Australian Competition and Consumer Commission v Francis

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FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Francis [2004] FCA 487

TRADE PRACTICES – misleading and deceptive conduct – proposed consent orders – no statement of agreed facts – pleadings containing partial admissions only – reliance on evidence filed in another case, for another purpose – whether, and to what extent, allegations of falsity of representations and knowledge by respondent of falsity established – relevance of consent – assertion that consent motivated by limited finances

TRADE PRACTICES – liability of natural person as person involved in contravention by corporation – requirement of knowledge – allegations of knowledge not traversed specifically in pleadings – whether knowledge proved – whether orders should be made by consent

TRADE PRACTICES – declarations – whether jurisdiction to make – whether appropriate – whether merely recording occurrence of contravention of statute – form of declaration

TRADE PRACTICES – injunctions – based on past conduct, not proposed or intended conduct – whether terms of injunction should go beyond area of past conduct

TRADE PRACTICES – injunctions – whether proposed injunctions sought by consent restrain the respondent from conduct of a broader nature than was involved in making the representations

PRACTICE AND PROCEDURE – pleadings – partial admissions – failure to traverse specifically every allegation of fact – whether deemed admission of allegations – relief from compliance with rules – whether power to relieve from compliance carries the power to relieve from past deemed non-compliance – whether power to relieve should be exercised when consent orders sought – relevance of impecuniosity as a motivation for consent

PRACTICE AND PROCEDURE – pleadings – representations – allegations of falsity pleaded as direct negatives of representations – failure to plead affirmative facts that would tend to establish the falsity of the representations – whether appropriate

COSTS – consent orders – some orders sought by consent not made – whether Court should make agreed costs order

Australian Competition & Consumer Commission v Virgin Mobile Australia Pty Ltd (No 2) [2002] FCA 1548 applied
Australian Competition & Consumer Commission v Real Estate Institute of Western Australia Inc [1999] FCA 18 (1999) 161 ALR 79 applied
Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216 followed
Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 followed
Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421 referred to
McLeish v Faure (1979) 40 FLR 462 discussed
Warramunda Village Inc v Pryde [2001] FCA 61 (2001) 105 FCR 437 discussed
Warramunda Village Inc v Pryde [2002] FCAFC 58 (2002) 116 FCR 58 discussed
Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 discussed
Gardner v Dairy Industry Authority (NSW) (1977) 52 ALJR 180 referred to
Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 discussed
Australian Competition & Consumer Commission v Chen [2003] FCA 897 (2003) 201 ALR 40 referred to
Rural Press Ltd v Australian Competition & Consumer Commission [2003]…

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Details
Case
[2004] FCA 487
Decision Date

CaseChat Overview and Summary

The Australian Competition and Consumer Commission (ACCC) brought a case against Francis, who was alleged to have made misleading and deceptive representations regarding the effectiveness of a product called "ThermoSlim" in aiding weight loss. The dispute centred on whether the representations made by Francis about the product's benefits and the testimonials were truthful and substantiated. The Federal Court of Australia was tasked with determining the veracity of these claims and whether they constituted misleading or deceptive conduct under the Trade Practices Act 1974 (Cth).

The primary legal issues the court had to decide were whether the representations made by Francis were false or misleading, and if so, whether these representations breached sections 52, 53(c), and 55 of the Trade Practices Act 1974 (Cth). The court also needed to assess whether Francis had the requisite knowledge of the falsity of these representations. The court examined the evidence provided, including affidavits and court orders from previous proceedings, to determine the truthfulness of the claims and whether the ACCC had substantiated its allegations.

The court found that the ACCC had not sufficiently proved the falsity of the representations regarding the weight loss benefits and the authenticity of the testimonials. The court disregarded certain allegations due to lack of evidence. It also noted that while some orders were made by consent, the respondent's pleadings were inadequate. Despite these issues, the court decided to uphold the consent orders regarding costs, considering the respondent's preparedness to accept those terms. The court concluded that the respondent had engaged in misleading and deceptive conduct by making false claims about the product’s effectiveness and the authenticity of testimonials, justifying the declarations and injunctions sought.

The court ordered that Francis be restrained from making certain representations about the product's weight loss benefits for five years and declared that the previous representations were misleading. Additionally, Francis was ordered to pay the ACCC's costs of $15,000. The application was otherwise dismissed, and leave was granted to the ACCC to rely on affidavits from previous proceedings.

Orders

Orders of the court

1. Leave be granted to the applicant to rely in this proceeding on the affidavits filed in proceeding number VG567 of 1997.

2. In relation to pars 9, 11, 18(b), 19(b), 21, 28(b), 29(b), 33 and 39 – 53 of the amended statement of claim, the Court dispenses with compliance by the respondent with the requirements of O 11 r 13(3) of the Federal Court Rules.

3. It be declared that the respondent, by causing to be sent to members of the public through the use of the postal services written material promoting the sale of a wafer biscuit known as ‘ThermoSlim’, containing representations that:

(a) people can achieve weight loss by the consumption of ThermoSlim;

(b) people can achieve weight loss by the consumption of ThermoSlim without

undertaking any other method of weight loss (including dieting or exercise);

(c) ThermoSlim has a 95 per cent success rate;

(d) the matters set out in paragraphs (a) – (c) hereof have been confirmed by

weight loss experts and researchers;

(e) people can achieve the following weight loss by the consumption of

ThermoSlim:

(i) 2 kilograms within the first 72 hours of commencing to eat

ThermoSlim;

(ii) 5 kilograms in the first fortnight of commencing to eat ThermoSlim;

(iii) 10 kilograms in the first month of commencing to eat ThermoSlim;

(iv) a further 20, 40 or 60 kilograms thereafter.

(f) the testimonials and scientific endorsement in the material are

authentic and truthful; and

(g) the testimonials contained in the materials represent the typical or

ordinary experience of people who eat ThermoSlim

has in trade or commerce:

(1) engaged in conduct that was misleading and deceptive or was likely to mislead

or deceive, contrary to s 52 of the Trade Practices Act 1974 (Cth);

(2) in connection with the supply or possible supply of goods, or with the

promotion of the supply of goods, represented that goods have performance

characteristics, uses or benefits they do not have, contrary to s 53(c) of the

Trade Practices Act 1974

(Cth); and

(3) engaged in conduct that is liable to mislead the public as to the nature or

characteristics of goods or the suitability of such goods for their purpose,

contrary to s 55 of the Trade Practices Act 1974 (Cth);

in that each of the representations was false, at least to the extent that any scientific evidence regarding the merit of ThermoSlim was overstated and the testimonials did not necessarily reflect the experiences of ordinary and typical users of ThermoSlim.

4. The respondent, by himself, his servants or agents or howsoever otherwise, be restrained for a period of five years in connection with the supply or promotion of a wafer biscuit known as ‘ThermoSlim’, or any substantially similar food product whatever called, from making any representation in trade or commerce through the use of postal services to the effect that the consumption of that product can cause people to lose weight by:

(a) a process called thermogenesis;

(b) a process by which calories are converted into heat; or

(c) burning the body’s fat.

5. The respondent pay the applicant’s costs of this proceeding, fixed at $15 000.

6. The application be otherwise dismissed.

Background

Background to the litigation

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Evidence

Evidence Before The Court

It is therefore necessary to turn to the evidence, to see if the falsity of the representations is proved in all respects, and to see if the allegations of knowledge on the part of the respondent are made out. The evidence Save for appending to the amended statement of claim the order made by Ryan J on 6 April 1993, the applicant made no attempt to prove the facts alleged in pars 40 to 44. An examination of the order of Ryan J discloses that, in order to be comprehensible, it requires resort to be had to documents filed in the proceeding in which it was made. In particular, the order includes an order that there be judgment for the applicant for final injunctions in the terms of pars 13 and 14 of the application in that proceeding. The application is not in evidence in this proceeding. I must therefore disregard pars 40 to 44 of the amended statement of claim in this proceeding, as the allegations in them have not been proved. In relation to the proceeding referred to in pars 45 – 53 of the amended statement of claim, the applicant attached the order made by Goldberg J on 3 November 1997. That order is at least specific as to the terms of the injunction his Honour granted. It is therefore established that such an order was made by consent in that proceeding. In order to make good the rest of the allegations made in pars 45 – 53 of the amended statement of claim, the applicant, with the consent of the respondent, tendered in this proceeding some material that was filed in the earlier proceeding involving Jayco Pty Ltd. The material consists of three affidavits. An affidavit of Mark Lawrence Wahlqvist, affirmed on 6 October 1997, was filed in proceeding number VG567 of 1997 on 7 October 1997. Professor Wahlqvist is a medical expert, eminently qualified in the field of nutrition. A further affidavit of Professor Wahlqvist, affirmed on 30 October 2002, was filed in proceeding number VG567 of 1997 on 31 October 2002, in support of an application to punish the respondent for contempt of court by reason of contraventions of the injunction granted by Goldberg J in proceeding number VG567 of 1997. Also filed in support of that application on 31 October 2002, was an affidavit of Gad Binyamin Ellinson, an officer of the applicant, sworn on 29 October 2002. Much of the material contained in the affidavit of Mr Ellinson and the exhibits to it is irrelevant to this proceeding, in the light of the admissions made by the respondent. The affidavit was produced for a purpose other than proving the unadmitted allegations in this proceeding. Among the exhibits to the affidavit, however, is a notice served on the respondent by the applicant, pursuant to s 155(1)(a) and (b) of the Trade Practices Act, seeking answers to written questions and the production of documents and a document containing the respondent’s answers to these questions. The notice contains 132 numbered questions, some of which have multiple parts. Significantly for the present proceeding, the notice asked the respondent detailed questions as to the information in his possession substantiating the various representations, and as to the identities of the persons to whom testimonials are attributed in the advertisements. In one of his answers, the respondent referred to ‘material regarding the effect of pressure points within the ear upon suppression of hunger.’ He claimed that, ‘there is a body of material which is successful [sic] via the internet in respect to auriculotherapy, ear acupuncture and acupuncture generally’ and gave a reference to an example of such material. He also referred in general terms to material from an organisation which originally produced a product similar to Acu-Slim 2000 in America, with which he claimed to have had dealings in the early to mid 1990s. He described this material as being ‘in the form of reports and opinions regarding both issues of pressure points within the ear which effect [sic] hunger and also in respect to the production of the product itself plus testimonial material.’ He referred to conversations he claimed to have had with a person called Jean Claude Koven of Original Marketing Inc, who he said originally produced a similar product in America. The conversations related to the existence of pressure points within the ear, affecting hunger and to issues of acupuncture generally and the way in which the product ‘operated to access and stimulate the particular pressure points.’

Decision

Reasons for decision

GRAY J
I have considered whether I should make the order in par 9 of the minute of consent orders, or whether I should make some other order as to costs, given that the orders I am prepared to make are significantly different from those sought by consent. In a sense, it is wrong to make the respondent responsible for the costs of the applicant to the degree agreed when the applicant has been unable to establish, either by admissions on the pleadings, or by evidence, a case that would justify the making of most of the orders sought. In the end, I have decided that I should make the orders sought in relation to costs. In part, the difficulties that I have had in deciding whether to make the orders sought by consent have arisen from the inadequacy of the respondent’s pleadings. When both parties are in default to a degree, it is inappropriate to interfere with their choice of the amount of costs to be paid.Conclusion Ordinarily, if parties to a proceeding approached the Court to make consent orders, and the Court reserves its judgment and then determines that it should not make those orders, but should make different orders, procedural fairness would dictate that notice be given to the parties of the orders proposed to be made and that they be given an opportunity to make further submissions on them. In the present case, as I have said, the applicant appeared by counsel for the purpose of persuading me to make the orders sought by consent. Many of the issues that have caused me difficulty were canvassed in the course of argument or were anticipated in counsel’s written submissions. Counsel for the applicant expressly invited me to make so much of the orders sought by consent as were properly to be made, if I were not disposed to make them all. I do not think it is necessary to give the applicant a further opportunity to make submissions. The respondent did not attend, and was not represented at, that hearing. The orders I do propose to make are well within the ambit of those to which he had consented. In effect, the orders I propose to make do much to relieve him of obligations he was prepared, for whatever reason, to undertake. Accordingly, I do not see that his rights have been affected to the extent that I should give him a further opportunity to make submissions. The orders sought by consent included an order granting leave to the applicant to rely in this proceeding on the affidavits filed in proceeding number VG567 of 1997. I propose to grant such an order. Otherwise, the orders I make will be limited to those referred to in [45 – 46] (relief from compliance with O 11 r 13(3)), [118] (the declaration), [127] (the injunction) and [131] (costs) of these reasons for judgment. Otherwise, the application will be dismissed.

Ratio Decidendi

Legal Principle Established

Established by: GRAY J

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