Australian Securities and Investments Commission v Malouf Group Enterprises Pty Ltd
[2018] FCA 808
•23 April 2018
FEDERAL COURT OF AUSTRALIA
Australian Securities & Investments Commission v Malouf Group Enterprises Pty Ltd [2018] FCA 808
File number(s): QUD 324 of 2017 Judge(s): DERRINGTON J Date of judgment: 23 April 2018 Catchwords: CONSUMER LAW – Where regulator alleged that the respondents had engaged in misleading or deceptive conduct – Where regulator alleged that the respondents engaged in unconscionable conduct – Where regulator alleged that a director of the corporate respondent was knowingly concerned in the contraventions – Where director admitted liability and regulator and director jointly proposed orders to be made – Where the director has entered into an enforceable undertaking with regulator – Where regulator seeks various declarations pursuant to the Federal Court of Australia Act 1976 (Cth) – Whether that discretion should be exercised – Whether penalties ought to be imposed – Factors to take into account when considering reasonableness of proposed penalties Legislation: Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth))
Federal Court of Australia Act 1976 (Cth)
Trade Practices Act 1974 (Cth)
Cases cited: Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union (2007) ATPR 42-140
Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482
Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421
Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993
NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285
Trade Practice Commission v CSR Ltd (1991) ATPR 41-076
Date of hearing: 23 April 2018 Registry: Queensland Division: General Division National Practice Area: Commercial and Corporations Sub-area: Regulator and Consumer Protection Category: Catchwords Number of paragraphs: 38 Counsel for the Applicants: Mr T Sullivan QC and Mr S Clearly Solicitor for the Applicants: ASIC Counsel for the Respondents: Mr G Dietz Solicitor for the Respondents: McLaughlins Lawyers ORDERS
QUD 324 of 2017 BETWEEN: AUSTRALIAN SECURITIES & INVESTMENTS COMMISSION
First Applicant
KAAN FINNEY
Second Applicant
AND: MALOUF GROUP ENTERPRISES PTY LTD ACN 115 371 581
First Respondent
JORDAN FRANCIS MALOUF
Second Respondent
JUDGE:
DERRINGTON J
DATE OF ORDER:
23 APRIL 2018
THE COURT DECLARES THAT:
1.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent (MGE), between at least 1 January 2014 and 31 December 2015, in trade or commerce, and in connection with the supply or possible supply of services:
(a)by stating on the Credit Clean Australia website that it was “Voted Australia’s No 1 Credit Repairs Solution Company”;
(b)by stating on the Credit Wash website that it was “Voted Australia’s No 1 Credit Repairs Solution Company”;
(c)by stating on the Clean Your Credit website “Find Out today why we are voted Australia’s no 1 credit repair solutions company”;
(d)by stating on the Credit Fix Australia website that it was “Voted Australia’s First Choice for a Second Chance”;
and thereby representing that:
(e)each of the First Respondent trading as Credit Clean Australia, the First Respondent trading as Credit Wash and the First Respondent trading as Clean Your Credit respectively, or alternatively the First Respondent, had been voted, pursuant to an objective and verifiable voting process conducted by an entity other than itself, Australia’s number 1 credit repair solution company;
(f)the First Respondent trading as Credit Fix Australia, or alternatively the First Respondent, had been voted, pursuant to an objective and verifiable voting process conducted by an entity other than itself, “Australia’s First Choice” among credit repair companies;
and in circumstances where it was in fact the case that:
(g)none of the First Respondent trading as Credit Clean Australia, the First Respondent trading as Credit Wash, the First Respondent trading as Clean Your Credit or the First Respondent had been voted Australia’s number 1 credit repair solution company pursuant to an objective and verifiable voting process conducted by an entity other than itself;
(h)neither the First Respondent trading as Credit Fix Australia nor the First Respondent had been voted “Australia’s First Choice” among credit repair companies pursuant to an objective and verifiable voting process conducted by an entity other than itself
has, in relation to each representation:
(i)engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) Australian Consumer Law;
(j)made a false or misleading representation that its services were of a particular standard, quality, value or grade in contravention of s 29(1)(b) Australian Consumer Law;
(k)made a false or misleading representation that its services had sponsorship or approval in contravention of s 29(1)(g) Australian Consumer Law.
2.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, between at least 1 January 2014 and 31 December 2015, in trade or commerce, and in connection with the supply or possible supply of services:
(a)by publishing on the Credit Clean Australia website what purported to be testimonials from consumers who had used the First Respondent’s (trading as Credit Clean Australia) services;
(b)by publishing on the Credit Wash website what purported to be testimonials from consumers who had used the First Respondent’s (trading as Credit Wash) services;
(c)by publishing on the Credit Fix Australia website what purported to be testimonials from consumers who had used the First Respondent’s (trading as Credit Fix Australia) services;
(d)by publishing on the MGE Online website what purported to be testimonials from consumers who had used the First Respondent’s services;
(e)by publishing on the Clean Your Credit website what purported to be testimonials from consumers who had used the First Respondent’s (trading as Clean Your Credit) services;
and thereby representing that the said testimonials were respectively:
(f)from persons who had used the services of the First Respondent trading as Credit Clean Australia;
(g)from persons who had used the services of the First Respondent trading as Credit Wash;
(h)from persons who had used the services of the First Respondent trading as Credit Fix Australia;
(i)from persons who had used the services of the First Respondent;
(j)from a person who had used the services of the First Respondent trading as Clean Your Credit;
and in circumstances where it was in fact the case that:
(k)the purported testimonials were not testimonials from persons who had used the services of, respectively, the First Respondent trading as Credit Clean Australia, the First Respondent trading as Credit Wash, the First Respondent trading as Credit Fix Australia, the First Respondent or the First Respondent trading as Clean Your Credit;
has, in relation to each representation:
(l)engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) Australian Consumer Law;
(m)made a false or misleading representation that purports to be a testimonial by a person relating to services in contravention of s 29(1)(e) Australian Consumer Law;
(n)made a false or misleading representation concerning a testimonial by a person, or a representation that purports to be such a testimonial, relating to services in contravention of s 29(1)(f) Australian Consumer Law.
3.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, between at least 1 January 2014 and 31 December 2015, in trade or commerce, and in connection with the supply or possible supply of services:
(a)by publishing on the Clean Your Credit website the words “Let us Clean Your Credit”;
and thereby representing that:
(b)in the event a consumer entered into an agreement with it to provide credit repair services, its services included that it would itself act on behalf of that consumer in dealing with third parties to remove incorrect negative listings on the consumer’s credit report;
and in circumstances where it was in fact the case that:
(c)the First Respondent’s services did not always include that it would itself act on behalf of consumers in dealing with third parties to remove incorrect negative listings on the consumer’s credit report;
(d)pursuant to the MGE Agreement, the First Respondent’s services were limited to the MGE Services;
has engaged in conduct that:
(e)was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) Australian Consumer Law;
(f)was liable to mislead the public as to the nature and the characteristics of the First Respondent’s services in contravention of s34 Australian Consumer Law.
4.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, between at least 1 January 2014 and 31 December 2015, in trade or commerce, and in connection with the supply or possible supply of services, by its sales representatives, acting at the direction of the First Respondent:
(a)using the Opening Script and using the Closing Script; and
thereby representing to potential consumers and consumers:
(b)that upon receipt of the consumer’s application it would obtain and consider the consumer’s credit file in order to establish whether it could help the consumer with the consumer's negative listings;
(c)that before approving the consumer’s application it would establish whether credit providers had correctly followed any relevant procedures prior to making a negative listing;
(d)that, by implication, its fee would only be payable if it established that the consumer had negative listings on the consumer's credit file;
(e)that it would only approve the consumer’s application if it established that the consumer had negative listings on the consumer's credit file;
and in circumstances where it was in fact the case that:
(f)the First Respondent did not usually obtain and consider a consumer’s credit report in order to establish whether it could help the consumer with all the consumer's negative listings;
(g)the First Respondent had not usually established whether credit providers had correctly followed any relevant procedures prior to making a negative listing;
(h)the First Respondent approved consumers’ applications without usually establishing whether it could help the consumer with all of the consumer's negative listings;
(i)the First Respondent’s fee was usually payable by consumers who entered into the MGE Agreement, irrespective of whether or not the consumer had negative listings on the consumers credit file;
has on each occasion engaged in conduct that:
(j)was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) Australian Consumer Law;
(k)was liable to mislead the public as to the nature and the characteristics of the First Respondent’s services in contravention of s34 Australian Consumer Law.
5.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, between at least 1 January 2014 and approximately 31 December 2015, in trade or commerce, and in connection with the supply or possible supply of services, by its sales representatives, acting at the direction of the First Respondent:
(a)stating from at least 1 January 2014 until approximately 17 August 2014, as set out in the Opening Script:
“Once we receive your app, our investigation team will then open your file and look into it and see what procedure and protocol had been used before they have damaged your credit history … once we’ve established we can help you with all your negative listings, we charge 1 fee and its only $995. But if we can’t help, there’s no charge.”
(b)stating from at least 1 January 2014 until approximately 17 August 2014, as set out in the Opening Script:
“I'LL GET THAT APPLICATION STRAIGHT TO OUR INVESTIGATION TEAM AND I WILL HAVE AN ANSWER FOR YOU WITHIN AN HOUR. LETS GET YOU SORTED BACK ON TRACK AND OBTAINING NORMAL LOANS.”
and thereby representing to potential consumers and consumers:
(c)that it had an investigations team, separate to the MGE sales representative with whom the consumers were speaking, that would assess the consumer’s application;
and in circumstances where it was in fact the case that:
(d)the First Respondent did not have an investigation team, separate to the MGE sales representative with whom the consumers were speaking, that would assess the consumer’s application;
has on each occasion:
(e)engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) Australian Consumer Law;
(f)engaged in conduct that was liable to mislead the public as to the nature and the characteristics of the First Respondent’s services in contravention of s34 Australian Consumer Law.
6.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, between at least 1 January 2014 and 31 December 2015, in trade or commerce, and in connection with the supply or possible supply of services, by its sales representatives, acting at the direction of the First Respondent:
(a)Stating, pursuant to the Closing Script:
“Now please don’t take it personal if you’re not accepted …, unfortunately not everyone is … but if you are accepted and approved that’s great. I only say this as I had a client this morning that abused me because she wasn’t accepted so I just want you to keep that in mind, ok”;
and thereby representing to potential consumers and consumers:
(b)a client that morning had abused the MGE sales representative with whom the consumer was speaking because the client’s application had not been accepted by the First Respondent;
and in circumstances where it was in fact the case that:
(c)a client had not that morning abused the MGE sales representative because her application had not been accepted by the First Respondent;
has on each occasion:
(d)engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) Australian Consumer Law.
7.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, between at least 1 January 2014 and 31 December 2015, in trade or commerce, and in connection with the supply or possible supply of services, by its sales representatives, acting at the direction of the First Respondent:
(a)by using the words, or materially similar words, set out under the heading “Guarantee Objections” in the Objections Script, when a consumer questioned the sales representative about whether, in effect, the First Respondent could guarantee that the consumer’s negative listings would be removed from their credit record if the First Respondent approved the consumer’s application, and the consumer paid the First Respondent’s fee;
and thereby:
(b)failing to answer the consumer’s question; and
(c)representing to potential consumers, by omission, that the First Respondent guaranteed that their negative listings would be removed from their credit record if the First Respondent approved their application and they paid the First Respondent’s fee;
and in circumstances where it was in fact the case that:
(d)the First Respondent could not guarantee that the consumer’s negative listings would be removed from their credit record if the First Respondent approved the consumer’s application, and the consumer paid the First Respondent’s fee;
has on each occasion:
(e)engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) Australian Consumer Law.
8.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, between at least 12 March 2014 and 31 December 2015, in trade or commerce, and in connection with the supply or possible supply of services, by its sales representatives, acting at the direction of the First Respondent:
(a)stated, pursuant to the Objections Script:
“Let me explain … What happens is when someone checks your file, it may put an enquiry on your file. Too many enquiries can further damage your file and if we process it tomorrow, we may have to reopen it to make sure that you are still approved. As you know, we are here to help FIX your file not to make it WORSE … as we are a very well respected company and believe … it would be hypocritical; if we were to make it worse!”
and thereby representing to potential consumers and consumers:
(b)that if the consumer did not pay the fee that day, that failure would have the effect of adversely affecting the consumer’s credit record;
and in circumstances where it was in fact the case that:
(c)the First Respondent had not, at the time the sales representative said the words, usually accessed the consumer’s credit record, and accordingly had not put an “enquiry” on the consumer’s file;
(d)if the consumer did not pay the fee on the day the First Respondent approved the consumer’s application, that failure would not cause it to be necessary for the First Respondent to access the consumer’s credit record on multiple occasions;
(e)even if the First Respondent accessed the consumer’s credit record on multiple occasions between 12 March 2014 and 31 December 2015, doing so would not be recorded on the copy of the credit report available to a credit provider, but rather would only be recorded on a copy of the credit report obtained by the consumer or the consumer’s representative;
(f)in the premises, the failure by the consumer to pay the fee on the day the First Respondent approved the consumer’s application would not have adversely affected the consumer’s credit record;
has on each occasion:
(g)engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of s 18(1) Australian Consumer Law.
9.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that by its system of selling credit repair services to consumers between at least 1 January 2014 and 31 December 2015, in circumstances where:
(a)it targeted its services towards consumers who were vulnerable;
(b)it created, or approved the creation of, the content of the TV advertisements, sponsored link advertising and website advertising used to advertise its services;
(c)it utilised the TV advertisements, the sponsored link advertising, and the website advertising as conduits to the Telephone Sales Calls;
(d)it remunerated MGE sales representatives in whole or part by commission;
(e)its conduct involved that referred to in paragraphs 1 to 8 herein;
(f)it used unfair tactics;
has:
(g)engaged in conduct that was in all the circumstances unconscionable, in contravention of s 21 of the Australian Consumer Law.
10.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the Second Respondent, being the director and manager of the First Respondent, and the person responsible for its operating systems and its day to day operations:
(a)knowing that the matters alleged in paragraph 1 were occurring;
(b)knowing that the matters alleged in paragraph 2 were occurring;
(c)knowing that the matters alleged in paragraph 3 were occurring;
(d)knowing that the matters alleged in paragraph 4 were occurring;
(e)knowing that the matters alleged in paragraph 5 were occurring;
(f)knowing that the matters alleged in paragraph 6 were occurring;
(g)knowing that the matters alleged in paragraph 7 were occurring;
(h)knowing that the matters alleged in paragraph 8 were occurring;
(i)devising or assisting in devising the system alleged in paragraph 9;
was knowingly concerned in each of the contraventions by the First Respondent referred to in paragraphs 1 to 9 herein.
11.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, in or about August 2014, in trade or commerce in connection with the supply of credit repair services to a consumer, Ian Collins, in the following circumstances:
(a)in the course of the first telephone sales call between Collins and its sales representative:
(i)it represented that upon receipt of his application and before approving the application, it would obtain and consider his credit report to establish whether his credit record could be repaired, when in fact it did not obtain and consider his credit report before approving his application;
(ii) it represented that it would only accept his application if it established that his credit record could be repaired, when in fact it accepted his application without establishing that his credit record could be repaired;
(iii)by implication, in the event it approved his application, it would itself act on his behalf in dealing with all third parties to remove incorrect negative listings on his credit record, when in fact it required Collins to act on his own behalf in such dealings;
(b)in the course of the second telephone sales call between Collins and its sales representative:
(i) it represented that upon receipt of his application it had obtained and considered his credit report to establish whether his credit record could be repaired, when in fact it had not obtained and considered his credit report;
(ii) it represented that it had established that the negative listings on his credit record could be removed, when in fact it had not established that;
(iii)it represented that the negative listings on his credit record could be removed, when in fact they could not be;
engaged in conduct that
(c)was misleading or deceptive in contravention of s 18 Australian Consumer Law;
(d)in relation to paragraphs 11(a)(iii) and 11(b)(iii) herein, amounted to a false or misleading representation that the credit repair services had performance characteristics, uses or benefits in contravention of s 29(1)(g) of the Australian Consumer Law.
12.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, in or about August 2014, in trade or commerce in connection with the supply of credit repair services to a consumer, Ian Collins, in the following circumstances:
(a)it knew that Collins was vulnerable in as much as he was concerned that he had negative listings on his credit record and wanted to repair that record;
(b)it used a TV advertisement to persuade him to telephone it about its credit repair services;
(c)its sales representative used the Scripts in the course of telephone sales calls with him;
(d)it made the representations referred to in paragraphs 11(a) and 11(b) herein;
(e)it subjected Collins to undue influence or pressure, and unfair tactics
engaged in conduct that was unconscionable in all the circumstances, in contravention of section 21 Australian Consumer Law.
13.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, in or about March 2015, in trade or commerce in connection with the supply of credit repair services to a consumer, Beau Gralike, in the following circumstances:
(a)it represented that the fact that Gralike had already paid AGL’s overdue account was a basis for removing the negative listing placed on his credit record by AGL, when in fact that was not the case;
(b)it represented that the negative listing placed on his credit record by AGL could be removed, when in fact it could not be;
(c)it represented that it would itself act on his behalf in dealing with AGL to remove the negative listing on his credit report, when in fact it required Gralike to act on his own behalf in such dealings;
engaged in conduct that:
(d)was misleading or deceptive in contravention of s 18 Australian Consumer Law;
(e)in relation to paragraph 13(b) and 13(c) herein, amounted to false or misleading representations that the credit repair services had performance characteristics, uses or benefits in contravention of s 29(1)(g) of the Australian Consumer Law.
14.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, in or about March 2015, in trade or commerce in connection with the supply of credit repair services to a consumer, Beau Gralike, in the following circumstances:
(a)it knew that Gralike was vulnerable in as much as he was concerned that he had a negative listing on his credit record and wanted to repair that record;
(b)it advertised its credit repair services to Gralike via the Clean Your Credit website;
(c)its sales representative used the Scripts in the course of telephone sales calls with him;
(d)it made the representations referred to in the paragraphs 13(a), 13(b) and 13(c) herein;
(e)it subjected Gralike to undue influence or pressure, and unfair tactics;
engaged in conduct that was unconscionable in all the circumstances, in contravention of s 21 Australian Consumer Law.
15.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, in or about July 2015, in trade or commerce in connection with the supply of credit repair services to a consumer, Warren Huisman, in the following circumstances:
(a)it represented that it had, before approving Huisman’s application, obtained and considered his credit report to establish whether the negative listing placed on his credit report by Educollect could be removed, when in fact it had not done so;
(b)it represented that it had established that Educollect had not followed the required procedures, when in fact Educollect had done so;
(c)it represented that as Educollect had not followed the required procedures, the negative listing could be removed from his credit record, when in fact the negative listing could not be removed from his credit record;
engaged in conduct that:
(d)was misleading or deceptive in contravention of s 18 Australian Consumer Law;
(e)in relation to paragraph 15(c) herein, amounted to a false or misleading representation that the credit repair services had performance characteristics, uses or benefits in contravention of s 29(1)(g) of the Australian Consumer Law.
16.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, in or about July 2015, in trade or commerce in connection with the supply of credit repair services to a consumer, Warren Huisman, in the following circumstances:
(a)it knew that Huisman was vulnerable in as much as he was concerned that he had a negative listing on his credit record and wanted to repair that record;
(b)it advertised its credit repair services to Huisman via the Credit Wash website;
(c)its sales representative used the Scripts in the course of telephone sales calls with him;
(d)it made the representations referred to in the paragraphs 15(a), 15(b) and 15(c) herein;
(e)it subjected Huisman to undue influence or pressure, and unfair tactics;
(f)engaged in conduct that was unconscionable in all the circumstances, in contravention of section 21 Australian Consumer Law.
17.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, in or about October 2015, in trade or commerce in connection with the supply of credit repair services to a consumer, Harvinder Singh, in the following circumstances:
(a)it represented that it had, before approving Singh’s application, obtained and considered his credit report to establish whether there were any negative listings on his credit record, when in fact it had not done so;
(b)it represented that it had established that Singh had one or more negative listings on his credit record, when in fact there were none on his credit record;
(c)it represented that it could repair the negative listings that it said were on his credit record, when in fact there were no negative listings on his credit record for it to repair;
engaged in conduct that:
(d)was misleading or deceptive in contravention of s 18 Australian Consumer Law;
(e)in relation to paragraph 17(c) herein, amounted to a false or misleading representation that the credit repair services had performance characteristics, uses or benefits in contravention of s 29(1)(g) of the Australian Consumer Law.
18.Pursuant to s 21 Federal Court of Australia Act 1976 (Cth) that the First Respondent, in or about October 2015, in trade or commerce in connection with the supply of credit repair services to a consumer, Harvinder Singh, in the following circumstances:
(a)it knew that Singh was vulnerable in as much as he was concerned that he had a negative listing on his credit record and wanted to repair that record;
(b)it knew, or ought to have known, that Singh was not able to read, write, speak or understand English well;
(c)it advertised its credit repair services to Singh via the Credit Clean Australia website;
(d)its sales representative used the Scripts in the course of telephone sales calls with him;
(e)it made the representations referred to in the paragraphs 17(a), 17(b) and 17(c) herein;
(f)it subjected Singh to undue influence or pressure, and unfair tactics;
engaged in conduct that was unconscionable in all the circumstances, in contravention of section 21 Australian Consumer Law.
THE COURT ORDERS THAT:
19.Pursuant to s 224 of the Australian Consumer Law, within 28 days of the date of this order the First Respondent pay to the Commonwealth of Australia a pecuniary penalty of $400,000.
20.Pursuant to s 224 of the Australian Consumer Law, within 28 days of the date of this order the Second Respondent pay to the Commonwealth of Australia a pecuniary penalty of $100,000.
21.Within 28 days of the date of this order, the Respondents pay the Applicants’ costs of, and incidental to, the proceeding in the amount of $100,000.
Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.
REASONS FOR JUDGMENT
DERRINGTON J:
Background
The facts in relation to this matter are set out in Exhibit 1 being an agreed statement of facts which has been filed. I need not refer to them extensively. The parties have made a joint written submission as to the appropriate penalties and orders which ought to be made and, to the extent possible, they have agreed upon the terms of the orders which should be made in the present circumstances. I accept, in general terms, those submissions and the statements of the legal principle which are identified therein. Those principles are now well settled and there is no need for me to add to the jurisprudence in any respect.
The application by the Australian Securities & Investments Commission (ASIC) concerns the activities of Mr Malouf and his company, Malouf Group Enterprises Pty Ltd (MGE), over a two year period from 1 January 2014 to 31 December 2015. Mr Malouf was both manager and director of MGE. He is referred to as being the “managing director” of the company and its business but, as I understand it, he is almost solely in charge of that entity and its undertakings.
MGE operated what was said to be a “credit repair business”. It operated under at least four different business names and the business was the purported provision of services to people with poor or questionable credit histories whereby the credit histories would be “cleaned up”. The cleaning up was said to occur by causing to be removed any negative entries where that was possible. In actuality, the service provided by MGE was rather more limited, if it existed at all. A party, or consumer, who engaged with MGE would pay a sum of $1,095 for the services which were said to be capable of being provided.
The causes of action brought against MGE by ASIC
ASIC has alleged in this action, and it has been admitted by MGE and Mr Malouf, that MGE engaged in misleading or deceptive conduct for the purposes of attracting customers to it and inducing them to pay the fee. The alleged misleading and deceptive conduct was said by ASIC to consist of breaches of the Australian Consumer Law and that, too, is admitted.
The relevant conduct included:
(a)the making of false representations on websites as to MGE’s standing as a credit repair solutions company;
(b)the displaying of false testimonials as to MGEs services;
(c)the making of false representations as to the ability of MGE to “clean up” the customer’s credit history; and
(d)the making of misleading or deceptive representations by telephone operators.
Those representations were designed to encourage potential customers to enter into an agreement with MGE for the provision of the services which involved the payment by the customer of a significant sum.
ASIC also alleges, and it is admitted, that MGE engaged in unconscionable conduct in the way in which it dealt with potential customers. In this respect it is important to observe that the potential customers targeted by MGE’s business were, in effect, the more vulnerable persons in society, being those from a low socio-economic situation and, more importantly, in a diminished financial position, such that the need for a clean credit history or a cleaner credit history was important to them. ASIC alleges that the conduct said to be unconscionable was in breach of the Australian Consumer Law (Sch 2 to the Competition and Consumer Act 2010 (Cth)) (ACL) and, again, the alleged contraventions are not disputed.
The matters relied upon in relation to the unconscionable conduct claim include the nature and contents of the respondents’ TV advertisements and sponsored links to MGE’s website, the commission-based remuneration of the sales staff, or at least some of them, the contraventions of the ACL in relation to misleading or deceptive conduct as I have mentioned, and the engagement of unfair tactics by MGE and its employees or contractors. In the material before the Court there is evidence of four specific, exemplar instances of the tactics engaged in by MGE for the purposes of encouraging potential customers to enter into the service agreement. Those tactics identified in those instances are both disturbing and unconscionable, and the methodology engaged in by MGE was both cynical and calculated to secure the payment of substantial fees from potential customers in the full knowledge that the services which might be provided were rather limited.
ASIC alleges, and it is admitted, that Mr Malouf was “knowingly concerned” in the contraventions of the ACL by MGE. He was a director and manager of MGE and responsible for nearly every aspect of its operations. In particular, he devised and implemented the business strategy or business model of MGE which included its advertising, telephone sales process, and commission structure. He was also involved in the drafting and approving of the content of television advertisements, the MGE website, the MGE sponsored internet links and advertising, MGE’s agreements with its customers as well as the scripts used by the telephone operators to lure customers to it. It is also apparent that Mr Malouf was involved in the engagement of staff, the training of staff, and requiring them to use the scripts which he had prepared. He was involved in the supervision of staff and ensured that the misleading scripts were utilised in the day-to-day conduct of the business.
There can be no doubt, and he has so admitted, that he was knowingly concerned in MGE’s breaches of the ACL by engaging in misleading or deceptive conduct and by engaging in unconscionable conduct.
Of significant importance in this case is that Mr Malouf and MGE have entered into an Enforceable Undertaking with ASIC. There is no need to go into the minutiae of it, however, its effect is that Mr Malouf and MGE are each making themselves responsible for the payment of $1.1 million. That amount of money is to be used for the purposes of repaying consumers who were misled into entering into agreements for services by MGE where they did not have any negative listing at the time. The material before the Court shows that the payment of this sum will go a significant way to compensating those persons who have paid money for services which they did not require.
In relation to the undertaking to pay that substantial amount of money the respondents have filed an affidavit deposing as to the detail of their financial resources. That is an affidavit of Mr Jordan Francis Malouf, dated 27 March 2018. Mr Dietz, who appeared for the respondents, has provided independent submissions in relation to that issue.
The consequence of the Enforceable Undertaking is that this Court can focus attention on an appropriate penalty without being distracted by the requirements of s 227 of the Act. That section necessitates consideration being given to the priority of paying compensation to persons affected by contravention of the ACL ahead of the imposition of fines.
I am satisfied, and it appears that ASIC was also satisfied, that the amounts of money which are paid or will be paid by MGE and Mr Malouf pursuant to the enforceable undertaking, together with the penalties which will be imposed in accordance with the joint submissions and the order for costs will be at or towards the upper limit of the financial resources available to the respondents to meet any order. That is a significant consideration in reaching the conclusion in this case that the jointly advanced penalties are appropriate.
ASIC seeks the making of various declarations. The making of declarations pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) is of course discretionary, and in cases where orders are made for the payment of fines or compensation, it is occasionally the case that the Court will refuse to grant declarations on the basis that they will be of no utility because the contravention of the relevant legislation is already apparent from the imposition of fines. However, in enforcement proceedings pursued by regulators, a very real and important matter to be considered is the appropriateness of ensuring that the Court publicly recognises, and that the community appreciates, the length and breadth of any contravening conduct in which a respondent has engaged.
The matters to take into account when a Court is considering whether to exercise a discretion to grant a declaration in matters such as this have been referred to in a number of cases, and particularly by the High Court in Forster v Jododex Australia Pty Ltd (1972) 127 CLR 421. In that context the criteria for making declarations in the manner sought are satisfied in this case. Firstly, the proposed declarations relate to conduct which is obviously in contravention of the ACL and the matters in issue have been identified with particularity, that is to say the declarations are precise. Secondly, it is in the public interest for ASIC to seek the declarations and to have them made. This case involved a very significant legal controversy which has caused loss to numerous people and ASIC, as the regulator, has a genuine interest in seeking the relief of this nature. And, thirdly, in this case ASIC’s application has been properly contradicted by the respondents. That is to say, the respondents have had an active part in the proceedings and have had an interest in opposing the making of any declarations which went beyond what was just. That remains true even though, at the end of the day, the respondents have appropriately consented to the orders which ASIC has sought.
I would also add, in accordance with the principles referred to in Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union (2007) ATPR 42-140 that the declarations are appropriate in a case of this nature because they record the Court’s disapproval of the contravening conduct and validate ASICs claims that the respondents, MGE and Mr Malouf, have contravened the ACL. The making of the declarations also assist ASIC in further carrying out its duties which are delegated to it under the CCA and the ACL. It informs the public and the community of the harm arising from the result of the contraventions of the Act and the ACL, and it potentially has a deterrent effect other corporations which might contemplate engaging in similar conduct.
In my opinion, the declarations sought and which are agreed to by the respondents, are appropriate to be made in this case.
Penalties
The next question concerns the extent of the penalties which ought to be imposed. In this case, the civil penalties on which the parties have indicated their agreement are as follows:
(a)In relation to MGE, the parties submit that an appropriate amount is $400,000 in respect of the contraventions of ss 21, 29(1)(b), 29(1)(e), 29(1)(g) and 34 of the ACL; and
(b)In relation to Mr Malouf, a civil penalty of $100,000 in respect of his knowing involvement in MGE’s contraventions of those sections.
In the exercise of the power to impose penalties in matters of this nature it is necessary to take into account a number of considerations. First, is the attitude of ASIC. In that respect, the High Court in Commonwealth v Director, Fair Work Building Industry Inspectorate (2015) 258 CLR 482 (DFWBII) has indicated that, in relation to civil penalty provisions, the regulator has an infinitely more detailed and acute knowledge of the market which it is seeking to regulate than does the Court. That being so, it will, in making its submissions, take into account a number of matters, including its resources, the need for compensation, prevention and deterrence, and the court should pay some significant heed to its views. In that respect I acknowledge the detailed submissions made on behalf of ASIC in advancing the suggested penalties and I agree with those submissions
Secondly, it is appropriate to take into account the nature and extent of the Enforceable Undertaking which has been entered into. That undertaking has the significant benefit of remediating losses which were suffered by various persons affected by the contravening conduct. The entry into the Enforceable Undertaking by the respondents is a significant factor and it necessarily lowers the quantum of the penalty which might otherwise be imposed. Not only is the remedial impact of the undertaking important, the fact that the respondents have entered into it discloses some element of contrition on their part and an assumption of responsibility for their contraventions.
Other factors which the parties have agreed the Court should take into account in considering the extent of the penalties are set out in the joint submissions. I do not propose to deal with all of them, save to acknowledge that they are all appropriate considerations in this case. I accept that it is now beyond doubt that the criteria of deterrence is a substantial or significant factor for the purposes of ascertaining an appropriate level of a civil penalty in a case of this type. In this case the level of penalty when taken together with the entering into of the Enforceable Undertaking satisfies this consideration.
The various factors relevant to the assessment of penalties which were set out by French J, as he was then, in Trade Practice Commission v CSR Ltd (1991) ATPR 41-076 are also pertinent to the present case. They are, firstly, the size of the contravening company; secondly, the degree of power of the contravener, that is, power as evinced by its market share (although that is probably not particularly relevant in a case of this nature); thirdly, the deliberateness of the contravention and the period over which it extended; fourthly, whether the contravention arose out of the conduct of senior management of the contravener or at a lower level; fifthly, whether the contravener has a corporate culture conducive to compliance with the Trade Practices Act 1974 (Cth) (or now the ACL); and, sixthly, whether the contravener has shown a disposition to cooperate with the authorities responsible for the enforcement of whatever regulatory law is in question.
In NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 a number of additional factors were identified. They include whether the contraveners have engaged in practice of this nature in the past, the financial position of the contravener, and, whether the contravening conduct was systematic, deliberate or covert.
To a greater or lesser extent each of these factors are relevant to the present matter as has been detailed in the joint submissions.
I accept that the proper approach for the Court in the reception of submissions from parties as to an appropriate penalty were set out by the Full Court of this Court in Minister for Industry, Tourism & Resources v Mobil Oil Australia Pty Ltd (2004) ATPR 41-993 at 51-54. More recently the High Court, in DFWBII, considered the appropriateness of receiving joint submissions. The majority said at [46]:
an important public policy involved in promoting predictability of outcome in civil penalty proceedings and that the practice of receiving and, if appropriate, accepting agreed penalty submissions increases the predictability of outcome for regulators and wrongdoers. As was recognised in Allied Mills and authoritatively determined in NW Frozen Foods, such predictability of outcome encourages corporations to acknowledge contraventions, which, in turn, assists in avoiding lengthy and complex litigation and thus tends to free the courts to deal with other matters and to free investigating officers to turn to other areas of investigation that await their attention.
Their Honours went on to say, however, that the Court does not merely simply accept what the parties put before it. Their Honours said at [58] that:
Subject to the court being sufficiently persuaded of the accuracy of the parties' agreement as to facts and consequences, and that the penalty which the parties propose is an appropriate remedy in the circumstances thus revealed, it is consistent with principle and, for the reasons identified in Allied Mills, highly desirable in practice for the court to accept the parties' proposal and therefore impose the proposed penalty.
This can all be synthesised to the proposition that, in considering the joint submissions of the parties, the Court needs to be persuaded that the amount proposed can be accepted as fixing an appropriate amount in relation to the contraventions which have been established.
Here, the misrepresentations were of a serious nature. Of that there can be no doubt. They were designed to induce people who found themselves in difficult circumstances to part with substantial sums of money. The payment of such sums were for the purposes of receiving benefits which ultimately would not be received or, in fact, which were not needed. The misrepresentations, too, were false and deliberately so. Of particular concern are statements to the effect that the respondents had somehow received public affirmation for their work in relation to people’s credit histories. That had no foundation whatsoever.
The script representations which the employees and contractors were required to make when they received telephone calls from potential customers were also cynical and deliberately false. They were designed to pressure people to enter into an agreement and to pay their money before they might contemplate what other alternative courses of action were available. That conduct was both deliberate and unconscionable. Moreover, it was targeted to the more vulnerable in society. That is a significant factor. The TV and web-based advertising, which was misleading, was exacerbated by the telephone operators who cajoled parties to enter into the agreement. That said, it must always be recognised that those operators were engaged to, and in the course of their employment required to, follow the script which Mr Malouf had created. As mentioned, Mr Malouf was knowingly concerned with this conduct and it can be said that he was, in effect, the proponent of the general commercial scheme.
ASIC has calculated, and it appears to be correct, that approximately $1.3 million was paid in the relevant period by consumers for whom no services were required. That is, the amount was paid by people who did not have adverse credit entries on their credit history such that they paid for a service which was not needed. That figure of $1.3 million is related to the amount agreed to be paid in the Enforceable Undertaking which, as I have said, is designed to ensure that, to a substantial degree, the amounts paid by such persons in fees are returned to them.
I also take into account that MGE is a relatively small business and not a large commercial enterprise. It seems to be solely operated by Mr Malouf, and it seems to have limited physical premises. On the other hand, it ought not to be forgotten that even small businesses can wreak havoc on vulnerable people and that is significant.
The authorities to which I have referred also identify the question of intention and deliberateness of the contraventions as being a relevant issue for consideration. As is abundantly clear from what I have said there is no doubt that the conduct in question in this case was both deliberate and intentional on the part of the contraveners. Perhaps as a counter-weight to that ASIC and the respondents propound as an important element the fact that there has been some contrition and evidence of that by the cooperation of the respondents. I accept that that is so. It is a significant factor for a regulator that the courts give appropriate weight to the cooperation which contraveners might provide once a regulator has detected conduct in contravention of the legislation which they administer. A discount for the admission of liability and for subsequent cooperation is of benefit, both to the Court in terms of the saving of time, as it is to ASIC. In this case I accept that Mr Malouf and his company, MGE, have cooperated with ASIC, at least since the end of 2017. However, one might add that was only after ASIC had spent a significant amount of time and money in preparing the evidence which it proposed to adduce in this matter. Nevertheless, the costs which would have been incurred had the matter proceeded to trial would have been substantial. ASIC also submits, and I accept, that Mr Malouf and MGE have worked with ASIC to facilitate a just resolution to these proceedings. Although it is pointed out that the conduct of Mr Malouf and MGE in this respect was rather slow in coming, it is nevertheless significant.
Additionally, the respondents’ admission of the contraventions and of the facts which were set out in the agreed statement of facts is not to be underestimated. Admissions of contraventions and the facts underlying them save ASIC and the Court significant amounts of time in finally resolving all questions of fact.
I am informed by the joint written submissions that the factor of MGE and Mr Malouf’s cooperation are acknowledged in the level of penalty which the parties agree should be imposed. I also take into account that which the authorities require, being that the conduct in question, although it operated over a period of two years and involved numerous persons, was within the scope of what is called the “course of conduct” principle. The wrongdoing was, although in relation to individuals, nevertheless one whole course of conduct. A correlative principle is the “totality” principle, and that principle requires that there not simply be an adding up of each individual contravention, but requires the Court to stand back and look at the totality of the contraventions and their impact.
I also take into account that the respondents have agreed to pay ASIC’s costs in a not insignificant amount. That too indicates a significant level of cooperation.
An important factor will also be that the imposition of a penalty on an individual or corporation might exhaust their financial resources and might have the necessary consequence of pushing them into insolvency or bankruptcy. This has been taken into account by ASIC, and Mr Dietz for the respondents has satisfied me that it would be inappropriate to impose any greater penalty than that which is proposed.
For those reasons, I am prepared to accept that the penalties suggested by ASIC and the respondents are in amounts which are appropriate to the circumstances. I therefore propose to make the orders in relation to penalties which appear at paragraphs 19 and 20 of the proposed draft order, that is, orders 19 and 20 should be:
(19) Pursuant to section 224 of the Australian Consumer Law within 28 days of the date of this order, the first respondent pay to the Commonwealth of Australia a pecuniary penalty of $400,000.
(20) Pursuant to section 224 of the Australian Consumer Law within 28 days of the date of this order, the second respondent pay to the Commonwealth of Australia a pecuniary penalty of $100,000.
As I mentioned, the respondents have agreed to pay ASIC’s costs in the amount of $100,000 and for that purposes the next order ought to be:
(21)Within 28 days of the date of this order, the respondents pay the applicant’s costs of an incidental to the proceedings in the amount of $100,000.
As I have said before, the detailed and precise declarations which were sought by the applicant ought to be made and they are set out in paragraphs 1 through to 18 of the draft order and I make those declarations accordingly.
I certify that the preceding thirty-eight (38) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Derrington. Associate:
Dated: 23 April 2018
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