Cassidy, CEO Australian Competition and Consumer Commission & Anor v John Bevins Pty Ltd

[2004] HCATrans 500

[2004] HCATrans 500

IN THE HIGH COURT OF AUSTRALIA

Office of the Registry
  Sydney  No S21 of 2004

B e t w e e n -

BRIAN CASSIDY, CHIEF EXECUTIVE OFFICER OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

First Applicant

AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION

Second Applicant

and

JOHN BEVINS PTY LTD

Respondent

Application for special leave to appeal

GLEESON CJ
HAYNE J

TRANSCRIPT OF PROCEEDINGS

AT SYDNEY ON TUESDAY, 30 NOVEMBER 2004, AT 10.50 AM

Copyright in the High Court of Australia

__________________

MR B.R. McCLINTOCK, SC:   May it please the Court, I appear with my learned friend, MS M.A.C. PAINTER, for the applicant.  (instructed by Australian Government Solicitor)

MR D.J. HAMMERSCHLAG, SC:   May it please the Court, I appear with my learned friend, MS E.M. FRIZELL, for the respondent.  (instructed by Cowley Hearne Lawyers)

GLEESON CJ:   Yes, Mr McClintock.

MR McCLINTOCK:   Your Honour, this case raises the issue of the meaning of the words “knowingly concerned in” as they appear in section 75B of the Trade Practices Act.

GLEESON CJ:   Well, it is what appears on page 87, in paragraph 82, I assume?

MR McCLINTOCK:   Yes.

GLEESON CJ:   Now, that was Justice Stone and that was agreed in by?

MR McCLINTOCK:   By no one, your Honour.  In the Full Court the majority was Justice Moore with whom Justice Mansfield agreed and Justice Stone who took a different view.  Her Honour found, as her Honour says in line 36:

But it is necessary to know the essential elements of the contravention, by which I understand that one must know that which makes the conduct a contravention; in this case, its misleading and deceptive character.  Only then can one form the intention to participate in conduct of that character.

Justice Moore’s view, your Honour, which is expressed at pages 59 to 60 is quite different and if your Honours go to page 60, your Honours will see at line 25:

I should add that, in my opinion, liability as an accessory (in circumstances where the contravening conduct of the principal was making false or misleading representations) does not depend on an affirmative answer to the question whether the alleged accessory knew the representations were false or misleading.

GLEESON CJ:   Now, you support that?

MR McCLINTOCK:   No, your Honour, I do not support that.  I support what the learned trial judge found which, in our submission, is an application of the authorities in the area.  I am going to come to tell your Honour that there is a division in the intermediate appellate courts in this area.  On the one hand, one has the New South Wales Court of Appeal twice saying one does not need to show what Justice Stone said nor what Justice Moore said and one only needs to show knowledge of the essential facts, in effect, or matters that go to make up contravention.

Your Honour, the learned trial judge said this at page 26 of the application book. After setting out the provision from the ASIC Act which has been re-enacted with the same numbering and in exactly the same terms, your Honour, he then went on, in paragraph 72, to quote Sir Gerard Brennan in Yorke v Lucas and one can see there that we would say Sir Gerard Brennan is not saying that one needs knowledge of the misleading nature of the conduct.  He then continues:

The question, therefore, is whether the applicant has shown that the John Bevins Agency knew of the essential elements of the conduct that constituted the relevant offence.  The question is not whether the agency, or those employed by it subjectively appreciated that the advertisements were false or misleading.  If it were, I would find that they had no liability.  I accept the evidence led that none of those who gave evidence formed the view that the advertisements were misleading.  None intended to mislead or deceive the public.

The applicants submit that it was sufficient to constitute an offence under s 12GD(e) that it be shown that the John Bevins Agency through its officers and employees:

1.        knew the text and content of the advertisements as published –

Of course, they had actually written the advertisements so his Honour does find that they knew that –

2.        knew the features of the advertisements and the circumstances of publication which gave rise to the published matter conveying the representations complained of –

They knew that too because they had drafted what ultimately turned out to be an inadequate disclaimer in circumstances where they had heavily emphasised, quite emotively, footage of a pregnant woman, this being a case about misleading about the time limits for obstetrics cover, then –

3.        knew the facts by reference to which the applicant alleges the representations were misleading or false, ie knew that waiting periods did apply in the case of pregnancy.

Now, the agency, as his Honour had found, specifically knew about the waiting periods that led to the conduct being, in fact, misleading.  So, your Honour, what is ‑ ‑ ‑

HAYNE J:   What is different between that and what appears at page 60, paragraph 15?

MR McCLINTOCK:   Your Honour, his Honour then, of course, went on to find that the conduct – that there was a breach by the respondent.  At 60, your Honour, it is perhaps a little difficult to understand what, with respect, Justice Moore is saying.  He seems to say that you do not have to – or he does say – you do not have to know that the conduct is misleading, but then in the passage before then, he seems to be saying, and this is the basis upon which he exonerated the respondent - it is at line 14, he says:

It follows, on his Honour’s findings, that Bevins (through its officers and employees) was not aware of the second of the matters, as I earlier described them, constituting the contravening conduct of MBF.  That is, while Bevins was aware of what the advertisements contained (necessarily so given that it created them) it was not aware that the advertisements might lead members of the public to believe that certain benefits would be enjoyed or rights conferred by taking out insurance with MBF. 

But, your Honour, that is another way of saying they did not know that the public was misled and there is in fact a contradiction between what his Honour says there and what his Honour says lower down the page at lines 25 to 30.

GLEESON CJ:   Mr McClintock, you need to face up to this problem, I think.  Your opponent says, in terms of the actual outcome, or likely outcome, of this case, these proceedings do not amount to a row of beans and you say there is an important issue of law to be resolved.

MR McCLINTOCK:   Yes, your Honour.

GLEESON CJ:   You are going to need to satisfy us that this is a suitable vehicle to resolve that important issue of law and if this is a matter in which the law has already been stated by this Court in Yorke v Lucas, and all that is happening is that there is some kind of ambiguity in the way in which the judges have expressed themselves, then it is not likely to lead us to be very enthusiastic about granting special leave.

MR McCLINTOCK:   Your Honour, it goes further than that though.  On the one hand there is a series of authorities - and it is not merely a point about ambiguity of Justice Moore’s judgment – the differing judicial views in this case are exemplified by the views here.  There is Justice Hill who says it is irrelevant, whether you knew the conduct was misleading and found Bevins liable.  There is Justice Stone who says that it is critically relevant, that matter, and would have exonerated Bevins.

GLEESON CJ:   Well, look at Justice Hill on page 27, paragraph 3.

MR McCLINTOCK:   Yes, your Honour.

GLEESON CJ:   He says you have to know “the facts by reference to which” it is alleged that “the representations were misleading or false”.  Do you accept that?

MR McCLINTOCK:   Yes, your Honour, in the sense that his Honour explained it, that is they knew that waiting periods did apply in the case of pregnancy.  Here the situation was that this advertising agency drafted the advertisements, so they knew what was in them.  They knew the second matter and they knew the third matter, which was the applicability of the waiting periods.  So, in the words of the section, they were knowingly concerned in the conduct of MBF.

GLEESON CJ:   Let us take a step away from the facts of the present case.  Suppose an advertising agency prepares an advertisement for a manufacturer of car tyres in which it includes the representation that the tyres have a certain life expectancy which is a representation that is incorrect.  What are the facts that your client would need to prove against the advertising agency to be knowingly involved in a contravention?

MR McCLINTOCK:   To answer your Honour completely, it would have to prove the first two matters as spelled out by Justice Hill, which add up to saying it knew the content of the ad.  In that case, your Honour, it would have had to have known that the advertisement contained a statement about life expectancy of the tyres.  Then, it would – if it had some means of knowledge, for example, it had been shown material that indicated that that representation was not the case or was not true, that would be sufficient, regardless of whether it subjectively appreciated that the representation was misleading.

GLEESON CJ:   You mean you would have to prove that it knew or ought to have known that the tyres did not have that life expectancy?

MR McCLINTOCK:   I would not accept the “ought to have known”, your Honour, but had the means of knowledge.  The distinction is ‑ ‑ ‑

GLEESON CJ:   So, what you say your client has to prove is that the advertising agency knew, or had the means of knowing, that the tyres did not have that life expectancy?

MR McCLINTOCK:   Yes, your Honour, and that is what we proved in this case here.  The reason why Justice Moore allowed the appeal, your Honour, was simply because he found that the agency did not appreciate that the words it used conveyed that representation.  If they had known that, they must have known that it was misleading because they did know of the point about the waiting periods.  The distinction comes very clearly with comparing this case, your Honour, with what occurred in Yorke v Lucas.

In that case, Lucas was a South Australian land agent who made a representation about the turnover of a business, as I recall, which had been conveyed to him by the vendor of the particular business.  He had never seen the underlying accounts.  He had no way of knowing whether the representation in question was misleading or not.  That is the reason why he succeeded in that case.  That is a distinct situation here where what Bevins here did not know was what the words it used meant to reasonable people because his Honour, the learned trial judge, applied a test of is the representation reasonably conveyed to consumers, and found that it was.

It is at the second level where the distinction comes, obviously although it followed that they did not subjectively appreciate that the representation was in fact misleading.  Your Honours, if your Honours go to Justice Moore’s judgment, your Honours will see that his Honour points out at page 52, line 35 that there is clearly a division of judicial opinion in this area and may I say that was also pointed out by Justice Stone, and there his Honour sets out over the next page the cases that favour the view that he thought and your Honour will see that the first is a decision of his Honour, then come decisions of first instance judges that he refers to on page 53.  However, when one gets to page 54 one comes to the cases that are on the other side and say one does not need to subjectively appreciate the misleading nature of the conduct.

GLEESON CJ:   Could you just state in a summary form the facts from which it will appear to us that this case is a suitable vehicle for the resolution of these differences of opinion.

MR McCLINTOCK:   Your Honour, there is no factual issue involved, that is, the facts have been found by the trial judge with great clarity in the passage that I have taken your Honour to. Those facts throw up the legal issue of what the words, “knowingly concerned in” mean in section 75B or ASIC Act analogue. There could, in my submission, be no clearer issue, or the issue could not be raised more clearly on the facts in this matter than is raised here and one can see that because, of course, there was no challenge to the facts in the Full Court and each of their Honours in the Full Court proceeded on the basis of the facts as found by the learned trial judge as I have taken your Honours to them.

It is, in my submission, your Honour, a suitable vehicle.  The proceedings are not in any way – to join issue with my learned friend – insignificant.  The role of an advertising agency is a critically important one in these areas for the reasons pointed out by Justice Hill at pages 27 to 28 where he picks up the language of Justice von Doussa about the gatekeeper analogy.  These advertising agencies have a fundamental role to play in preparation of advertisements that may mislead consumers and for that reason, your Honour, we would say it is a suitable vehicle.

GLEESON CJ:   On page 60, Justice Moore says that it is wrong to say that the accessory has to know that the representations were false or misleading.

MR McCLINTOCK:   Yes.

GLEESON CJ:   On page 99 in your first ground of your draft notice of appeal you say:

The Full Court erred in finding it to be an essential element of the accessorial liability . . . that the alleged accessory be aware that the conduct of the principal was misleading or deceptive -

I am having some difficulty relating your first ground of appeal to the reasons of Justice Moore.

MR McCLINTOCK:   Your Honour, the ground of appeal may be inelegantly phrased but when one goes back to that page and considers what his Honour does find, he really is saying that even though – there is a contradiction between the passage that appears at about line 15 and what appears at lines 25 to 30.  In any event, your Honour, our submission is - and this in the grounds of appeal – that his Honour was wrong in making the finding that exonerated Bevins from liability to say ‑ ‑ ‑

GLEESON CJ:   Grounds (1), (2) and (3) on pages 99 and 100 of your draft grounds of appeal all seem to me to be framed on a basis that is inconsistent with the reasoning of the majority as distinct from the reasoning of Justice Stone.

MR McCLINTOCK:   If that were the case, your Honour, I would seek leave to amend the grounds of appeal but, your Honour, it is picked up clearly, we would say, if in nothing else, in ground (5).

GLEESON CJ:   Grounds (1), (2) and (3) seem to erect an Aunt Sally. 

MR McCLINTOCK:   I appreciate what your Honour is putting to me.  If they erect an Aunt Sally I apologise to the Court for the Aunt Sally and it is clearly raised in the fifth ground and that would be simply a matter of requiring us to amend the draft notice of appeal to raise directly the issue of the correctness of Justice Moore’s judgment. 

GLEESON CJ:   Where do we find the critical passage in Justice Moore’s reasoning where he falls into error?

MR McCLINTOCK:   Your Honour, it is that page, your Honour, and it is really lines 14 through to lines 22 and the reference to where his Honour says: 

while Bevins was aware of what the advertisements contained (necessarily so given that it created them) it was not aware that the advertisements might lead members of the public to believe that certain benefits would be enjoyed or rights conferred by taking out insurance with MBF.

HAYNE J:   Where do I find the second of the matters referred to at line 15 at page 60?  Where does his Honour list the matters in that fashion?

MR McCLINTOCK:   His Honour indicates it there but he indicates it on page 59, at line 20, where he is talking about:

the conduct of MBF was (firstly) the publication of the advertisements in the context where (secondly) the content of the advertisements (being the visual images, the sound and the way they were formatted and sequenced) might lead members of the public to believe that certain benefits would be enjoyed or rights conferred by taking our insurance with MBF -

That is it there, your Honour.  His Honour exonerated Bevins because they failed to understand what their advertisements actually meant and, your Honour, that, we would say, does not detract from the fact that they were knowingly concerned in the contravention of another.  That is our submission on that point.  That is what the learned trial judge found, in my submission, your Honour.

HAYNE J:   Well, page 59, paragraph 13, lines 20 through to 25 or so; the second item.  The conduct is described as publishing advertisements ‑ ‑ ‑

MR McCLINTOCK:   That is MBF’s conduct, your Honour?

HAYNE J:   Yes.  That might lead ‑ ‑ ‑

MR McCLINTOCK:   Then there is a second element which I have read to your Honour and I will not repeat and “(thirdly), in fact,” where the benefits “would not be”.

HAYNE J:   Yes.

MR McCLINTOCK:   Now, that is a reference to MBF’s conduct and then his Honour says they are the essential matters within Yorke v Lucas.

HAYNE J:   Then at page 60:

“Bevins . . . not aware of the second of the matters” ‑ ‑ ‑

MR McCLINTOCK:   Yes.

HAYNE J:   Well, at the moment I do not see what the difference between that and Justice Stone’s reasoning is and yet the court divides.

MR McCLINTOCK:   Your Honour, that is the difficulty we have because that seems to us to be – despite what his Honour says on page 60, at lines 25 to 30 – it seems to us to be simply another way of saying that they did not know the conduct was misleading.  It was a two‑stage process obviously.  To know that something is misleading one needs to know the representation conveyed by it and, on one hand, we have Justice Moore saying they did not know the representation was conveyed and, therefore, they could not have known it was misleading.  We have Justice Stone saying they did not know it was misleading.  Your Honour, it seems to us to be, with great respect to the Full Court below, a distinction without a difference there.

GLEESON CJ:   Yes, thank you, Mr McClintock.  Yes, Mr Hammerschlag.

MR HAMMERSCHLAG:   Your Honour, the original trial in this matter took place in June 2002 and by the judgment of 9 September his Honour Justice Hill exonerated Bevin on the facts.  On 16 December 2003 the Full Court exonerated the respondent on the law.  Leaving costs aside, the only relief that the trial judge ordered against the respondent here was a bare declaration which related to an advertising campaign which had taken place in the year 2000.  There was no cross‑appeal by the applicant to the Full Court on relief.

In our respectful submission, your Honour, even if your Honours were to grant special leave, which we would submit your Honours ought not, a successful appeal would result in no more than the re-imposition of a now bare and spent declaration against a party who was a minor player in the proceedings.  Just to correct my learned friend on one statement from the Bar table, I think he asserted to your Honours that the disclaimer was drafted by Bevins.  My recollection is that the disclaimer was drafted by MBF.  I might be wrong on that.

Your Honour, in our respectful submission, the principles are settled.  Those enunciated in Yorke v Lucas need no further exposition and, in our respectful submission, on the facts of this case ‑ ‑ ‑

HAYNE J:   Well, did the Full Court faithfully apply Yorke v Lucas?

MR HAMMERSCHLAG:   Yes, your Honour, because an essential fact here, in our respectful submission, was that the imputation arose and this was not an advertisement that had a pictorial ‑ ‑ ‑

HAYNE J:   Yes, I understand that.

MR HAMMERSCHLAG:   It had a disclaimer.

HAYNE J:   Yes, and it is held misleading.

MR HAMMERSCHLAG:   Yes.  Now, an essential fact would be that all these circumstances would convey the message that his Honour found they conveyed.

HAYNE J:   What is different between that proposition and the proposition that the representation is misleading?

MR HAMMERSCHLAG:   Because, your Honour, you have to understand according to the test, we would submit, that where it is not a direct statement, you have to understand what it is that is being conveyed and that is what was the point that we made to the Full Court and that is why they applied Yorke – that is what Mr Justice Moore found. 

HAYNE J:   Sorry, I am having difficulty understanding it.  Can you put the proposition again.

MR HAMMERSCHLAG:   Yes.  Your Honour, one of the essential facts here would be that in their combination, these particular advertisements had a particular meaning.  Bevins said they did not appreciate that it meant that you were not getting the ‑ ‑ ‑

HAYNE J:   Yes.

MR HAMMERSCHLAG:   You were not getting the benefits.  In fact, the disclaimer said you were not getting the benefits.  So, the knowledge that that imputation arose is as much a fact as any other fact.

HAYNE J:   Why?  Why is it relevant?  Why is it relevant to know that the conduct is misleading?

MR HAMMERSCHLAG:   It is relevant to know, your Honour, that as his Honour put it, that the statement made is capable of having that meaning.  You do not have to know that it is a contravention of the Act.  You do not have to know that it is misleading but you have to understand what is being said and, in our respectful submission, the Full Court got it absolutely right on that, but one way or another, it is an application of a well‑settled principle and, in our respectful submission, there is no real distinction between what his Honour found on page 59 – the learned trial judge having found that Bevins never appreciated it, his Honour Justice Moore found that the second item on page 59 meant that they would have to have understood that the visual images, the sound and the way they were formatted might lead members of the public to believe that certain benefits would be conveyed or rights conferred and, in our respectful submission, that is as matter of fact as any other fact.

HAYNE J:   What is the difference, do you say, between Justice Moore’s process of reasoning and that of Justice Stone?

MR HAMMERSCHLAG:   On deep analysis, probably very little.

HAYNE J:   And at the moment I must confess to you I see none.

MR HAMMERSCHLAG:   Yes.

HAYNE J:   And that, at the moment, provokes in my mind a question of whether Yorke v Lucas has been applied.

MR HAMMERSCHLAG:   In our respectful submission, it has been applied.  Your Honour will find that the majority – I will just take your Honour to her Honour’s finding.  At page 88 the relevant passages start at line 30, on the second line:

The High Court interpreted the accessory liability provisions not as requiring that the accessory know the essential elements of the contravening conduct but that he or she know the essential elements of the contravention.  As stated earlier this involves knowing, in addition to what happened, the fact that the relevant conduct is misleading or deceptive or likely to mislead or deceive.  Moreover the proposition, that an accessory does not need to know that the principal’s conduct has the capacity to mislead, is not necessary to explain the decision in Pierucci . . . It is sufficient that the accessory intentionally participated in conduct that he or she knew had the capacity to mislead or deceive.

HAYNE J:   So the principal can contravene without knowledge but the accessory cannot contravene without ‑ ‑ ‑

MR HAMMERSCHLAG:   Without knowledge of the essential fact and in this case it is the arising of an imputation that the thing conveyed a particular meaning and the advertisement had said waiting periods apply and, in our respectful submission, this is merely the application of a well‑settled principle and in any event your Honours would not, in our respectful submission, grant special leave where a small advertising agency first exonerated on the facts, then exonerated on the law; no relief is granted against them except a bare declaration, should be put through this.  Those are our submissions, your Honour.

GLEESON CJ:   Yes, thank you Mr Hammerschlag.  Yes, Mr McClintock.

MR McCLINTOCK:   Your Honour, three points.  The knowledge of Bevins of the disclaimer is dealt with at application book 15 and the fact that they were aware of it.  I do not need to take your Honours to it.  It is lines 20 to 30.  Your Honours, in my submission, the contrary argument involves putting a premium ‑ in relation to important consumer protection provisions where advertising agencies have a very vital role to play – putting a premium on obtuseness or moral obliquity.

Simple failure to understand what one’s own words mean could hardly be a satisfactory reason for exonerating an advertising agency from provisions such as this.  Second, your Honours, there is an incongruity between the basis upon which a principal is found liable, which does not involve knowledge and an accessory – knowledge of misleading conduct, I should say your Honour.  As I said, your Honour, just to remind

your Honour that these are important consumer protection provisions.  Finally ‑ ‑ ‑

HAYNE J:   Why should we take it on when it is bare declaration and costs at trial?

MR McCLINTOCK:   Your Honour, because it throws up a very significant issue ‑ ‑ ‑

HAYNE J:   Maybe at the cost of an opposite party.  Why should we take it on?

MR McCLINTOCK:   Your Honour, there are ways that this Court deals with matters such as that, your Honour.

HAYNE J:   Well, what offer are you making?

MR McCLINTOCK:   Your Honour, I am not sure I can be in a position to bargain with your Honour at all.

HAYNE J:   No, you are not.

MR McCLINTOCK:   But, your Honour, it is a matter for your Honour imposing conditions and the conditions are set out in my learned friend’s argument.  But, your Honour, to say that it is a bare declaration in a situation such as this is, to our submission, not to the point.  It is relief granted, it was significant relief, it was fought and resisted by the respondent and, your Honour, that does not, in our submission, detract from it being a suitable vehicle.  As I said, your Honours, the condition that my learned friend seeks on the grant of leave, which is protection as to costs, is set out in his submissions and I have said nothing about it, your Honour.  Those are my submissions in reply.

GLEESON CJ:   The basic principles to be applied in the resolution of disputes of a kind that arose in this case were established by this Court in Yorke v Lucas (1985) 158 CLR 661. Whilst we are not to be taken to endorse all aspects of the reasoning of the Full Court of the Federal Court in the present case, we do not consider that the present case provides a suitable vehicle for the agitation of any issue appropriate to a grant of special leave to appeal and the application is dismissed with costs.

We will adjourn for a short time to reconstitute.

AT 11.23 AM THE MATTER WAS CONCLUDED