Trade Practices Commission v J. & R. Enterprises Pty Ltd

[1991] FCA 441

Re: TRADE PRACTICES COMMISSION
And: J. and R. ENTERPRISES PTY. LTD. and JANET ROSE ROWDEN
Nos. G127, G130, G132, and G133, G134 to G138 inclusive and G142 of 1989
FED No. 441
Trade Practices Act - Penalties
(1991) 13 ATPR 41-133

COURT

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY
GENERAL DIVISION
O'Loughlin J.(1)

CATCHWORDS

Trade Practices Act - Prosecution of Corporation and its principal executive officer - an advertising scheme was sold to members of the public - there was an original genuinely held belief that the advertising system would arrive from overseas - finding that initially there was no deliberate fraud - nevertheless the defendants continued to sell advertising space in the scheme, expecting that the system would probably arrive some time in the future but not knowing when that would be - the conduct of the defendants was exacerbated by their willingness to make false claims and tell lies about the progress of the advertising scheme.

Penalties - being satisfied that the defendant was unemployed and without assets or income and without any immediate ability to pay the fines that had to be imposed, there was a case for reducing the size of the fines that would otherwise have been imposed in an attempt to assist the defendant avoid or reduce the risk of having to serve a term of imprisonment because of default in payment of fines.

HEARING

ADELAIDE

#DATE 24:7:1991

Counsel for the Applicant :Mr G. Hackett-Jones QC and Mr M. Loftus

Solicitors for the Applicant :Director of Public Prosecutions

Counsel for Janet Rose Rowden :Mr G. Hemsely

Solicitors for Janet Rose Roweden :White Berman and Co.

No Appearance for J. and R. Enterprises Pty. Ltd.

ORDER

A. In the actions listed below:-

1. The defendant J. and R. Enterprises Pty. Ltd. shall pay the following fines.

In respect of No. G134 of 1989 $ 500:00 In respect of No. G135 of 1989 $ 5,000:00 In respect of No. G136 of 1989 $ 500:00 In respect of No. G137 of 1989 $ 5,000:00 In respect of No. G138 of 1989 $20,000:00 In respect of No. G142 of 1989 $ 8,000:00 $39,000:00

2. The defendant J. and R. Enterprises Pty. Ltd. shall pay the total sum of $39,000.00 on or before 31st day of October 1991.

B. In the actions listed below:-

1. The defendant Janet Rose Rowden shall pay the following fines. In respect of No. G127 of 1989 $ 750:00 In respect of No. G130 of 1989 $1,200:00 In respect of No. G132 of 1989 $3,000:00 In respect of No. G133 of 1989 $ 750:00 $5,700:00

2. The defendant Janet Rose Rowden shall pay the total sum of $5,700.00 on or before 31st October 1992.

3. In default, imprisonment for a term calculated at the rate of 1 day's imprisonment for each $25 of the amount of the fines that are unpaid.

C. In the matter of No. G138 of 1989 and No. G132 of 1989

the defendant J. and R. Enterprises Pty. Ltd. and the defendant Janet Rose Rowden shall, pursuant to ss.87(1A) and 87(1B) of the Trade Practices Act 1974, jointly and severally pay damages and interest as follows:-

1. To Mardi Anne Scott $ 4,980:00

2. To Helen Stamatelopoulos $ 9,360:00

3. To Mary Vlahakis $ 1,980:00 $16,320:00

D. The defendant J. and R. Enterprises Pty. Ltd. and the defendant

Janet Rose Rowden shall jointly and severally pay the sum of $25,000.00, being 50 per centum of the costs of the prosecution which are fixed at $50,000.00.

E. Liberty to apply

NOTE: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

J. and R. Enterprises Pty. Ltd. ("the company") and Janet Rose Rowden ("Mrs Rowden") were charged with having committed breaches of the provisions of paragraphs 79(1)(a) and 79(1)(b) respectively of the Trade Practices Act (1974) (Cth) ("the Act"). Both pleaded "not guilty". After a lengthy trial, the company was found guilty on six of the eight charges that had been laid against it and Mrs Rowden was found guilty of aiding, abetting, counselling or procuring the commission of four of those eight alleged offences.

1. Convictions were recorded against the company and Mrs. Rowden on 8 February 1991 and, on the same day, I published my reasons in support of the conclusions that led to the findings of guilt. Those reasons contain my findings of fact as well as general background information about the company and Mrs Rowden. I intend therefore, in these remarks, to avoid repeating any material that is to be found in my earlier reasons unless it is essential for a proper understanding of these remarks.

2. Subject to the two sets of charges that referred to Miss Koltunow and the events of 8 October 1987, the extent to which the company and Mrs Rowden must be penalised is to be measured by Mrs Rowden's conduct on and after 4 November 1987. That was the date on which the company received the facsimile transmission from Glen Ion telling of another delay in the supply of the "Infocenters". And that was the transmission that was classified by me as a "program of planned deception" because of how it advised Mrs Rowden to go about placating irate customers. I gave the benefit of the doubt to the company and to Mrs Rowden in respect of their conduct prior to that date save for the Koltunow charges; but subsequent to 4 November 1987, they continued to sell advertising space for "System 2000" knowing that "Infocenters" were not then available and knowing that there was no reasonable cause to expect that they would be available in the foreseeable future.

3. There is an aspect of the sentencing process that calls for special mention. One of the charges against the company alleged that it had, in breach of s.55A of the Act, misled the public. There was a matching charge against Mrs. Rowden, alleging that she had aided, abetted, counselled or procured the commission of that breach. I found those charges proved in respect of the period 4 November 1987 until April 1988. But some of the other charges which were found proved against the company and Mrs. Rowden concerned specific activities that occurred in the same period; those charges involved specific persons, but they were persons, who, in my opinion, should be classified, for the purpose of penalties, as members of the public. It is therefore important to ensure that there is no duplication of penalties. What I have done, in the case of both the company and Mrs. Rowden, is to fix a specific penalty for each discrete offence. I have then assessed the appropriate penalty for the offences relating to the misleading of the public, but reduced them because of the imposition of penalties that relate to discrete activities that occurred within the period November 1987 to April 1988.

4. The Commission sought the imposition of pecuniary penalties, injunctive orders under s.80 of the Act, orders for compensation and finally, costs. I will deal with each matter in that order. I turn first to the question of penalties.
   Pecuniary Penalties

5. In Dawson v World Travel Headquarters Pty. Ltd. (1981) 53 FLR 455 at 477 Fisher J. considered the matters that should be taken into account when assessing penalties for breaches of s.58(b) of the Act. In that case there had been a finding that there was nothing fraudulent or dishonest in the defendant's conduct and the prosecution had conceded that the defendant did not have "any evil intent"; its fault had been its negligence. In those circumstances, Fisher J. considered that it would be proper for him to take into account, on the question of fines, the following matters:-
   

"(a) The objectives of the legislation and in particular its policy of consumer protection. (b) The absence of fraudulent or dishonest intent and of deliberation on the part of the defendant. (c) The degree of negligence in its conduct. (d) The extent of the carelessness and wilfulness of its conduct. (e) The extent to which its conduct has or is likely to have prejudiced consumers. (f) The efforts which it has made to correct the situation. (g) The deterrent effect of the conviction and fines."

1. I intend, with appropriate adaptations to have regard to each of the subject matters that were listed by his Honour.

2. Counsel for the prosecution argued that the conduct of Mrs. Rowden was exacerbated by what he called "the fear of loss". This was a selling technique that the salesforce was instructed to use on every occasion. It was simple and it is easy to understand that it could have been successful. A version of the technique might be summarised in these terms:- a tradesman would be told: "How would you like to be the only (plumber) whose business is advertised in our product for this area of 10,000 homes? If you don't accept I have an appointment to see (your competitor down the road) later today". Assuming that everything that was said was truthful, I incline to the view that this conduct, although perhaps distasteful to may people, should only be described as a hard selling practice; the tradesman would not have been induced - without more - into taking the advertising package as a result of some misrepresentation. I therefore do not consider that the method of selling should affect the size of the penalties save to say this: the whole campaign was a well organised and efficient operation; it was not some small, ineffectual business. Its effective sales technique typified the strong-minded, determined manner in which the operation was pushed onto unsuspecting members of the public.

3. The starting point for the imposition of penalties is to be found in my judgment at p 44 where I absolved the company and Mrs. Rowden of deliberate fraud but found that the company (aided and abetted by Mrs. Rowden) continued to sell advertising space not knowing when the "Infocenters" would arrive but willing to make false claims and tell lies about their progress. That is still a very adverse finding. Smithers J., in Trade Practices Commission v Stihl Chain Saws (Australia) Pty. Ltd. (1978) ATPR 40.091 at p 17,896 said that penalties "should reflect the will of Parliament that the commercial standards laid down in the Act must be observed, but not be so high as to be oppressive". It is my assessment, for the purpose of fixing penalties, that the conduct of Mrs. Rowden, and hence the conduct of the company, was far below the required commercial standards.

4. I am of the opinion that Mrs. Rowden commenced her association with Glen Ion and "System 2000" in the honest belief that it was a worthwhile product and that it would be available for sale in accordance with his projections. Her faults were first, over-eagerness coupled with greed, followed by negligence to the point of recklessness; ultimately she was prepared to circulate false information in her desperate attempts to buy time. She could have, at any time, after 4 November 1987, withdrawn from selling advertising space in "System 2000" and a prudent person would have. But her greed overcame prudence.

5. The further grave aspect of this case is that Mrs. Rowden did absolutely nothing to correct the situation. I dismiss her claims that she offered some of her customers some radio advertising; if it occurred, it was only tokenism. In fact Mrs. Rowden fought to the end. She bitterly contested these proceedings; she sued customers who failed to pay the moneys due under their advertising contracts; she even instituted civil proceedings against the Commission and some sections of the media alleging harassment. Her conduct has evoked no sympathy and I have concluded that it is proper to say that she showed no remorse.

6. On the other hand, neither the company nor Mrs. Rowden has been previously convicted or charged under the Act or under any other similar consumer protection legislation. That is a matter of material importance and reacts favourably in their interests as do the character references that were tendered on Mrs. Rowden's behalf. It is evident from these references and from the evidence that I have heard that she is a hard working person with above- average intelligence. There is no reason to assume that there will be any repetition of this behaviour in the future; in fact, her intellegence is such that one would expect that she has learnt her lesson - albeit a bitter lesson - from these proceedings.

7. I have not overlooked that the company and Mrs. Rowden have suffered substantial financial losses as a result of this trial. Initially, Mrs. Rowden used the company to purchase from Mrs. Phyllis Dunn the South Australian franchise to distribute the "Easyfind" calendar. She paid out $200,000 (which, or most of which, she borrowed from a financial company) and a further $300,000 remained owing on vendor's finance; Mrs. Dunn has since taken back the franchise and I presume that the $200,000 has been lost. In addition, other heavy losses were incurred by the company in its genuine attempts to promote "System 2000". Coupled with those losses, I accept that the company and Mrs. Rowden were the objects of heavy and adverse media publicity. In this case, events may have justified that publicity but there remains the possibility that the "Easyfind" calendar section of the business might have been salvaged but for the publicity. I intend to mark down the penalties by virtue of what I perceive to be a possible consequence of the publicity (c.f. the remarks of Smithers J. about adverse publicity initiated prior to trial in Eva v Southern Motors Box Hill Pty. Ltd. (1977) 30 FLR 213).

8. I accept that the Commission was not the instigator of the publicity but it did approach many of the company's clients (and rightly so) in the course of its investigations. Every encouragement must be given to the Commission to carry out its Statutory duties and it is no reflection on the Commission or on its investigating officers if people who have engaged in improper conduct suffer losses as a result of those lawful investigations. But when the time comes to consider the question of penalties those losses should, in appropriate circumstances, be taken into account as a mitigating factor.

9. Mrs. Rowden filed an affidavit sworn on 13 March 1991 in support of the submissions on penalty that were made on her behalf by her counsel. She referred to the loss of the franchise through the company's inability to meet its commitments to Mrs. Dunn, saying in para.16:-
   

"The reason for my inability to maintain those payments was because of the decrease in J. and R. Enterprises' turnover which occurred, firstly as a result of the Trade Practices Commission contacting each of my clients in 1989, and secondly from the publicity from the Investigators television programme which was screened in September 1989."

1. I am prepared to proceed to sentence upon the basis of those claims.

2. Subject to the need to make specific reference to the various convictions and the degree of criminality attaching to each of them, it remains to say that the conduct of Mrs. Rowden was quite serious and warrants heavy punishment. I have rejected any suggestion that a community service order would be appropriate for her. But her conduct was not as serious as some of the reported cases (c.f. Trade Practices Commission v Farrow (1990) 12 ATPR 41-018, a case of deliberate and on-going fraud).

3. A matter of grave concern is Mrs. Rowden's financial situation. I am quite satisfied that she is insolvent and that she, her husband and their 10 year old daughter will be evicted from their home through their inability to meet their mortgage repayments; both she and her husband are out of work and there is a distinct risk that she will not have the financial ability to pay large fines. Hence she may face the risk of imprisonment for her default in payment. I intend therefore to depress the fines that would otherwise be imposed on Mrs. Rowden in the hope thereby of keeping her out of prison. I recognise that they will still be heavy but I hope that by giving her an extended period of time within which to pay them, a reasonable balance might be struck. In fixing the amount of the fines it would not be possible to ignore the statutory provisions relating to penalty. Section 79 of the Act provides for a maximum penalty of $100,000.00 for a body corporate and $20,000.00 for a natural person. Therefore any penalty that I impose must be determined with those upper limits taken into consideration. It is clear that the legislature did not intend to punish for a breach of these provisions of the Act by way of imprisonment; hence, it seems to me that every effort must be made to avoid doing indirectly that which can not be done directly. Imprisonment for failure to pay a fine should be reserved, if that is possible, for the offender who refuses, or fails for no just cause, to pay the fine. To impose a fine of an amount that the offender could never pay is tantamount to imposing a term of imprisonment - and that offends the spirit of the legislation. Needless to say, a sentencing Court must make careful investigations before extending this leniency to an offender.
   The Specific Offences
   Misleading the Public - s.55A

4. This must be regarded as the most serious offence because of its public element. The prosecution attempted to reconstruct the detail of the company's activities in the period November 1987 to April 1988 and a tabulation (Ex.A) based on the commission sheets of Mr. Mahood suggests that the company grossed in excess of $200,000 from sales of advertising space in "System 2000" in that period. This figure must be regarded as a minimum and it is therefore some indication of the number of people who were induced to part with their money. To that number can be added other members of the public who might have been approached but rejected the offer. The professional approach of the sales staff, reflecting their intense training, militates against the defendants and points to the need for penalties that will serve as a deterrent to them and to others. I impose a penalty of $20,000 on the company and $3,000 on Mrs. Rowden.
   Representing that services had benefits that they did not have - s.53(c) (Miss Koltunow); Making a misleading representation concerning the effect of any right - s.53(g) (Miss Koltunow)

5. These offences occurred on 8 October 1987; I found the first of them proved because a representation that Miss Koltunow's turnover would increase by a minimum of $30,000 per annum was a representation that both the company and Mrs. Rowden knew should not have been made. The second offence occurred as a result of the company using the wrong form of contract. I said in my reasons, and I repeat:-
   

"... the particular printed forms were used, partly as a result of laziness and partly as a result of ineptitude."

I exonerated Mrs. Rowden from blame in that matter. The penalties that are imposed on the company are $5,000 and $500 respectively. The penalty incurred by Mrs. Rowden for aiding an abetting the commission of the first mentioned offence is $750.

Making a misleading representation concerning the effect of any right - s.53(g) (Mrs. Scott)

1. This conviction also related to the use of the wrong form of contract. A penalty of $500 is imposed on the company. As this offence occurred on 6 November 1987 it is an example of the company being punished for its particular conduct with respect to Mrs. Scott whilst also being punished for its general conduct in relation to the public. Mrs. Scott was a member of the public and hence there is the need - to which I earlier referred - to ensure that no penalty is duplicated.
   Accepting payment where there are reasonable grounds for believing that the corporation will not be able to supply the services - s.58(b) (Two charges: Mr. and Mrs. Stamatelopoulos)

1. The receipt of the first of these sums was on 16 February 1988 and the penalty is to be taken into account when fixing the penalty for "Misleading the Public" but the second offence was committed a year later on 16 March 1989. That conduct was inexcusable; Mrs. Rowden knew by then that the "Infocenters" were not going to arrive. She had put her company's order on "hold" in May the previous year. The penalty in respect of the second of these two charges should be heavier in each case to reflect her conduct. The fines imposed in the company are $5,000 and $8,000; the fines payable by Mrs. Rowden are $800 and $1,200.00.
   Injunctive Orders

2. The orders sought by the prosecution were:-
   

"1. THE COURT ORDERS that an injunction be granted restraining the respondent and any person who succeeds to contractual rights of the respondent from taking action to enforce contracts to which this order applies.

2. This order applies to contracts--

(a) providing for the advertising of business in the Easyfind calendar; and

(b) entered into by the respondent after 4 November 1987 on, or by reference to, a form bearing an endorsement 'Plus System 2000'."

1. I do not consider, on the information that is presently before me, that it would be appropriate to make such orders. First, I am satisfied that the company has ceased trading; secondly, it has lost its franchise to carry on the business of distributing the "Easyfind" calendar; thirdly, the offences which were committed by the company and Mrs. Rowden were not directly related to the "Easyfind" calendar. Finally, a substantial period of time has now elapsed and nothing has so far occurred that suggests the need for such orders.
   Order for Compensation

2. Mesdames Koltunow, Scott, Vlahakis and Stamatelopoulos each authorised the Commission to seek orders against the company and Mrs. Rowden compensating them for the loss or damage that they suffered as a result of entering into a contract with the company for advertising space in "System 2000": (Sub-s.87(1A) and (1B) of the Act). Each lady deposed by way of affidavit that she had paid a particular amount of money to the company pursuant to her contract and that she eventually stopped making payments because of the company's failure to perform its part of the contract. These claims have been tabulated, together with examples of simple interest and interest with monthly rests at 11%, 12% and 13% in Ex. C1. The sums of moneys and the calculations are not challenged by Mr. Hemsley, counsel for the defendants, but he argued that they did not represent the actual loss suffered because they gave no credit for the advertising that each lady enjoyed in the "Easyfind" calendar. The short answer to that argument is that the ladies were entitled to that advertising as a matter of right. One of my findings was to the effect that the sales staff were selling advertising space in "System 2000" with the advertising in the "Easyfind" calendar thrown in as a bonus.

3. There are special circumstances relating to the claim made by Mrs. Koltunow. On 31 March 1988, the company instituted proceedings against her in the limited jurisdiction of the Local Court of Adelaide claiming $5,850. A photocopy of the front sheet of the summons and of a page of endorsements was annexed to the affidavit of Mr. Hemsley sworn on 22 April 1991. I am able to infer that the company sued Mrs. Koltunow for arrears of moneys due under her advertising contract and that she filed a defence and counter-claim. An endorsement dated 22 March 1989 shows that on that day judgment for the company was entered by consent in the sum of $100 inclusive of costs and interest - the counter-claim was dismissed with no order as to costs. I take it that the Local Court proceedings, particularly the counter-claim, related to the same subject matter as the present application: the contrary has not been suggested. In those circumstances I can not see how Mrs. Koltunow could be entitled to an order of compensation in these proceedings. The issues were litigated and resolved two years ago in the Local Court proceedings. I will however make orders in favour of the other ladies against the company and Mrs. Rowden jointly and severally. The orders will be in respect of the sums of money that were paid to the company plus simple interest at 13%. I have rounded "up" the calculations in Ex.C1 because they were made three months ago. The results are:
   

Mrs. Scott : $ 4,980:00 Mrs. Stamatelopoulos : $ 9,360:00 Mrs. Vlahakis : $ 1,980:00 Total $16,320:00

Costs

1. It is appropriate that the company and Mrs. Rowden should pay some but not all of the costs of those proceedings. The Commission handed up an outline of its calculations of costs, that totalled approximately $55,800. Mr. Hemsley accepted these calculations save for an item of $10,000 which was described as "General Care and Conduct". In the absence of agreement between the parties I would normally refer the matter to the Registrar for taxing. In this case that might well be an exercise in futility. Neither the company nor Mrs. Rowden has the resources to pay the costs. It is time to bring this saga to a conclusion. I therefore fix costs at $50,000 and order that the company and Mrs. Rowden pay one-half thereof. Their liability is joint and several.

2. The total of the fines payable by the company is $39,000.00 and I will allow it until 31 October 1991 to pay them. The total of the fines payable by Mrs. Rowden is $5,700.00; that is a large sum of money to a person without means and without employment. I therefore propose to allow her until 31 October 1992 within which to pay these fines. I intimate that I would consider extending this period if it is established to my satisfaction that Mrs. Rowden, despite making every reasonable endeavour, has been unable to pay all the fines and needs additional time. There will be liberty to apply generally.