Lesley Reardon v Aquajet Holdings (S.A.) Pty Ltd

[1982] FCA 270

Re: LESLEY PATRICIA REARDON
And: AQUAJET HOLDINGS (S.A.) PTY. LIMITED and JAMES PATRICK NOLAN
Nos. SA G54-60 of 1981 and G5-7 of 1982
Trade Practices

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
Fisher J.

CATCHWORDS

TRADE PRACTICES - Prosecution - false or misleading statements as to profitability - advertisement referring to remuneration - promise or prediction as to future earnings - managing director charged with being knowingly concerned - lack of belief or reckless indifference concerning predictions - jurisdiction to hear charges against individual where lack of personal service.

TRADE PRACTICES ACT 1974 s.59(2)

CRIMES ACT 1914 s.5

JUSTICES ACT (S.A.) 1921 s.27, s.62

HEARING

ADELAIDE

#DATE 13:12:1982

JUDGE1

These are 10 prosecutions brought by the prosecutrix alleging contraventions of s.59(2) of the Trade Practices Act 1974 ("the Act"). Aquajet Holdings (S.A.) Pty. Limited ("Aquajet") is charged with a total of 7 contraventions of that section of the Act and James Patrick Nolan ("Mr. Nolan") is charges under s.5 of the Crimes Act 1914 with being knowingly concerned in 3 of such contraventions. All proceedings against the defendants were at their request heard together.

Section 59(2) of the Act is in the following terms: -

"Where a Corporation, in trade or commerce, invites, whether by advertisement or otherwise, persons to engage or participate, or to offer or apply to engage or participate, in a business activity requiring the investment of moneys by the persons concerned and the performance by them of work associated with the investment, the corporation shall not make, with respect to the profitability or risk or any other material aspect of the business activity, a statement that is false or misleading in a material particular."

Two charges against Aquajet arose out of advertisements appearing on 31 December 1980 and 22 January 1981 respectively which except in respect of the telephone numbers were as follows:

"Cleaners Required We require carpet cleaners for both domestic and commercial carpets. Experience preferred but not essential as full on-the-job training provided. Ideal self-employment opportunity for people wishing to operate their own business or people already established such as plumbers, carpenters, painters etc. This position offers a return of approximately $400 to $800 per week for an outlay of less than $30 per week. Only people who are genuinely interested in helping themselves need apply. Car essential For appointment Ph. 297 3989."

The two charges in reference to these advertisements were in similar form except as to dates and alleged against Aquajet that:

"1. On about the 31st day of December 1980 at Adelaide in the State of South Australia you a Corporation being a company incorporated under the Companies Act 1962 as amended of the State of South Australia and having your registered office at 13 Maple Avenue, Forestville in the State of South Australia in contravention of section 59(2) of the Trade Practices Act 1974 in trade or commerce having by advertisement invited persons to apply to participate in a business activity requiring the investment of moneys by the person concerned and the performance by them of work associated with the investment did make with respect to the profitability of the business activity a statement that was misleading in a material particular, contrary to section 79(1) of the Trade Practices Act 1974. The particulars of the charge are -

2. The said statement was made in an advertisement in 'The Advertiser' newspaper dated Wednesday the 31st day of December 1980 at page 23.

3. The said statement was "This position offers a return of approximately $400 to $800 per week for an outlay of less than $30 per week."

The remaining 5 charges against Aquajet arose out of advertisements inserted on 3 February 1981, 18 February 1981, 12 March 1981, 19 March 1981 and 24 March 1981. They were all substantially in the following form:

"Carpet Cleaners Required We are a South Australian based firm, and due to rapid expansion, require additional people to work for us as carpet cleaners, earning well above average income. If you:

1. Are over 21 years old.

2. Have your own vehicle.

3. Are currently self-employed, or would like to be self-employed.

4. Would like to enter a new career for which paid training is provided.

5. Are prepared to work hard for an income in excess of $400 weekly, then ring 297 3077 for an appointment."

The prosecutrix's charges against Aquajet in respect of these advertisements were in common form except as to the date of the alleged contravention. Such form was as follows:

"1. On about the 3rd day of February 1981 at Adelaide in the State of South Australia AQUAJET HOLDINGS (S.A.) PTY. LIMITED a Corporation being a company incorporated under the Companies Act 1962 as amended of the State of South Australia and having its registered office at 13 Maple Avenue, Forestville in the State of South Australia in contravention of section 59(2) of the Trade Practices Act 1974 in trade or commerce having by advertisement invited persons to apply to participate in a business activity requiring the investment of moneys by the person concerned and the performance by them of work associated with the investment did make with respect to the profitability of the business activity a statement that was misleading in a material particular; contrary to section 79(1) of the Trade Practices Act 1974. The particulars of the charge are -

2. The said statement was made in an advertisement in 'The Advertiser' newspaper dated Tuesday the 3rd day of February 1981 at page 28.

3. The said statement was ' . . . an income in excess of $400 weekly . . . ' "

The defendant James Nolan was charged with being, contrary to section 5 of the Crimes Act 1914, knowingly concerned in the commission of the 3 offences by Aquajet arising out of the advertisements appearing on 12 March 1981, 19 March 1981 and 24 March 1981 respectively. Section 5 is as follows:

"5. Any person who aids, abets, counsels or procures, or by any act or omission is in any way directly or indirectly knowingly concerned in, or party to the commission of any offence against any law of the Commonwealth or of a Territory, whether passed before or after the commencement of this Act, shall be deemed to have committed that offence and shall be punishable accordingly."

On 21 December 1981 the then Minister for Business and Consumer Affairs gave his consent pursuant to s.163(4) of the Act to the abovementioned proceedings against Aquajet and subsequently also consented to the proceedings against Mr. Nolan. No issue arose in relation to any of these consents. When the hearing of the proceedings commenced counsel appeared for Aquajet and Mr. Nolan and entered a plea of not guilty on behalf of each defendant.

The essential question for determination in the proceedings was whether the statements in the two advertisements "This position offers a return of approximately $400 to $800 per week for an outlay of less than $30 per week" and the words in the remaining advertisements "an income in excess of $400 weekly" were or either of them was with respect to the profitability of the business activity a statement that was misleading in a material particular. There was no serious disputation in respect of the other essential ingredients of the offences and I find each of those other elements proved beyond reasonable doubt.

The business activities of Aquajet concerned carpet cleaning and included both the manufacture of carpet cleaning machines and the cleaning of carpets both domestic and commercial. It appears that these machines were made at the business premises of Aquajet, which company sold the machines and other cleaning equipment. These sales were on the evidence made both to employees of Aquajet and to persons who were in these proceedings called "sub-contractors". It was in relation to the engagement of these sub-contractors that advertisements as above and to a similar effect were from time to time inserted. Prior to their engagement each of these sub-contractors was required to purchase from Aquajet a carpet cleaning machine for $3,500. Aquajet from time to time assisted in the purchase by arranging finance for the sub-contractors. The defendant Mr. Nolan was as managing director actively engaged in the management of the business activities of Aquajet.

However, the relevant business activity for the purpose of these proceedings was that of the sub-contractors. Stated briefly at this stage, it involved the use of the carpet cleaning machine together with other equipment and material (all purchased from Aquajet) on the performance of carpet cleaning work allocated to them by Aquajet. Such cleaning work was at the homes and business premises of customers and was allocated to sub-contractors daily. The fees for the work were retained by the sub-contractors, who were however obliged to pay to Aquajet a commission which appears to have ranged between 25% and 40% of the fees. The evidence was to the effect that the sub-contractors were entitled to solicit work in addition to the work allocated by Aquajet and some witnesses said they paid a commission to Aquajet on fees obtained for this work. The employees of Aquajet also performed carpet cleaning work for the customers of that company and the evidence indicated that although their numbers were few they did the bulk of the work, and the sub-contractors were only allocated the work which the employees were unable to perform.

Counsel for the prosecutrix agreed that to the extent that he could not establish that the statements correctly construed were as to existing or past facts but instead constituted a forecast or prediction as to the future, it was necessary for him to prove beyond reasonable doubt that Aquajet . . . "did not believe that the forecast or prediction would be satisfied or was recklessly indifferent concerning the forecast or prediction" (See Thompson v Mastertouch T.V. Services Pty. Ltd. 15 A.L.R. 487 per Franki J. at p.495). I refer hereafter to this as a "blameworthy state of mind".

Prior to the commencement of the hearing the prosecutrix supplied at the request of the defendants particulars of the manner in which it was alleged that the statements in the advertisements were misleading. This was done by letter dated 13 May 1982 the relevant portion being

"The prosecution alleges that the statements in each of the charges were misleading in that the statement in each advertisement concerning the weekly income represented the weekly income to be higher than that which a person who worked as a carpet cleaner in response to the advertisement might reasonably be expected to receive."

It was contended on behalf of the defendants that by these particulars the prosecutrix was acknowledging that the representations in the advertisements were properly to be construed as a forecast or prediction as to the earnings which a carpet cleaner could reasonably expect to receive and not a representation as to what they were or had in the past been earning.

In his opening counsel for the prosecutrix put his case on the basis that the representation was not a forecast but a statement of presently available earnings. There was no objection taken on behalf of the defendants until a later stage of the hearing. As on my finding the prosecutrix can make out her case whichever be the proper construction to place on the advertisements I propose to consider the matter on the basis that each advertisement contained a promise or prediction, thus imposing the more onerous obligation on the prosecution. It will be readily apparent from my findings that the prosecutrix could more easily establish her case if the proper construction was that the representation was as to a present or past fact, and therefore there is no profit in entering upon the more difficult task of construing the advertisements. Different minds would doubtless read and interpret them differently.

For the purpose of proving the prosecution's case, very considerable evidence was given concerning the activities of sub-contractors before and during the period in which the subject advertisements were inserted, from which it was said I should infer that Aquajet had a blameworthy state of mind. In addition there was certain direct evidence as to the attitude of Mr. Nolan as managing director. This established to my mind quite clearly that Aquajet did not advertise for sub-contractors because it needed their services but because their engagement boosted its sales of carpet cleaning equipment. In this regard it could be said that the preamble to each of the advertisements was also false or misleading in that it represented that carpet cleaners or additional people were reqired. No charges however were laid in this regard. Moreover the evidence established that Mr. Nolan was quite unconcerned as to the amount of work available to sub-contractors.

Apart from officers of the Trade Practices Commission, 15 sub-contractors, two employees of Aquajet, a receptionist and the general manager gave evidence. I have no problem in accepting the evidence of each of them.

For the purpose of determining whether in inserting the advertisements containing the predictions as to earnings the defendants or either of them believed "the forecast or prediction would be satisfied or was recklessly indifferent concerning the forecast or prediction" (Thompson v Mastertouch T.V. Services Pty. Ltd. supra) it is appropriate to review the knowledge which the defendants had or should have had at the dates of the advertisements.

The first advertisement appearing on 31 December 1980 contained the following statement

"This position offers a return of approximately $400 to $800 per week for an outlay of less than $30 per week."

The prosecution's case was that in so far as this was a statement of presently available earnings it was false, or alternatively that as a forecast it was made recklessly, in each instance because it knew or should have known that no person at that time was earning other than on most rare occasions even $400 per week. The sub-contractors who had been employed prior to that date gave evidence which, on the inferences available to be drawn therefrom, abundantly supported the prosecutrix's contentions. This evidence can be summarised as hereinafter follows, each of the witnesses being persons who had earlier answered like advertisements although the representations therein concerning earnings were not necessarily the same. In each instance the witness was required to purchase a carpet cleaning machine.

Mr. Packer gave evidence that he worked as a sub-contractor from 10 March to 9 May 1980. He tendered a schedule of his earnings which indicated that in no week during the period did he earn as much as $400. His maximum weekly earnings from all sources were $332 in the third week of his employment, and thereafter they fell away until the last week when he only earned $34. When he complained to officers of Aquajet he was told that work was not guaranteed and that he could not be given work if the company did not have it.

Mr. Arbon worked from March to June 1980 and in only one week did his earnings exceed $400. On this occasion he earned $418.50 on his own account and $118 from work supplied to him by Aquajet. During the first two weeks of his engagement he earned $363 and $248 respectively from work supplied by Aquajet but thereafter these earnings did not exceed $159 in any one week. He wrote in June 1980 complaining about work in the following terms and as well made a number of oral complaints. The letter is as follows:

28.6.80 "Jim & Nancy Nolan, Just a short note to say I am not happy with the situation you are offering. Your don't think I am going to keep paying money to you and not getting anything in return, you only offer jobs to us contractors when it suits you. The outstanding account will be payed. V.C. Arbon. "

Mr. Guilford worked from 8 October to mid December 1980 and during that period earned, inclusive of commission paid to Aquajet, $1,769. During an interview with Mr. Nolan shortly after seeing the advertisement he was told that he should earn $500-$600 per week easily. When he asked in November whether any work was available he was told "No".

Mr. Kewley earned in the period 6 July to 2 August 1980 $210, $35 in each of the first two weeks and $140 in the last week. He earned nothing in the third week and nothing for the period of six weeks subsequent to 2 August 1980. He said he complained on a number of occasions concerning the lack of work.

Mr. Nicholson answered an advertisement on 3 June 1980 and commenced work on 18 June 1980. During the next three weeks work was made available to him on only one occasion.

Mr. Jasper commenced work on 22 November 1980 and his total earnings from that date until 28 February 1981 were $1,408, an average of $150 per week. He complained in 1981 of the lack of work. During only one week of the period did he earn in excess of $400.

Mr. Wilson commenced work on 2 September 1980 and worked until the end of January 1981. During this period he earned inclusive of commission $3,120, being weekly average earnings of $149. During one week only, in September 1980, did his earnings exceed $400 per week.

Mr. Marshall worked for four weeks from 10 December 1980 until 10 January 1981. He said that he did not in any week earn more than $48.

Mr. Sutcliffe worked from mid September 1980 to the end of October of that year. During this period he earned a total amount of no more than $300.

At the end of December 1980 being the time when the first advertisement, the subject of a charge, was inserted, Aquajet and Mr. Nolan were aware or should have been aware of the earnings of these sub-contractors and the amount of work Aquajet was providing for them. At the end of each week or day it was the practice of sub-contractors to attend at the office of the company and account for their earnings and Aquajet's commission. Prior to the commencement of proceedings Aquajet provided the office of the Trade Practices Commission in Adelaide with a list of sub-contractors employed from 1 January 1980 to 30 June 1981, their earnings and the amount of commission paid to Aquajet by each employee. The information in this list substantially confirmed the evidence of the sub-contractors.

Mrs. Nolan who worked throughout the relevant period with Aquajet and who was a director, confirmed that sub-contractors were complaining about the amount of work available to them from July 1980 to March 1981. The figure of $800 per week was first included in an advertisement appearing on 18 December 1980. Mr. Tack, a former employee of Aquajet said that Mrs. Nolan at the time suggested to Mr. Nolan that this figure of $800, was too high, to which he replied "stiff".

Each sub-contractor who answered the advertisement was interviewed by an employee of Aquajet who explained the arrangements between the sub-contractor and the company and that employment was conditional upon the purchase of a carpet cleaning machine for $3,500. Except to the extent expressly mentioned in these reasons, I have excluded from consideration these conversations. The question whether the advertisement is misleading must turn on the terms of the advertisement itself, and not on subsequent explanations or comments by officers of Aquajet in conversations with individual sub-contractors.

It is significant that Aquajet commenced manufacturing carpet cleaning machines at the beginning of 1980. The price of $3,500 at which each sub-contractor was required to purchase a machine produced a clear profit of $1,000 per machine to Aquajet. The list of sub-contractors previously mentioned as provided by Aquajet disclosed that during the period of 18 months 53 sub-contractors were engaged and each purchased a machine. The resulting profit to Aquajet was in the vicinity of $53,000 whereas the commissions earned for Aquajet by the sub-contractors during the same period totalled approximately $22,910. It is apparent that Aquajet earned a greater profit from the sale of machines than it did by way of commissions, particularly as Aquajet in earning commissions incurred the wages of salesmen. A number of passages of evidence indicated very clearly that Aquajet was motivated in engaging sub-contractors by the fact that it thereby obtained sales of machines. There was no evidence that it needed the services of all the sub-contractors, or more than a very few sub-contractors, at any particular time for the purpose of performing carpet cleaning work. Aquajet employed a number of full-time carpet cleaners, called operators, and available work was given in priority to them with sub-contractors receiving only what, if any, remained.

This was the position of which Aquajet and Mr. Nolan was or should have been aware at the end of December 1980. There was no evidence that the amount of work available had improved when the next advertisement was inserted on 22 January 1981. In fact at this time Mr. Jasper was complaining to Mr, Nolan and also Mr. Watt concerning the lack of work. He had not been allocated any work by the company during the month of January.

Mr. Hill gave evidence that as from April 1980 he was engaged as an employee in the manufacture of carpet cleaning machines for Aquajet. Prior to that date they had been brought in from Queensland. He said that at the end of 1980 there was plenty of unsold stock of machines on hand. Early in 1981 he was approached by Mr. Nolan with the proposition that he should replace Mr. Tack as general manager, his duties mainly being concerned with the selling of machines. When he asked Mr, Nolan why he did not advertise the machines for sale, Mr. Nolan said that nobody would buy them. He also passed on to Mr. Nolan complaints he received from sub-contractors in respect of lack of work and particularly remembered Mr. Nolan saying on one occasion "don't worry about it". Mr. Richards who ultimately succeeded Mr. Hill as general manager agreed that the emphasis in the activities of Aquajet was on the selling of machines, although no advertisements were inserted to the effect that Aquajet had machines for sale. To a significant extent the only sales of machines in South Australia were to sub-contractors engaged as a result of advertisements.

A. Mr. Del Vecchio answered the advertisement on 31 December 1980. He collected his machine on 6 February 1981 and worked until the end of April. During this period of some 10 weeks he earned $947. He complained to Mr. Tack in March 1981 concerning his earnings.

Mr. Sonntag was engaged as a result of the advertisement of 22 January 1981. He was subsequently told at an interview that he could easily earn $80 per day. He said that there was a reasonable amount of work available to him during the first and second week of his employment. Thereafter it fell away and he made numerous enquiries and complaints. However, still no work was given to him. He said he was in the habit of enquiring on 2 or 3 occasions each day, 5 days a week. His wife said that she saw Mr. Tack on 13 March 1981 and said "why is the company still advertising for additional carpet cleaners when they have not got work for my husband". Notwithstanding this very pertinent enquiry, Aquajet lodged an advertisement on 19 March and 24 March 1981. Mr. Tack himself said that when in mid February 1981 he passed to Mr. Nolan a complaint from a sub-contractor concerning the amount of work available to him, Mr. Nolan said "stiff, they bought the machines, frankly I'm not particularly worried. There will be some work available for them sometime; that's all I'm prepared to say".

Mrs. Nolan said that most complaints which she received occurred in late December 1980 and through the early months of 1981. She said that advertising continued notwithstanding and without reference to the complaints. They continued to be inserte she said, and the complaints had no effect on the number or frequency of advertisements or their content. She agreed that Aquajet wanted to sell as many machines as possible and was inserting advertisements to assist these sales. Mr. Tack confirme that in January and February 1981 there was a "push" to sell machines and certainly the number of occasions upon which advertisements were inserted in the period December 1980 to March 1981 substantially exceeded that of any earlier period.

Mr. Wolf answered the advertisement of 18 February 1981 and worked as a sub-contractor for Aquajet during March, April, May and June 1981. He earned a maximum amount of $119 in any week from all sources, which sum was after payment of commission to Aquajet.

There is no necessity for me to go more deeply into this evidence as no serious attempt was made by either of the defendants to contradict or explain it. Mr. Nolan on a number of occasions said in his evidence that he believed it was possible for persons who worked hard to earn up to $800 per week from all sources. However he agreed that the average person seeking this type of employment would find it difficult to obtain work from outside sources unless he was a good salesman. Mr. Nolan's evidence as to his state of mind at the time of each advertisement was thoroughly unsatisfactory. I have no hesitation in finding that he was "recklessly indifferent concerning the forecast or prediction" in each advertisement as to the earnings there stated and his blameworthy state of mind is that of Aquajet.

He conceded that as managing director of Aquajet he was involved in everything "from sweeping the floor up". There was much evidence which I accept, that he authorised the insertion of the advertisements and that he was aware of their contents.

Towards the end of the defence evidence and whilst Mr. Nolan was in the witness box, he dispensed with the services of his legal advisors who were also acting for Aquajet. Thereafter Aquajet was not, other than spasmodically, represented by counsel. He then for the first time took the point that he had not been served with a summons in respect of any of the charges against him. It became apparent, and was not disputed that his solicitor had "accepted service" of each summons on his behalf. Mr. Nolan said that he did not become aware that he was personally charged with any offence until the evening of the first day of trial. No point was thereafter taken on his account by counsel who appeared for him and Mr. Nolan was not personally present in Court until shortly before he gave evidence. Having dismissed his then legal advisors he contended that as he had not been personally served in accordance with the provisions of s.27 of the Justices Act 1921 of South Australia, the Court had no jurisdiction to proceed with the charges against him. This contention was subsequently taken up by new solicitors and counsel whom he engaged only on his behalf.

In my opinion there is nothing in the point primarily because Mr. Nolan did not dispute the fact that he was represented in Court by his counsel from the commencement of the hearing. In these circumstances the jurisdiction of the Court to hear charges against him is a consequence of the laying of the informations and does not depend upon personal service of the three summons. So long as the defendant is present personally or by counsel, the Court is entitled to proceed notwithstanding the defective service. It is otherwise under s.62 of the Justices Act 1921 if the Court is requested to hear the charges ex parte.

The matter of service and jurisdiction under the Justices Act 1921 was considered by the Full Court of the Supreme Court of South Australia in Willing v Hollobone (No. 2) (1975) 11 S.A.S.R. 118. At page 132 Walters J. (with whom the other members of the Court agreed), said:

"In any event, if there were any doubt about the service of the summons, the defect was cured by the appellant's appearance before the court and by his conducting his case in answer to the charge (Willing v Young (No. 2) (1973) 7 S.A.S.R. 368, and the authorities cited in my reasons for judgement at pp.370-372). And in this connection I add a reference to the remarks of Windeyer J. in Electronic Rentals Pty. Ltd. v Anderson (1971) 124 C.L.R. 27, at p.44. Where the learned Judge said: 'The jurisdiction of a magistrate depends upon there being an information. It does not depend on the summons. The invalidity of a summons does not affect the jurisdiction to hear the charge. Davidson J, pointed that out in Ex parte Hughes; Re Moulden (1946) 47 S.R. (N.S.W.) 91, at p.97. Moreover, the applicant, a corporation, appeared before the magistrate by counsel: and it well knew what was the offence with which it was charged.' In my opinion, there is no substance in the third ground of appeal, and it fails."

I adopt and apply this authority and its reasoning to the facts of this matter. There is no substance in the point taken by Mr. Nolan.

I find that the prosecutrix has made out her case to the requisite degree of certainty on each of the charges. There is no doubt that each statement which formed the basis of the particular charge was a statement as to remuneration and therefore as to the profitability of the business activity of a sub-contractor. Implicit in the statement was a representation that the maker of the statement believed in its truth. I must find that Mr. Nolan could not in the circumstances have conscientiously held such a belief and his state of mind, as managing director, is the state of mind of Aquajet. If he did hold such a belief, it was a reckless belief which he could not conscientiously have held if he gave consideration as he should have, to the current and past earnings of sub-contractors and the amount of work available generally to them. In the circumstances the statements were all misleading in that a person reading the advertisement would be led into the error of believing that there were sound reasons for anticipating that he would earn the stated remuneration. As I have already said, if the statements were as to the past or present earnings of persons in the position of sub-contractors, they were false and thus misleading. Moreover they were certainly statements which were misleading in a material particular and I so find. The charges against Aquajet are made out and I will in due course enter convictions.

Mr. Nolan was charged with being knowingly concerned in the contraventions by Aquajet. It was not suggested that as managing director responsible in the ultimate for the insertion of the advertisements and their contents he could avoid conviction if Aquajet was found to have contravened. I would find that he was quite indifferent concerning the predictions as to remuneration in the advertisements, which were inserted for the purpose of attracting potential purchasers of carpet cleaning machines. When I have heard from him and Aquajet on the question of appropriate penalties I will formally enter convictions on each of the charges. I refer the parties to the provisions of 0.49 r.5 of the Rules of this Court.