Australian Competition & Consumer Commission v Giraffe World Australia Pty Ltd
[1999] FCA 1161
•26 AUGUST 1999
FEDERAL COURT OF AUSTRALIA
Australian Competition & Consumer Commission v Giraffe World Australia Pty Ltd (No 2) [1999] FCA 1161
TRADE PRACTICES – referral selling – pyramid selling scheme – construction of ss 57 and 61 of Trade Practices Act1974 (Cth) – misleading or deceptive conduct – representations “with respect to future matters” – testimonial evidence that product sold as a therapeutic device had benefited human health – expert evidence suggesting otherwise – “placebo effect” – “autosuggestion” – accessory liability.
PRACTICE AND PROCEDURE – application to reconstitute a proceeding as a representative proceeding under Part IVA of the Federal Court of Australia Act 1976 (Cth) – power to make such an order – discretion as to whether order should be made.
DEFAMATION – allegation that Commission defamed applicant in media release reporting obtaining of ex parte injunction – defences – truth – public interest – fair report of court proceedings.
Trade Practices Act 1974 (Cth) ss 51A, 52, 57, 61, 75B, 80(1)(e)
AUSTRALIAN COMPETITION & CONSUMER COMMISSION v GIRAFFE WORLD AUSTRALIA PTY LIMITED & ORS
NG 421 OF 1998
GIRAFFE WORLD AUSTRALIA PTY LIMITED v AUSTRALIAN COMPETITION & CONSUMER COMMISSION
NG 711 OF 1998
LINDGREN J
26 AUGUST 1999
SYDNEY
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 421 OF 1998
BETWEEN:
AUSTRALIAN COMPETITION & CONSUMER COMMISSION
ApplicantAND:
GIRAFFE WORLD AUSTRALIA PTY LIMITED [ACN 078 012 521]
First RespondentAKIHIKO MISUMA
Second RespondentROBIN HAN
Third RespondentMARK SCOTTE
Fourth Respondent[Rui Hua Zhang (Aka Susan Zhang), removed as a party]
Fifth RespondentLUCILLE ORR
Sixth Respondent[Wei Wang, removed as a party]
Seventh Respondent[Yong Tang (Aka Tommy Tang), removed as a party]
Eighth Respondent
JUDGE:
LINDGREN J
DATE:
26 AUGUST 1999
PLACE:
SYDNEY
THE COURT ORDERS THAT:
1.The proceeding be stood over to 31 August 1999 at 9.00 am for the making of declarations and orders.
2.The applicant supply to the Associate to Lindgren J by 4.00 pm on 30 August 1999 short minutes of the declarations and orders which it contends should be made.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 711 OF 1998
BETWEEN:
GIRAFFE WORLD AUSTRALIA PTY LIMITED [ACN 078 012 521]
ApplicantAND:
AUSTRALIAN COMPETITION & CONSUMER COMMISSION
Respondent
JUDGE:
LINDGREN J
DATE:
26 AUGUST 1999
PLACE:
SYDNEY
THE COURT ORDERS THAT:
1. The application be dismissed.
2. The applicant pay the respondent’s costs.
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 421 OF 1998
BETWEEN:
AUSTRALIAN COMPETITION & CONSUMER COMMISSION
ApplicantAND:
GIRAFFE WORLD AUSTRALIA PTY LIMITED [ACN 078 012 521]
First RespondentAKIHIKO MISUMA
Second RespondentROBIN HAN
Third RespondentMARK SCOTTE
Fourth Respondent[Rui Hua Zhang (Aka Susan Zhang), removed as a party]
Fifth RespondentLUCILLE ORR
Sixth Respondent[Wei Wang, removed as a party]
Seventh Respondent[Yong Tang (Aka Tommy Tang), removed as a party]
Eighth Respondent
IN THE FEDERAL COURT OF AUSTRALIA
NEW SOUTH WALES DISTRICT REGISTRY
NG 711 OF 1998
BETWEEN:
GIRAFFE WORLD AUSTRALIA PTY LIMITED
ApplicantAND:
AUSTRALIAN COMPETITION & CONSUMER COMMISSION
Respondent
JUDGE:
LINDGREN J
DATE:
26 AUGUST 1999
PLACE:
SYDNEY
REASONS FOR JUDGMENT (No 2)
INTRODUCTION
I heard these two proceedings together, having ordered that the evidence in one be evidence in the other, subject to all proper exceptions. The proceedings arise out of the marketing of an “ion mat” (“the Mat”) by the first respondent (“GW”). The Mat is a mat or mattress on which one lies when it is connected to a source of electricity.
The applicant (“the ACCC”) alleges that in promoting the Mat, GW made misrepresentations in contravention of ss 52 and 53(c) of the Trade Practices Act 1974 (Cth) (“the TP Act”). The misrepresentations can be broadly described as being to the effect that as a result of its emission of negative ions, the Mat benefits the health of persons who sleep on it. I will call this part of the ACCC’s case the “misleading or deceptive conduct” part.
The ACCC further alleges that in connection with the promotion and sale of the Mat, GW engaged in a practice of “referral selling” in contravention of s 57 of the TP Act, and promoted a scheme involving membership of a “Giraffe Club” (“GC”) and of a “Grow Rich System” (“GRS”) which constituted a “pyramid selling” scheme (“the Scheme”), in contravention of s 61 of that Act.
The second respondent (“Mr Misuma”) founded GW and was at all material times a director of GW. He also appears to have been its “Chairman”. GW and Mr Misuma were represented by the same solicitors and counsel.
The third respondent (“Mr Han”) was a shareholder in GW and, until November 1998, its President and Chief Executive Officer. Initially, the solicitors and counsel for GW and Mr Misuma also represented Mr Han. However, on the first day of the hearing, I was informed that the solicitors had had no contact with him for a considerable period of time and had been unsuccessful in attempts to take instructions from him. They foreshadowed that they would cease to represent him. There was evidence that Mr Han knew of the dates on which the hearing was to take place. On the third day of the hearing, I granted the solicitors leave to file and serve a notice of change of solicitor in respect of Mr Han. Accordingly, the solicitors and counsel afterwards represented only GW and Mr Misuma.
The fourth respondent (“Mr Scotte”) and the sixth respondent (“Ms Orr”) gave “presentations” to persons who were potential buyers of the Mat and were participants in the Scheme. They appeared in person.
Pursuant to leave, the ACCC discontinued against the fifth, seventh and eighth respondents.
Mr Scotte and Ms Orr adopted the submissions made by counsel for GW and Mr Misuma. As well, they made submissions of their own. For convenience, I shall use the expression, “the respondents”, to refer to GW, Mr Misuma, Mr Scotte and Ms Orr, and, in the context of submissions, the abbreviation “GW” to refer to the chief protagonist and to include a reference to Mr Misuma.
In the second proceeding, GW sues the ACCC for damages for defamation. The background to the defamation proceeding is found in certain events associated with the ACCC’s proceeding. In the ACCC’s proceeding, on 6 May 1998 I granted the ACCC ex parte interlocutory injunctions restraining GW in certain respects in the carrying on of its business and by way of an asset preservation order. The next day, 7 May 1998, the ACCC published a media release reporting on that interlocutory proceeding. GW alleges that the media release carried imputations defamatory of it. On 8 and 11 May 1998, GW obtained variations of the orders of 6 May. It alleges that notwithstanding this, as of 13 May, the ACCC was still distributing and publishing the original media release. GW further alleges that in mid-May 1998, in a telephone conversation between Geoffrey Williams of the ACCC and Malcolm Finger of the New South Wales Department of Fair Trading, the ACCC published certain matters of and concerning GW, and that the Department, in its electronic mail and in communications with members of the public, republished those matters, which carried imputations defamatory of GW.
I find it convenient to postpone further discussion of the defamation proceeding until I have dealt with the ACCC’s proceeding.
In relation to the misleading or deceptive conduct part of the case, the ACCC adduced expert evidence directed to establishing that the Mat did not emit negative ions and did not have the therapeutic effects represented. It also led evidence from a small number of persons who bought the Mat and joined the GC and the GRS and who claimed that the Mat did not benefit their health as represented. GW, on the other hand, has led evidence from some sixty “satisfied customers”. Each of these users of the Mat has testified to its beneficial effects. More accurately, each has described relevant aspects of his or her health, before and after using the Mat, the latter being an improvement on the former. The ACCC submits that I should treat all that evidence as illustrative of “the Placebo effect” or “autosuggestion”.
The time set aside for the hearing proved to be inadequate to allow for the making of submissions. Accordingly, directions were given for the filing and service of written outlines of submissions to be followed by brief oral elaboration on a date to be fixed. The ACCC provided its outline. GW provided an outline in relation to the referral selling and pyramid selling parts of the case. Prior to the furnishing of an outline in relation to the misleading or deceptive conduct part, however, GW appointed Steven John Sherman as administrator of the company and the solicitor for Mr Misuma (who had also appeared for GW down to the time of the appointment of the administrator) informed me that he had been instructed to incur no further costs, and sought leave for himself and counsel briefed by him to be excused from further attendance. I granted that leave. The administrator gave his written consent to the continuation of proceeding NG 421 of 1998, against GW for the purposes of s 440D(1)(a) of the Corporations Law, but indicated that he wished to play no further role in either proceeding. In the result, in relation to the misleading or deceptive conduct part of the case and the defamation proceeding, I have had the assistance of submissions from the ACCC alone.
OUTLINE OF PLEADING AND FACTS IN RELATION TO REFERRAL SELLING AND PYRAMID SELLING
There is little, if any, dispute about the facts relevant to the allegations of referral selling and pyramid selling. The respondents submit that as a matter of law the facts do not fall within the statutory prohibitions. It is convenient to note at once that all of the relevant conduct of GW, a trading corporation, took place in trade or commerce.
GW conducted “Happiness Circle” meetings (sometimes referred to simply as “Happiness Circles” or “HC’s” within GW, - I will speak of “HC meetings”). At these meetings the health benefits of the Mat were extolled in on-stage “presentations” to prospective buyers in an audience. It was by being invited to attend and attending a HC meeting that a person was introduced to GW, the Mat, the GC and the GRS. Those attending were told that upon paying $2,900 for the Mat, $50 as a “membership application fee” and $300 as a “membership fee”, they could become members of the GC. To become a member of the GC they had to sign an application form and their application had to be accepted by GW. It was possible to buy the Mat without joining the GC, but this possibility was not emphasised if it was ever volunteered at all. Persons in the audience were also told that if they joined the GC they were eligible to apply to join the GRS. In order to join the GRS, they had to sign a separate form of application for membership and be accepted by GW. It was also made clear that pre-conditions of their admission to membership of the GRS were that a person had to attend a “Business School” (often referred to within GW as “BS”), attend a two-day “Management Consultant Class” (often referred to within GW as “MCC”) and “pass an interview”. (Mr Paul Hsu, the Chief Executive Officer of GW, deposed that in practice, attendance at the Management Consultant Class was a precondition, not of membership of the GRS, but of advancement from the rank of “Giraffe Member” to “Giraffe Leader” (see below), however nothing turns on the matter). Membership of the GC gave the right to attend the Business School and the Management Consultant Class as well as to be interviewed with a view to acceptance as a member of the GRS. No additional money beyond the $3,250, necessarily paid in order to attain membership of the GC, was payable for membership of the GRS. Importantly, however, it was membership of the GRS that was the key to entitlement to earn “commissions” (I need not distinguish between “commissions” and “bonuses” and will refer only to “commissions”) in the manner referred to below.
I need not describe every aspect of the GRS, and, therefore, of the Scheme of which the GRS was the most important part. It suffices that I give an outline at this stage. A member of the GRS was entitled to be paid commission by GW for successfully “introducing” newcomers. The evidence is not clear as to what the notion of “introduction” meant. Ultimately, nothing turns on the point, and I will assume in favour of GW and as it contends, that the commission earning event was the introduction of someone who bought a Mat, whether or not that person also joined the GC or the GRS or both.
The commissions earned were calculated according to a formula based on “Business Volume” measured by dollar amount. Each successful introduction had a Business Value of $2,500. There is ample evidence, and it is not and could not be disputed, that an introduction of a person who bought the Mat, joined the GC and joined the GRS, and therefore paid out $3,250, generated a Business Volume of $2,500. There is also some evidence that an introduction of a person who only bought the Mat also did so. But all the promotional activity by and on behalf of GW strongly emphasised the desirability of “going all the way” by joining the GC and the GRS, and does not seem to have drawn attention at all to the possibility of buying the Mat alone. Nonetheless, as stated above, I proceed on the assumption that the introduction of a person who bought the Mat alone generated a Business Volume of $2,500 and that if the person also joined one or both of the GC or the GRS, this did not give rise to the crediting of additional Business Volume beyond the sum of $2,500. Thus, member A of the GRS would earn a direct commission for introducing another person (B) to buy the Mat, and if B became a member of the GRS, A would earn indirect commissions as B introduced others to buy the Mat.
In addition to being entitled to be paid commissions by GW in respect of purchases of the Mat by individuals introduced by him or her, a member of the GRS was also entitled to be paid further commissions by GW as his or her “downline agents” introduced further persons. But a downline agent was necessarily himself or herself also a commission earner, that is, a member of the GRS. In sum, a successful introduction generated the earning of commissions only for members of the GRS and it was in the interests of the immediate introducer as well as his or her “uplines”, that an “introducee” should not only buy the Mat, but also join the GC and the GRS.
Both in the GW literature and in oral statements, references were made to the earning of commissions by “introducing”. It is clear that in many instances this non-specific term was being used to refer to the introduction of a person to buy the Mat and to join the GC and the GRS. And it must be remembered that membership of the GRS predicated a purchase of a Mat and membership of the GC. Accordingly, to speak of paying $3,250 to join the GRS was to speak of paying that sum to buy the Mat, join the GC and join the GRS.
There were eight classes of membership of the GRS. They were ranged in ascending order beginning with “Giraffe Member” or “GM”. As with so much of GW’s business, acronyms were used to denote the various classes of membership. The higher one’s category of membership, the more “downline” agents one had and the more indirect commissions one could earn. The progression of memberships was as follows:
Giraffe Member (GM)
Giraffe Leader (GL)
Giraffe Retail Assistant (GRA)
Giraffe Retail Manager (GRM)
GRM 3 Star
GRM 5 Star
GRM 7 Star
GRM Super Star
The system was pyramidal: each member of any particular class had more than one member of the class immediately below as a downline, that is, more than one “downline”, with GM at the base. A member’s progress upwards depended on the “Business Volume” credited to the member, that is, on the number of successful introductions made by the member or, more significantly, by his or her downline agents. For each successful introduction, the direct introducer was credited with a Business Volume of $2,500, while each upline agent of the introducer was credited with an amount determined by reference to his or her position in the pyramid in relation to the introducer. It was in a member’s financial interests that his or her downlines should introduce new members.
A person was able to buy the Mat for $2,900 without becoming a member of either the GC or the GRS, although, as noted earlier, it is clear to me that this possibility was not emphasised. Apparently, as at 3 April 1999, 330 persons had bought the Mat alone. Obviously it was not in the interests of uplines or even the longer term interests of the immediate introducer that a newcomer should merely buy the Mat and not join the GC or the GRS.
Similarly, a person could pay the sum of $3,250 for the Mat and membership of the GC without joining the GRS. No doubt this might happen because the GC member did not apply to join the GRS or did not attend the Business School or the Management Consultant Class or attend or pass the interview. Apparently, as at 3 April 1999, 1,196 persons had bought a Mat and become members of the GC, but had not become members of the GRS. As indicated above, however, a person who did not join the GRS was not entitled to earn commissions. And if such a person introduced others, he or she would not generate indirect commissions for members of the GRS. Again, it was in the interests of the immediate introducer and of his or her upline agents that the introducee should join the GC and the GRS as well as buy the Mat.
Apparently as at 3 April 1999, 4,656 persons had bought the Mat, joined the GC and joined the GRS. Apparently of those 4,656 persons, 3,238 had each applied to join the GC and the GRS on the same date, while the remaining 1,418 had each applied to join them on different dates.
Against the above background it is convenient now to note the relevant provisions of the TP Act.
THE STATUTORY PROHIBITIONS
The ACCC relies on ss 51A, 52, 53(c), 57 and 61 of the TP Act which provide, relevantly, as follows (emphasis supplied):
“51A (1) For the purposes of this Division, where a corporation makes a representation with respect to any future matter (including the doing of, or the refusing to do, any act) and the corporation does not have reasonable grounds for making the representation, the representation shall be taken to be misleading.
(2) For the purposes of the application of subsection (1) in relation to a proceeding concerning a representation made by a corporation with respect to any future matter, the corporation shall, unless it adduces evidence to the contrary, be deemed not to have had reasonable grounds for making the representation.
(3) ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ .
52. (1) A corporation shall not, in trade or commerce engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2) Nothing in the succeeding provisions of the Division shall be taken as limiting by implication the generality of subsection (1).
53. A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods ... or in connexion with the promotion by any means of the supply or use of goods ... :
(a) ...
(aa) ...
(b) ...
(bb) ...(c)represent that goods ... have ... approval performance characteristics, ... uses or benefits they do not have; ...”
57. A corporation shall not, in trade or commerce, induce a consumer to acquire goods or services by representing that the consumer will, after the contract for the acquisition of the goods or services is made, receive a rebate, commission or other benefit in return for giving the corporation the names of prospective customers or otherwise assisting the corporation to supply goods or services to other consumers, if receipt of the rebate, commission or other benefit is contingent on an event occurring after that contract is made.”
61 (1) A corporation contravenes this section if:
(a)the corporation is the promoter of, or (if there are more than one) one of the promoters of, or is a participant in, a trading scheme to which this section applies; and
(b)a person who is a participant in that trading scheme, or has applied or been invited to become a participant in that trading scheme, makes any payment to or for the benefit of the corporation, being a payment that he or she is induced to make by reason that the prospect is held out to him or her of receiving payments or other benefits in respect of the introduction (whether by himself or herself or by another person) of other persons who become participants in that trading scheme.
(2)A corporation also contravenes this section if:
(a)the corporation is the promoter of, or (if there are more than one) one of the promoters of, is a participant in, or is otherwise acting in accordance with, a trading scheme to which this section applies; and
(b)the corporation, by holding out to any person the prospect of receiving payments or other benefits in respect of the introduction (whether by himself or herself or by another person) of other persons who become participants in that trading scheme, attempts to induce that person:
(i)if he or she is already a participant in that trading scheme, to make any payment to or for the benefit of the promoter or any of the promoters or to or for the benefit of a participant in that trading scheme; or
(ii)if he or she is not already a participant in that trading scheme, to become such a participant and to make a payment of a kind mentioned in subparagraph (i).
(2A) A corporation also contravenes this section if the corporation promotes, or takes part in the promotion of, a scheme under which:
(a)a payment is to be made by a person who participates, or who has applied or been invited to participate, in the scheme to or for the benefit of the corporation or another person who takes part in the promotion of the scheme or to or for the benefit of another person who participates in the scheme; and
(b)the inducement for making the payment is the holding out to the person who makes or is to make the payment the prospect of receiving payments from other persons who may participate in the scheme.
(3)For the purposes of subsection (1), (2) or (2A);
(a)a prospect of a kind mentioned in that subsection shall be taken to be held out to a person whether it is held out so as to confer on him or her a legally enforceable right or not;
(b)in determining whether an inducement or attempt to induce is made by holding out a prospect of a kind mentioned in that subsection, it is sufficient if a prospect of that kind constitutes or would constitute a substantial part of the inducement; and
(c)...
(4) For the purposes of this section, a scheme is a trading scheme to which this section applies if the scheme includes the following elements:
(a)Goods or services, or both, are to be provided by the person promoting the scheme (in this section referred to as the “promoter”) ...;
and
(b)the goods or services so provided are to be supplied to or for other persons under transactions arranged or effected by persons who participate in the scheme (each of whom is in this section referred to as a ‘participant’), being persons not all of whom are promoters.
(5)........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ........ ...... ”
THE PROPER CONSTRUCTION OF s 57 (REFERRAL SELLING)
With respect, I have some difficulty in understanding GW’s submission in relation to the construction of s 57. I accept that under s 57 it is necessary to consider in the case of each consumer whether, by making a representation of the kind described in the section, GW in fact induced that consumer to acquire goods or services. But the respondents submit that in the present case, at least typically, the commission was earned at the very time when the relevant contract was entered into, rather than later as contemplated by s 57. According to the submission, the “relevant contract” for the purposes of s 57 is that by which the person introduced buys a Mat. The respondents submit that at the time when that contract is entered into, there is no commission or other benefit yet to be earned contingently on the occurrence of a subsequent event.
In amplification, GW submits that there are three contracts to be considered: first, a contract by which A becomes a member of the GC; second, a contract by which A becomes a member of the GRS; and third, a contract which is entered into between A and GW each time A sells a Mat to a consumer (who may or may not at the time of the purchase apply for membership of the GC or of the GRS). Counsel submits that in the concluding words of s 57, “ ... if receipt of the ... commission or other benefit is contingent on an event occurring after that contract is made”, the words “that contract” refer to the third of these contracts. He says that the words “that contract” should be construed as referring to the third contract because:
“1.In terms of wording proximity, the closest referent contract is the contract under which the commission must arise.
2.If the intent were that ‘that contract’ mean the ‘Contract for the acquisition of goods or services’ (used earlier in the section), it would have been more usual or natural to expect the same formulation of words to be repeated.”
Counsel further submits that the result for which he contends is in accordance with “expectations of commercial reality”, since sales commissions are paid for selling, not for supplying the names of prospective customers, which may prove to be of no value. Counsel’s submission continues:
“Thus, the suggested interpretation would not proscribe the offering of payment for mere provision of lists of ‘prospective’ customers, whether such lists were supplied before or after the consumer makes the original contract or acquisition of the goods. What would be proscribed is the situation where the corporation offers a commission which becomes payable upon any sale made to one of the names of prospective customers which name had been previously provided.”
I do not accept GW’s submission. In my view the expression “that contract” refers to the contract by which the consumer acquires goods or services.
For the purposes of the TP Act, a person is a consumer in relation to the acquisition of particular goods or services in the circumstances described in s 4B(1) of that Act. I need not set out the provision. It is not, and could not be, disputed that persons who acquired the Mat and the rights conferred by membership of the GC and the GRS did so as “consumers” for the purposes of the TP Act. (Later I will explain that the membership of each of the GC and the GRS involved the provision of “services” by GW to members.) The cash price for the Mat was $2,900, and $300 was payable as a GC “membership fee” and $50 as a “membership application fee”. (Some GW documents referred to the total sum of $3,250 as a “membership fee”, even in contexts in which the sum of $300 is also referred to as the membership fee.) Even the total of $3,250 was well below the $40,000 level stipulated in s 4B. The question which s 57 raises here is whether GW induced a consumer to acquire the Mat or the membership rights, or both, by representing that that consumer would afterwards receive commissions in return for assisting GW to supply the Mat or such membership rights to others, if receipt of the commissions was contingent on an event occurring after the consumer made his or her own contract.
The section is directed against the evil that a person might be induced to buy goods or services by an expectation that he or she will subsequently receive a rebate, commission or other benefit (after this, simply “commission”) for assisting the supplier to supply its goods or services to other consumers, when there is no assurance that the commission will in fact be received because receipt of it is subject to a contingency. The contingency is something over and above the rendering of the assistance or the doing of any other act by the consumer alone.
An illustration given in s 57 itself is the giving to the supplier of the names of prospective customers. If a commission were to become payable by reason of nothing more than the giving of the names, the section would not be contravened. In such a case, the earning of the commission would not be contingent on the occurrence of an event which was both later than the acquisition by the consumer and distinct from the giving of the names itself. But, as the respondents’ submissions correctly recognise, the typical arrangement would provide for receipt of the commission to be contingent on acquisition of goods or services by one or more of the prospective customers whose names had been supplied.
In sum, the expression “that contract” in s 57 refers back to the “contract” expressly referred to in the section, that is, the contract for the acquisition of goods or services made by the original consumer. There will be a contravention of s 57 by GW if GW induced a consumer to acquire any one or more of the Mat, the GC membership rights or the GRS membership rights, by representing that the consumer would, after that contract was made, receive commissions in return for assisting GW to sell any one or more of the Mat and those rights to other consumers, if receipt of the commission was contingent on those other consumers’ actually doing one or more of buying the Mat, joining the GC or joining the GRS.
GW finally submits that if I should reject its threshold submission (as I do), it remains a question in relation to each consumer whether GW in fact induced that consumer to acquire any one or more of the Mat or the membership rights by a representation of a kind described. I accept the correctness of this submission. Accordingly, it will be necessary for me later to turn to the factual issue of what it was that operated as an inducement on the minds of particular consumers.
THE PROPER CONSTRUCTION OF s 61 (PYRAMID SELLING)
GW also makes a threshold submission that s 61 does not apply in the circumstances of the present case for the following reasons:
1. Subsections 61(1) and (2) do not apply because:
· there is no “trading scheme” within s 61(4); and
· commission is earned by reason of the sale of Mats, not the introduction of persons who become participants in the Scheme;
2.Subsection 61(2A) does not apply because at no stage do members of the GRS receive payments (commissions) from other members of the GRS.
I will address these issues in turn.
Is there a “trading scheme” as defined in s 61(4)?
The terms of s 61(4) were set out earlier.
GW draws attention to the elements of a trading scheme identified in s 61(4) as being, relevantly, that:
(a) goods or services are to be “provided” by the promoter; and
(b)the goods or services so provided are to be “supplied” to or for persons other than the promoter under transactions arranged or effected by persons who participate in the scheme (“participants”).
GW submits that there must be an original providing of the goods or services and a separate and subsequent supplying of the same goods or services to persons other than those to whom they were originally provided, that is, there must be an “on-supply”. GW refers to Heydon Trade Practices Law (The Law Book Company Ltd) vol 2, para 14-110, at 7014:
“In short, a trading scheme is one in which a promoter provides goods or services to participants who on-supply to a third group of persons.”
GW submits that there is no on-supply here because it is the only entity which ever either “provides” or “supplies” the goods or services.
An independent reason why, according to GW, sub-ss 61(1) and (2) do not apply is that element (b) referred to earlier is not satisfied because, even if there is a trading scheme, the participant is not induced to make the payment by reason of a prospect held out to him or her of receiving payments in respect of the introduction of other persons who become participants. Rather, GW says, the prospect of receiving payment that is held out is in respect of the introduction of persons to buy Mats.
In reply, the ACCC submits that there can be a trading scheme notwithstanding that it is the promoter who supplies to the end-acquirer. The ACCC submits that if Mr Heydon’s statement was intended to be an exhaustive statement of the nature of the scheme described by s 61(4), it is erroneous. However, the ACCC suggests that Mr Heydon was giving only “a shorthand summary of one operation of the section as the opening words of the quotation made clear”. The ACCC also submits that it has never been suggested in any of the authorities that the nature of a “trading scheme” as described in s 61(4) is restricted in the manner contended for by GW. Finally, the ACCC submits that GW’s submission fails to address the fact that GW was supplying not only goods but also services in the form of the GC and GRS membership rights, including, in the case of the latter, the opportunity to earn money.
With respect, I do not think that s 61(4) is limited to circumstances of “on-supply”. In my opinion, para (a) of s 61(4) requires merely that the goods or services or both be “provided”, in a general sense, for the purposes of the trading scheme, rather than that they be provided by the promoter to any particular person. That is, the word “provided” in para (a) of s 61(4) has the general meaning of “made available”.
Paragraph (b) of s 61(4) leaves open the question of the identity of the supplier to or for the “other persons” referred to in the paragraph. What the paragraph does insist upon is that the transactions under which the goods or services “provided” by the promoter are to be “supplied” to or for those other persons, be “arranged or effected by persons who participate in the scheme”. Those participants must “arrange or effect” transactions with the “other persons”, but need not be the supplier of the goods or services to them. While a situation in which the promoter provided goods to participants in a trading scheme for them to supply to other persons under transactions arranged or effected by the participants with those other persons would be caught, in my view that situation does not exhaust the definition in s 61(4).
Inducement
GW’s remaining submission in relation to subss (1) and (2) of s 61 concerns the nature of the inducement to pay money. The submission is that a person who is a participant in the Scheme or who has applied or been invited to become a participant, is not induced to pay money to GW by reason of the prospect held out to him or her of receiving payments or other benefits in respect of the introduction of other persons who become participants in the Scheme, but, rather, is in respect of the introduction of other persons who become buyers of Mats, whether or not they also become participants in the Scheme. It should be noted that the present question is not whether the circumstance described in para (b) of s 61(1) or in para (b) of s 61(2) is an element of the trading scheme, but whether, on particular occasions and in relation to particular persons, the corporation acted in the manner described in those paragraphs.
Under para (b) of s 61(1), as under s 57 discussed earlier, the question is as to actual inducement – under s 57 to acquire goods or services or both, and under s 61(1)(b) to pay money to GW. Under s 57, the question is whether a representation of the kind described in the section was an operative inducement. Under s 61(1)(b) the question is whether a holding out of a prospect of the kind there described was an operative inducement. But s 61(2)(b) is of a different order. It is concerned with attempts to induce, whether or not successful. Accordingly, under s 61(2)(b) the question is whether GW attempted to induce a person to do the things stated by the holding out of a prospect of the kind there described. Again, it becomes necessary to inquire into the facts as to the attempts to induce made on particular occasions.
Subsection (2A) of s 61
GW submits that for subs (2A) to apply, the payment must be made by a participant, or by a person who has applied or been invited to become a participant, to or for the benefit of the promoter, another person who takes part in the promotion, or another participant, and the inducement for the making of the payment must be the holding out to the payer of “the prospect of receiving payments from other persons who may participate in the scheme”. The submission is that in the present case the prospect held out is one of receiving payments from GW itself, not from “other persons who may participate in the scheme”. The submission is further that GW is not, for present purposes, an “other perso[n] ... who may participate in the scheme.”
In reply, the ACCC submits that it is appropriate to construe para (b) of s 61(2A) as extending to the receipt of payments by participants “indirectly” from other persons who may participate in the Scheme, through GW as an intermediary.
In my opinion, s 61(2A) does not apply in the circumstances of the present case. In this respect, I accept GW’s submission and do not think that para (b) of s 61(2A) can properly be read in the manner suggested by the ACCC. That is, I do not think that para (b) encompasses a situation in which the inducement is the holding out of the prospect of receipt of payments from the promoter, even if the occasion for the promoter’s making of those payments is the receipt by it of payments from persons upon their becoming participants in the trading scheme. I also accept that the promoter is not an “other perso[n] ... who may participate in the scheme”. A distinction between the “promoter” of a trading scheme and the “participants” in it is recognised throughout s 61.
In the present case, other persons who might participate in the Scheme were never to make payments to existing participants; rather, they were to pay amounts to the promoter, GW, which was to pay amounts calculated in accordance with a formula to the introducing participant and to his or her “uplines”. Accordingly, s 61(2A) has no scope for operation.
THE ALLEGATION OF CONTRAVENTION OF ss 52 AND 53(c) (THE MISLEADING OR DECEPTIVE CONDUCT CASE)
I need not deal separately and specifically with the allegation of contravention of s 53(c) of the TP Act: if GW represented that the Mat had performance characteristics, uses or benefits it did not have, GW would have contravened s 52 as well as s 53(c).
According to the further amended statement of claim, GW made the following representations to the public in connection with the promotion of the Scheme:
“(a)Ion mats discharge negative ions which reduce stress and assist in reducing cancer causing cells;
(b)Negative ions promote health and reduce fatigue and stress thereby helping to prevent cancer causing cells;
(c) Negative ions help the circulation of the blood;
(d)The ion mat produces negative ions that help relieve stress, fatigue and promote better blood circulation;
(e)Negative ions can help preserve meat for 32 years, assist the involuntary nervous system and build up the immunity system;
(f)The ion mat has received approval from the Ministry of Health in Japan and was a proven therapeutic device;
(g) The ion mat reduces the need for sleep;
(h) The ion mat can cure skin problems;
(i)Persons using the ion mat will be stronger and healthier within 3 weeks of using it;
(j)The ion mat cures insomnia and neck pains;
(k)A person using the ion mat will increase in strength within 10-15 minutes of its use;
(l)The human body absorbs negative ions with [sic] are beneficial to the body;
(m) The ion mat will cure back problems;
(n) The ion mat will reduce the nicotine level in cigarettes;
(o) Negative ions will assist the immunity of the body;
(p)The ion mat if placed in a basin of water will produce a shock as it contains a negative 380 voltage;
(q)The ion mat will cure bad backs, stiff necks, sore shoulders in half a day of use;
(r)The ion mat when used by elderly people will enable them to arch their back and touch the floor with their hands when they were previously unable to do so;
(s)The ion mat enabled a woman to walk who for a period of 2 years had been confined to a wheelchair;
(t) The ion mat relieves chronic constipation;
(u) The ion mat relieves acute arthritis;
(v) The ion mat heals cuts and ulcers and helps growth of scar tissue;
(w) The ion mat has an anti-rheumatisis [sic] effect;
(x) The ion mat has a beneficial effect on nerve endings;
(y) The ion mat has a beneficial effect on intestines and the stomach;
(za) The ion mat acts as a blood purification system;
(zb) The ion mat assists in the treatment of heart murmur;
(zc) The ion mat alleviates the symptoms of heart trouble;
(zd) The ion mat will slow down the progress of AIDS and/or cure AIDS;
(ze) The ion mat improves people who have had a stroke;
(zf)The ion mat helps people who have suffered a heart attack recover quickly;
(zg) The ion mat improves a persons [sic] sex life;
(zh)That the First Respondent was close to finalising approval from the Australian Department of Health for the ion mat;
(zi) The ion mat has a health certificate in Japan and Taiwan;
(zj)The ion mat had been tested and used in Japanese hospitals for 15 years;
(zk) The ion mat is being used in nearly all Japanese hospitals;
(zl) The ion mat can cure asthma.
(zm) The ion mat emits negative ions.”
Lengthy particulars of the making of these representations were given. Many were alleged to have been made at HC meetings. Some were alleged to be contained in a video which was screened during those meetings. Representations (g), (h) and (i) were alleged to have been made by Mr Scotte during a HC meeting. Some representations were alleged to have been made in the “ion mat product manual” which was supplied to persons who joined the GRS. Ms Orr was alleged to have made representation (ze). Several representations were alleged to have been made by a person known as “Rosalee K”. Other representations were alleged to have been made by unidentified presenters at HC meetings. Some representations were attributed to the third respondent (“Mr Han”) and others were attributed to a person called Qiao Jiao.
The HC meetings were held in an auditorium at premises on Level 15 of the Sydney Central Plaza building, 477 Pitt Street, Sydney. There were ample indicia, referred to later, that GW carried on its business there.
After the HC meetings at which the Mat, the GC and the GRS were promoted, those attending were ushered by their introducer to a “VIP lounge”, where, again, the Mat, the GC and the GRS were promoted, this time on a one-to-one basis. It is not disputed, and could hardly have been disputed, that representations made by the “presenters” at the HC meetings about the nature and benefits of the Mat, the GC and the GRS were made by GW. Objection was taken to the evidence of what was said by the individuals in the VIP lounge on the ground that they were not “linked up” to GW. But in the light of the wearing of GW badges and the presence of GW signs and of the standard system in and according to which the Mat, the GC and the GRS were promoted in the VIP lounge following HC meetings, to which I refer later, I have no hesitation in inferring that those individuals who attempted to conclude transactions with newcomers in the VIP lounge were acting with the knowledge and authority of GW.
In respect of all representations except (a), (b), (f), (l), (s), (zh), (zi), (zj), (zk) and (zm), the ACCC calls in aid s 51A of the TP Act, contending that the representations were made by GW “with respect to [a] future matter”. The ACCC contends that GW did not have reasonable grounds for making the representations, with the result that s 51A requires that they be taken to have been misleading. The ACCC also relies on s 51A(2) which provides that a corporation is deemed not to have had reasonable grounds for making a representation with respect to a future matter if the corporation does not adduce evidence to the contrary.
It is convenient to conceive of the thirty-eight representations as falling into three categories: first, those which purport to explain how the Mat operates in relation to “negative ions”; second, those concerned with official or institutional approval or use of the Mat; and third, those, in substance, to the effect that use of the Mat in fact produces particular beneficial effects on health. Some of the pleaded representations can be seen to fall into more than one category.
The first category is made up of representations (a), (d) and (zm). The respondents came to accept that these representations had been made and could not be supported. The testimony of their own expert, Professor Blackburn, was to that effect. The most that could be said was that existing research does not exclude the possibility that the Mat could have the effect of “reorganising” or “relocating” negative ions already present in the human body.
The second category comprises representations (f), (zh), (zi), (zj) and (zk). These representations were directed to promoting confidence in the Mat on the basis that it already had, or was close to gaining, a form of official approval or certification or had the support of institutional use over a significant period. In my view, as noted later, the making and falsity of these representations was also made out.
The third and most voluminous category of the pleaded representations are those to the effect that the use of the Mat produced one or more of numerous specified health benefits. The respondents read numerous affidavits directed to supporting the proposition that it does so. Objection was taken to much of this testimony. I excluded that which attributed to the Mat a perceived change in health, but I allowed testimony of a “before and after” kind. Accordingly, if a deponent said that he or she had suffered from insomnia, acne or back pain and had ceased suffering from those health problems after using the Mat, I admitted that evidence, but I did not admit the person’s testimony that it was the use of the Mat that had cured or alleviated the condition.
Some of the “before and after” evidence led by the respondents went to an improvement in a person’s general sense of well-being while other testimony was directed to the cure or amelioration of, specific health problems. The health conditions covered by the affidavits were varied and numerous. They included the following (numbers in brackets indicate the approximate number of individuals testifying that the symptoms specified had gone or changed for the better after the Mat was used):
· Insomnia (12)
· Arm injuries sustained in a motor vehicle (1)
· Curvature of the spine (1)
· Rheumatoid arthritis (1)
· Cold hands and feet (1)
· Foot odour (1)
· Back pain (13)
· Indigestion (1)
· Heel pain (2)
· Snoring (3)
· Arthritic pain (3)
· Varicose veins (2)
· An allergy sore (1)
· Irregular sleeping patterns (4)
· High Cholesterol (1)
· Stomach pain (1)
· Acne/skin conditions (5)
· Low blood pressure (2)
· High blood pressure (1)
· Flu and hay fever (1)
· Shoulder pains (3)
· Constipation (6)
· Incontinence (1)
· Wrinkles (1)
· Aged spots (3)
· Ginigivitis (1)
· Nose bleeds (2)
· Asthma (1)
· Hair loss (1)
· Carpel Tunnel (2)
· Diabetes (1)
· Sinusitis (1)
· Premenstrual tension (1)
· Period pain (2)
· Migraines (1)
· Headaches (3)
The “testimonial” affidavits read by the respondents numbered some sixty. Senior counsel for the ACCC informed me early in the case that he had decided not to cross-examine all but a few of these deponents. Needless to say, and with all respect to both him and them, this news was welcome. He made clear that the ACCC did not dispute the sincerity of the deponents, that is to say, it did not dispute that they perceived that there had been a significant improvement in their health in the respect or respects identified in their affidavits, concurrently with their use of the Mat. Senior counsel for the ACCC submits simply that I should attribute all this evidence to what he described as “the Placebo effect” or “autosuggestion”. No expert evidence was led, however, to support this submission. For example, the ACCC did not lead evidence from a psychologist to the effect that having read an affidavit, he or she was of the opinion that the explanation suggested by senior counsel for the ACCC was a reasonably available explanation of the deponent’s perception.
On the other hand, the respondents did not call medical or other expert evidence directed to supporting the evidence of users of the Mat that their health had improved. Of course, in some instances, such as insomnia, the claimed improvement would not have been susceptible to proof by such evidence.
It will be necessary to consider further both the evidence of users of the Mat and the ACCC’s submission.
THE ISSUES OF INDUCEMENT UNDER s 57 (REFERRAL SELLING) AND s 61 (PYRAMID SELLING) AND ATTEMPTED INDUCEMENT UNDER s 61 (PYRAMID SELLING)
Membership of the GC and the GRS – “services”
The definition of “services” in s 4 of the TP Act is, relevantly, as follows:
“‘services’ includes any rights ( ... ), benefits, privileges or facilities that are, or are to be, provided, granted or conferred in trade or commerce, and without limiting the generality of the foregoing, includes the rights, benefits, privileges or facilities that are, or are to be, provided, granted or conferred under:
(a) a contract for or in relation to:
(i) ... ;
(ii)the provision of ... facilities for ... instruction; or
(iii) ... ”
Paragraph 14 of the further amended statement of claim is as follows:
“14.Further or in the alternative the First Respondent in trade or commerce induced persons to purchase goods or services by representing to those persons, prior to acquisition of the ion mat or membership of the Scheme that:
(a)On payment of the sum of $3,250.00 to the First Respondent he or she was entitled to an ion mat and membership of the Giraffe Club;
(b)That only members of the Giraffe Club were entitled to membership of the Grow Rich System;
(c)That as a member of the Grow Rich System he or she was entitled to commission which was contingent upon, the person recruiting new members to the Giraffe Club (achievement bonus) and additional commission which was contingent upon the new members in turn recruiting other persons to the Giraffe Club (indirect bonus), or otherwise assisting the First Respondent to supply the ion mat to other persons or invite other persons to become members of the Scheme; ... ” (emphasis supplied)
In my opinion it is clear that the contract of membership of each of the GC and the GRS was one by which the member acquired, and GW supplied, rights, benefits, privileges and facilities. Although it does not matter, I also think that each of the two contracts of membership, that of the GC and that of the GRS, was one for or in relation to the provision of “facilities for instruction”. A member was, in each case, therefore entitled to be provided with “services” by GW.
There is ample evidence to support the conclusion just mentioned. The form of application for membership of the GC commenced:
“By completing and executing this application form, you are applying for Membership of the Giraffe Club operated by Giraffe World Australia Pty Limited (‘Giraffe World’), thereby entitling you to enjoy the services, products and benefits of membership.” (emphasis supplied)
The form recorded that the applicant had “considered the benefits of the services and products of Giraffe World”. Acceptance of the application was expressed to be at the discretion of GW. The applicant acknowledged that if the application was accepted, the applicant would be bound by the “Rules of Membership” as applying from time to time. Annexed to the form of application was a document headed “Rules of Membership – Terms and Conditions”. The Rules provided that GW and the member agreed to be bound by them as varied from time to time and that for twelve months a member was “entitled to access the facilities and have the benefits of membership” of the GC, and, in particular:
“• entitlement to attend Giraffe Club meetings;
•entitlement to attend motivational and personal development training seminars;
• entitlement to receive information about new Giraffe Club products.”
As well, and importantly, a member of the GC was entitled to apply for membership of the GRS. The expression “Giraffe Club” was defined to mean:
“the membership association operated by Giraffe World and known as Giraffe Club, and includes reference to all entitlements and obligations of membership of that association, and all services, benefits and Products supplied by Giraffe World in consideration of such membership.” (emphasis supplied)
The expression “Products” was defined to mean “Negative ion mattress – Giraffe World Ion mat.”
A schedule to the Rules of Membership shows “membership fees” as follows:
“$3,250.00 comprising –
• Product - $2900.00
• Membership Application Fee - $50.00
• Membership Fee - $300.00”On any view, a person joining the GC acquired both goods (the Mat) and services (the rights of membership).
Membership of the GRS also clearly gave rise to an entitlement to be provided by GW with “services” for the purposes of the TP Act. The form of application for membership of the GRS provided that membership gave the member a right to act as the authorised agent of GW subject to the Rules of Membership. The “Rules of Membership” were the “Terms and Conditions” set out in a document annexed to the application form. Clauses A2 and A3 were as follows:
“2.Upon, but subject to, acceptance of the Member’s Application, and subject to these Terms and Conditions:-
(a)the Member will be authorised, as the agent of Giraffe World, to seek out orders for the Products and for the services, benefits and other entitlements of membership of the Giraffe Club.
(b)the Member will be entitled to receive higher level personal development training and sales technique training, including as described in the Manual.
(c)the Member will receive additional training and information about the Products and about the Giraffe Club, including as described in the Manual.
(d)the Member will receive information and training about new products and services of Giraffe World to be made available under the Grow Rich System.
3.The Member will be entitled to be paid commission which is calculated according to the commission system set out in the Manual or as varied from time to time by Giraffe World.”
The expression “Giraffe Club” was again defined in the terms noted earlier. The “Manual” was defined to mean “the Grow Rich System Manual, as varied from time to time.” The Rules provided that the Member must attend and complete a Business School and Management Consultant Class, as well as attend and pass an interview in order to obtain formal membership. The document referred to the persons whom the Member was to solicit as “Customers”, and it defined “Customer” to mean:
“every person introduced by the Member acting under this Agreement, who agrees to purchase any Product or service from the Company, and also means every Customer of that Customer.” (emphasis supplied)
The Manual set out the various levels of membership of the GRS and the basis of entitlement to commission. As noted earlier, that basis was “Business Volume” measured in money, each introduction counting as $2,500 of business volume. The Manual does not make clear, however, whether a sale of a Mat alone for $2,900 will give rise to a deemed business volume of $2,500 or whether the buyer must also join the GC (which would necessitate payment of $3,250 rather than $2,900) or even the GRS, for that business volume to be deemed to have been earned.
In my opinion membership of the GRS, like that of the GC, gave a member rights, benefits, privileges or facilities, including, although it does not matter, a right to the provision of facilities for “instruction”. Accordingly, membership gave rise to an entitlement to be provided by GW with “services” for the purposes of the TP Act.
Inducement - general
I next turn to the evidence relevant to inducement. I will not analyse the evidence in relation to each individual who entered into a transaction with GW or whom someone attempted to persuade to do so. I will begin by describing the mode of selling that was followed. Next I will describe in some detail GW’s attempt to sell to an officer of the ACCC. Finally, I will refer to the inducements that caused certain persons to buy the mat, join the GC and join the GRS.
An existing member (A) of the GRS would invite an acquaintance (B) to accompany A to a meeting, giving little information as to the nature of what was in store. A would accompany B to the foyer of GW’s premises on the 15th floor of the Sydney Central Plaza building where GW personnel would record some details of B’s identity. A would then accompany B to an auditorium there, where, with others, they would see and hear a “presentation” on the stage. The “presenters” would hold out benefits for both the health and wealth of B as inducements to persuade B to buy the Mat, to join the GC and to join the GRS. No doubt as between various individuals, the health benefits or wealth benefits may have been the more persuasive. I will refer later to evidence that some individuals may have been induced to part with their money by the representations touching the Mat alone. Indeed, as noted earlier, some individuals bought the Mat and did not become members of the GC, let alone of the GRS. Others found the opportunity to “become an entrepreneur” and to earn commissions as members of the GRS a stronger inducement than the claimed health benefits.
After the HC meeting was concluded, A would accompany B from the meeting room to a “VIP Lounge” where a more senior member of the GRS more closely associated with GW would promote the benefits of the Mat and membership of the GC and the GRS on a one-to-one basis. Many people in the position of B, on this occasion in the VIP lounge, bought the Mat and signed forms of application for membership of both the GC and the GRS and paid over the sum of $3,250. Others asked for more time for consideration. But the GW representative emphasised the strong desirability of deciding and signing on the spot and the undesirability of delay or of discussing the matter with other people.
While a case where the individual was not induced at all by the holding out of the prospect of earning commission would not be caught by s 57, I do not think that section requires that the representation described in it should be the sole or even the dominant inducement operating on the consumer’s mind. In my view, it suffices that it be a “real” or “significant” inducement. The section is intended to compel corporations to ensure that they do not encourage consumers to acquire goods or services for a certain price while thinking that the “true price” will ultimately prove to be less, because of commissions to be received, when there is no certainty that they will be received at all because their receipt is contingent on the occurrence of later events outside the consumer’s control. It would be consonant with this objective to understand the notion of “induce” in the section in the manner that I have indicated, and it would be discordant with it to understand it as activated only where the prospect of receiving commissions was the sole or dominant inducement.
In the case of s 61, para (b) of subs (3) provides expressly that it is sufficient for the prospect held out to a person to constitute a “substantial part of the inducement”.
Inducement – the evidence of Shane John Leslie Adams
It is convenient now to give a somewhat detailed account first of the HC Meeting attended by Shane John Leslie Adams, an investigator with the ACCC, on 17 April 1998. He was not to pay any money to GW but the attempt to induce him to do so is relevant to the alleged contravention of s 61(2).
Mr Adams’ “introducer” was Catherine Neoh. As arranged, the two met in the foyer of the Sydney Central Plaza building at 477 Pitt Street Sydney. They proceeded to Level 15. When they stepped out of the lift, Mr Adams saw a “Giraffe World” sign. They turned right and approached an open glass doorway to a reception counter where two young women of Asian appearance stood behind the counter. The sign “Giraffe World” was on the wall behind them. A man was standing next to the counter. Ms Neoh introduced Mr Adams to the man to whom she referred as “Jimmy”. On the reception counter were several lists of names with “Giraffe World” as the heading. Ms Neoh invited Mr Adams to sign his name and to write the number of his driver’s licence on the list. He did so. Ms Neoh gave him a “Giraffe World VIP tag” which he attached to his shirt pocket. She attached to her jacket a GW badge which bore a photo identification and the letters “GM” in bold. (It will be recalled that GM signified the “beginner’s” class of membership of the GRS). She took Mr Adams to a seminar room. On the way, they passed through lounge areas containing tables and chairs. Mr Adams saw on the walls pictures of buildings with GW logos below the pictures and GW notices.
In the seminar room there were some 200 chairs. About sixty people were already present and a further ten entered before the doors were shut. The people appeared to be of various ethnic backgrounds.
After the doors were closed, the lights were dimmed and the stage area was illuminated, a man and a woman ran to the front of the stage from the back of the room amid applause from the audience. After these “presenters” outlined a “puzzle” with the use of a whiteboard and gave the solution, they screened a video. The video is in evidence, as is a transcript of its “voice over”, of which the following is an outline:
GW is a business based on the following six elements which together form a “circle of happiness”:
“Company
Industry
Products
Systems
Training and
You”GW is:
“an international organisation utilising communications, information technology, satellite and multi-media communication. With high-quality products manufactured using high-technology and its international and professional image, it has been recognised as an established organisation.”
GW aims to foster friendships so that “everyone involved will become richer both spiritually and financially and thus produce more entrepreneurs and successful people.” To achieve this aim, GW has chosen the health industry, “one of the most stable and rapidly growing industries”, as its core business, and, in particular, the marketing of the negative ion treatment. GW “has brought in one of the most noticeable and outstanding therapies in the Health Industry, the negative ion treatment.” As modern society fosters unhealthy lifestyles and an unhealthy environment, it is in need of such preventative treatments. (To demonstrate this a chlorine test is carried out whereby indicator is applied to a glass of tap water to show the high levels of chlorine to which humans are daily exposed and which are absorbed by the skin. It is stated that over time, chlorine accumulates in the body and causes "skin cancer, bladder cancer, kidney cancer and other diseases.”) Negative ions are stated to be able to assist human health and, by implication, combat such negative forces:
“Studies have … proven that when there are more – ions in the air than + ones, it would affect the blood, heart, blood pressure, respiration, blood vessels and the skeletal system of human beings favourably. It is also able to relieve fatigue. Studies also show that – ions also possess tremendous energy. It can make meat last up to 34 years, and is also able to elevate the growth rate as well as reduce the death rate of chickens.”
The ion mat produces these negative ions:
“The Giraffe World negative Ion Mat is the product which is capable of combining negative ions with life which is also presently the most outstanding and noticeable therapeutic product, which has a device which is capable of producing negative ions with a mat into one single apparatus.”
GW has developed a scheme to enable people to achieve their ideal lifestyle and to become entrepreneurs:
“Being an entrepreneur is not impossible. Other jobs don’t allow you to realise your own dreams in the shortest possible time. Undeniably, direct selling is the best choice. …Giraffe World has created a whole new system which is totally different from other traditional direct selling systems. Called Grow Rich System to meet the needs of those in pursuit of happiness. Grow Rich System from Giraffe World is a business that does not require capital. It utilises the expansion of network thus saving money for the entrepreneur. And he need not sell products in order to achieve his goal.” (emphasis supplied)
GW organises training programs to facilitate the success of its entrepreneurs. These include:
“· 1st, H/C, The Happiness Circle. This is the first meeting between new members and the company. During this meeting, new friends get to further understand the company and to redefine their life.
· Next is B/S, Business School. Business School is where the basic lessons in business are learnt, together with techniques required for the operation of the business are learnt.
· It is then followed by MCC, the Management Consultant Class. This class is mainly conducted by the successful where they share the secrets of their success. It motivates them to realise their own potential.
· In order for entrepreneurs to develop their business in Giraffe World and in accordance with their capability, it has designed
LT, HMC & SMS courses for leadership training, management principles and self-motivation towards success so that each entrepreneur will be able to grow rapidly with proper training.”
GW invites the audience to become entrepreneurs:
“The Kingdom of Happiness from Giraffe World which gives you billions of dollars of business potential is inviting you to be an entrepreneur.”
I have the benefit of submissions from the ACCC alone, not from GW, in the defamation proceeding. In its written submissions, the ACCC suggests that the following issues arise:
“Meanings
(a)does the Release (Schedule ‘A’ to the Amended Statement of Claim (‘ASC’)) convey the imputations pleaded in ASC paragraph 23?
(b) were such imputations as are conveyed defamatory of Giraffe World?
Truth defence
(c)were such imputations as are found to be conveyed and defamatory matters of substantial truth?
(d) did such imputations relate to matters of public interest?
Qualified privilege
(e) was the Release published on an occasion of qualified privilege?
Protected report
(f)did the Release comprise a fair protected report of proceedings in public of a court? This question comes down to the question whether the Release accurately stated what occurred in the ex parte hearing on 6 May 1998.
The same issues arise in relation to the second matter complained of, the NSW Department of Fair Trading internal email. In addition, however, there are the following issues which logically precede the remaining issues on this alleged publication:
(a)did Mr Williams publish the matter in question during a conversation with Mr Finger of the Department of Fair Trading (ASC paras 21 and 25, Defence paras 10 and 16).
(b) is the ACCC liable for the NSW Department’s publication?”
In relation to the Department’s internal e-mail, the ACCC submits that GW’s pleading is defective because it pleads no basis on which the ACCC could be liable for the Department’s subsequent publication.
It is admitted that on 7 May 1998, the ACCC published the Media Release of and concerning GW. GW pleads that the words of the Media Release carried the following imputations defamatory of GW:
“i)the Applicant had engaged in a pyramid selling scheme contrary to the Trade Practices Act.
ii)the Applicant was reasonably suspected of having engaged in a pyramid selling scheme contrary to the provisions of the Trade Practices Act.
iii)the conduct of the Applicant was such as to warrant proceedings being brought against it for having engaged in a pyramid selling scheme contrary to the provisions of the Trade Practices Act.
iv)the Applicant had engaged in a referral selling scheme contrary to the Trade Practices Act.
v)the Applicant was reasonably suspected of having engaged in a referral selling scheme contrary to the provisions of the Trade Practices Act.
vi)the conduct of the Applicant was such as to warrant proceedings being brought against it for having engaged in a referral selling scheme contrary to the provisions of the Trade Practices Act.
vii) the Applicant made false representations about its negative ion mats.
viii)the Applicant had induced persons to pay money for a worthless ion mat.
ix)the Applicant had induced persons to their financial detriment to participate in the Giraffe World Grow Rich Scheme.
x)the Applicant by obtaining moneys from more that [sic – than] 5,000 consumers had thereby cheated the Australian public of approximately 15 million dollars.
xi)the Applicant had been found by the Federal Court to have engaged in a pyramid selling scheme contrary to the provisions of the Trade Practices Act.
xii)the Applicant had been found by the Federal Court to have engaged in a referral selling scheme contrary to the provisions of the Trade Practices Act.
xiii)the Applicant had been found by the Federal Court to have made false representations about its negative ion mats.
xiv)the Applicant had been found by the Federal Court to have induced persons to pay money for a worthless ion mat.
xv)the Applicant had been found by the Federal Court to have induced persons to their financial detriment to participate in the Giraffe World Grow Rich Scheme.
xvi)the Applicant had been found by the Federal Court to have obtained moneys from more than 5,000 consumers and thereby cheated the Australian public of approximately 15 million dollars.
xvii)the Applicant has been found by the Federal Court to have disposed of or been in the process of disposing of proceeds of moneys obtained pursuant to its business scheme and false representations.”
As can be seen at a glance, the imputations divide themselves into categories. The first three relate to pyramid selling, the next three to referral selling, the next four are of a general nature, and numbers (xi) to (xvii) allege “findings” by this Court (this last group was added by amendment). The ACCC contends that representations (i), (iv), (vii), (viii), (x) and (xi) to (xvii) are not conveyed by the Media Release. It concedes that the remaining imputations pleaded, that is numbers (ii), (iii), (v), (vi) and (ix), are so conveyed.
The conclusions which I have reached earlier in these Reasons in relation to the ACCC’s own proceeding make it unnecessary for me to address most of the ACCC’s submissions.
Even if the pleaded imputations (i) to (vii) were conveyed by the materials complained of, they were all true. They were also undoubtedly matters of public interest. GW was making misleading statements in connection with the sale of the Mat to the public and was attempting to induce members of the public to become participants in what I have held to be an illegal pyramid selling scheme. The ACCC has therefore established the defence provided for in s 15 of the Defamation Act 1974 (NSW).
Pleaded imputations (xi), (xii) and (xiii) are similar to imputations (i) to (vii) except that (xi), (xii) and (xiii) inject the element that the Court had found contraventions of the TP Act. While that is now true, it was not true at the time of the publications. The ACCC submits that the “temporal element” is irrelevant. I am not sure that this is correct. However, in my view, s 16 of the Defamation Act 1974 is applicable. That section provides as follows:
“16 Truth: contextual imputations
(1) Where an imputation complained of is made by the publication of any report, article, letter, note, picture, oral utterance or other thing and another imputation is made by the same publication, the latter imputation is, for the purposes of this section, contextual to the imputation complained of.
(2) It is a defence to any imputation complained of that:
(a)the imputation relates to a matter of public interest or is published under qualified privilege,
(b)one or more imputations contextual to the imputation complained of:
(i)relate to a matter of public interest or are published under qualified privilege, and
(ii) are matters of substantial truth, and
(c)by reason that those contextual imputations are matters of substantial truth, the imputation complained of does not further injure the reputation of the plaintiff.”
Pleaded imputations (xi), (xii) and (xiii) related to matters of public interest. Pleaded imputations (i) to (vii) were contextual to them. Pleaded imputations (i) to (vii) related to matters of public interest and were matters of substantial truth. In my view, pleaded imputations (xi), (xii) and (xiii) did not further injure the reputation of GW: an imputation that this Court had made a finding that GW had contravened the TP Act, if it arose, was no more injurious than an imputation that GW had in fact contravened that Act.
The remaining imputations, (viii), (ix), (x), (xiv), (xv), (xvi) and (xvii), do not so clearly fall within the protection provided by ss 15 and 16 of the Defamation Act 1974. However, even if those imputations were conveyed by the matters complained of (which I do not decide), those matters were published in the course of the giving of a fair and accurate report of court proceedings and are therefore protected by s 24 of that Act which provides as follows:
“24 Protected report
(1) In this section, protected report means a report of proceedings specified in clause 2 of Schedule 2 as proceedings for the purposes of this definition.
(2)There is a defence for the publication of a fair protected report.”
Clause 2 of Schedule 2 specifies, inter alia, “proceedings in public of a court”.
GW did not make any submissions on its defamation claim and has therefore not identified any respect in which the matters complained of are not a “fair” report of the proceeding to which it refers. In my view, they are “fair” reports and are protected by s 24. This defence would also, of course, operate to defeat GW’s claim in respect of the other imputations which I have held to be true.
For the above reasons if for no others, GW’s application in the defamation proceeding should be dismissed with costs.
CONCLUSION
There will be orders and injunctive relief in accordance with my Reasons for Judgment. I direct the ACCC to bring in short minutes on 31 August 1999 at 9.00 am.
I certify that the preceding two hundred and forty-four (244) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Lindgren. Associate:
Dated: 26 August 1999
Proceeding NG 421 of 1998
Counsel for the applicant: Mr B R McClintock SC and Mr S T White Solicitors for the applicant: Australian Government Solicitor Counsel for the first and second respondents: Mr J G Duncan Solicitors for the first and second respondents: Blessington Judd The fourth and sixth respondents appeared in person
Proceeding NG 711 of 1998
Counsel for the applicant: Mr J G Duncan Solicitors for the applicant: Blessington Judd Counsel for the respondent: Mr B R McClintock SC and Mr S T White Solicitors for the respondent: Australian Government Solicitor Date last submission received 28 June 1999 Dates of Hearing: 8, 9, 12, 13, 14, 19, 20, 21, 22, 23, 29 April, 8, 10, 15, 18, 22, 29 June, 14 July 1999 Date of Judgment: 26 August 1999
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