O'Dea, John Vernon v Casnot Pty Ltd
[1980] FCA 197
•23 December 1980
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' 9.' 1 . •
•
IN THE FEDERAL COURr OP ;,r:!_sr FAL~I}_ ) ) w.A. Na.c~ cf 19eo
WEsrERN AU5rRALIA DI5rRlC'':' REGISrP.Y ) W.A. llo.G9 o[ 19fJO ) W.A. ~o.Gl4 of 1980
GENERAL DIVISION )
BEl' WEEN: JOUN VEPJWN O 'DEA Prosecutor
/\ND: CASNOl' PI' Y Ll11IT BO Defendant
REASONS FOR JUDGMENr
23 December 1980 KEELY J.
Three informations were laid by ,•ol-in v,,ri.,,n O''.lE'a (the
prosecutor) on 12 February 1980 against Casnol Pty Linited (che
defendant). Each information char.-.ed a contravention of
s.59(2) of the Trade Practices Act ]974 (the Act) in that the
defendant invited "by advertisement in 'Tt1e WPst Australian'
matter W.A. No. G9 of 1980 ::ind bco-·,,':'n 1:· ;:.rd 23 March 1979 1,1
newspaper and otherwise" certaln persons "to apply to participate in a business activity requlrinq the investment ot
moneys ••• and the performance •. o[ work associated with the
investment and did with rc'lpect to the l;rofitability of lhP business activity make a state,nvnt that wc,s misleading 111 .1
material particular". The contraventions were alleg~d to hfve
been committed at Perth between 17 ;;nd l(, F,:,bruary 1979 jn
matter W.A. No. G5 of 1980, between 3 an~ 7 Marcil 1S 79 in •
2.
matter w.A. No. Gl4 of 19eo.
The informations were called on before the Court on ,
several dates and on 27 July 1980 !Ir Lee o( counsel, instructed
by Messrs Stables & Co., announced that the defendant pleaded
guilty to each of the three charges - pleas confirmed at the
commencement of the hearing as to penalt1es. The matters were
adjourned to enable both the prosecutor r1nd the defendant to
prepare and file such affidavit evidence as each considered
necessary to assist the Court to determine the appropriate fine
(0.49 r.5(1) of Federal Court Rules). On 25 September 1980 the
matters were fixed for hearing "in the week commencing Tuesday,
14 October 1980".
On 14 October 1980 Mr s. G. Scott, a member of Messrs
Stables & Co., the firm of solicitors which had represented the
defendant in respect of these matters on a number of earlier occasions in the Court, appeared on behalf of the defendant and
gave notice that it was his client's wish that it should not be
further represented by legal practitioners after that morning.
On the following day Mr D.R. Heycock, one of the two directors
of the defendant, sought and was granted leave to represent the
defendant. Mr Heycock in evide11ce said tha~ he was the
,.
"overall manager" of the business. By consent the three
matters were heard together.
On 26 September 1980 Norman Richard Jarrett, who had
been general manager of t'.1e defendant from the end of February
1979 until June 1979 but was no longer an employee of the
defendant, swore an affidavit which was fil~d by the solicitors
for the defendant. It was said both by Mr Scott and by Mr
Heycock that some difficulty had been encountered in arranging
for Mr Jarrett to attend for cross-examination. Mr Scott had
previously acknowledged on behalf of the defendant that bfc had
received notice from the prosecutor given 6 October 1960 that
it required the attendance of Mr Jarrett for cross-examination.
Mr Heycock sought leave under 0.14 r.9 (3), as applied by 0.49 r.5(2) to these proceedings, to use Mr Jarrett's affidavit
notwithstanding his failure to attend for cross-examination.
The application for leave to use the affidavit was opposed by
Mr Kirby, on behalf of the prosecutor, who said that facts
deposed to in Mr Jarrett's affidavit had been checked and were
·~ in dispute and that he "utterly rejected the claims" made in •
the affidavit. No subpoena had been issued at the instance of
the defendant for service upon Mr Jarrett. The Court refused
to grant the defendant's application for leave to use the
.. affidavit without Mr Jarrett attending for cross-examination as required.
~
Mr Heycock said that further enquities would be made and
it might be possible for Mr Jarrett to give evidence on one or
other of the next two sitting days. He was informed that it
would be open to him to follow that course and also, if
unsuccessful, to apply for an adjournment to enc1hlc, i~r Jarrett's cross-examinati0n to take place Hl Melbourne at a date to be arranged. However, Mr Heyco.::k later informed the
Court that he would not be seeking any adjournment to enable Mr
Jarrett to attend for cross-examination as required.
The Court drew the attention of the parties to the fact
that the several affidavits of John Vernon O'Dea, filed on
behalf of the prosecutor, contained certain material which was
hearsay. Mr Heycock initially stated that he did not think it likely that there would be any objection to that material but,
after further considering his position at the suggestion of the
Court, later stated that he had obtained legal advice and
'
I objected to hearsay evidence. When that objection was upheld '
I the prosecutor applied for leave to call further witnesses with "
a view to proving the matters which were set out in those
affidavits on a hear say basis. Mr Heycock expressed some
i
concern at the delay likely to result if that application were
1 I granted and suggested that "perhaps it would be more logical ' l i
for us to withdraw the objection and allow the affidavits,..
l l !
The Court suggested that Mr Heycock should not withdraw the
objection without obtaining legal advice .
•
j
1
i
The following letter, date,d 29 Cctober 1980, was
received from Messrs Stables & Co.: "The Associate
Mr Justice Keely Federal Court Lombard House
251 Adelaide Terrace PERJ'H W.A. 6000
Dear Sir,
,
re: Casnot Pty. Ltd. - Prosecutions
We are the Solicitors for the Defendant Company
on the record in these proceedings and appeared
for it on a number of occasions the last one
being 14th October 1980 when Mr Scott appeared
for the Company in all three matters.
Although Mr Scott informed the Court on that
occasion the Defendant Company had dee ided that
it did 'not wish to be represented past this
morning' and Mr Scott did not appear in Court for
the Defendant Company on the 15th, 16th and 17th
October 1980 we did not make any 'formal
withdrawal' from the proceedings.
We now have instructions from the Defendant Company to inform the Court that it does not wish to challenge any of the facts set out in those
portions of John Vernon O'Dea's Affidavits which are hearsay and it formally withdraws the
objection to such hearsay evidence made by Mr
Heycock on behalf of the Defendant Company on the 15th October 1980.
Yours faithfully, sr ABLES & CO."
In the light of the defendant's decision not "to challenge any
of the facts set out in O'Dea' c; affidavit which are
"
•
! hearsay" and its withdrawal of its obJection, the "hearsay"
material was accepted as matter which could be taken into
account by the Court. Messrs Stables & Co. when acting for the
defendant, had told the prosecutor that the defendant did not
require Mr O'Dea to attend for cross-examination. At the
hearing Mr Heycock did not seek to cross-examine Mr O'Dea.
The parties were notified that the hearing woulcJ r8Sl1J1e
in Melburne on 19 November 1980. Mr Heycock later informed the
Court that he would not be attending the resumed hearing but he
sought and was granted leave to submit a wr1tten final address.
Further, the transcript of Mi: Kirby's final address and his
written supplementary submission were forwarded to Mr Heycock
so as to enable the defendant to make a written "final address in reply".
The written "final address in reply" by the defendant
contained a number of assertions as to factual matters which
had not previously been put to the Court. As the defendant had
already had ample time to consider what factual material it wished to place before the Court and its solicitors had
prepared and filed three affidavits on its behalf - I am not prepared to accept the assertions in the final address in reply
where they conflict with other evidence before the Court. They
were made after the final address for the prosecutor and, not having been included in the affidavit or the oral evidence of
Mr Heycock, there has not been any opportunity for
cross-examination as to those matters.
The defendant filed c::n affidavit by Mr Heycock wnich
broadly described the operation of the defendant. He said that
the business to be carried on revolved around the sale of
franchises to franchisees who would carry on bu3iness in
seventeen geographical areas within the met~opolitan area. It
~as originally intended that the defendant wculd act in a joint V=nture with a company named Paignton Investments Pty Ltd
(Paignton). However, the joint venture did not proceed and the
defendant commenced business on its own behalf in direct '
competition with Paignton. It was proposed that the
franchisees would purchase a franchise for a particular area and purchase equipment from the Joint venture and chemicals
from time to time. The defendant was to conduct all of the
advertising for a levy payable by the franchisees and was to
obtain and distribute the work to the franchisees.
On the material before the Court I accept the following
facts:
J
In matter W.A. No. G.5 of 1980:
I
J ( 1) On 12 February 1979 one Raymond John Clyde read an
l advertisement in "the West Australian" newspaper. It read as follows:
"AAA CLEANING BUSINESS FULL PRICE $7500
incl equipment
MErRO CLEANING BUSINESS using new system which
opens untapped market, work from home etc. all
contracts arranged, Company guaranteed income
finance on $2500 dep. Apply for appointment 3252455.
ACCENr SERVICES
159 Adelaide-tee. Perth"
(2) Mr Stanley Rickaby was given the authority by Mr Heycock
to negotiate franchise contracts on beh,,lf of the defendant.
He told Mr Clyde, during a discussion in, the office of the
defendant that "$9,000 is the figure. we will definitely
guarantee that income. It's a net business income figure. You
have to deduct your personal income tax liab1l1ty". Mr Rickaby
told him that he could have that guarantee in writing the
following day. He did not in fact receive a written guarantee.
(3) Mr Rickaby also told him that the nett profit figure of
$17,041 "can easily be attained".
(4) Mr Clyde paid the defendant a total of ~6,120 for the
franchise and machinery. This included an amount of $3,670 on
27 March 1979 for cleaning machinery which he did not receive
until June 1979.
In matter W.A. No. G.9 of 1980:
l
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(5) On or about 5 March 1979 one Betty Ebert, after seeing a
newspaper advertisement, spoke by telephone to Mr Heycock who
said that "on a forty hour week you could make ($) 300 to 400 a
\ i
I week. That's about $17,000 per annu~". On 7 March 1979 at the
office of the defendant Mr Heycock told Mrs Ebert and her
husband that the "cleaning industry is untapped; there's plenty
of work begging to be done. We guarantee, you will be kept
fully occ~pied ... ".
(6) On being asked "Do you find the work for us?" Mr Hcycock said "Yes. We do all the advertising and canvassing. These are '
being distributed" (handing a brochure to Mr and Mrs Ebert)
"This is covered by the 20% management levy. work will come
from the office." In his evidence Mr Heycock agreed that the
defendant was to get the work for the franchisees and that this work was "guaranteed".
'
(7) In March 1979 Mr Heycock introduced Desmond Stanley
Firman to Mrs Ebert as "the man to take over from me". Mr
Firmin said words to her to the following effect:
"There'll be great opportunities for everyone to make money. You needn't worry about work. We'll
get it for you."
(8) Mrs Ebert paid to the defendant $3,450 for a franchise
area and $3,670 for cleaning machines and the nett income for
herself and her husband from the cleaning work between 16 Macch
1979 and 24 April 1979 was about $540. In matter W.A. No. G.14 of 1980:
(9) On 12 March 1979 Wayne Maxwell Tinworth after hearing an advertisement on the radio, went to the defendant's office. Mr
Firmin said on behalf of the defendant:
"We've looked into this. As you can see this is
your projected income for a forty hour week
(referring to the nett profit figure of $17,041).
The machines we have nobody else can get because
we've got the sole import licence for them.
There's the Von Schrader carpet deterger (sic)
and the They come from the States.
Prochem
curtain
and
upholstery
cleaner.
Our Sydney branch has
a couple of guys working these machines and they
had bought franchises like these for the same
amount and they're worth something like $48,000
to $50,000 now."
(10) Mr Firmin also said:
,
"As soon as you sign the contract we'll put six
girls into your area to drum up business .••• We get you work to back that up. If you want any
more you can get it yurself. The net income, $17,000, is what you'll get on a 40 hour week.
Any extra hours you want to work on your own,
canvassing and getting work is your own on the top."
(11) On 13 March 1979 Mr Tinworth asked: "Would this system
work for a partnership as well as one guy?" and Mr Firmin said:
"Yes. Just as well if not better. There's no reason why you
shouldn't both get $17,000 each."
(12) Mr Tinworth and Mr Anthony J. Sheed on 23 March 1979 signed an agreement which Mr Firmin also signed. On 28 March 1979 Mr Tinworth paid $3,450 to Mr Firmin for the franchise and
I about 20 March 1979 Messrs Tinworth and Sheed paid a deposit of
$1,000 to the defendant for machines.
(13) On 14 March 1979 Mr Firmin said "We'll put six girls
into your area canvassing and gettinq your work. Most of our work is domestic."
Messrs Stables & Co. as solicitors, for the defendant
filed on its behalf an affidavit sworn by Mrs Collins, a former
employee of the defendant whose duties were to hire and train
girls to canvas for work for the franchisees. She was cross- examined at some length and her responses were quite
unconvincing. In fairness to her it should be said that she
stated "I have had no sleep for two days. I have to go II
straight to work tonight. I work all night . . . . However, I
am not prepared to accept her evidence where it conflicts with
other evidence in the case and I reject her evidence that, had
they "continued to work for ... twelve months and thereafter", the franchisees would have earned in the vicinity of $17,000.
I also reject her evidence as to the "ever increasing volume of
work being obtained" and her opinion "that the business was 'snowballing'".
They also filed an affidavit sworn by Mr Heycock. It
was an apparently carefully worded statement which admitted
certain facts and endeavoured to excuse or give explanations 1n
respect of certain matters. It concluded as follows:
"22. At all times I firmly believed 111 the
abovement1oned concept of the business and the
potential and success of it and at no time were
the franchisees 1ntent1onally misled as to any
aspect of the business which had been devised
after a grPat deal of investigation and
cons1derction. 11
Under cross-examination Mr HPycock showed himself to be
a very resourceful witness who gave facile ~nswers 1n response
to many of the matters raised with him. However, on a number
of important aspects I reject his evidence as untrue
including the conclusion in paragraph 22 of his affidavit which I have quoted.
One example of untrue evidence was that Mr Heycock' s
affidavit included the following statemePt:
"6. Paignton carried out a random survey of the
metropolitan area to ascertain the extent to which the business would be feasib:e. A questionnaire was prepared for this purpose and Paignton arranged for a number of female
.
employees to 'doorknock' on domestic premises and
'
" I the results of that canvas indicated that in
excess of 65% of the persons questioned indicated affirmatively that they would be prepared to have
their carpets, upholstery and cPrtains cleaned in
the manner specified. I understood there to have
been 100 people in a various cross section of the metropolitan area who were questioned.
Unfortunately, the Director of Pa1gnton has since
I
I died and I have not been able to ascertain the
I whereabo•tts of the results of the survey or the
documentation utilised therein."
I
i
l
'
' The terms of the questionnaire were not set out in the '
affidavit.
'
s
When the quest1onna1re was examined during the hearing
it was obvious that the second senlencc in the passage which I
have quoted from Mr HeycocK's aff1~av1t wa$ quite untrue on two
i~portant ~atters. First, the persons questioned were not even
asked whether and therefore could not have "indicated
affirmatively that" "they would be prepared to have their
curtains cleaned in the manner specified". Nor was any pr ice "specified" as being applicable - although a question was asked
as to what would be "a reasonable cost per average window" out
of a range of prices. They were only asked whether they would
"consider" a service (without a specified price) for cleaning
curtains "efficiently whilst still hanging and guaranteed
against shrinkage". Secondly, the persons questioned were not
asked any question at all as to whether they would be prepared
to have their carpets or their upholstery "cleaned in the
manner specified". Again, they could not have "indicated affirmatively that" they would do so. Further, the
questionnaire did not specify any manner of cleaning the
carpets and upholstery. Questioned as to the first matter, Mr
Heycock said that his "affidavit is a little bit misleading in
that sense" and as to the second said that "would be a misnomer
too, ••• so I guess that is a bit misleading". No explanation
as to how these mis-statements came to be made was offered by
Mr Heycock when, at the completion of his cross-examination on the following day, he was asked whether he wished to explain
any answers given in cross-examination, 1.e. in effect to
"re-examine" himself. He took advantage of that opportunity in
relation to some matters but not as to these two matters.
I am qui tt> unable to ~rcept Mi: H,c,::_,rock' s attitude that
these matters may be disposed of simply by describing the
statements in his affidavit as "a misnomer" or "a little bit
misleading". Having regard to his demeanour and his evidence
generally, I have concluded that it was a deliberate attempt by
him to mislead the Court as to the facts on a matter of
considerable importance going directly to the likely
"profitability" of the "business activity" (s.59 (2)). Mr
Heycock's attempt to mislead is not relevant to the amount of
the fines to be imposed upon the defendant in these
proceedings, but it is not irrelevant in considering whether to
believe other parts of his evidence.
I
I I ..
The survey itself was prepared by Paignton but Mr
'
'
i Heycock gave evidence that he saw it before it was used and
l thought it was "adequate" and "a fair sampling and a fair I
indication of the (likely) success of the business". Under
cross-examination on this Mr Heycock was evasive - as on other
matters - and he "adjusted" earlier answers as the line of
I
questioning progressed, e.g. he had said earlier that Mr Terry
l I of Paignton showed him the questionnaire and said "This is what
we are going to do". Later he said "Refreshing my memory, I
seem to remember that people were out using the form" already.
Mr Heycock was determined not to admit that he or the defendant
had been irresponsible or reckless in any aspect. This led him
to maintain that the questionnaire covered "to my satisfaction" the question of whether the persons questioned would have their
carpets and upholstery cleaned although his attention l:2cl
already been drawn to the fact that the survey did not even
enquire as to whether they would be prepared to have their
carpets and upholstery cleaned and he had nlready described his own affidavit on that subJect as being "n bit misleading".
The defendant by pleading guilty to the informations has
admitted the essential ingredients of the offence and no more.
In considering the question of penalty ln these matters I have
accepted what was said as to the meaning of s.59 of the Act by
Franki J. in Thompson v. Mastertouch T .v. service (1977) ATPR
40-027 at p.17,366:
"I consider that a prediction or statement as to
the future is not false within the words of that
section if it proves to be incorrect unless it is
a false statement as to an existing or past fact
which may include the state of mind of the person
making the statement or of a person whose state
of mind may be imputed to the per son making the
statement. See also the const ·uction placed on the words 'wilfully false promise' in R. v.
Harrison (1957) V.R. 117 at 120-121.
Therefore, in order to establish that the words
'should earn $400 per week minimum' constituted a
false st~tement concerning the profitability of a
business activity it 1s necessary for the
informant to prove that the defendant did not believe that the forecast or prediction would be
satisfied or was recklessly indifferent concerning the forecast or prediction."
On all the evidence I am satisfied beyond reasonable
doubt that in its forecasts or predictions the defendant was
"recklessly indifferent":
{a) in guarantee!ng a nett btJsiness income of $9,000 p,:,r
-. '
• 16. annum;
(b) in stating that $17,041 was the ant191pated nett profit
figure for. the first year for a franchisee working a 40 hour week;
(c) in stating that the defendant would supply enough work
to enable the franchisees to earn $17,041 as a nett profit figure;
The defendant is convicted on each of the three charges,
By reason of the provisions of s. 79 (1) (b) of the Act each
offence 1s punishable t,y a fine not exceeding $50,000. It
would be wrong to treat them as constituting one offence - see
Smithers J. 1n Hartnell v. Sharp Corporation (1975) A.T .P.R.
40-003 at 17,112. On the evidence the defendant, as part of a
deliberate course of conduct over a period of time made
misleading statements both in the newsoapers and over the
radio. It also made them in discussions with each of the
franchisees referred to in the three informations - statements
made at different times by different persons on behalf of the
company - Messrs Heycock, Rickaby and Firmin.
However, s.79(2) provides:
"(2) Where a person is convicted of two or more
offences constituted by, or relating to,
contraventions of the carrc pr<'"1<::ion of Part V, being contraventions that appe~r to the Court to
have been of the same nature or a substantially
similar nature and to have occurred at or about
the same time ••. the Court shall not, in respect
of the first-mentioned offences, impose on the
person fines that, in the aggregate, exceed the
maximum fine that would be applicable in respect
of one offence by that person against that provision."
The three convictions here are for offences constituted by
contraventions of the same provision of Part V of the Act and
they are contraventions that appear to the Court to have been
of the same nature. I also consider (although no argument was
i advanced by either side on this aspect) that they have occurred
l • at "about the same time" and accordingly s. 79 ( 2) applies. '
However, I consider that in each of the later offences the
conduct of the defendant was more blameworthy than the previous
offence • I have reached that conclusion because, with the
. ' :
I passage of time, the defendant's knowledge grew as to the I !
impossibility of it providing sufficient work for the
! I
franchisees' earnings to reach the guaranteed $9,000 per annum
or the anticipated nett profit of $17,041 per annum.
As to the amount of the fines, I agree with what was
'1 said by Franki J. in Temperley v. Playground Supplies Pty. Ltd.
I (1980) A.T.P.R. 40-164 at p.42,296: " ~ ., ,I ,
''The Full Court of this Court in Pye Industries
Sales Pty. Limited v. rPC (1979) A'l'PR 40-124 at p. 18,326, when fixing a penalty under Pt.4 of
the Act, cited the following quotation from the
judg!'lent i.n TPC v. Stihl Chain Saws (Aust.) Pty.
Ltct. (1978) .",l'PR 40-091:
'The penalty should constitute a real
punishment proportionate to the
deliberation with which the defendant
contravened the provisions of the Act.
It should be sufficiently high to have a
deterrent quality and it should be kept
• in mind that the Act operates in a I
I commercial environment where deterrence
l of those minded to contravene its 1
provisions is not likely t0 be achieved
by penalties which are not realistic.
It should reflect the will uf Parliament
that the commercial standards laid down
in the Act must be observed, but not be so high as to be oppressive."
I consider that this observation is equally ,
relevant to the question of fixing a fine for an
offence under Pt.5 of the Act."
The contraventions are serious. The Parliament has
clearly laid down, in respect of the area of ,ctivity under
consideration, that a corporation shall not make, with "
i
respect to the profitability •.• or any other material aspect
of (the) business activity, a statement that is ... misleading
in a material particular". The respondent and others must be
deterred from making such misleading statements. It is plain
that the franchisees were influenced by those misleading
j '
statements in considering whether to enter into contracts with
i
l the defendant and were led to invest both their time and their l
' money in the defendant's business activity. The dmounts of J l
money paid to the defendant by th·~m were $6,120, $7,120 and
I
! $4,450 in matters No. G. 5, G. 9 and G.14 respectively.
Parliament plainly intends that the public should be protected and corporations engaging in trade or commerce must realiz'"
that standards of commercial proprjcty laid down by Parliamen:: •
. .
19.
must be observed.
It was not suggested that the defendant had any record ,
of a prior conviction. Having regard to all the circumstances,
including those matters put by Mr lleycock which I have not
rejected as being contrary to the evidence, and having regard
to the importance of deterring similar contraventions of the
Act, I have decided that the following fines are appropriate:
In matter W.A. No. G5 of 1980 $6,000 In matter W.A. No. G9 of 1980 $6,500 In matter W.A. No. Gl4 of 1980 $7,500
In determining the amounts of the fines I have taken into account that there are three fines. I consider $20,000 to be
the appropriate total of the fines to be imposed upon the
defendant in respect of the three contraventions. No
application was made for an order for costs but this aspect was mentioned before Fisher J. at an earlier stage.
1()
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