FEDERAL COURT OF AUSTRALIA Australian Competition & Consumer Commission v Australian Communications Network Pty Ltd [2005] FCA 988 TRADE PRACTICES – pyramid selling scheme – form of declaratory and injunctive orders – whether trade practices compliance program should be ordered where scheme undertaken in awareness of provisions and on legal advice Trade Practices Act 1974 (Cth), s 65AAC, s 65AAD, s 65AAE Australian Competition & Consumer Commission v Australian Communications Network Pty Ltd [2005] FCA 276 applied Brennan v Brennan (1953) 89 CLR 129 applied Wentworth v Rogers (No 3) (1986) 6 NSWLR 642 cited Bagshaw v Scott [2005] FCA 104 cited Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 cited My Distributors v Omaq Pty Ltd (1992) 36 FCR 578 cited Chonka v Palmer [2004] FCA 1560 cited Applicant NATI v Minister for Immigration & Multicultural & Indigenous Affairs [2005] FCA 163 cited AUSTRALIAN COMPETITION & CONSUMER COMMISSION v AUSTRALIAN COMMUNICATIONS NETWORK PTY LTD, MARTIN PAECH, GIBBSCHADE PTY LTD, JONATHAN GIBBS and KEITH JANKE SAD 231 of 2004 MANSFIELD J 20 JULY 2005 ADELAIDE IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 231 OF 2004 BETWEEN: AUSTRALIAN COMPETITION & CONSUMER COMMISSION APPLICANT AND: AUSTRALIAN COMMUNICATIONS NETWORK PTY LTD FIRST RESPONDENT MARTIN PAECH SECOND RESPONDENT GIBBSCHADE PTY LTD FOURTH RESPONDENT JONATHAN GIBBS FIFTH RESPONDENT KEITH JANKE SEVENTH RESPONDENT JUDGE: MANSFIELD J DATE OF ORDER: 20 JULY 2005 WHERE MADE: ADELAIDE THE COURT DECLARES THAT: 1. The marketing scheme established by the first respondent in connection with the supply of telecommunications services by the first respondent and operated by it between July 2004 and 11 April 2005 (the ACN scheme) pursuant to which: (a) members of the public were invited to make a payment of $499 plus GST to the first respondent to become participants in the ACN scheme as independent representatives of the first respondent; and (b) the payment referred to in par (a) was substantially induced by the prospect held out to new participants that they would be entitled to receive from the first respondent payments described as customer acquisition bonuses and residual override commissions (the recruitment payment) in relation to the introduction to the ACN scheme of further new participants in that the payments were payable if the independent representative sponsored, directly or indirectly, other persons to become new independent representatives and those persons acquired customers on behalf of the first respondent, and where the amount of the payments was dependent upon the number and level of new independent representatives sponsored; (c) the customer acquisition bonuses were calculated by a formula depending on the independent representative's 'level' within the ACN scheme and were calculated as described in [6](d)n.-q. of the reasons for judgment of the Court delivered on 23 March 2005 (the reasons for judgment); and (d) the residual override commissions were calculated by a formula depending on the independent representative's 'level' within the ACN scheme and were calculated on the total monthly billings of customers of the independent representatives introduced by the participant as described in [6](d)l.-m. of the reasons for judgment; constituted a pyramid selling scheme within the meaning of s 65AAD of the Trade Practices Act 1974 (Cth) (the Act). 2. The first respondent participated in the pyramid selling scheme in contravention of s 65AAC(1) of the Act and induced and attempted to induce other persons to participate in the pyramid selling scheme in contravention of s 65AAC(2) of the Act by: (a) establishing the ACN scheme; (b) promoting the ACN scheme; (c) taking part in the ACN scheme; and (d) by entering into independent representative agreements with persons who agreed to participate in the ACN scheme. 3. The second respondent aided and abetted, and was knowingly concerned in, the first respondent's contraventions of s 65AAC(1) and s 65AAC (2) of the Act as set out in the declaration in order 2 hereof in that he: (i) was aware of the details of the ACN scheme; (ii) authorised the promotion of the ACN scheme; and (iii) authorised the entering into of the independent representative agreements on behalf of the first respondent and the receipt of the payment of $499 (excluding GST) by each independent representative who entered into such agreements. 4. The fourth respondent participated in the ACN scheme in contravention of s 65AAC(1) of the Act and induced and attempted to induce other persons to participate in the ACN scheme in contravention of s 65AAC(2) of the Act by: (a) being aware of the ACN scheme; (b) promoting the ACN scheme; and (c) inviting the entering into of the independent representative agreements on behalf of the first respondent and the receipt of the payment of $499 (excluding GST) by each independent representative who entered into such agreements at its invitation. 5. The fifth respondent and the seventh respondent aided and abetted and were knowingly concerned in the contraventions of s 65AAC(1) and s 65AAC(2) of the Act by the first respondent by: (a) being aware of the ACN scheme; (b) promoting the ACN scheme. AND THE COURT ORDERS THAT 6. The first respondent by itself its agents or servants or otherwise be restrained from: (a) establishing, promoting or taking part in the ACN scheme or any scheme which is not materially different from the ACN scheme; (b) inducing or attempting to induce members of the public to take part in the ACN scheme which is not materially different from the ACN scheme. 7. The second respondent be restrained from authorising or being knowingly concerned in: (a) the first respondent establishing, promoting or taking part in the ACN scheme or any scheme which is not materially different from the ACN scheme; and (b) the first respondent inducing or attempting to induce members of the public to take part in the ACN scheme or any scheme which is not materially different from the ACN scheme. 8. A copy of the reasons for judgment, with the seal of the Court thereon, be retained in the Court file for the purposes of s 83 of the Act. 9. Within 14 days of the date of this order, the first respondent do send a notice to each person who is recorded in its records as having entered into an Independent Representative Agreement with it informing that person of the decision and orders of this Court in the form attached to this order as Annexure A ('the statement'). The notice must be sent: (a) if the first respondent ordinarily corresponds with the person by email, by email to the person's email address as recorded by the first respondent; (b) otherwise, by ordinary mail to the person's postal address as recorded by the first respondent; and a copy must be served on the applicant. 10. Within 14 days of the date of this order, the first respondent must publish and maintain for a period of six months on the internet at any website on the World Wide Web the home page of which is owned, operated, created or maintained by or on behalf of the first respondent, including but not limited to the website on the World Wide Web the home page of which is located at the URL www.acnaustralia.com.au, an active pop-up window or message box on the home page of the website containing a notice in the form of the statement that is automatically activated whenever someone accesses the website. 11. The first respondent be authorised to transfer the moneys held in the controlled moneys account established in accordance with its undertaking given to the Court on 24 November 2004 and held in the name of Dale James Kemp and Peter Ludemann Solicitors c/- Dibbs Barker Gosling as trustees, to a controlled moneys account in the name of Luke Woodward Solicitor c/- Gilbert & Tobin as trustee and otherwise held upon the terms of the said undertaking until further order. 12. Within 28 days of the date of this order, the first respondent do comply with order 2 of the undertaking given by it to the Court on 24 November 2004. 13. The first respondent and the second respondent do pay to the applicant its costs of the application. 14. The orders made in orders 9, 10 and 12 hereof be stayed until further order of the Court. 15. The parties have liberty to apply on reasonable notice. Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. ANNEXURE A STATEMENT Australian Telecommunications Network Pty Ltd By Order of the Federal Court of Australia Notice to Independent Representatives On 15 November 2004, the Australian Competition and Consumer Commission ('the ACCC') commenced proceedings against Australian Communications Network Pty Ltd ('ACN') in respect of the marketing scheme by which ACN marketed its telecommunications services to members of the public. Under the marketing scheme, ACN invited members of the public to become independent representatives of ACN to market the sale of its telecommunications services in consideration of the payment of an initial fee of $499 plus GST. The ACCC alleged that the marketing scheme was a pyramid selling scheme within the meaning of the Trade Practices Act 1974 and that by establishing, promoting and taking part in the scheme, ACN had contravened the Trade Practices Act 1974. The ACC also alleged that Mr Martin Paech, Mr Jonathan Gibbs and Mr Keith Janke were knowingly concerned in the contraventions by ACN, and had also contravened the Trade Practices Act 1974. On 23 March 2005, the Federal Court of Australia ruled that ACN's marketing scheme as described above was a pyramid selling scheme and that ACN had contravened the Trade Practices Act 1974 by establishing, promoting and taking part in the scheme. The Court also ruled that Messrs Paech, Gibbs and Janke had contravened the Trade Practices Act 1974 by being knowingly concerned in the contraventions by ACN. In reaching that conclusion, the Court had particular regard to the amount of the participation payment of $499 plus GST, the basis upon which customer acquisition bonuses and residual override commissions are paid to independent representatives under the marketing scheme, and the value of the services received by independent representatives from ACN when participating in the marketing scheme. It was necessary to have regard to the interaction of those matters to determine whether the marketing scheme was a pyramid marketing scheme. The Court has restrained ACN from: (a) establishing, promoting or taking part in the particular marketing scheme or any marketing scheme which is not materially different from the particular marketing scheme. (b) inducing or attempting to induce members of the public to take part in the particular marketing scheme or any marketing scheme which is not materially different from the particular marketing scheme. After the reasons for judgment of the Court were delivered on 23 March 2005, on 11 April 2005 ACN altered the participation payment for new independent representatives from $499 plus GST to $200 plus GST. In other respects the scheme has not been changed. The decision and orders of the Court do not relate to a scheme in which the participation payment is $200 plus GST. There has been no decision by the Court as to the legality or otherwise of such a scheme. ACN previously gave an undertaking to the Federal Court that, should the Federal Court find the ACN scheme in breach of the Trade Practices Act, ACN would refund to each person who became an independent representative of ACN after midnight 23 November 2004: (a) the initial fee of $499 plus GST paid by the independent representative to ACN; and (b) interest earned by ACN on the initial fee. The Court ordered ACN to effect that refund on or before 17 August 2005. The operation of that order has been stayed pending the hearing and determination of ACN's appeal from the Court's orders. If ACN is unsuccessful in its appeal, it will implement that refund. The refund does not result in the cancellation of an independent representative's agreement with ACN, nor otherwise affect the rights of an independent representative. ACN has also undertaken to the Court that it would extend the cooling off period for each such independent representative until further order of the Court. During the cooling off period each such person has the right to request a refund from ACN of the participation fee of $499 plus GST (but not interest earned on that amount). IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY SAD 231 OF 2004 BETWEEN: AUSTRALIAN COMPETITION & CONSUMER COMMISSION APPLICANT AND: AUSTRALIAN COMMUNICATIONS NETWORK PTY LTD FIRST RESPONDENT MARTIN PAECH SECOND RESPONDENT GIBBSCHADE PTY LTD FOURTH RESPONDENT JONATHAN GIBBS FIFTH RESPONDENT KEITH JANKE SEVENTH RESPONDENT JUDGE: MANSFIELD J DATE: 20 JULY 2005 PLACE: ADELAIDE REASONS FOR JUDGMENT 1 On 23 March 2005 Selway J delivered reasons for judgment in this matter: Australian Competition & Consumer Commission v Australian Communications Network Pty Ltd [2005] FCA 276. 2 His Honour found that the first respondent (ACN) had contravened s 65AAC of the Trade Practices Act 1974 (Cth) (the Act) by participating in a marketing scheme which constituted a pyramid selling scheme, and by inducing and attempting to induce persons to take part in that scheme. He also found that the second respondent (Paech) was knowingly concerned in that breach of the Act by ACN under s 75B of the Act. The applicant (the ACCC) also alleged in the proceedings that the fourth respondent (Gibbschade), the fifth respondent (Gibbs) and the seventh respondent (Janke) were knowingly concerned in the contravention of the Act by ACN and therefore were also liable under s 75B of the Act. Those three respondents did not appear in the proceedings. I shall call the scheme which his Honour found to be a pyramid selling scheme 'the ACN scheme'. 3 His Honour adjourned for submissions the question as to what orders should be made against ACN and against Paech in the light of those findings, and as to what, if any, orders should be made against Gibbschade, Gibbs and Janke. 4 The further hearing of the matter did not proceed before Selway J before his unfortunate death. With the consent of the parties, the Court has been reconstituted to address the remaining issues: see Brennan v Brennan (1953) 89 CLR 129. See also the discussion by Kirby P (as he then was) at 645-649 in Wentworth v Rogers (No 3) (1986) 6 NSWLR 642 (Wentworth) and per Priestley JA (with whom Glass JA agreed) at 653. Bennett J in Bagshaw v Scott [2005] FCA 104 at [31] distilled and followed the principles discussed in Wentworth. 5 The Court as presently constituted has had the benefit of detailed and very helpful submissions from counsel for the ACCC and from senior counsel for ACN and Paech. Gibbschade, Gibbs and Janke again did not appear at the further hearing. In these reasons for judgment, I shall adopt the description of the ACN scheme used by Selway J and the abbreviations used by his Honour in his reasons without further explaining them. 6 Each party has forwarded detailed proposed forms of orders to reflect the reasons for judgment of Selway J. There is agreement in principle that it would be appropriate for the Court now to make declaratory and injunctive orders against ACN and Paech. There is, however, a significant issue as to the terms in which the declaratory orders should be made, and as to the terms in which the injunctive orders should be made. ACN and Paech are anxious to ensure that any declaratory order is limited to reflect the specific findings of Selway J. Their sensitivity is understandable. 7 Section 65AAC of the Act provides that a corporation must not participate in, or induce or attempt to induce a person to participate in, a pyramid selling scheme. Section 65AAD(1) defines a pyramid selling scheme as having two elements or characteristics. The first is that participation in the scheme involves some or all the new participants making a 'participation payment' to another participant. The second is that the participation payments are entirely or substantially induced by the prospect of a 'recruitment payment'. Both the terms 'participation payment' and 'recruitment payment' are defined in s 65AAB by reference to their respective functions. In determining whether the participation payments were substantially induced by the recruitment payments, his Honour was guided (inter alia) by s 65AAE(1)(a) to consider the extent to which the participation payments bore a reasonable relationship to the value of the goods or services that participants are entitled to be supplied under the ACN scheme. The two payments found to be recruitment payments were two of the four forms of compensation payable to a participant (an IR). They were the customer acquisition bonuses (CABs) and the residual override commissions. The nature of the CABs and residual override commissions was explained in [6](d)k.-q. of his Honour's reasons. The other two forms of compensation payable were personal commissions and bonus promotional payments. They were not found to be elements of a recruitment payment. 8 It is obvious from his Honour's reasons that the precise amount of the participation payment was significant to his determination. At [35] of his reasons, his Honour said: 'Section 65AAE(1)(a) directs attention to "the extent" to which the comparators bear a "reasonable relationship" to each other. In my view the participation payment is too high in terms of the services to which participants are entitled to be supplied for them to be said to have a "reasonable relationship". The extent to which it is too high involves a matter of judgment and degree. On the evidence before me I think that a participation payment of any more than $200 plus GCT [sic] would not bear a reasonable relationship to the value of the "services". Certainly I do not think that a payment of $499 plus GST bears such a relationship.' At [44] his Honour then commented that the situation 'might be different if the participation payment was $200, but it is not'. Clearly, his Honour had in mind that a lesser participation payment might not involve a contravention of s 65AAC of the Act if the context and extent of the compensation payments to IRs otherwise remained the same, and in particular that the nature and structure of the recruitment payments remained the same. His Honour thought a different level of participation payment may not be 'substantially induced by the prospect held out to new participants that they will be entitled' to the recruitment payments having regard to the value of the services generally provided to participants under the ACN scheme. In respect of a particular level of participation payment, it would be necessary to address the extent to which the value of the services to be provided by ACN to IRs participants under the then scheme bears a 'reasonable relationship' to the amount of the participation payment. 9 As is apparent from his Honour's reasons, ACN at all times endeavoured to structure the ACN scheme so that it did not amount to a pyramid selling scheme. His Honour decided its endeavours were unsuccessful. Following his Honour's reasons, ACN has adjusted the participation payment. On 11 April 2005 ACN reduced the fee payable to become an ACN IR; that is, the participation payment was reduced from $499 plus GST to $200 plus GST. 10 There is some suggestion in ACN's submissions, and its proposed orders, that Selway J found that a participation payment of $200 plus GST would not bear an unreasonable relationship to the value of the services IRs are entitled to be supplied under the ACN scheme, and would not be substantially induced by the recruitment payments. However, senior counsel for ACN accepted that his Honour's remarks did not constitute a judicial advisory opinion that a participation fee of $200 plus GST would not (if the ACN scheme were otherwise the same, in particular if the other integers to be taken into account remained the same) be substantially induced by the prospect of the recruitment payments. On the other hand, ACCC has maintained the contention on the present hearing that any form of participation payment would necessarily, if the ACN scheme otherwise remained the same, amount to ACN conducting or participating in a pyramid selling scheme. 11 The declaratory orders to be made should reflect the reasons for judgment of Selway J. They should relate in particular to the adverse findings concerning the ACN scheme. As his Honour clearly did not intend to find any level of participation fee would be substantially induced by the prospect of the entitlement to CABs and residual override commissions, having regard to the value of the services to which the participant IRs are otherwise entitled under the scheme, they should not relate to a participation payment of any level. The relevant 'variable' which ACN regards as adjustable to date is the participation fee. Whether, with the participation payment varied, the ACN scheme is a pyramid selling scheme is (as his Honour said) a matter of judgment and degree in the particular circumstances. 12 The real dispute between the parties, in the light of that background, is how the declaratory orders should describe the ACN scheme. The ACCC suggests a relatively brief description which nevertheless describes the 'gist' of the ACN scheme. ACN and Paech seek to describe the ACN scheme in precise detail, by reference to a schedule to the proposed orders running to some four pages and which describes the detailed findings of his Honour at [6](d)a.-q. of the judgment. This description thus relates to the precise integers of the ACN scheme, including the participation payment of $499 plus GST. 13 In my judgment that degree of precision is unnecessary. However, it is important that the declaratory orders describe sufficiently precisely those elements of the ACN scheme which give it its character as a pyramid selling scheme. They should not simply recite the contravention: Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53. In particular, the relevant elements are the amount of the participation fee, and (at least by reference to findings of fact) the recruitment fee, and the other services provided. 14 Senior counsel for ACN and Paech also submitted that the declarations to be made should be limited in time. As the ACN scheme commenced in July 2004, I agree that it would be appropriate to refer to that date. It was also submitted that the declarations to be made should be confined to the period to 25 February 2005. That is the date of the completion of the hearing before Selway J. I do not propose to adopt that submission. There was nothing before Selway J (or now before the Court) to suggest the contravening conduct ceased on that date. As noted above, the participation fee was altered from 11 April 2005. That is not in issue. Whether the ACN scheme as conducted thereafter contravenes s 65AAC of the Act is not a matter for the Court presently to decide. However, as appears below, the injunctive orders I propose to make will restrain ACN and Paech from conducting the ACN scheme (as it operated to 11 April 2005) or any scheme which is not materially different from the ACN scheme. Based upon the reasons of Selway J, his Honour would not have regarded the revised scheme with the participation payment reduced to $200 plus GST as contravening the proposed injunction. I have explained below that I also would not so regard it. In those circumstances, for the sake of consistency, I will limit the declarations of contravention to the period to 11 April 2005. 15 The declaration I propose to make in those circumstances is as follows: (1) The marketing scheme established by ACN in connection with the supply of telecommunications services by ACN and operated by it between July 2004 and 11 April 2005 pursuant to which: (d) members of the public were invited to make a payment of $499 plus GST to ACN to become participants in the ACN scheme as IRs of ACN; and (e) the payment referred to in par (a) was substantially induced by the prospect held out to new participants that they would be entitled to receive from ACN payments described as CABs and residual override commissions (the recruitment payment) in relation to the introduction to the scheme of further new participants in that the payments were payable if the IR sponsored, directly or indirectly, other persons to become new IRs and those persons acquired customers on behalf of ACN, and where the amount of the payments was dependent upon the number and level of new IRs sponsored; (f) the CABs were calculated by a formula depending on the IR's 'level' within the ACN 'organisation' and were calculated as described in [6](d)n.-q. of the reasons for judgment; and (d) the residual override commissions were calculated by a formula depending on the IRs 'level' within the ACN 'organisation' and were calculated on the total monthly billings of customers of the IRs introduced by the participant as described in [6](d)l.-m. of the reasons for judgment; constituted a pyramid selling scheme within the meaning of s 65AAD of the Act. (2) ACN participated in the pyramid selling scheme in contravention of s 65AAC(1) of the Act and attempted to induce other persons to participate in the pyramid selling scheme in contravention of s 65AAC(2) of the Act by establishing and promoting the ACN scheme, and by taking part in the ACN scheme including by entering into independent representative agreements with persons who agreed to participate in the ACN scheme. (3) Paech aided and abetted, and was knowingly concerned in, ACNs contraventions of s 65AAC(1) and (2) of the Act as set out in the declaration in (2) hereof in that he: (iv) was aware of the details of the pyramid selling scheme; (v) authorised the promotion of the pyramid selling scheme; and (vi) authorised the entering into of the independent representative agreements on behalf of ACN and the receipt of the payment of $499 (excluding GST) by each IR who entered into such agreements. 16 His Honour's findings about the role of Gibbschade, Gibbs and Janke in the establishment, promotion and operation of the ACN scheme are scanty. His Honour said that in July 2004 arrangements were made for persons with experience in 'multi-level' marketing with ACN Inc, particularly Gibbs, to come to Australia for the purpose of promoting the 'multi-level' marketing arrangements in Australia. Gibbs was an agent of ACN Inc. He was to provide promotional services to ACN. ACN also entered into a contract with Gibbschade (a company in which Gibbs had an interest) for Gibbschade to act as its agent. The contract is not in evidence. His Honour also found that from about July 2004 various persons who had been appointed as IRs by ACN, including Gibbschade and Janke, commenced promoting ACN and recruiting IRs to the ACN scheme. The form of promotion involved various public meetings. The promotion included providing a description of the ACN scheme consistent with the ACN scheme itself. His Honour remarked: 'It is probably fair to say that the emphasis in those promotions would seem to be the possibility of large returns from recruiting many levels of downline IRs.' Later in his reasons, his Honour remarked that the promotion of the recruitment payments was given relatively greater emphasis in the early promotions by Gibbs and Janke than in the later promotions organised by ACN itself. That observation was made when his Honour was addressing the factor referred to in s 65AAE(1)(b) as relevant to whether the participation payments under the ACN scheme were substantially induced by the prospect held out to new participants of entitlement to recruitment payments, namely the emphasis given in the promotion of the ACN scheme to the entitlement of participants to the supply of goods and services compared to the emphasis given to their entitlement to recruitment payments. Later in his reasons, his Honour again referred to the promotion of the ACN scheme by Gibbs and Janke as concentrating on the potential for significant financial returns from recruitment payments. 17 In my judgment, those findings are sufficient to support the conclusion that Gibbs and Janke each aided and abetted and were knowingly concerned in ACN's contraventions of s 65AAC(1) and (2) of the Act in that they were aware of the details of the ACN scheme and participated in the promotion of the ACN scheme. Those findings are also sufficient to support the conclusion that Gibbschade participated in the pyramid selling scheme in contravention of s 65AAC(1) of the Act and attempted to induce other persons to participate in the pyramid selling scheme in contravention of s 65AAC(2) of the Act by being aware of and by promoting the ACN scheme, including by inviting other persons to become independent representatives of ACN. I will make declaratory orders to that effect. The declaratory orders proposed by the ACCC went a little beyond those matters, but I do not think the findings of his Honour support the further means of contravention the subject of those proposed orders. 18 I note that Gibbschade, Gibbs and Janke failed to enter an appearance and took no part in the proceedings. The ACCC then seeks to rely on O 35A r 2(2)(a) and (b) and r 3(2)(c) of the Federal Court Rules (the Rules) for the orders it seeks against those respondents. The allegations against each of them in the Statement of Claim are also sufficient to found the declaratory relief which I propose to grant against each of them as respondents in default under the Rules. That power may be exercised even though the effect of those Rules is not to deem those respondents to have admitted all the allegations in the Statement of Claim: see My Distributors Pty Ltd v Omaq Pty Ltd (1992) 36 FCR 578. That case did not concern O 35A, but O 11 r 13 of the Rules. Order 35A was inserted in the Rules only in 2004, and to date appears to have been considered only in the case of defaulting applicants: Chonka v Palmer [2004] FCA 1560; Applicant NATI v Minister for Immigration & Multicultural & Indigenous Affairs [2005] FCA 163 at [4]. As I have reached the view that the findings of Selway J are themselves sufficient to found the orders I propose to make against those respondents, it is not necessary to fully consider the operation of O 35 rr 2 and 3 as they apply in the present circumstances. I am not inclined to use O 35 rr 2 and 3 to supplement the findings made by Selway J by treating those respondents as respondents in default under the Rules. The ACCC did not contend that, if I were to rely upon the findings to support orders against those respondents, I should use O 35 as a 'top up' to those findings. 19 I am mindful of the submissions of ACN and Paech that orders made against Gibbschade, Gibbs and Janke also affect them, and may survive notwithstanding any successful appeal. If they are affected, as they claim, and if the Full Court were to determine that the ACN scheme did not amount to a pyramid selling scheme, I think the Full Court could set aside the declaratory orders I propose to make against Gibbschade, Gibbs and Janke as they would then be based upon an incorrect foundation, even though those respondents do not participate in the proposed appeal. 20 The next issue concerned the terms of any injunctive order against the respondents. There is no serious contention that injunctive orders should not be made. It is the terms of the proposed orders which are contentious. ACN and Paech contend that the orders should restrain them from entering into agreement with members of the public, or promoting a scheme, which is the ACN scheme or one which is 'not materially different' from it. They also seek the order to note that a scheme otherwise identical to the ACN scheme but pursuant to which the participation payment was $200 plus GST would be materially different from the ACN scheme. The ACCC seeks an order restraining all the respondents from establishing, promoting, taking part in or inducing or attempting to induce others to participate in any marketing scheme 'similar to' the ACN scheme. The similarity of the scheme is then described in its proposed form of order as one in which there is any participation payment which is entirely or substantially induced by the prospect held out of an entitlement to the recruitment payments. 21 I do not propose to make an injunctive order in the terms sought by the ACCC. In my view, it would be unfair to do so. The formulation of the proposed injunctive orders by the ACCC in my view is not sufficiently precise to clearly indicate to ACN and to the other respondents what conduct they must not engage in (and, as a corollary what conduct they might engage in without acting in a way the injunction forbids). I prefer therefore the formulation expressed in the proposed orders of ACN and Paech. What is apparent from the reasons for judgment of Selway J is that he regarded the particular ACN scheme with the integers as to the amount of the participation payments and the amount of the recruitment payments, having regard to the value of the other services provided to participants under the ACN scheme as being a pyramid selling scheme, and as infringing s 65AAC. It is also clear that his Honour did not intend to make an injunctive order which would have precluded ACN from conducting a scheme in the identical way to the ACN scheme but with a reduced participation payment of $200 plus GST (as it has done since 11 April 2005). That is not to say that such a scheme might not also contravene s 65AAC of the Act. That issue has not been decided. 22 I do not propose specifically to note in the orders that a scheme otherwise identical to the ACN scheme, but pursuant to which the participation payment was $200 plus GST would in fact be materially different from the ACN scheme. It is sufficient, in my judgment, if ACN were to have recorded in these reasons that which I think is clear from the reasons for judgment of Selway J, namely that its conduct of a scheme identical to the ACN scheme but with the participation fee fixed at $200 plus GST is not conduct which would contravene the injunctions which are proposed to be made. In that way, it is given the certainty of not infringing an injunction of the Court by its present operation of an adopted scheme. As I have said, the fact that such conduct would not contravene the proposed injunctions does not involve securing from the Court any intimation as to whether or not, in respect of such a revised scheme, the participation payment might nevertheless be found to be substantially induced by the prospect held out to new participants that they will be entitled to recruitment payments, assuming the recruitment payments and the other services provided to ACN remain unchanged. That question has not been resolved in the current proceeding. 23 I therefore propose to order that ACN by itself, its servants or agents or otherwise, be restrained from: (a) establishing, promoting or taking part in the ACN scheme or any scheme which is not materially different from the ACN scheme. (b) inducing or attempting to induce members of the public to take part in the ACN scheme or any scheme which is not materially different from the ACN scheme; The second respondent, Paech, will be similarly restrained from authorising or from being directly or indirectly knowingly concerned in or party to ACN engaging in each conduct. 24 It is unclear wether Gibbs is the controlling mind of Gibbschade or whether it has other directors or engages in other business on Mr Gibbs' behalf. 25 It is unclear whether the contract between ACN and Gibbschade is still in force. Gibbs is apparently a resident of the United States. There is no reason to suspect that he will be returning to Australia to further promote the ACN scheme or one not materially different from it. The relationship of Janke to ACN is not clearly described in the judgment, other than as an early participant in the ACN scheme and a promoter of it. In those circumstances, I am not disposed to make the injunctive orders sought by ACCC against those three respondents. 26 The parties are agreed that a copy of the reasons for judgment of Selway J, with the seal of the Court thereon, be retained on the Court file for the purposes of s 83 of the Act. I will so order. 27 In my judgment, there is no need to require Paech to undertake a trade practices compliance program. ACN and Paech did not intend to contravene s 65AAC of the Act. They obtained legal advice regarding the validity of the ACN scheme before commencing it. It has been found nevertheless to contravene the Act. This is not a matter where lack of awareness of the terms of the Act played any part in the conduct which has been found to have contravened s 65AAC. I do not see any purpose in ordering Paech in those circumstances to attend a trade practices compliance seminar as proposed by the ACCC. 28 Given my comments above as to the status and role of Gibbs, I am not persuaded that it is necessary to order that Gibbs undertake and attend a trade practices compliance seminar as proposed by the ACCC. There are two contrary indications to making such an order in relation to Gibbs. Firstly, he is apparently a United States resident, and there is no reason to think that he will or might engage in conduct in Australia in the foreseeable future which might be assisted by a better understanding of the Act. Secondly, he was apparently associated with ACN through ACN Inc and therefore, I infer, was equally aware of the need to comply with the Act and to secure legal advice in respect of conduct which possibly may attract the operation of the Act before undertaking that conduct. 29 The findings about Janke's role are not, in my view, sufficient to determine whether such an order is appropriate in his case. He is an IR of ACN under the ACN scheme. It is not clear whether he was aware of the provisions of s 65AAC of the Act, or was aware of the legal advice secured by ACN at least in general terms. It is not clear what his role in the future will be as an IR of ACN, but I do not think it can be assumed to be other than participating in a scheme which ACN, on legal advice, regards as lawful. I do not in those circumstances propose to require him to undergo a trade practices compliance program as proposed by the ACCC. 30 The proposed publications orders are said by the ACCC to be necessary to alert present and potential future IRs of ACN, and the public more generally, to the findings of the Court. The existing IRs may then be aware of their rights, if any, against ACN in respect of the findings of the Court. Secondly, it is submitted on behalf of the ACCC, the public more generally may be made aware that the marketing schemes of the nature of the ACN scheme constitute pyramid selling schemes which contravene s 65AAC of the Act. 31 In my view, it is appropriate to make a publication order to ensure that current and prospective IRs be made aware of the findings and the orders of the Court. I propose therefore to make an order requiring ACN to send a notice to each person recorded in its records as having entered into an Independent Representative Agreement with ACN informing that person of the decision and orders of the Court. The form of that notification will be in the form annexed to the orders, and marked Annexure A. 32 There are, as counsel for the ACCC pointed out, three categories of IRs whose circumstances must be addressed: those who became IRs before 24 November 2004, and who are not protected by the undertaking referred to below, those who became IRs between 24 November 2004 and 11 April 2005, and those who became IRs after 11 April 2005 (and who have paid the $200 plus GST participation fee) or who may become IRs under that new structure. In my view, the direct notification to existing IRs together with the publication on ACN's website of the nature of the decision and orders of the Court is a sufficient notification of those matters to present and prospective IRs. The injunctive orders and ACN's action on 11 April 2005 mean that, from 11 April 2005 and prospectively, there will be no IRs required to pay the participation payment of $499 plus GST. I accept that since 11 April 2005 ACN has altered the amount of the participation payment. As I have indicated, neither Selway J nor the Court by the orders now to be made has determined whether the ACN scheme, if altered by reducing the participation payment to $200 plus GST, amounts to a pyramid selling scheme. The injunctions to be granted will not be infringed if the ACN scheme as so altered is maintained. 33 The decision of the Court on 23 March 2005 has already received publicity (as described by Paech in his affidavit of 4 May 2005). In those circumstances, I do not think it is necessary that ACN also be required to extend the publication of the decision of the Court by public advertising as proposed by the ACCC. 34 In my judgment, in the light of those matters, the notification will be sufficiently effected by ACN sending the notification to the IRs referred to in the preceding paragraph either by email to the person's email address as recorded by ACN (if that is the manner in which ACN ordinarily corresponds with those persons in that manner), and otherwise by ordinary mail to the person's postal address as recorded by ACN. Notice of the Court's decision and orders, also in the form of Annexure A, should also be posted on ACN's website for a period of six months from the date of these orders. I do not consider there is any need, in the particular circumstances, for the notification also to be given by public advertisement in daily newspapers circulating in the States and Territories of Australia. 35 ACN undertook on 24 November 2004 to cause all participation payments of $499 plus GST received thereafter from IRs to be paid into a controlled moneys account with a trustee company in the name of Dale Janet Kemp and Peter Ludemann Solicitors c/- Dibbs Barker Gosling as trustees, to be held by them until further order of the Court. It secondly undertook that, if the Court determined that the ACN scheme contravened s 65AAC of the Act then, subject to any order of the Court, it would refund the sums so held together with interest. It further undertook to extend the cooling off period in respect of any IR agreement entered into from that date until further order of the Court. 36 ACN has also sought an order releasing the GST component of the monies so held in the controlled money account to ACN. Without further evidence as to the impact of that aspect of its undertaking upon its operations and cash flow, I am not minded to release it from its undertaking or to make the order sought which would have the effect of releasing it from that part of its undertaking. It has liberty to apply to be released from its undertaking generally, or in that limited respect. 37 I also note that since 11 April 2005, ACN of its own initiative, has held all participative payments of $200 plus GST received by it in a controlled money account. There is no order obliging it to do so, and no undertaking to the Court to do so. It is a matter for ACN as to whether it maintains that arrangement. 38 I order that, within 28 days of this order, ACN must comply with the second of those undertakings. By consent, I will order that ACN may transfer the moneys so held into a controlled money account in the name of Luke Woodward Solicitor c/- Gilbert and Tobin as trustee to be held upon the same terms. That reflects simply a change of solicitors by ACN. 39 Finally I note that it is accepted that the Court should order that ACN and Paech pay the ACCC's costs of the proceeding. 40 It is acknowledged that ACN proposes promptly to appeal from the decision of Selway J and the orders of the Court now made. The ACCC does not oppose an order that the orders made should now be stayed to the extent necessary to hold the position pending the hearing and determination of the appeal to the extent necessary. I will make such an order. I do so on the undertaking of ACN and Paech, given to the Court, that they will file and serve any proposed notice of appeal within 14 days of these orders and will seek expedition of the hearing of the appeal. I am satisfied that the proposed appeal should be expedited. I certify that the preceding forty (40) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Mansfield J. Associate: Dated: 20 July 2005 Counsel for the Applicant: M O'Bryan Solicitor for the Applicant: Australian Government Solicitor Counsel for the First & Second Respondents: N Hutley SC with S Pritchard Solicitor for the First & Second Respondents: Gilbert & Tobin Date of Hearing: 6 May 2005 Date of Judgment: 20 July 2005