Pi \ ana v DAVID STANLEY CRCSSAN v. ALLAN =TANLEV COMMCN? feral Court of Australia Northern Territory liscrict Registr' Fed General Division Muirhead UC. . 30 October, 13384 " Trade Practices - Penalties - Misleading advertisements - nisleading statement - franchise to sell detergents/disinfecta onemicals/cleansers - advertisements =n newspapers in raspe rt ¢ prespective vorofitability of business activity - seriousness: ._ orfences - guilty oleas - facts relevant to penalty - princit. of Dunishment urder Trade Practices Act Trade Practices Act - sec. 5 Cases referred to. - Ducret v. Colourshot 35 A.L.R. £33 Wes Vv. Tohn &. Leuins (Internationa?) Pty. Lti. 1975 A.T.=.R. 40-907 Eva v. Masaa Motors (Sales) Pty. Lid. 1977 A.T.°O.R. 45-02) . Tiffin counsel for Prosecutsr ralian Government solicitors fer 2rs eoLtor w Mr P Aust Mr T. Prlev ccunsel for Defendant Yard Xeller sclicitors for Defendant IN THE FEDERAL COURT OF AUSTRALIA NORTHERN TERRITORY DISTRICT REGISTRY Nos NTG 56-68 of 1983 GENERAL DIVISTON DAVID STANLEY CROSSAN Prosecutor Vv. ALLAN STANLEY COMMONS Defendant REASONS FOR JUDCMENT (Delivered 30 October, 1984) MUIRHEAD J.: Allan Stanley Commons (hereafter called the defendant) has pleaded guilty to ten counts in separate informations alleging breaches of s.59(2) of the Trade Practices Act, punishable by s.79(1) of that Act. Section 59(2) reads as foliows - (2) Where a corncration, in trale or commerce, invites, whether by advertisement or otherwise, versons to enrace or participate, or to offer cr 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 cr risk or anv other material aspect of the business activity, a statement that is false or misleading in a material particular." I deal with the informations in chronols¢sical order. ts The first in time alleges that betweer the lst Canuar' 1383 anc the oth Canuaryv 1983, the cerendant contravened the section in that he invited Merry Nancy Postl and Ucsef Pos engage 1n a business activity requiring the investment cf moneys by them and the verformance by them of work asscciated "1 investment and did with respect to the profitability of the business activity make a statement that was misleading in a material varticular. The remaining nine ccunts refer to advertisements which were placed in the Courier Fail by Prte-Price Chenicals (Aust.) Pty. Ltd. (the company), a company of whica the defendant and his wife were scle directors, and which, from a practical point of view was at that time ander his ecntrol and management. Each of those infornaticns aileges that the de*endant was "indirectiy «knowing oneerned", within the meanins of bo '< Qa s.5 cf the Crimes Act in the commission of an offence against 3 law of the Commonwealtn, that offence being that the company in trade or commerce dia invite bv advertisement versons to apo iy to engage in a business activity requiring the investment of monevs by the persons concerned and the verfornance bv then o worx associated with the investment, the advertisement Leing in rs a material particular nisleading with restect to the orofitabil>: of the business activity. The nine offending advertisenents apreareé in the Courier Mail on the 5th, 12th, 22nd and 26th days cf January and the 2nd, 5th, 9th, 12th and 26th davs of February 1332. The advertisements appearing under a oreninent "Rite-Price"" logi reac as follows - "Good cash flow business Rite-Price Australia are currently embarking on a dramatic Expansion Scheme. We have dealerships available in nanv areas of Brisbane and would also welcome country enquiries. Dealershizt will nett a suitable Husband and 'Wife Team between $25,000 and $59,097 in the lst year of operaticn. The business can be run from nome and requires simple blending and storage of a range of consumable products together with the day to dav nazntenance of a local sales team. All vlant and stock necessary together with company training in all aspects of this business will be provided. Finance can be arranged to approved a>olicants." A shor z history of the defendant and his activities with the ceomvany will suffice. The company was purchaseé as a shelf company. Initially, directors and shareholders were *he defendant, one Suzanne Hynes and one W. Jolly. There were 93 paid un shares of which 39 were owned by the defendant. The husdand of Suzanne Hynes, who was apparently an andischarged benxrict. had some business dealings with the defendant and 1t was put to me by Mr Rilev fer the defendant "hat Hynes pvlavec 42 part in the promotion of the company ard its sales schemes. WW € that as it may the defendant and Mr and Mrs Hynes fell out and on 23rd December 1982 the defendant lodged changes of particulars in the Register of Directors with the National Companies and Securities Commission. Suzanne 3 haz resigned a3 cirector wD i) yn bezng replaced by the defendant's wife, who, whilst shcwn as secretary of the ccmoany, apparently >layec no part in its activities. The saies scheme promoted was for the saie of dealerships to versons whe would have exclusive rights to sell in darticularised areas. The company supplied chemical substances and equipment to be utziised by the dealers in the preduction and bottling for sale cf items such as detergents, disinfectants and cleansers. The scheme was that the conmary would arrange advertising and supolyv sales teams to canvass iva) areas in the dealer districts as part of an initial "co7é sales" campaign. The dealer was to be paid commission or sales distributed through his agency, the dealer himself being responsible for payment of rovalties to the conpanv. The defendant's counsel told me that his client had high hopes fc» the success of the venture but it was early apvarent that these heves would not de realised. The defendant attributed the lack cf success to the fact that the dealers were not vorevared to work. The results of the efforts of sales teans were peor. Approximately thirteen dealerships were set up in OQueensilard and T am satisfied that tne defendant nust have cuickly vreslise. that the deaiersnipd would not and could not conesivasly "nett 43 Suitable husband and wife team between $75,009 arc $50,900 in the first year of operation". It may well be that Hynes, cr some cther verson associated with the company devised the form of advertisement put the defendant was well aware of its recurring aisslay. TT was in form likely to attract attention and business. Late in December 1982 the defendant visited Darwin. He hac relatives in the area and decided to mix business with pleasure. The following advertisement appeared in the N.T. News on the 20th, 21st and 22nd davs of December 1982 - "Right Price Australia N£fers the sole Darwin dcistributior rights for its extensive range of domestic and commercial cleaning products. Some capital will be required. Seriously interested applicants w21l be interviewed in larwin by the Managing Director between 24 December and 10 January." This apparentiy yielded no silltable enguirives ard on the 29th, 30th and 31st LTecember the following appeared in the same newspaver - "Good cash flow business Rite-Price Australia are currently embarking on a Gramatic expansion scheme:- We are seexing a suitable husband and wife team to operate our Darwin dealersh:o. The right veople wili enjoy a nett return of between $25000 ance $5C00C in che first vear of operation. The business can be oderated from hone ard requires simple blendine and stcrage of a range of readily accepted consumable products. The ability to recruit and maintain an aggressive sales team is 3F prime importance. Ali vlant/stocx anc full comrary training will be provided. Some capital will Le recuired however, finance can be arranged for a suitable apvlicant. Interviews will be conducted in Tarwin and can be arranged by phoning Bris>ane (07)3956177." I mention these as a matter of history as ne charge ion relates to either of such advertisements. Mr and Mr n P [e) 4d i) is] t+ who ran a shoe repair business at PFapid Creek were inter d mo " Uy) Tc and communicated with the defendant. Tn the course of negotiations the defendant admits he told them that the return should net $500 per week. Cn Sth January 1983, Mr and Mrs Postl., having secured finance, envered into a Dealership Agreement pursuant to which $22,500 was ultimately payable bv them to the company, which was cbliged to supply slant, equipmer! and management aids. There is a dispute as to whether or not the company fully compiied with this section of the agreement and that does not now fall for determination. Certainly some items were despatched and utilised. Mr anc Mrs Postl aid $16,5C0 to the company. The defendéant admits that his statemenl concerning anticipated returns from che business was nisleadins and this was the foundaticn for the first ccunt I have re'erred to. Whilst the defendanz was 1n Darwin the first two of the misleacing advertisements referred to in the other informaticns appeared in The Courier Mail. Matters were then going from Ea? to worse in "ueensland and vet seven farther of theer-irely migstsafin advertisements = have referred te earlier were published. t@) om @ Apparently the frustration of Naeensland dealers increased and came to a head as a result of the oublicity of their >redicament in a segment of a television 7rogramme "State Affair". The venture collarsed and the companv was wound up with 19 substantial funds in the hands cf the liquidator. There ap peere =o have been a considerable reduction of comsany stocs assers in the period leading uv to the winding ur order. Th's was not explained to my satisfaction bur I am not able to fird that the defendant reaped the »senefit of such assets. The cconpany ceased to operate abcut Easter 1983 not a long perioc afcter the last advertisement appeared. Mr Riley has made substantial submissicns in mitigati «.. The defendant is a married man with three young children. Hie wife's present health or emotional condéiticn cue to vast events is not geod. He new works as a salesman earning commissions of about $287 gross per week in the security industry. He left school at an eariy age anda has no trade or professional eualifications. Fe has no previous convictions. Mo Rilev submits he sought to defraud no cne, his cwn enthusiasm for the sales scheme has been his undoing. I am told his cwn income from the company was meagre. His fault, Mr Riley in his "uncompromising optimism" which he retained too long. He became "recxlesslv indifferent" to the comnercial realities cf the situation, he hoped the comoanv and the deaiers would 5e successful. He has, Mr Riztey submits (and there is no suggesti-1 to the contrarv) fullv co-cperated with the investigating authorities. The famiiyv home is the subject cf tw2 mortzaces, his wife is now working as a waitress. There are two tamil: cars. He has no money in the bank, no other assets save fir 153] domestic furniture and effects. the Jefenéant did rot set out ct Fa ct It is true I find a te defraud. It was a bona fide commerciai business, but naive in concepticn and from the start impossible to sustain on a basis commensurate with the advertised return to dealers. On the other hand the acvertisenents inserted by the company and his misleading assurance to Mr anda Mrs Postl, were Dy their very nature likely to cause very real hardship and loss to other nembers of the community, especiaily when intended to induce persons to enter into contractual arrangemen: - unvoiving the outlay of large sums cf money, an< s0ossibly the abandonment of existing means of livelihood. Such a scheme is likely to cause consequences far more serious than the purchase of items by reason of misleading advertisements as to quality and the like. The purpose of the legisiatian is to rotect consumers and no doubt to deter these inzlined by frauc or recklessness to »rofit from the community in acvancing Oo rm personal gain, albeit in a bona fide business. The sregard of the defendant for reality 1s manifest in his letter of lst February 1983, written at a time when he must have xnown the prospects oF the company were fading. in tnat letter he wretz: of restriction of "operating arrangements to sustain this company's high growth rate". The material before me does not suffice te fairl, categorise the cefendant's motives as cunning cr dishonest, but there was a high degree of carelessness and the denarvture from accuracy was substantial. The defendant did rot, as I have said, set sut to defraud the sublic or his dealers te his own profit. He had a large perssnai stake in the Success of the scheme and a Foolish anc too long enduring hope in ts success. In fixing penalties I vav regard tc all Mr Riley's submissions, but I must bear in mind the purnoses of the legislation and the substantial >venalties provided. tion is A person convicted of a breach of this se a Q oO f wy oO oO liable by way of punishment to a maximum fine 0. Oo Section 793(2) cf the Act provides that where a person is convicted of two or more offences reiating to the same provisi-n of Part V "being contraventions that appear to the court to haves been of the same nature or a substantially similar nature and to have occurred at sr about the sale time "he court shall not impose fines that in the aggregate exceed the maximum applicedl= +o one offence". The section was considered by Smavhers J. in Ducret v. Colourshot 35 A.uU.R. 5C3, a case which also involved a series of misleading advertisements. His Honour concluded his consideration of the appropriate time span between crfences necessary te withdraw them from a category of offences which ""sceurred at or about the same time" with these words - "Separate contraventions of the Act committed at an interval of two months eculd not reasonably be regarded as having occurred at about the same time. The relevant frame of reference is, I conclude, to offences so close together in time that there 7-5 a basis in reality for attributing <o them a unitv in the commission of the actus reus of each. Construing the section in the iight of these observations it would seem that 1t would Se -12t- unscund to regard the offences against $59(2) with which this court 18 concerned as being committec at abous the same time as each other i= thev were separated bv more than, at most, say three davs. Accordingly, for the purposes of s78(2), I regard those offences which were committed at intervals not less than four davs of each other as offences occurring otherwise than at about the same *ime as each other." That decision is a useful guide, and the facts the 'S (D were very serious as the opening worés cf his Honour indicated + in Ais reasons for judgment. Here ZT cannot be satisfied on the material before me that the defendant gained much ( all) from if at the venture. I am Satisfied that cthers sustained much worry and loss by being induced tc enter the deelersninzs but I have no material before me to assess the 2xtent oc The dealers' prospects of recovery of anv loss suffered aot Ss a O n separate proceedings may not be good because cof the defendant's present financial predicament which will deteriorate by reason cf the penaities. I must, apen ordinary cvrinciples oF sentencing in imposing fines, have some regard to the d ability to vay them. I regard the cefendant's culpab1 very much ete izt n¢éa ye less than encountered by Smithers J. in Ducrez v. Colcurshot (above). The »venal_ties must De sufficient A discourazse like conduct, but should not be so high 3s to 938 =] el T C oppressive. (Wells v. John FP. Leuins (Internatisnal) Pty. itd. 1975 A.T.P.R. 40-007, Eva v. Mazda Motors (Sales) Ptv. Lt. 7977 A.T.P.R. 40-C20). In proceeding No. NT@ 56 of 1983 the @efendant will be fined the sum of $1,000. wl -l11- In proceeding No. NT? 60 of 2983 the defendant 111i be fined the sum of $500. In proceeding Ne. NTC 62 of 1933 the derencan* will be fined the sum of $500. In proceeding No. NT® 62 of 1983 the defendant will be fined the sum of $500. In proceeding No. NT@ 63 of 1983 the defendant vill be fined the sum of $509. In proceeding No. NT@ 64 oF 19823 the cefendant will be fined the sum of $500. In preceeéing No. NTG 65 cof 1983 the deferdant w1iil be fined the sum of $520. bo ive) «oo w ct 'y wD In proceecing No. NTS 66 of defendant wiili be fined the sum of $59C. Hh In proceeding Ne. NTG 67 cf 1983 the ceferdant wilt be fined the sum of $500. In vroceeding No. NTG 88 of 1983 the defendant will be Fined the sum of $560. The total fines thus imposed amount to 85,5993. In addition, as requested by counse_ for the prosecution, I cirect that the defendant shall vav tne zosts of these vroceedings to be taxed, but not exceeding $1,000. Counsel for the Crown suggested I should leave ster. ct h He wi uberty to apply, the question of reparaticn sursuant to S.21B(d) of the Crimes Act which enables this court to sorder an offencer "to nake reparation *o anv verson, by wav of menev payment or otherwise, in respect c* any loss suffered by the person a8 a direct result of the offence". Those who have suffered loss have their rights 7o recover their loss or damage by reason of s.32 of the Act ance = ccnsider it inappropriate in these proceedings to leave that question cpen. I decline to maxe an order under that secticn. Lastly, counsel for the prosecution has expressiv asxed me not to order imprisonment in default o the fines. The vowers of this court on this aspect are set aAn4 Vote out in s.18A of the Crimes Act and s.390 of the Criminel (N.T.). I will hear counsel further on thie asvect and as to tine tc? vay. f certify that this and the eleven ~rececing »ases are 3a tyuc cctv OF the reasons for *ulement herein oF the Honourable Yr dJuatice Muirhead Dated 30 October 248L