Commissioner for Consumer Affairs v Lukeleo Pty Ltd - [2017] SASC 168

SUPREME COURT OF SOUTH AUSTRALIA
(Civil: Civil)
COMMISSIONER FOR CONSUMER AFFAIRS v LUKELEO PTY LTD
[2017] SASC 168
Judgment of The Honourable Justice Blue
17 November 2017
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - ENFORCEMENT AND REMEDIES - PENALTY - PRINCIPLES OF ASSESSMENT - CONSUMER PROTECTION CONTRAVENTIONS
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - CONSUMER PROTECTION - MISLEADING OR DECEPTIVE CONDUCT OR FALSE REPRESENTATIONS
TRADE AND COMMERCE - COMPETITION, FAIR TRADING AND CONSUMER PROTECTION LEGISLATION - ENFORCEMENT AND REMEDIES - INJUNCTIONS
Action for civil pecuniary penalties and other remedies for misleading representations in breach of s 29 of the Australian Consumer Law.
The first defendant carried on business as a publisher of an online business and government directory. The second defendant is its sole director and shareholder. The first defendant has ceased trading and does not have substantial assets.
Between June and December 2013, in contravention of s 29(1)(d) of the Australian Consumer Law, telemarketers engaged by the first defendant telephoned six educational institutions and said words calculated to lead them to believe that they were being asked to renew an existing arrangement for paid advertisements when in truth they were being asked to authorise a new arrangement. The second defendant was knowingly concerned in these contraventions because he had drafted the call script used by the telemarketers.
Between June and December 2013, in contravention of s 29(1)(h) and/or (i) of the Australian Consumer Law, the first defendant’s staff telephoned three of those customers together with a seventh prospective customer and said words calculated to lead them to believe that entry in the directory was free or would be paid for by the Education Department and not the educational institution in question. The second defendant was not concerned in these additional six contraventions.
Five of the prospective customers paid a fee for a paid entry in the directory of $995 and one also paid a renewal fee of $1,495. After institution of the action, in April 2015 the first defendant refunded those amounts.
The plaintiff seeks declarations of contraventions, injunctions, civil pecuniary penalties and an order disqualifying the second defendant from managing corporations for a defined period.
Held:
1. Declaration made that the second defendant procured the first defendant to make misleading representations in respect of the six contraventions in which he was knowingly concerned (at [61]).
2. Injunction granted restraining the second defendant from procuring a corporation to make false or misleading representations that a person has agreed to acquire goods or services from a supplier in relation to online advertising (at ([63]).
3. Civil penalties imposed in respect of the first defendant totalling $90,000 (at (98)].
4. Civil penalties imposed in respect of the second defendant totalling $30,000 (at [112]).
5. The second defendant is disqualified from managing corporations for 12 months (at ([119]).
Competition and Consumer Act 2010 (Cth) Sch 2 (29 232(1), 224 and 248); Criminal Law (Sentencing) Act 1988 18A, referred to.
House v The…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [2017] SASC 168
Decision Date: 17 November 2017

CaseChat Overview and Summary

The Commissioner for Consumer Affairs has brought an action against Lukeleo Pty Ltd and Mr Farrell, its sole director and shareholder, for contraventions of the Australian Consumer Law (ACL). The Commissioner alleges that Lukeleo, trading under the name "BIG Pages", engaged in misleading or deceptive conduct by representing to businesses that they had agreed to purchase services from the company. These representations were made in the course of telemarketing calls to prospective customers, where the company sought to sell advertising space in its online business directory. Mr Farrell is alleged to have been knowingly concerned in these contraventions. The Commissioner seeks pecuniary penalties, declarations, injunctions and disqualification orders against Lukeleo and Mr Farrell.

The central legal issues in the case revolve around the interpretation and application of the ACL, specifically sections concerning misleading or deceptive conduct, civil penalty provisions, and the principles guiding the assessment of penalties. The court had to determine whether the representations made by Lukeleo were indeed misleading or deceptive and whether Mr Farrell was knowingly involved in these contraventions. Additionally, the court had to assess the appropriate quantum of penalties to be imposed on Lukeleo and Mr Farrell, considering factors such as deterrence, public protection, and the nature and extent of the contraventions.

In delivering the judgment, the court found that Lukeleo had contravened the ACL through misleading or deceptive conduct in its telemarketing practices. The court imposed a penalty of $10,000 for each of the five initial contraventions, $10,000 for the subsequent Whyalla contravention, and $7,500 for each of the four Mid-North and Dernancourt contraventions, totaling $90,000. Regarding Mr Farrell, the court found him knowingly concerned in six contraventions, imposing a penalty of $5,000 for each, totaling $30,000. The court also granted a declaration and injunction against Mr Farrell, prohibiting him from procuring similar contraventions in the future, and disqualified him from managing corporations for 12 months. The court will further hear submissions from the parties on the precise terms of the orders and on costs.

The court will issue detailed orders reflecting its reasons for judgment and will hear further submissions on the form of the orders to be made and the costs.

Orders

Orders of the court

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Background

Background to the litigation

The Commissioner seeks orders for the payment of civil pecuniary penalties by each of Lukeleo and Mr Farrell. The Commissioner also seeks an order disqualifying Mr Farrell from managing a corporation for a specified period. Background In July 2010 Lukeleo was incorporated by Mr Farrell. Mr Farrell is and at all material times was Lukeleo’s sole director and shareholder. In March 2011 Lukeleo trading under the registered business name “BIG Pages” commenced producing the BIG Pages (the directory), an online directory for businesses and government enterprises. Lukeleo obtained data from an external source that provided the names and details of 17,000 business and government enterprises. It incorporated basic details for those enterprises (name and contact details) into the initial version of the directory. This was done at no charge to and without prior consultation with the enterprises. Mr Farrell was the manager of the business. Lukeleo employed an office manager. Mr Farrell initially acted as the supervisor. Lukeleo engaged up to four telemarketing staff to work under the supervision of the supervisor. Telemarketing was undertaken by the telemarketing staff and the supervisor. These persons were paid a fixed base rate plus commissions on sales. Mr Farrell undertook the initial training of the telemarketing staff. Lukeleo charged a fee to customers for including fulsome details (as opposed to the basic details provided without fee) in the directory for 12 months (a paid entry). That fee was generally $995 inclusive of GST. Mr Farrell drafted a call script for staff to follow when making initial telephone calls to prospective customers (the initial call script). These were usually enterprises whose basic details were already included in the directory. The initial call comprised the following:STEP 1Good Morning/Afternoon, it’s _________ calling from the BIG Pages. Could you please put me through to the correct person who CAN PROOF READ AND AUTHORISE YOUR Company’s directory listing for the next edition?We are currently processing entries for the next edition of the directory; I’d like to check all of your company details to ensure they are current and correct and then fax it through to get the authorisation to go ahead with the next edition.You are the correct person to talk to this year, and what is your position there?YES– continue to step 2NO– go back to step 1Okay, can I grab your full name and position?STEP 2Great, we have your company details as (refer to lead and confirm) Great– we have you details as: (address) is that correct? And your phone details here as (ph number) and your fax as (fax number) is that right? Can I just confirm your internet address _____? And your email ______?I will be sending through a proposal for a listing via fax, if you could acknowledge the terms and conditions stating the cost of insertion and also proof read that, tick each line to make sure it’s all correct and current, and no spelling mistakes on my behalf. Then sign and reverse fax it to me this Morning/Afternoon and I will file it as completed at my end.So I’ll get that through to you now, is that definitely you signing off on the paperwork?Great, so I will go down to the fax room to send that to you in about 10 minutes, are you in a position to check that and fax that back to me?Great, I’ll get that straight through to you.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

The Commissioner seeks an order that the defendants pay his costs of action on a party/party basis. The defendants do not oppose an order that they pay a proportion of the Commissioner’s costs but submit that there should be a reduction on account of allegations that were abandoned and that each should pay a proportion of the total costs given that there were two defendants and different issues and in Mr Farrell’s case mitigating circumstances. I will hear the parties further before making an appropriate costs order.Conclusion As against Lukeleo, I fix a penalty of $10,000 for each of the five contraventions comprising the initial representations except the initial Mid-North and Dernancourt representations, $10,000 for the contravention comprising the subsequent Whyalla representations and $7,500 for each of the four contraventions comprising the initial and the pairs of subsequent Mid-North and Dernancourt Kindergarten representations. The total of the penalties is $90,000. As against Mr Farrell, I will grant a declaration and an injunction in appropriate terms. I fix a penalty of $5,000 for each of the six contraventions in which he was knowingly concerned. The total of the penalties is $30,000. I will make an order disqualifying Mr Farrell from managing corporations for 12 months. I will hear the parties as to the precise form of the orders to be made to reflect my reasons for judgment and as to costs.

Ratio Decidendi

Legal Principle Established

On 5 May and 2 June 2017 the parties made submissions concerning appropriate remedies. On the hearing of those submissions further evidence was tendered including three further affidavits by Mr Farrell and an affidavit by each of his accountants Mr Cordner and Mr Murphy and his solicitor Ms Waldron.Declaration & injunction The Commissioner seeks a declaration that Mr Farrell procured Lukeleo to make false or misleading representations being the initial representations except the St Mary’s representation. M Farrell does not oppose the making of a declaration. I will hear the parties as to the precise terms of the declaration to be made. Subsection 232(1) of the Australian Consumer Law provides that, if a court is satisfied amongst other things that a person has engaged in conduct that constitutes a contravention of a provision of Chapter 3, the court may grant an injunction in such terms as the court considers appropriate. The Commissioner seeks an injunction restraining Mr Farrell from procuring Lukeleo or any other corporation to make false or misleading representations that a person has agreed to acquire goods or services from a supplier in relation to online advertising. Mr Farrell does not oppose the grant of an injunction. I will hear the parties as to the precise terms of the injunction to be granted.Pecuniary penalty Subsection 224(1) of the Australian Consumer Law provides that, if a court is satisfied that a person has contravened amongst others a provision of Part 3-1, the court may order the person to pay to (relevantly) the State such pecuniary penalty, in respect of each act or omission by the person to which the section applies, as the court determines to be appropriate. Subsection 224(3) provides that the maximum penalty for a body corporate is $1.1 million and for any other person is $220,000. The purpose of the imposition of a penalty is the protection of the public, giving rise to considerations of specific and general deterrence, and not punishment or retribution.[4] [4] Commonwealth v Director, Fair Work Building Industry Inspectorate[2015] HCA 46; 258 CLR 482 at [53]-[55] per French CJ, Kiefel, Bell, Nettle and Gordon JJ. In Commonwealth v Director, Fair Work Building Industry Inspectorate,[5] French CJ, Kiefel, Bell, Nettle and Gordon JJ said:Civil penalty proceedings are civil proceedings and therefore an adversarial contest in which the issues and scope of possible relief are largely framed and limited as the parties may choose, the standard of proof is upon the balance of probabilities and the respondent is denied most of the procedural protections of an accused in criminal proceedings.… No less importantly, whereas criminal penalties import notions of retribution and rehabilitation, the purpose of a civil penalty, as French J explained in Trade Practices Commission v CSR Ltd, is primarily if not wholly protective in promoting the public interest in compliance: "Punishment for breaches of the criminal law traditionally involves three elements: deterrence, both general and individual, retribution and rehabilitation. Neither retribution nor rehabilitation, within the sense of the Old and New Testament moralities that imbue much of our criminal law, have any part to play in economic regulation of the kind contemplated by Pt IV [of the Trade Practices Act]... " [6][5] (2015) 258 CLR 482.[6] At [53], [55]. (Footnote omitted).