. It claimed the product improved body image, perceived flatness, firmness and strength with reduction in abdominal girth, strength maintenance and improvements in posture. The 2000 study, undertaken by application of Slendertone Flex, resulted in a report similar to the 1999 study but noted that improvements were greater than those previously observed. The 2001 study (applying the Slendertone Bottom and Thigh Toning System) sought to measure the effect of EMS on the muscles of the bottom and thighs over an 8 week period. It reported perceived improvements in firmness, tone and shape as well as improvements in body satisfaction and general well-being. The 2002 study (which applied a similar system to 2001) reported statistically significant improvements in strength of the quadriceps and hamstring muscles and significant improvements in perceived firmness and shape of the bottom and thigh area. It is to be noted that the reports, apart from the first, do not identify as being used in the tests any of the Slendertone products relevant in this proceeding as the source of the EMS.
The applicant submits that these 4 studies suffered from defects in research methodology and design so that little weight should be given to them. Issues thus raised are that the trials were done for BMR and that Dr Crowe, one of the persons responsible, was paid by it; they had not been peer reviewed; and the absence of such review was not adequately explained by avoidance of exposure to competition. Additionally, few overweight subjects were included; recruitment by newspaper advertisement had not been random; and other inappropriate qualifications excluded persons with certain characteristics. There was also a reward for participants, who knew whether or not they were in the treatment group and saw a video on treatment prior to separation into treatment and control groups. Also, there was a large variance in skin fold data due to a defective measuring device; the changes in dynamometer strength testing results of the treatment group were statistically and practically insignificant; data were missing; and the use of girth as a measurement of muscle size was extremely problematic. Likewise it is said that little weight should be given to the submission of one of the studies to the US Food and Drug Administration because it dealt with a different machine to the ones at issue in this action and the approval of the Food and Drug Administration had been granted after the publications the subject of these proceedings.
When Dr Crowe stated in his report that ‘many studies have shown that EMS improves strength’, he relied upon the following studies. The first group were the BMR studies considered immediately above. The second was a Trinity College Dublin study in abstract form only. It examined the ‘[e]ffects of neuromuscular stimulation and ‘Ab worker’ and supervised exercise on static, strength and dynamic endurance of the abdominal musculature’. It concluded that neuromuscular stimulation and supervised training were of equal benefit in terms of static isometric strength and dynamic endurance. The third group was the Baker text and the Lake article and other similar articles. As has been seen, the applicant submits this latter group has been shown to have involved examination of EMS applied under resistance or isometric conditions.
Dr Crowe also referred in his report to studies where EMS is not applied under resistance or isometric conditions. However, some of these were not available in the public domain and had not been peer reviewed. In the case of the Becker study (cited at footnote 4 of Dr Crowe’s report) and the Le Faou and Pennamen report, weight loss had been experienced by participants. In the case of the former there had not been any control group.
The applicant submits that, based on the above evidence, the Court should not accept any argument from either the respondents or BMR that it has been shown that the Slendertone products as used by the consumer are in fact capable of strengthening muscles.
The evidence supports the view that the Slendertone products may increase muscle strength in cases of muscular atrophy. The effect of EMS on muscular strength generally is more difficult to decide on the evidence. The difficulty comes partly from the inability to assess the relative credibility of the evidence of Drs Bakker and Coombes, based on studies of a limited nature as earlier explained, against the studies referred to and relied upon by Dr Crowe when the authors of those studies are not themselves called. The respondents seek to have the Court find that Drs Bakker and Coombes did not conduct tests using scientific methods and approached their tests with pre-conceived views; that Mr Wright did not conduct tests at all; and that Dr Crowe was the only expert to exhibit a proper scientific approach.
In these circumstances I find myself in the same position as Dowsett J in Danoz at [74]-[77]. I do not believe that this conflict of opinion concerning EMS can be resolved by my preferring one view to another when I am not persuaded by the evidence that one is clearly correct. Reference also to the BMR information considered below makes apparent the serious division in expert opinion on the issue here under consideration. It can only be resolved by extensive research and experience over time. While an enormous amount of time in this proceeding was spent in hearing evidence, it could also only be resolved by considerably more evidence and experimentation under conditions satisfying all requirements of scientific method. I therefore reach the position where I do not consider the evidence establishes conclusively whether or not EMS as delivered by Slendertone or otherwise increases and strengthens healthy muscle. At least on one view, it is possible to strengthen healthy muscles by the use of EMS.
What is body tone and the effect of body fat on body tone
Even if the Court accepted that the use of an EMS product by a consumer at home could feasibly strengthen that person’s muscles, the question still arises whether this leads to improvement in body ‘tone’. That raises the question what is meant by the references to body tone in the communications.
Mr Wright in his report and his evidence stated that 60% of the adult population in Australia are overweight or obese, that is, have a body mass index (‘BMI’) of 25 or more. He said, roughly that would mean 10 kgs overweight. He calculated this by reference to height in metres squared divided into body weight.
In his report and in cross-examination Dr Crowe accepted the report of Mr Wright as a concise synopsis of the nature of fat in modern society. However, Dr Crowe regarded it as largely irrelevant as he considered Slendertone products do not work by burning fat.
In cross-examination of Mr Wright for the respondents and in submissions concerning his evidence, it is suggested that his evidence should not be accepted because he has not done any study of EMS. However, his evidence is based on his knowledge on how fat is actually lost or reduced. As will be seen, all experts agreed that EMS does not by itself burn large amounts of calories and therefore does not contribute to significant weight loss. I therefore agree with the applicant’s submission that there is no reason not to accept the evidence of Mr Wright in those areas which he addressed.
The applicant submits that having regard to the nature of the Slendertone publications the subject of this proceeding and the magazines in which the advertisements were placed, references to the ability to firm, tone, flatten or tighten must be understood to refer to the consumer’s appearance. Reinforcement for this is said to be found in the use of the photographs accompanying the representations and the publications, some of which indicate that muscle strengthening is not the only factor addressed by the products.
Reliance is also placed on the evidence of Marian Wright, Slendertone’s former employee, who understood ‘toning’ to refer to appearance. She considered the Gymbody 8 worked in relation to toning in accordance with the claims made in the literature.
Additionally, reliance is placed on Karen Cook’s evidence that, being a few kilograms overweight, she wanted to change her physical appearance and purchased a Gymbody 8 to tone her body.
The evidence of the experts was that the meaning of muscle or body tone means visible musculature. Dr Bakker said that the scientific meaning referred to a constant amount of muscular contraction between maximum and zero but he did not regard it as of use in muscle physiology. He distinguished the popular meaning where it referred to the look or appearance of the muscles, their flatness and absence of fat. In his report and evidence he said that in order to tone and firm it was necessary to reduce subcutaneous body fat and increase the size of muscles.
Dr Coombes, in whose experience there had been over 200 requests over a 10 year period from people wishing to ‘tone themselves up’, defined muscle tone as the ability to visualise the underlying muscle, so that its definition could be seen through the fat. In his report he stated that the ability to tone, trim and firm was a reference to the ability of a machine to change body composition such that there is less fat over the muscle.
Likewise Dr Rosenbaum testified that reference to someone being ‘toned’ meant visible muscles or visible musculature. Visibility would not be apparent if they were covered with too much fatty tissue.
In his evidence Mr Wright also stated that fat loss would have to occur before strong abdominal muscles would appear.
All experts therefore agreed that EMS does not by itself burn large amounts of calories and therefore does not contribute to significant weight loss. The experts also agreed that the use of EMS generally and of the Slendertone products in particular will not reduce the user’s body fat. In his evidence Dr Crowe said that no actual claim of weight loss was made by BMR and that the scientific evidence supported the view that the products strengthened and toned the muscles.
Dr Crowe’s position was that body fat has no effect on muscle tone and that ‘tone’ is not understood to mean the visibility of muscle.
Except for Dr Crowe, the experts expressed the view that the greater the quantity of body fat, the less effective EMS will be. This is because the greater the amount of body fat the more difficult it is for EMS to send any impulse to reach the muscle. Dr Bakker referred to the fat occasioning the need for the user of the product to increase the intensity of it to adequately get through the layer of fat. Dr Coombes stated that the point could be reached where there is so much fat that the EMS impulse will not get the muscle to contract. Marian Wright testified that the inhibiting effect of the fat depended on the type of fat and whether there were fluids around the fat.
Although Dr Crowe held a different position, the text relied upon by him (Baker), states at 48 that ‘[F]at markedly increases the electrical impedance to the underlying muscular tissue and physically separates the surface electrode from the targeted nerve’.
In Emerald Ocean the Full Court at [13] stated that Bialkower did not involve a claim for indemnity, the claim being for contribution. However, in Bialkower at [8] the Full Court there stated that ‘although the cross claim sought indemnity alone, the case appears to have been conducted on the basis that it was a claim for indemnity or contribution’. Bialkower cannot therefore be distinguished on that basis from this proceeding.
WHETHER CONTRIBUTION AVAILABLE UNDER GENERAL LAW
The other source of power to order contribution is the general law, whether the common law or the equitable doctrine of contribution. There has not been any argument made here that there is a source of power from the application of the Judiciary Act 1903 (Cth) making applicable a procedural enactment of a State.
Burke was a case in which the High Court considered the principles of contribution. As stated by McHugh J at the paragraphs identified below, these are:
1.‘Both common law and equity give a person the right to obtain contribution to a payment made by that person in discharging “a common obligation” that is owed by that person and others’: at [38].
2.‘When a person pays more than his or her share of a common monetary obligation, the payment pro tanto discharges the obligation of all who owe the common obligation. In accordance with the maxim that equality is equity, equity requires the common burden to be shared equally so that none of those owing the common obligation will pay more than his or her share of the burden’: at [38].
3.‘In order to establish a right of contribution it is often said that the claimant must prove that its own liability is “co-ordinate” with that of the party against whom it claims contribution. … Thus contribution will not lie simply because the respective liabilities of parties arise out of similar relationships or related transactions’: at [43].
4.‘Similarly, the doctrine will not apply if the obligations in question are merely owed to the same party or are “otherwise connected in time or circumstance”. Nor will it apply merely because the claimant’s payment has benefited or relieved the other party financially’: at [44].
5.‘If the parties are not on the same level of liability, there can be no common interest and no common burden with joinder in a common end and purpose by the several obligations’: at [62].
Similar observations were made by Gaudron ACJ and Hayne J at [14]-[16]; and Callinan J at [138]-[139].
BMR contends that, as McHugh J observed in Burke, the right to obtain contribution to a payment depends on the discharge of a ‘common obligation’. The test is whether the liability of each party ‘is of the same nature and to the same extent’ (at [38]). It is submitted that in the present case there is no common obligation between BMR and the cross-claimants to give rise to an obligation on BMR to make contribution.
In support it is submitted that, save to plead that the advertisements were fair and accurate representations of promotional material supplied to the respondents in the cross-respondent’s promotional material, no plea said to give rise to a common obligation is made. In particular, it is not pleaded that:
(a)the cross-claimants or any of them were agents of BMR;
(b)the publications were as a result of any agreement between BMR and the cross-claimants or any of them;
(c)the cross-claimants or any of them and BMR otherwise shared or were discharging a common obligation. In this regard BMR makes the observation that by the statement of agreed facts in the proceedings it was agreed that the publications were made by Slendertone and that Mr O’Donoghue was knowingly concerned in the publications. It was not in issue whether BMR was in any way a party to, involved in, or had anything to do with publications of the communications.
The cross-claimants rely on Emerald Ocean at [13] where the Full Court said:
‘In Lezam there was no claim for indemnity under the Act until the matter reached the Full Court. In our opinion it was implicit in the Full Court’s reasoning that an indemnity would be available under the Act, depending upon how the facts were found.’
This is relevant to whether the Act provides a source of power to order indemnity. It does not provide a response to BMR’s submissions that there is no source of common obligation to ground an order for contribution under the general law. I therefore accept BMR’s submissions that the general law does not provide such a source in the circumstances as found here. That continues to leave open the issue of whether there is a source of power to order indemnity.
ABSENCE OF CAUSATIVE CONDUCT OF CROSS-RESPONDENT
On the basis that indemnity is available, BMR submits that if it is found that Mr O’Donoghue was knowingly concerned in the contravention, the cross-claim does not arise for determination because there was no reliance on any representations made by BMR. If the position was that in reliance on BMR’s material the cross-claimants believed the Slendertone products could achieve the benefits claimed in the communications without the need to pay attention to diet and exercise, BMR contends that it was the cross-claimants own conduct that was the effective cause of their loss. In support BMR argues that the courts have acknowledged that there may come a point when the plaintiff’s conduct is the effective cause of a loss: Pavich v Bobra Nominees Pty Ltd [1988] FCA 425 per French J cited with approval in Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700 at 712-713; Sharp v Ramage (1995) 12 WAR 325 at 328 per Ipp J. It is submitted by BMR that when a person is involved in the contravention within the meaning of s 75B of the Act, that person should bear the responsibility for the loss.
The cross-claimants reject these contentions, saying Mr O’Donoghue was misled along with the companies which he represented.
Section 82 of the Act provides that the amount of loss or damage suffered by conduct of another person where that conduct was in contravention of (broadly) the Act, may be recovered by action against that other person or against any person involved in the contravention. The Full Court (Fisher, Gummow and Lee JJ) in Munchies at 712 said the measure of damages marked out by the section hangs on the words ‘by conduct’, the preposition ‘by’ having been interpreted to mean ‘by reason of’ or ‘as a result of’. It said there was therefore an apparent telescoping of what to the common law would be concepts of causation, remoteness and measure of damages. BMR relies on these concepts in contending the loss and damage was not occasioned by its conduct and is too remote.
In Pavich French J referred to Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691 at 706, and Elna Australia Pty Ltd at 418-419 and to the view that the selection of a sufficient cause to establish the connection which gives rise to liability under ss 52 and 82 was properly influenced by policy and not merely logic. His Honour continued:
‘The primacy of the causation principle in s 82 would seem to exclude reliance upon such concepts as mitigation or contributory negligence, unless it can be shown that the applicant’s own carelessness or disregard for his or her interest is the cause of all or some part of the claimed loss. It may still be in such a case that the misleading or deceptive conduct complained of may be identified as a sine qua non of the loss claimed. There may come a point, however, where the applicant’s own conduct is so dominant in the causal chain as to constitute a novus actus interveniens. It is perhaps simply putting it another way to say that in such a case a selection principle of the kind adverted to [in the Elna Australia case, supra] comes into operation to exclude liability. The criteria for such selection may import concepts analogous to remoteness, mitigation or contributory negligence.’
There are two forms of conduct relied upon by BMR in its submissions.
Firstly BMR contends that the cross-claimants failed to amend the representations in the manner they knew to be necessary. It is submitted they left unqualified the BMR information by the addition of the need for a healthy diet and exercise. Such failure of qualification is said to have occurred without reliance on any material provided by BMR to the cross-claimants in circumstances where Mr O’Donoghue knew of the need for the qualification and BMR had expressly referred to the need to use the Slendertone products in conjunction with a healthy diet and regular exercise.
It contends this failure by the cross-claimants is explained by the fact that the business of Slendertone was failing. The evidence which BMR relies in this respect is as follows. The intervention of the applicant occurred in June and July 2000. The financial statements of Slendertone for the year ended 30 June 2000 show that as a result of losses from the preceding years, the company had accumulated losses of $145 733. Of its total assets of $291 558, the amount of $220 808 was in respect of property, plant and equipment. It is said that its lack of stock on hand was significant. Further, contrary to its balance sheet, it did not own the Wray St premises from which it operated, that being owned by Mr O’Donoghue. Additionally the same financial statements show that no wages were paid to any staff (there being no staff) for the year. No rental was paid by Slendertone from 1997-1998 financial year onwards. Mr O’Donoghue resided at the Wray St premises from 1998 onwards, that being the only premises he owned since 2001. Prior to July 2000, Mr O’Donoghue had supplemented his income from personal funds to meet his tax liabilities and to put into the business of Slendertone.
Secondly, BMR refers to the nature of its contractual and business relationship with the cross-claimants. BMR states it was and is a company incorporated in Ireland having no presence in Australia. It exported to over 40 countries. The cross-claimants chose to purchase and resell their goods but, beyond that, BMR had no involvement with the
cross-claimants or their business. Clauses 3 and 10 of the Terms and Conditions of Sale pursuant to which the goods were sold by BMR to Slendertone and Mr O’Donoghue provided that ‘“Advertising matter (was) intended merely to present a general idea of the goods or services provided by the company and are not intended thereby to constitute a sale by description” nor the seller (BMR) make any warranty as to the quality of the goods or fitness of the goods for any purpose’. Moreover, by cll 14 and 15 of the Terms and Conditions of Sale was intended to reflect the entire agreement between the parties and the contract was to be governed in accordance with the laws of Ireland. The cross-claimants prepared their communications based on material received from Ireland, but these were determined exclusively by the cross-claimants who did not seek the approval, consent acquiescence or comment of BMR. BMR exercised no control over the content of the advertisements or other communications. BMR left it to Slendertone to determine compliance with Australian law. In all the circumstances, it is contended by BMR the point has been reached where the effective cause of the loss was the cross-claimants own conduct and not the conduct of BMR.
It does not assist the cross-claimants that BMR advised it not to sign anything involving Slendertone. This is because that advice related to Slendertone in the United Kingdom.
The cross-claimants also contend that just after three months from the applicant’s approach to them, BMR ceased to supply Slendertone. However, the position was that BMR was not in the position to supply any of the Australian market, not only Slendertone. Moreover, the cross-claimants had no right to be supplied with products from the cross-respondent.
In Henville v Walker (2001) 206 CLR 459 at [103], [110] and [119] McHugh J stated that recovery of loss is not permitted for actions that might be said to be a ‘reason’ for the loss as distinct from being a ‘decisive consideration’ for the claimed loss. The present is not an instance where the cross-claimants or any of them asserted that the absence in the communications of reference to diet and exercise induced them to enter into the business of selling Slendertone products: cf Henville per McHugh J at [134]. Rather Slendertone’s evidence was that it was aware at all times that the use of the Slendertone products did not abrogate the need for users to pay attention to their diet and to exercise and that purchasers of the products were told that fact. No evidence was put forward by Slendertone that it would have altered its position in any way had the material provided by BMR referred to the need to undertake a healthy diet and to exercise: cf Henville per McHugh J at [132].
Additionally, the finding of accessorial liability against Mr O’Donoghue in respect of the communications in relation to which he had knowledge of the need for diet and exercise has the consequence that the cross-claimants would be unable to establish reliance and causation against BMR. It has the consequence contended for in the cross-respondent’s submissions, namely that it vitiated reliance and meant that it was the cross-claimants own conduct which was the cause of their loss.
The views expressed in the two preceding paragraphs are not based on what the cross-claimants’ submissions in reply to further submissions of the cross-respondent filed on 8 June 2005 describe as ‘the incorrect premise’ that the cross-respondent told the cross-claimants of the necessity for diet and additional exercise (not a proposition on which the case was conducted). They are founded on the evidence addressed in Part A and in particular on the evidence in relation to the finding that Mr O’Donoghue’s reliance on the BMR leaflets was not objectively reasonable and the evidence leading to the finding concerning Mr O’Donoghue’s accessorial liability as well as on the evidence referred to in the two preceding paragraphs.
WHETHER LOSSES AS PARTICULARISED ESTABLISHED
LOSS OF SALARY
Evidence relied upon by Mr O’Donoghue in support of this claim was struck out. Furthermore, his claim of the ‘loss’ depended upon his ability to work and the capacity of Slendertone to pay him. The poor financial position of Slendertone and its lack of capacity in that respect has been set out above. Mr O’Donoghue’s own evidence was that he had no entitlement to any payment. The evidence was that the payments to him as a director were not pre-arranged and were determined by his accountant as appropriate having regard to tax implications and the like. Mr O’Donoghue was ill in 2000 and prevented from working. His estimates of likely lost income had regard to all sources, not only to his directorship of Slendertone. The evidence would not support a finding that the claimed losses under this head could be made out.
SALE OF MOTOR VEHICLE
Mr O’Donoghue claims $3000 on sale of his car. There is no evidence the car was sold at undervalue.
LOSS OF RENTAL
Mr O’Donoghue claims $25 000 per year for loss of rental since 2000. However Slendertone had stopped payment of rental in July 2000 because of the poor financial state of the business. There was no evidence of attempts to mitigate the alleged loss by renting the premises. The result of the inference from the evidence that the premises were the residence of Mr O’Donoghue is that he was unable to rent the premises because that was his home.
LIFE INSURANCE POLICY
Mr O’Donoghue claims loss of an accumulated bonus of $41 849 on the cancellation of a life insurance policy caused by the claimed loss of income. The policy appears to have been cancelled in about August 2000. That was at the time Mr O’Donoghue found himself in a poor financial situation. It can be inferred that such a situation was the effective cause of the loss. If it could be found the loss was caused by BMR, it is too remote: Henville at [136] and [153]; see also at [18]-[23], [24], [30], and [31].
In any event that claim also overlooks an immediate payment of $26 171 received by Mr O’Donoghue on withdrawal from the plan.
GOODS RETURNED TO BMR
This claim is for $3920 was conceded by the cross-claimants to be irrelevant to the issues in dispute and the evidence was struck out.
WASTED EXPENDITURE
Slendertone claims as damages the trading losses incurred by it for the years 1995 to 2003. I have already concluded that such a claim must fail due to failure to establish causation.
NON-APPLICATION OF ACT
The defence to the cross-claim raises three issues concerning whether the representations were made in trade and commerce within the meaning of the Act. It contends they were not because they were made outside Australia; BMR did not and does not carry on a business within Australia; and BMR was not and is not ordinarily resident in Australia. For the above reasons, I consider that whether or not this is the case the cross-claim must fail. It is not necessary therefore to further examine this defence.
EXCLUSION OF ACT
The defence also asserts that by reason of the Terms and Conditions of Sale and in particular cl 15, the operation of the Act and the equivalent State Acts is excluded.
The Full Court has commented that the remedy conferred by s 52 of the Act would not be lost whatever the parties may provide in their agreement: Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No.1) (1988) 39 FCR 546. However, the Full Court has also accepted that exclusion clauses in contracts may operate to negate reliance: Keen Mar Corporation Pty Ltd v Labrador Shopping Centre Pty Ltd (1989) ATPR 46-048 at 53,151; and Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211 at [98]-[108]. BMR submits that the exclusion clause, either on its own or having regard to the total relationship between the cross-claimants and BMR, had the effect that the cross-claimants’ own conduct was the cause of the loss. In my view lack of reliance is so clearly established by the evidence previously addressed, it is not necessary to specifically consider this defence save to note there may be a significant distinction between the contractual documentation at issue in Poulet Frais and that at issue here.
CONCLUSION ON CROSS-CLAIM
For the above reasons I conclude, as BMR’s submissions contend, that:
(a)the cross-claimants are not able to claim an indemnity or contribution from the cross-respondent;
(b)the claim for damages is appropriately characterised as a claim for indemnity or contribution;
(c)even if a claim for indemnity or contribution were permitted or the claim for damages was allowed as such, there was no conduct of BMR causally connected to any loss or damage suffered by the cross-claimants;
(d)the claims by Mr O’Donoghue for loss of salary, loss from the sale of his motor vehicle, loss of rent and loss from the redemption of his life insurance policy cannot be made out.
Accordingly, the cross-claim should be dismissed with costs.
I certify that the preceding two hundred and seventy-one (271) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholson.
Associate:
Dated: 25 November 2005
Counsel for the Applicant: Ms FC Davis and Mr DJ Pratt Solicitor for the Applicant: Phillips Fox Counsel for the Respondents and Cross-claimants: Mr MJ McPhee Solicitor for the Respondents and Cross-claimants: Michell Sillar McPhee Counsel for the Cross-respondent: Mr LA Tsaknis Solicitor for the Cross-respondent: Eakin McCaffery Cox Dates of hearing:
22-29 July 2002; 7 November 2002; 11-14 March 2003; 19-20 June 2003; 28-29 July 2003; and 17 December 2003
Date of Last Written Submissions:
8 June 2005
Date of Judgment:
25 November 2005
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