FEDERAL COURT OF AUSTRALIA Australian Competition & Consumer Commission v Original Mama's Pizza & Ribs Pty Ltd [2008] FCA 370 TRADE AND COMMERCE – Trade Practices Act 1974 (Cth) and related legislation – consumer protection – misleading or deceptive conduct or false representations – operation of s 51AF(2) and parallel provisions in the Australian Securities and Investment Commission Act 2001 (Cth) TRADE AND COMMERCE – Trade Practices Act 1974 (Cth) – enforcement and remedies – s 83 – an evidentiary provision, not a positive remedy for instant applicants TRADE AND COMMERCE – Australian Securities and Investment Act 2001 (Cth) – consumer protection WORDS AND PHRASES – "in relation to financial services" Australian Securities and Investment Act 2001 (Cth) ss 12BAA, 12BAB Trade Practices Act 1974 (Cth)s 51AF, 83 Financial Services Reform Act 2001 (Cth) Financial Sector Reform (Consequential Amendments) Act 1998 (Cth) Australian Securities & Investment Commission Regulations 2001 (Cth) Mahoney v AGD Mining Ltd (2003) 23 ATPR 46-523; [2002] FMCA 237 Cleary v Australian Co-operative Foods (No.2) (1999) 32 ACSR 701 discussed Workers' Compensation Board of Queensland vTechnical Products Proprietary Limited (1988)165 CLR 642 applied Technical Products Pty Limited v State Government Insurance Office (Queensland) (1989) 167 CLR 45 applied Australian Securities & Investment Commission v Citrofresh [2007] FCA 1873 approved Parkdale Custom Furniture Pty Ltd v Puxn Pty Ltd (1981-2) 149 CLR 191 Yorke v Lucas (1985) 158 CLR 661 Medical Benefits Fund of Australia Limited v Cassidy (2003) 135 FCR 1 Ting v Blanche (1993) 118 ALR 543 FuturetronicsInternational Pty Ltd v Gadzhis [1992] 2 VR 217 Australian Competition & Consumer Commission v Michigan Group Pty Ltd (ACN 065 378 029) [2002] FCA 1439 applied Australian Competition and Consumer Commission v Chen (2003) 132 FCR 309 Australian Competition and Consumer Commission v Albert [2005] FCA 1311 Australian Competition & Consumer Commission v Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union [2004] FCA 517 Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 applied ACCC v Leahy Petroleum (No 2) [2005] FCA 254 discussed Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2006] FCA 244 discussed Australian Competition & Consumer Commission v Emerald Ocean Distributors Pty Ltd [2004] FCA 303 discussed AUSTRALIAN COMPETITION AND CONSUMER COMMISSION AND CHIEF EXECUTIVE OFFICER OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v ORIGINAL MAMA'S PIZZA AND RIBS PTY LTD (ACN 093 465 046), GEORGE TERENCE HILDER AND RICHARD SOO NSD 2333 OF 2005 MADGWICK J 18 MARCH 2008 SYDNEY IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 2333 OF 2005 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION First Applicant CHIEF EXECUTIVE OFFICER OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Second Applicant AND: ORIGINAL MAMA'S PIZZA AND RIBS PTY LTD (ACN 093 465 046) First Respondent GEORGE TERENCE HILDER Second Respondent RICHARD SOO Third Respondent JUDGE: MADGWICK J DATE OF ORDER: 18 MARCH 2008 WHERE MADE: SYDNEY THE COURT DECLARES THAT: Re Violet Town Coffee Shoppe and the first respondent 1. On around 5 October 2001, the first respondent: (a) in trade and commerce; (b) in the course of offering to supply goods, namely, an oven system, to Fourourkidz Pty Ltd, the proprietor of a cafe and mixed business trading as "Violet Town Coffee Shoppe"; and (c) in the course of arranging for Fourourkidz Pty Ltd to enter into a lease with a third-party financier in order to lease an oven, made the following representations to Rachelle Jeffery and Darren Jeffery, agents of Fourourkidz Pty Ltd, as to the existence and/or effect of rights: (i) that if they were not satisfied with the oven, and provided that a 12 month period had expired since the oven was supplied, they had a right to require the first respondent to take the oven back whereupon they would be released from all financial obligations in respect of the oven; and (ii) if they were not satisfied with the oven, and provided that a 12 month period had expired since the oven was supplied, they had a right to require the first respondent to cancel the lease with the financier whereupon they would be released from all financial obligations in respect of the oven, whereas in fact there were no such rights or no such unconditional rights, or alternatively, if the representations were representations as to future matters, the first respondent did not have reasonable grounds for making those representations, and thereby: (A) engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974 (Cth) (TPA); and (B) made false or misleading representations concerning the existence or effect of a right in contravention of s 53(g) of the TPA. Re BP Silverwater and the first respondent 2. Between around August 2002 to July 2003, the first respondent: (a) in trade and commerce; (b) in the course of offering to supply goods, namely, an oven system, to Nader-One Pty Ltd, the proprietor of a petrol station trading as "BP Silverwater"; and (c) in the course of arranging for Nader-One Pty Ltd to enter into a lease with a third-party financier in order to lease an oven, made the following representations to Ziad Nader, an agent of Nader-One Pty Ltd, as to the existence and/or effect of rights: (i) that if Nader-One Pty Ltd was not satisfied with the oven, and provided that a 6 month period or a 12 month period had expired since the oven was supplied, Nader-One Pty Ltd had a right to require the first respondent to take the oven back whereupon Nader-One Pty Ltd would be released from all financial obligations in respect of the oven; and (ii) if Nader-One Pty Ltd was not satisfied with the oven, and provided that a 6 month period had expired since the oven was supplied, Nader-One Pty Ltd had a right to cancel the lease with the financier whereupon Nader-One Pty Ltd would be released from all financial obligations in respect of the oven; whereas in fact there were no such rights or no such unconditional rights, or alternatively, if the representations are representations as to future matters, the first respondent did not have reasonable grounds for making those representations, and thereby: (A) engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the Australian Securities and Investment Act 2001 (Cth) (ASIC Act); and (B) made false or misleading representations concerning the existence or effect of a right in contravention of s 12DB(1)(g) of the ASIC Act. 3. Between around August 2002 and December 2002, the first respondent: (a) in trade and commerce; (b) in the course of offering to supply goods, namely, an oven system, to Nader-One Pty Ltd, the proprietor of a petrol station trading as "BP Silverwater"; and (c) in the course of arranging for Nader-One Pty Ltd to enter into a lease with a third-party financier in order to lease an oven, made the following representations to Ziad Nader, an agent of Nader-One Pty Ltd: (i) the oven would be supplied for a 6 month trial period after which time the first respondent would take it back if Nader-One Pty Ltd was not satisfied with it and Nader-One Pty Ltd would have no further financial obligations in relation to the oven; and (ii) the supply of the oven was financially risk free to Nader-One Pty Ltd, whereas in fact: (A) there was no 6 month trial period and no entitlement to be released from financial obligations in relation to the oven after 6 months had elapsed, or alternatively, if the representation was a representation as to future matters, the first respondent did not have reasonable grounds for making that representation; and (B) the supply of the oven did present a financial risk to Nader-One Pty Ltd, or alternatively, if the representation was a representation as to future matters, the first respondent did not have reasonable grounds for making that representation, and thereby engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act. Re City Quick Stop and the first respondent 4. From around November 2002 to February 2003, the first respondent: (a) in trade and commerce; (b) in the course of offering to supply goods, namely an oven system, to Hi-Jaz Pty Ltd, the proprietor of a convenience store trading as "City Quick Stop"; and (c) in the course of arranging for Hi-Jaz Pty Ltd to enter into a lease with a third-party financier in order to lease an oven, made the following representations to Yasser Hijazi, an agent of Hi-Jaz Pty Ltd, as to the existence and/or effect of rights: (i) that if Hi-Jaz Pty Ltd was not satisfied with the oven, and provided that a 6 month period had expired since the oven was supplied, Hi-Jaz Pty Ltd had a right to require the first respondent to take the oven back whereupon Hi-Jaz Pty Ltd would be released from all financial obligations in respect of the oven. whereas in fact there were no such rights or no such unconditional rights, or alternatively, if the representations are representations as to future matters, the first respondent did not have reasonable grounds for making those representations, and thereby: (A) engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act; and (B) made false or misleading representations concerning the existence or effect of a right in contravention of s 12DB(1)(g) of the ASIC Act. 5. From around November 2002 until February 2003, the first respondent: (a) in trade and commerce; (b) in the course of offering to supply goods, namely, an oven system, to Hi-Jaz Pty Ltd, the proprietor of a convenience store trading as "City Quick Stop"; and (c) in the course of arranging for Hi-Jaz Pty Ltd to enter into a lease with a third-party financier in order to lease an oven, made the following representations to Yasser Hijazi, an agent of Hi-Jaz Pty Ltd: (i) the oven would be supplied for a 6 month trial period after which time the first respondent would take it back if Hi-Jaz Pty Ltd was not satisfied with it and Hi-Jaz Pty Ltd would have no further financial obligations in relation to the oven; and (ii) the supply of the oven was financially risk free to Hi-Jaz Pty Ltd. whereas in fact: (A) there was no 6 month trial period and no entitlement to be released from financial obligations in relation to the oven after 6 months had elapsed, or alternatively, if the representation was a representation as to future matters, the first respondent did not have reasonable grounds for making that representation; and (B) the supply of the oven did present a financial risk to Hi-Jaz Ply Ltd, or alternatively, if the representation was a representation as to future matters, the first respondent did not have reasonable grounds for making that representation. and thereby engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act. Re PV Corner Store and the first respondent 6. From around February 2003 until mid-May 2003, the first respondent: (a) in trade and commerce; (b) in the course of offering to supply goods, namely, an oven system, to Gen Hong, the proprietor of a convenience store trading as "PV Corner Store"; and (c) in the course of arranging for Gen Hong to enter into a lease with a third-party financier in order to lease an oven, made the following representations to him as to the existence and/or effect of rights: (i) that if he was not satisfied with the oven, and provided that a 6 month period had expired since the oven was supplied, he had a right to require the first respondent to take the oven back whereupon he would be released from all financial obligations in respect of the oven; and (ii) if he was not satisfied with the oven, and provided that a 6 month period had expired since the oven was supplied, he had a right to cancel the lease with the financier whereupon he would be released from all financial obligations in respect of the oven, whereas in fact there were no such rights or no such unconditional rights, or alternatively, if the representations were representations as to future matters, the first respondent did not have reasonable grounds for making those representations, and thereby: (A) engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act; and (B) made false or misleading representations concerning the existence or effect of a right in contravention of s 12DB(1)(g) of the ASIC Act. 7. From around February 2003 until April 2003, the first respondent: (a) in trade and commerce; (b) in the course of offering to supply goods, namely, an oven system, to Gen Hong, the proprietor of a convenience store trading as "PV Corner Store"; and (c) in the course of arranging for Gen Hong to enter into a lease with a third-party financier in order to lease an oven, made the following representations to Gen Hong: (i) the oven would be supplied for a 6 month trial period after which time the first respondent would take it back if he was not satisfied with it and he would have no further financial obligations in relation to the oven; and (ii) the supply of the oven was financially risk free to him. whereas in fact: (A) there was no 6 month trial period and no entitlement to be released from financial obligations in relation to the oven after 6 months had elapsed, or alternatively, if the representation was a representation as to future matters, the first respondent did not. have reasonable grounds for making that representation; and (B) the supply of the oven did present a financial risk to him, or alternatively, if the representation was a representation as to future matters, the first respondent did not have reasonable grounds for making that representation. and thereby engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act. Re Mr Mac's and the first respondent 8. From around March 2003 to April 2003, the first respondent: (a) in trade and commerce; (b) in the course of offering to supply goods, namely, an oven system, to Michael Macarounas, the proprietor of a convenience store trading as "Mr Mac's"; and (c) in the course of arranging for Michael Macarounas to enter into a lease with a third-party financier in order to lease an oven, made the following representations to him as to the existence and/or effect of rights: (i) that if he were not satisfied with the oven, and provided that a 6 month period had expired since the oven was supplied, he had a right to require the first respondent to take the oven back whereupon he would be released from all financial obligations in respect of the oven; and (ii) if he was not satisfied with the oven, and provided that a 6 month period had expired since the oven was supplied, he had a right to cancel the lease with the financier whereupon he would be released from all financial obligations in respect of the oven, whereas in fact there were no such rights or no such unconditional rights, or alternatively, if the representations were representations as to future matters, the first respondent did not have reasonable grounds for making those representations, and thereby: (A) engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act; and (B) made false or misleading representations concerning the existence or effect of a right in contravention of s 12DB(1)(g) of the ASIC Act. 9. From around March 2003 to April 2003, the first respondent: (a) in trade and commerce; (b) in the course of offering to supply goods, namely, an oven system, to Michael Macarounas, the proprietor of a convenience store trading as "Mr Mac's"; and (c) in the course of arranging for Michael Macarounas to enter into a lease with a third-party financier in order to lease an oven, made the following representations to Michael Macarounas: (i) the oven would be supplied for a 6 month trial period after which time the first respondent would take it back if he was not satisfied with it and he would have no further financial obligations in relation to the oven; and (ii) the lease for the oven was for a period of 6 months, whereas in fact: (A) there was no 6 month trial period and no entitlement to be released from financial obligations in relation to the oven after 6 months had elapsed, or alternatively, if the representation was a representation as to future matters, the first respondent did not have reasonable grounds for making that representation; and (B) the lease for the oven was for a period of 60 months, or alternatively, if the representation was a representation as to future matters, the first respondent did not have reasonable grounds for making that representation, and thereby engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act. Declarations in relation to the second respondent 10. The second respondent: (a) aided, abetted, counselled or procured the first respondent's contraventions of ss 52 and 53(g) of the TPA and, where the conduct occurred after 11 March 2002, ss 12DA(1) and 12DB(1)(g) of the ASIC Act, described in paragraphs 1, 2, 4, 6 and 8 above; (b) was knowingly concerned in and party to the first respondent's contraventions of ss 52 and 53(g) of the TPA and, where the conduct occurred after 11 March 2002, ss 12DA(1) and 12DB(1)(g) of the ASIC Act, described in paragraphs 1, 2, 4, 6 and 8 above; (c) aided, abetted, counselled or procured the first respondent's contraventions of s 12DA(1) of the ASIC Act, described in paragraphs 3, 5, 7 and 9 above; (d) was knowingly concerned in and party to the first respondent's contraventions of s 12DA(1) of the ASIC Act, described in paragraphs 3, 5, 7 and 9 above; in that he made each of the representations referred to in those paragraphs on behalf of the first respondent in circumstances where he knew the representations were false and misleading or deceptive, or likely to mislead or deceive, or alternatively, if a representation referred to was with respect to a future matter, he knew that there were no reasonable grounds for making the representation. Declarations in relation to the third respondent 11. The third respondent: (a) aided, abetted, counselled or procured the first respondent's contraventions of ss 12DA(1) and 12DB(1)(g) of the ASIC Act, described in paragraphs 4 and 6; (b) was knowingly concerned in and party to the first respondent's contraventions of ss 12DA(1) and 12DB(1)(g) of the ASIC Act, described in paragraphs 4 and 6; (c) aided, abetted, counselled or procured the first respondent's contraventions of s 12DA(1) of the ASIC Act, described in paragraphs 5 and 7; (d) was knowingly concerned in and party to the first respondent's contraventions of s 12DA(1) of the ASIC Act, described in paragraphs 5 and 7; in that he made or was party to each of the representations referred to in those paragraphs on behalf of the first respondent in circumstances where he knew the representations were misleading or deceptive, or likely to mislead or deceive, or alternatively, if a representation referred to was with respect to a future matter, he knew that there were no reasonable grounds for making the representation. THE COURT ORDERS THAT: Injunctions 12. Pursuant to s 80 of the TPA and s 12GD of the ASIC Act for a period of 7 years, the second respondent is restrained from aiding, abetting, counselling or procuring or being in any way knowingly concerned in or party to the first respondent or any other corporation, in connection with the promotion of, or supply or possible supply to proprietors of retail food establishments including but without limitation convenience stores, milkbars, cafes and petrol stations of: (a) ovens or oven systems; and (b) any other piece of equipment used to heat, cool or otherwise prepare food or drink for sale to customers (collectively "Equipment"), making, or causing any other person to make, any representation in trade or commerce to such proprietors or their agents to the effect that: (A) they have a right to require the first respondent or another corporation to take back the Equipment after a stipulated time period whereupon the proprietor will be released from all financial obligations in respect of the Equipment; (B) they have a right to cancel any financing agreement entered into with a financier to fund the acquisition of the Equipment after a stipulated time period; (C) the Equipment is supplied on a trial period for a stipulated time period after which time they have a right to require the first respondent to take back the Equipment, whereupon the proprietor will be released from all financial obligations in respect of the Equipment; (D) the supply of the Equipment is financially risk free to the proprietor; and (E) the financing agreement pursuant to which the Equipment is supplied is for a specified duration, where there are continuing financial obligations by the proprietor to any person extending beyond the stipulated time period. 13. Pursuant to s 12GD of the ASIC Act, for a period of 7 years, the third respondent is restrained from aiding, abetting, counselling or procuring or being in any way knowingly concerned in or party to the first respondent or any other corporation, in connection with the promotion of, or supply or possible supply to proprietors of retail food establishments including but without limitation convenience stores, milkbars, cafes and petrol stations of: (a) ovens or oven systems; and (b) any other piece of equipment used to heat, cool or otherwise prepare food or drink for sale to customers (collectively "Equipment"), making, or causing any other person to make, any representation in trade or commerce to such proprietors or their agents to the effect that: (A) they have a right to require the first respondent or another corporation to take back the Equipment after a stipulated time period whereupon the proprietor will be released from all financial obligations in respect of the Equipment; (B) they have a right to cancel any financing agreement entered into with a financier to fund the acquisition of the Equipment after a stipulated time period; (C) the Equipment is supplied on a trial period for a stipulated time period after which time they have a right to require the first respondent to take back the Equipment, whereupon the proprietor will be released from all financial obligations in respect of the Equipment; (D) the supply of the Equipment is financially risk free to the proprietor; and (E) the financing agreement pursuant to which the Equipment is supplied is for a specified duration, where there are continuing financial obligations by the proprietor to any person extending beyond the stipulated time period. Protective orders 14. Pursuant to s 86C(2)(c) of the TPA and/or s 12GLA(2)(c) of the ASIC Act, within 30 days, the second respondent and third respondent each provide to the applicants a document (Schedule) which lists every such person or business (Proprietor) to whom they have supplied an oven, oven system or any other piece of equipment used to heat, cool or otherwise prepare food or drink for sale to customers (collectively, Equipment), and provide the following details in that Schedule in relation to each Proprietor: (a) their name; (b) their trading name; (c) their street address and if different, their postal address; (d) their telephone numbers (including mobile numbers); (e) their facsimile numbers; (f) the nature of the Equipment supplied; (g) the name, address and telephone number of the person or business which provided finance in respect of the Equipment supplied to the Proprietor, be it through a lease, hire, hire purchase, chattel mortgage agreement or otherwise; and (h) the amount of the finance referred to in sub-paragraph (g) above. 15. Pursuant to s 86C(2)(c) of the TPA and/or s 12GLA(2)(c) of the ASIC Act, the second respondent, and the third respondent each, and at their own expense, within 30 days, write to and cause to be sent to every Proprietor identified in the Schedule referred to in the preceding paragraph a letter which: (a) accurately summarises the Court's orders and reasons for judgment in these proceedings; (b) encloses a copy of the Court's orders and reasons for judgment in these proceedings; (c) advises them of their entitlement under ss 82 and 87 of the TPA and/or ss 12GF and 12GM of the ASIC Act, to commence proceedings against the first respondent, the second respondent, and the third respondent (as relevant) seeking damages or other relief if the Proprietor considers that they have suffered or are likely to suffer loss or damage as a result of any of the representations made by the first respondent, the second respondent or the third respondent (as relevant) which are the same as or similar to those representations described in the Court's orders and reasons for judgment; and (d) accurately summarises the effect of s 83 of the TPA and s 12GG of the ASIC Act, and of the Proprietor's entitlement to seek to rely upon that provision in any proceedings they may choose to commence against the first respondent, the second respondent or the third respondent (as relevant), and provide the text of every such letter to the applicants for approval prior to it being sent, and every such letter is to be copied to the applicants. 16. Pursuant to s 86C(2)(d) of the TPA and/or s 12GLA(2)(d) of the ASIC Act, the second respondent, and the third respondent each, and at their own expense, within 30 days, publish an advertisement: (a) in a daily newspaper circulating in each geographical region of Australia in which that respondent has supplied, or been involved in supplying, an oven, oven system or any other piece of equipment used to heat, cool or otherwise prepare food or drink for sale to customers (collectively, Equipment) to any person or business (Proprietor); (b) in font size no smaller than 14 point; (c) which accurately summarises the Court's orders and reasons for judgment in these proceedings; (d) which advises Proprietors of their entitlement under ss 82 and 87 of the TPA and/or ss 12GF and 12GM of the ASIC Act, to commence proceedings against the first respondent, the second respondent, and the third respondent (as relevant) seeking damages or other relief if the Proprietor considers that they have suffered or are likely to suffer loss or damage as a result of any of the representations made by the first respondent, the second respondent or the third respondent (as relevant) which are the same as or similar to those representations described in the Court's orders and reasons for judgment; and (e) which accurately summarises the effect, of s 83 of the TPA and s 12GG of the ASIC Act, and of the Proprietor's entitlement to seek to rely upon that provision in any proceedings they may choose to commence against the first respondent, the second respondent or the third respondent (as relevant), and provide the text of every such advertisement to the applicants for approval prior to its publication, and advise the applicants in writing within seven days of the date of the publication of any such advertisement. 17. Pursuant to s 86C(2)(c) of the TPA and/or s 12GLA(2)(c) of the ASIC Act, within 30 days, the second respondent and third respondent each provide to the applicants a document (Schedule) which lists every business or person (Financier) who or which has provided finance (be it through a lease, hire, hire purchase, chattel mortgage agreement or otherwise) to any business or person to whom any of the Respondents has supplied an oven, oven system or any other piece of equipment used to heat, cool or otherwise prepare food or drink for sale to customers (collectively, Equipment), and provide the following details in that Schedule in relation to each Financier. (a) their name; (b) their trading name; (c) their street address and if different, their postal address; (d) their telephone numbers (including mobile numbers); (e) their facsimile numbers; and (f) the nature of the Equipment in respect to which the Financier provided finance. 18. The second respondent and third respondent each file and serve upon the applicants an affidavit verifying their compliance with the Court's orders referred to in paras 14 to 17 above within 60 days of the Court's orders. 19. The second and third respondents each have liberty to apply, within 21 days on 48 hours' notice, to the Court in relation to any bona fide difficulty in complying with Orders 14-18 inclusive. Costs 20. The second respondent is to pay the applicant's costs and the third respondent is to pay one-fifth of the applicant's costs, as assessed or taxed. 21. As to such one-fifth, as between themselves, the second and third respondents are to be equally liable there for. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY NSD 2333 OF 2005 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION First Applicant CHIEF EXECUTIVE OFFICER OF THE AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Second Applicant AND: ORIGINAL MAMA'S PIZZA AND RIBS PTY LTD (ACN 093 465 046) First Respondent GEORGE TERENCE HILDER Second Respondent RICHARD SOO Third Respondent JUDGE: MADGWICK J DATE: 18 MARCH 2008 PLACE: SYDNEY REASONS FOR JUDGMENT hIS hONOUR 1 This is an application for relief brought under the Trade Practices Act 1974 (Cth) (TPA)and the Australian Securities and Investments Commission Act 2001 (Cth) (ASIC Act) alleging misleading and deceptive conduct. Introduction 2 The applicants contend that the second and third respondents made false and misleading representations on behalf of the first respondent, Original Mama's Pizza and Ribs Pty Ltd (Mama's), to the proprietors of five separate small businesses. The applicants submit that by these representations, Mama's breached ss 52 and 53(g) of the TPAand, so far as the impugned conduct occurred after 11 March 2002, ss 12DA(1) and 12DB(1)(g) of the ASIC Act. These provisions are virtually identical. The reasons for the inclusion of the two applicants and the distinct application of the parallel provisions are explained below. The applicants submit that the second and third respondents aided and abetted various of Mama's contraventions, and were knowingly concerned in and a party to the respective misleading conduct complained of. 3 All of the representations the subject of complaint were made in the course of arranging for "pizza oven systems" to be supplied to the business owners. Each of the oven systems supplied to those proprietors was subject to a finance arrangement with a third-party finance company. The representations made, and the details of the finance arrangement, differed in some cases. The circumstances surrounding the representations, and the details of the representations are set out below. Mr Hilder's conception of the business and Mama's methods generally 4 It makes better sense of the evidence given as to the five transactions in question to record some background material. 5 At relevant times, it was apparently not uncommon for foodstuffs distributors, for example of soft drink and coffee, to make available to retail outlets valuable equipment at no or concessional cost. 6 Mama's was incorporated in about June 2000 and traded until about August 2003. It was liquidated in February 2006. Mama's employed at various times a total of four sales representatives, including Mr Soo (the third respondent). 7 Mr Hilder (the second respondent) was the controlling force of Mama's – its founder, principal brains and main sales and organisational hand. It is fair to see Mama's as his corporate alter ego. 8 Mr Hilder is in his 60s and Mr Soo in his 50s. Both had experience of arranging finance contracts in connection with the sale of food preparation/dispensing and other machines used by take-away food outlets and others. Each was an astute and experienced salesman of such machines to such buyers. Each had a good basic understanding of the usual tightness of standard form contracts employed by financiers of such transactions and of their usual insistence that finance contracts be adhered to by the borrowers. 9 Mr Hilder had had associations with other ventures, involving the supply of such equipment to food outlets. 10 Before any of the five cases investigated here, Mr Hilder had previously supplied pizza systems using other trading names or product description such as Countrylink Promotions and Pub Pizza. He also had some substantial connection with a business called the Original Poppa's Pizza and Ribs. 11 Mr Hilder estimated that, by late 2003, via one or more of his ventures, he had supplied about 250 customers with pizza oven systems. (Mama's financial records suggested fewer sales). Only about 10 purchasers paid cash. The others were signed up with third-party financiers for terms generally of 48 or 60 months. The precise nature of the finance contracts varied. It was Mr Hilder's role to train the sales representatives as to what they should say to prospective customers. They would accompany him to see and hear what Mr Hilder said and did. 12 Mama's neither built the ovens nor made the uncooked pizzas it was envisaged the purchasers would use. The sole source of income was the price paid for the ovens by the purchasers. Overwhelmingly the sale prices were in fact paid by the third-party financiers who legally became the owners of the ovens, as Mr Hilder and Mr Soo well knew. 13 Part of the system marketed by Mama's was that oven-buyers would obtain uncooked pizzas from suppliers nominated by Mama's. An apparently unrelated Brisbane firm called Mario's Pizzas (Mario's) originally supplied the pizza makings and continued to do so until 2003. Mr Hilder said that he and his brother had operated a pizza shop in Brisbane, that Mario's devised "the whole concept" and asked him if he would be interested in selling it. He was. Mr Hilder said he had an arrangement with Mario's whereby if the oven recipients sold (and therefore purchased) a certain value of pizza ingredients manufactured by Mario's each week, Mario's would refund to the customer, via Mama's, an amount equal to the monthly instalment payable to the financier for the oven. 14 Mr Hilder's (i.e. Mama's) business involved: (i) buying the ovens and associated electrical and other signs for about $7,000 (plus GST) from Mario's. (ii) Selling them with a large mark-up, initially, for about $15,000 and rising to about $19,500 (present cash values) plus GST later. (iii) Demonstrating what was a demonstrable calculation, namely that if an oven buyer sold a fairly small number of pizzas on a daily basis, the customer could thereby afford the monthly repayment of the price, as financed. (iv) Representing to prospective customers that, if they were good at promoting and selling the pizzas, they should be able to make a decent profit out of the oven. (v) Because of the large mark-up, Mr Hilder felt able to tell customers that, if they gave the system a "fair go" for a nominated period, usually 6 months, but were not making any money from it, he would take the oven etc back, pay out the financier and resell it, with no extra expense for the customer. (vi) Mr Hilder felt that the mark-up was also sufficient to enable him to offer to pay, from what Mama's received from the financier, the first six months' "rent" to the financier, and he did so offer. (vii) In about 90% of cases customers were given a document headed "Deed of Assignment". Its usual form was: I hereby authorize The Original Mama's Pizza & Ribs Pty Limited to sell the equipment supplied to me by Mama's Pizza and Ribs on the (date) The Equipment being ________________________________________________ I understand the equipment will be sold for an amount equal to the full amount owing and that this will cease any obligation held by myself with my Financier. This agreement cannot be enforced by myself for [a stated period, usually 6 months] from the time of delivery of the goods. DATED: __________________________________________ SIGNED: __________________________________________ FOR AND BEHALF OF: ________________________________________ (Company name if applicable) Copies: 1 to be retained by Assignee 1 to Mama's Pizza & Ribs Special Conditions if applicable: __________________________________________________________________ __________________________________________________________________ (viii) Customers were typically told that this document established that they had a right to exit the arrangement after the stated period without any future financial liability, provided the system was, after a fair trial, proving to be not commercially viable. (ix) Customers who did "buy" an oven were generally given a cheque by Mama's equal to the first six months' payments due to the financier. 15 Mama's financial statements indicated oven sales of the following order: Year ending 30.6.2001 30.6.2002 30.6.2003 30.6.2004 Number sold 21 14 50 1 16 Mr Hilder wished the Court to believe that it was easy to sell the pizza ovens, for want of a competitor, and that it would be easy to resell them. However Mr Soo told a different story. It appears that Mr Soo, an experienced salesman, sold about 17 ovens in over a year. However, on a fairly conservative estimate, he canvassed well over 1000 prospects to achieve that result, that is he had to canvass an average of 70 plus establishments to effect a sale of a new machine. As Mr Soo sensibly agreed, it would be harder to sell a second hand machine than a new one. The picture presented by Mr Soo is the more likely one. 17 My conclusion is that it never was a realistic or reasonable thing to suggest that Mama's could, without substantial cost to it, pay out the finance contract of a dissatisfied customer so as to free the customer of obligations to the financier upon return of an oven as contemplated by the Deed of Assignment. As a practical matter, it was unlikely that second-hand ovens could be quickly resold. Unless resold, there would be a very large expense to Mama's in relation to a returned oven, if the purchaser were to be relieved of all obligations to the financier. Mr Hilder and Mama's proved reluctant to take the ovens back. 18 It is now convenient to summarise the stories in relation to each "buyer" of the pizza system. 1. Violet Town Coffee Shoppe 19 Rachelle Jeffery and her husband Darren Jeffery are the directors of Forourkidz Pty Ltd (Fourourkidz). Fourourkidz owned a coffee shop/mixed business in Violet Town, in western Victoria. Forourkidz operated the business until it leased the shop to another operator in April 2003. 20 In late August or early September 2001 Mr and Mrs Jeffery met Mr Hilder. In the course of arranging to purchase a car from Mr Hilder, Mr and Mrs Jeffery expressed interest in a pizza system similar to that which Mr Hilder told them he was organising for a nearby hotel. Mr Hilder subsequently visited the shop a number of times in the next few weeks. 21 During one of these visits Mr Hilder described the pizza system to Mr and Mrs Jeffery in words to the following effect: It is a complete system. It comprises a pizza oven, a pizza cutter and paddles, illuminated display board, footpath sign, customer service training and monthly advertising and prompt supply of a quality product. The system is paid for over 48 monthly payments. If you purchase a set amount of stock a month we will make the monthly payment for you. 22 The Jefferys say that it was their belief that Mama's would lend Fourourkidz the money to buy the pizza system. Mr Hilder denies that he led them to believe that Mama's would be lending them any money. 23 On 5 October 2001 Mr Hilder met Mr and Mrs Jeffery to discuss the pizza system and have the necessary documentation signed. The Jefferys say that this was the first time they became aware that the finance for the oven was to come from Esanda Finance Corporation Limited (Esanda). Mr Hilder asserts that the Jefferys were aware prior to this that their finance was to come from Esanda. The Jefferys also say that 5 October 2001 was the first time they were told the total cost of the pizza system: $28,914.48, being $21,450 for the oven, $192 "establishment fee" (presumably for Esanda), $5,322.48 term charges and $1,950 GST. 24 Mr and Mrs Jeffery understood from Mr Hilder that there would be a 12 month trial period of the pizza system. According to them, the nature of the trial period was that Mama's would make the repayments on the system for the first six months, and the second six months was a "probationary period". The Jefferys assert that Mr Hilder said words to the effect: After the 12 months is up, if the system does not work for you, we will take back the equipment and we will cancel the arrangements with the finance company. Also we will provide you with an incentive scheme whereby you do not have to make the monthly repayment if you purchase $1,000 of stock in that month; and an initial no repayment period of six months. Mr Hilder denies making these statements. 25 The purported assurance of the 12 month trial period was contained in a document of the "Deed of Assignment" type which Mr Hilder handed to the Jefferys. This document stated: I hereby authorize The Original Mama's Pizza & Ribs Pty Limited to sell the equipment supplied to me by Mama's Pizza and Ribs on the (Date) 05.10.01. The Equipment being [blank]. I understand the equipment will be sold for an amount equal to the full amount owing and that this will cease any obligation held by myself with my Financier. This agreement cannot be enforced by myself for one calendar year from the date of delivery of the goods. 26 With respect to the Deed of Assignment, Mr Hilder told the Jefferys words to the effect: This will allow you to cancel the contract at any time after the first 12 months. The 12 months is made up of a six month no repayment period and a six month trial period … At the end of the combined 12 months period you will be allowed to exit the deal if you do not think it is working for you. Mama's Pizza would include it in the contract as a guarantee to you. 27 The document was signed by Mrs Jeffery on behalf of Fourourkidz and is dated 5 October 2001. She also added the following handwritten comments under the section titled "Special Conditions if applicable": - Sale or lease of premises and new proprietors wish to cancel agreement. - Do not sell $1,000 per month after 6 mth probationary period. 28 After the lease documents and the Deed of Assignment were signed, Mr Hilder gave Mrs Jeffery a cheque for $2,494.80 made out to Fourourkidz Pty Ltd. He told her that it was the money "to cover the six month no repayment period". The pizza system was delivered to the shop on the same day. 29 Mr Hilder asserts that he told the Jefferys that they were required to give the system a "fair go" and do everything that they could to make the system work. If, at the end of 12 months, the Jefferys could demonstrate that the system was not viable, then Mama's would sell the equipment for them and pay the finance company any money still owed. The Jefferys deny that these additional conditions were stated by Mr Hilder, although Mr Jeffery admits that Mr Hilder said that they had to give the system "a go". 30 Mr Hilder says that two weeks after the lease was entered into, he had a conversation with Mr Jeffery in which Mr Jeffery said words to the effect: I will no longer sell Mama's brand pizzas and I will cease to display Mama's sign. I am going to put up my own signs and make my own pizzas. Mr Hilder says that he then said: In that event, you are making a commercial decision not to sell Mama's product after you have sampled the same and made a commercial decision to lease the equipment and accepted the free stock offered. All agreements between Mama's and you are no longer legal and binding. Mr Jeffery denies that words to this effect were said either by himself or Mr Hilder. 31 In September 2002 Mrs Jeffery took steps to terminate the agreement with Esanda and arrange for the oven to be sold by Mr Hilder, in accordance with her understanding of the Deed of Assignment. She wrote letters dated 18 September 2002 to this effect to both Esanda and Mr Hilder at Mama's. Mrs Jeffery was contacted by Esanda and told that the finance contract could not be cancelled. When she referred to the Deed of Assignment she was told that investigations would be made. However the Jefferys subsequently received a Repossession Warning from Esanda with respect to payments in arrears. The Jefferys say that they attempted to contact Mr Hilder by telephone and letter, and received no response. Mr Hilder denies that he did not return calls but admits he received a letter dated 18 September 2002 requesting termination of the contract in accordance with the Deed of Assignment. 32 On or about 8 November 2002 Mrs Jeffery received a letter from Mr Hilder in which he advised that Mama's was under no obligation to sell the equipment, but would assist if Esanda was willing to provide finance to a new owner of the oven. Mr Hilder claims that he sent a second letter dated 10 December 2002 which says that any agreement between the parties had been terminated following Mr Jeffery's decision to make additions to the pizzas supplied to the Jefferys. Mr and Mrs Jeffery deny ever having received this letter. 33 The applicants submit that the following representations were made by Mr Hilder, on behalf of Mama's, to the Jefferys: 1. if they were not satisfied with the oven, and provided that a 12 month period had expired since the oven was supplied, they had a right to require Mama's to take the oven back whereupon they would be released from all financial obligations in respect of the oven; and 2. if they were not satisfied with the oven, and provided that a 12 month period had expired since the oven was supplied, they had a right to require Mama's to cancel the lease with the financier whereupon they would be released from all financial obligations in respect of the oven. The applicants' case is that there were no such rights or no such unconditional rights, or, if the representations related to future matters, there were no reasonable grounds for making that representations. By making these representations, Mama's 1. engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 52 of the TPA; and 2. made false or misleading representations concerning the existence or effect of a right in contravention of s 53(g) of the TPA. 34 In response, the second respondent's case was that he never told the Jefferys that they had a right to cancel the lease with Esanda, or that Mama's could cancel the lease with Esanda. He further claimed that the representations included the conditions that the Jefferys give the oven a "fair go" and that Mama's would "reallocate" the system if they complied with this condition, and at all times during the 12 month trial, use stock supplied by a supplier appointed by Mama's. Mr Hilder says that Mrs Jefferys did not give the system a "fair go". 2. BP Silverwater (Mr Nader) 35 Until late March 2006, the BP service station at Silverwater was operated by Nader-One Pty Ltd (Nader-One). This company is owned by Ziad Nader in partnership with two of his brothers. Ziad Nader was the manager of BP Silverwater and worked there on a daily basis. 36 In around June 2002 he was approached by a man named Milan, an employee of Mama's. He asked if Mr Nader would be interested in a "completely risk free" pizza system and, after demonstrating the pizza oven at a later date, arranged for Brett Hilder (as he was known to Mr Nader) to come and meet Mr Nader. Shortly after this Mr Nader had a telephone conversation with Mr Hilder and they arranged to meet at BP Silverwater. 37 Mr Nader asserts, and Mr Hilder denies, that at this first meeting Mr Hilder said words to the effect of "You get the oven for a risk free 6 month trial period after which time we'll take it back if you're not happy". After this initial meeting Mr Nader says, and Mr Hilder denies, that Mr Hilder visited the service station on a frequent basis. In early to mid-August 2002 Mr Nader and Mr Hilder had a conversation regarding a six month trial period. Mr Nader claims that Mr Hilder said words to the effect: Taking the oven involves no risk, you can have a trial period for 6 months during which if the oven goes well you can keep it in the service station, if after 6 months it doesn't go so well then we will take the oven back. I will give you the first 6 months payment for the oven… 38 Mr Hilder denies saying words to this effect; while some such conversation took place he says that he said words to the effect: "You can trial the system for six months. … You give the system a fair go and if the system proves to be commercially not viable, I will reallocate the equipment. You must give the system a fair go". Mr Hilder admits that he told Mr Nader he would give him the first 6 months' payment for the oven. 39 In mid-October 2002 Mr Hilder returned to BP Silverwater with documents requiring Mr Nader's signature. Mr Nader says that by this time he trusted Mr Hilder so much that he did not read any of the documents he signed. Mr Nader states that he had received the impression that all arrangements were being entered into with Mama's alone, from what Mr Hilder had previously said. In particular, Mr Nader says that he had no idea that he would be dealing with a finance company, and that Mr Hilder had never mentioned any arrangements with any finance company. Mr Hilder denies having done or said anything to give Mr Nader the impression he had. 40 Delivery of the oven was effected in late October 2002, along with associated items, similar to those provided to the Jefferys. 41 After three to four months Mr Nader decided that he wanted to terminate the arrangement and contacted Mr Hilder to tell him so. Mr Nader says that he made numerous telephone calls to Mr Hilder. On the occasions that he was able to speak to Mr Hilder, Mr Nader says that he reiterated his wish to return the pizza oven to Mama's. Mr Nader says that, following these conversations, he was left with the impression that Mama's would soon take the oven back. However, Mr Hilder denies that he would have led Mr Nader to believe this. 42 According to Mr Nader, Mr Hilder came to BP Silverwater in mid-2003 with a document for him to sign. This document was a "Deed of Assignment" similar to that signed by the Jefferys. Mr Nader says that Mr Hilder assured him he would pick the oven up within one to two weeks. Mr Hilder conceded, among other things, that Mr Nader asked him to take back the oven and Mr Hilder said he would do so but he failed to take the oven away after six months had elapsed and that Mr Nader's obligations in relation to the oven did not then cease. Mr Hilder admits that he said words to the effect: "I will try and reallocate your equipment" and that he accepted Mr Nader's assertion that the system was not commercially viable. Mr Hilder did not return to BP Silverwater after this. 43 At about this time it became clear to Mr Nader that he had entered into a contract with GE Commercial Corporation (Aust) Pty Ltd (GE Commercial). He contacted GE Commercial and was provided with a copy of the documents he had signed and told that if he stopped making payments action would be taken against him. Nevertheless Mr Nader stopped making payments and the pizza system was duly repossessed. GE Commercial commenced legal proceedings against Mr Nader for the full amount owing: $21,956.17. 44 The respondents did not call the former Mama's employee Milan to give evidence nor explain his absence. 45 The applicants submit that, by presenting the "Deed of Assignment", Mama's, by Mr Hilder, made the following representations to Mr Nader as agent for Nader-One: 1. if Nader-One was not satisfied with the oven, and provided that a 6 month period had expired since the oven was supplied, Nader-One had a right to require Mama's to take the oven back whereupon Nader-One would be released from all financial obligations in respect of the oven; and 2. if Nader-One was not satisfied with the oven, and provided that a 6 month period had expired since the oven was supplied, Nader-One had a right to cancel the lease with GE Commercial whereupon Nader-One would be released from all financial obligations in respect of the oven However, the applicants say, there were no such rights or no such unconditional rights, or, if the representations related to future matters, there were no reasonable grounds for making those representations. By making these representations, Mama's 1. engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act; and 2. made false or misleading representations concerning the existence or effect of a right in contravention of s 12DB(1)(g) of the ASIC Act. 46 The applicants also submit that Mr Hilder otherwise made the following representations to Mr Nader: 1. The oven would be supplied for a 6 month trial period after which time Mama's would take it back if Nader-One was not satisfied with it and Nader-One would have no further financial obligations in relation to the oven; and 2. the supply of the oven was financially risk free to Nader-One, whereas in fact: 1. there was no six month trial period and no entitlement to be released from financial obligations in relation to the oven after six months had elapsed, and so far as the representation was a representation as to a future matter, there were not reasonable grounds for making that representation; and 2. the supply of the oven did present a financial risk to Nader-One because it remained bound to make repayments under the lease at the expiration of six months, and so far as the representation was a representation as to a future matter, there were not reasonable grounds for making that representation. By making these representations the applicants submit that Mama's engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act. 47 By the respondents' defence, Mama's and Mr Hilder denied having made these representations. However, Mr Hilder admitted during cross-examination that he had told Mr Nader that he could return the oven after six months if he was not happy with it, and have no further obligations in relation to the oven, provided that he demonstrated that the system was not commercially viable. He further admitted that he had implied to Mr Nader that taking on the system would be risk free. 3. City Quick Stop (Mr Hijazi) 48 Mr Yasser Hijazi was the managing director of Hi-Jaz Pty Ltd until it was deregistered in July 2005. Hi-Jaz Pty Ltd operated a store trading as City Quick Stop in Potts Point in inner Sydney. Since Hi-Jaz Pty Ltd was deregistered Mr Hijazi has continued to operate the shop as a sole trader. 49 In late 2002 Mr Hijazi was approached by the third respondent, Richard Soo, about the Mama's pizza system. Mr Hijazi says that Mr Soo then said to him words to the effect: "I know you're only interested in doing it for 6 months and we can arrange a 6 months free trial. If it doesn't work out, we will take everything back at no cost to you". Mr Soo denies that he said words to this effect. 50 After some further meetings with Mr Soo, Mr Hilder and Mr Soo came to meet Mr Hijazi in late November 2002 in order to have him sign documents related to the pizza oven system arrangements. Mr Hijazi states that he glanced over the documents but did not fully read them before signing. He did not suspect, and did not see anything in the documents which suggested, that he was entering an agreement with anyone other than Mama's. Mr Hijazi says he did not read the documents closely because he trusted Mr Soo and thought it was a risk free 6 month trial. Mr Hilder says that he saw Mr Hijazi read all the documents before signing them. After Mr Hijazi signed the documents, Mr Hilder gave him a cheque in the sum of $2,623.68 made payable to "Hi-Jaz". Mr Hijazi says that Mr Hilder said words to the effect: "This cheque is for the first 3 instalments you have to pay, to cover the Direct Debit payments". Mr Hilder then asked Mr Hijazi to draw a cheque payable to Business and Professional Leasing for $874.56 and said words to the effect: "This is to cover the first month's rental for the equipment. It is payable to the finance company that we are working with." Mr Hijazi says that, at that time, he thought that Mama's was getting the equipment from Business and Professional Leasing (B&P Leasing). Mr Hijazi says that the equipment the subject of the agreement was delivered by Richard Soo to City Quick Stop. Mr Hijazi says the oven he received was second-hand. 51 Mr Soo said that he was aware that under the lease Mr Hijazi was to be provided with a brand new oven. He would find it "quite surprising" if Mr Hijazi had not been delivered a new oven and agreed that that would not have been in accordance with the lease. It is to be noted that Mr Soo attended at the shop a short time after the oven was delivered (the same day) to deliver some free stock. Mr Hijazi further complains that he was given no instruction in how to operate the pizza oven. 52 Mr Hijazi subsequently attempted to contact Mr Soo and Mr Hilder, but was unsuccessful. About four months after signing the papers Mr Hijazi contacted his bank to stop direct debit payments to B&P Leasing. 53 He was later contacted by B&P Leasing advising that his rental payments were three months in arrears. Mr Hijazi telephoned B&P Leasing and was advised that the agreement he had entered into had been prepared by Mama's on behalf of B&P Leasing. Mr Hijazi told B&P Leasing of his intention to discontinue payment due to his problems with Mama's. He was informed that Mama's and Mr Hilder had "nothing to do with" B&P Leasing, and his liability was to the latter company. 54 On or about 31 March 2003 BPL (NSW) Pty Ltd commenced proceedings in the District Court of New South Wales against Hi-Jaz Pty Ltd and Mr Hijazi seeking to recover the money due under the rental agreement Mr Hijazi had signed. 55 The applicants submit that the following representation was made to Mr Hijazi as agent for Hi-Jaz Pty Ltd by Mama's through Mr Soo that if Hi-Jaz Pty Ltd was not satisfied with the oven, and provided that a 6 month period had expired since the oven was supplied, Hi-Jaz Pty Ltd had a right to require Mama's to take the oven back whereupon Hi-Jaz Pty Ltd would be released from all financial obligations in respect of the oven. Whereas in fact there were no such rights or no such unconditional rights, or, if the representation related to future matters, there was no reasonable ground for making the representations. By making this representation, Mama's: 1. engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of s 12DA(1) of the ASIC Act; and 2. made false or misleading representations concerning the existence or effect of a right in contravention of s 12DB(1)(g) of the ASIC Act. 56 The applicants further submit that Mama's also made the following representations to Mr Hijazi, as an agent of Hi-Jaz Pty Ltd: 1. the oven would be supplied for a 6 month trial period after which time Mama's would take it back if Hi-Jaz Pty Ltd was not satisfied with it and Hi-Jaz Pty Ltd would have no further financial obligations in relation to the oven; and 2. the supply of the oven was financially risk free to Hi-Jaz Pty Ltd; whereas in fact 1. there was no 6 month trial period and no entitlement to be released from financial obligations in relation to the oven after 6 months had elapsed, or alternatively, if the representation was a representation as to future matters, Mama's did not have reasonable grounds for making that representation. 2. the supply of the oven did present a financial risk to Hi-Jaz Pty Ltd, or alternatively, if the representation was a representation as to future matters, Mama's did not have reasonable grounds for making that representation. 57 By making these representations Mama's engaged in conduct that was misleading and deceptive or likely to mislead and deceive, in contravention of s 12DA(1) of the ASIC Act. 58 Mr Soo denies having made these representations. He says that Mr Hilder told Mr Hijazi he must give the system a "fair go" and purchase stock from a supplier nominated by Mama's. If these conditions were met, and the system was not commercially viable, Mama's would "re-allocate" the equipment to another customer. Mr Hilder acknowledged during his oral evidence that he did not explicitly tell Mr Hijazi that the agreement being signed was with a third-party finance company. 4. PV Corner Store (Ms Zhou and Mr Hong) 59 Mr Gen Hong and his wife Ms Yi Jian (Vivian) Zhou operated a mixed business in Paddington, Sydney called "PV Corner Store". In late February 2003 Ms Zhou was approached by Richard Soo and given a bundle of brochures for various food products, including pizzas. Ms Zhou gave these documents to Mr Hong. 60 Mr Soo subsequently visited the shop a number of times and discussed the pizza system with Mr Hong while Ms Zhou was present. Ms Zhou states that on one such occasion Mr Soo said words to the effect: "We are offering a 6 month free trial of the pizza system. We will pay for the oven for the first 6 months and if you are not happy with the system at any time after the first 6 months, we will take it away." Mr Hong also says that Mr Soo indicated that there would be a 6 month trial of the oven, after which time the oven could be returned. 61 Mr Soo denies making these comments and says that he would have said words to the effect: "As part of the system, you will receive free initial stock, 6 months rent upfront free to do what you wish with it and promotional material." 62 Ms Zhou states that Mr Hilder also visited the shop on a number of occasions and on one of these occasions Mr Hilder said words to the effect: Try our oven and try our product. The oven costs $3000. The first 6 months for the rent for the oven is free. You can try it for 6 months. If you are happy after 6 months you pay rent for the oven. If you're not happy after 6 months, you can give the oven back. You can stop any time after the first 6 months. 63 Ms Zhou and Mr Hong say that they were under the impression that they would enter into an arrangement with Mama's only. 64 In late March 2003 Mr Hilder and Mr Soo visited the shop with documents for Mr Hong and Ms Zhou to sign. During the signing process Mr Hong became aware that B&P Leasing was involved in the arrangement. Mr Hilder provided Mr Hong with a cheque for $2,161.09 made out to PV Corner Store and requested a cheque made out to B&P Leasing, which Mr Hong provided. 65 The oven (with other components of the pizza "system") was delivered to PV Corner Store a day or two after the papers were signed. Mr Hong and Ms Zhou say that it only subsequently became clear to them that the documents they had signed related to a leasing agreement entered into with B&P Leasing for a term of 60 months. Mr Hong and Ms Zhou both say that they were, at the time of signing, unaware that they were entering into an agreement for 60 months. 66 Mr Hong then contacted Mr Soo to ask for the 6 month trial period to be guaranteed in writing. In late April 2003 Mr Soo came to the shop and provided Mr Hong with a "Deed of Assignment" document. It read: I hereby authorize The Original Mama's Pizza & Ribs Pty Limited to sell the equipment supplied to me by Mama's Pizza and Ribs on the (Date) 28-4-2003. The Equipment being WISCO PIZZA SYSTEM. I understand the equipment will be sold for an amount equal to the full amount owing and that this will cease any obligation held by myself with my Financier. This request cannot be acted upon by myself/ourselves for six months from the time of delivery of the goods. At this point Mr Hong thought that he would have to continue paying the finance company if Mama's did not take the oven back after six months. Mr Hong says that Mr Soo then said words to the effect: "Technically you will have to continue paying the finance company but you shouldn't worry about it. If you don't want it after 6 months, then we will take it away and give it to someone else." Mr Soo denies that he said this to Mr Hong. 67 Ms Zhou contacted Mr Soo some weeks after the transaction. She requested that the agreement be cancelled immediately. Mr Soo and Mr Hilder visited PV Corner Store and explained to Ms Zhou that she had entered into an agreement for 60 months. They say that they told her that if she gave the system a fair go for six months, and it did not work, Mama's would reallocate the equipment. 68 Mr Hong says that, after making contact with B&P Leasing, he became aware of the nature of the agreement with B&P Leasing and that he would be unable to terminate the agreement. He says that he subsequently contacted Mr Hilder who assured him that, once six months had passed, Mama's would take the oven away if Mr Hong wanted them to. 69 Sometime later Mr Hong began to receive letters from B&P Leasing demanding payments be made to them as per the agreement entered into. In August 2003 Mr Hong was served with a Statement of Claim which had been filed in the Local Court by B&P Leasing seeking $34,791.29. He is currently defending that action. 70 The applicants say that representations were made by Mr Soo and/or Mr Hilder to Mr Hong which were similar to those in the first two cases outlined, and that by making these representations, Mama's engaged in conduct that was misleading and deceptive or likely to mislead and deceive, in contravention of ss 12DA(1) and 12DB(1)(g) of the ASIC Act. 71 Mr Soo denies having made these representations and submits that it was Mr Hilder who told Mr Hong that the oven could be reallocated after six months, if it was not commercially viable. Mr Hilder also denies having made these representations, though admits telling Mr Hong that Mama's would reallocate the system to another customer after six months if it was not commercially viable, and would pay out the balance owing under the lease. Mr Mac's (Mr & Mrs Macarounas) 72 Mr Michael Macarounas, in partnership with his wife, owned and operated a mini-supermarket in Alexandria in Sydney from November 2002 to April 2006. The business traded under the name of "Mr Mac's Food Store" (Mr Mac's). Mr Macarounas' daughter Effie Macarounas worked part-time in the shop. 73 In March 2003 Yvette Barron, an employee of Mama's visited Mr Mac's. Ms Barron explained the nature of the Mama's pizza system and gave Mr Macarounas a bundle of documents with information about the products and pizza oven. According to him, she then said words to the effect: We will supply the oven to you on a 6 months free trial. We'll pay the first 6 months of the lease and if you are not happy with the system or the turnover of sales then we will take it back. … There are no strings attached and you are under no obligations. If you are not completely satisfied at the end of the 6 months, you can just return the oven and everything will be cancelled. 74 Mr Barron also told them that Mama's would pick up the oven "no questions asked" and they did not "even have to explain why you don't want to go through with it". 75 After further discussions with Ms Barron and some discussion with his daughter, Mr Macarounas decided to go ahead with the pizza system. He then received documents in the mail from B&P Leasing requesting information. Mr Macarounas understood B&P Leasing to be the would-be lessor of the oven. 76 In late March 2003 Ms Barron returned to the store with Mr Hilder, whom she introduced as her boss. Mr Hilder explained that he would give Mr Macarounas a cheque for the first six months' rent for the oven. Mr Hilder then provided Mr Macarounas with documents to sign, one of which was an Equipment Rental Plan with B&P Leasing. This document specifies a rental term of 60 months. However, Mr Macarounas claims that he has no recollection of this document being for such a term, and that he would not have signed it if he had known at that time. He claims that the document had referred to a 6 month term of obligation and was later tampered with. 77 Mr Hilder also provided Mr Macarounas with a Deed of Assignment, similar to that provided to the Jefferys. Mr Macarounas says, and Mr Hilder denies, that Mr Hilder then said words to the effect: "If you are not happy with the product all you have to do is call me or Yvette after 6 months and sign this document and then I will make arrangements for the oven to be collected from your shop and your obligations to B&P Leasing will cease." Mr Macarounas says that he asked Mr Hilder "If this doesn't work after 6 months then you will take it back won't you?" to which Mr Hilder replied: Of course, definitely, you'll need to give the oven a fair go and give it a chance to prove itself by operating it for the full 6 months. If you are not completely satisfied, we'll take the oven back – you'll have no obligation to keep the oven after 6 months. Mr Hilder denies that this conversation took place. 78 The pizza system and some stock were delivered to Mr Mac's on or about 4 April 2003. 79 In or around August 2003 Mr Macarounas telephoned Yvette Barron to arrange for the system to be taken away at the end of what Mr Macarounas believed to be the 6 month trial period. Ms Barron said that she no longer worked for Mama's. 80 Mr Macarounas continued to make payments to B&P Leasing as he had been given a cheque by Mr Hilder to cover these payments for the first 6 months. Mr Macarounas says that he attempted unsuccessfully to contact Mr Hilder a number of times by telephone around this time. Mr Hilder denies being aware that Mr Macarounas attempted to contact him. 81 Mr Macarounas ceased making payments to B&P Leasing on 26 November 2003. He was subsequently served with a Statement of Claim by B&P Leasing in June 2004 seeking $40,871.10 82 The applicants submit that similar representations with similar legal effects to those in the other cases were made by Mama's to Mr Macarounas. 83 Mr Hilder denies the representations attributed to him, but says that he did tell Mr Macarounas that if he worked the pizza system and gave it a fair go and purchased stock from a supplier nominated by Mama's and if, at the end of six months, it was found that the pizza system was not commercially viable, Mama's would then on-sell and re-allocate the equipment. The respondents did not call Ms Barron nor explain her absence. The Legal Framework "Financial services" and the application of the ASIC Act 84 The applicants pleaded their causes of action against the respondents pursuant to the provisions of the TPA, and where the conduct has occurred after 11 March 2002 also under provisions of the ASIC Act in the alternative. I now turn to consider the relationship between the TPA and the ASIC Act in the present case. In summary, the applicants submit, and I agree, that in respect of all of the conduct occurring on or after 11 March 2002 (that is, all cases other than the Jefferys), the conduct is properly to be treated as a contravention of the ASIC Act rather than the TPA and relief should be granted under the terms of the ASIC Act. This explains why there are two applicants: the first applicant enforces the TPA and the second applicant was duly delegated by the Australian Securities and Investment Commission (ASIC) to conduct these proceedings, so far as they depend on the ASIC Act, on its behalf. 85 This is because on 11 March 2002, amendments to the ASIC Act came into force which broadened the definition of "financial services" so as to include credit agreements such as equipment leasing or hire purchase contracts (which fall within the definition of "financial products"). The result was to bring the regulation of conduct relating to such contracts within the purview of the ASIC Act 86 This had a direct impact on the operation of s 51AF of the TPA. Section 51AF has the effect that s 52 of the TPA and likely s 53(g) of the TPA do not apply when the conduct in respect of which complaint is made is "in relation to financial services" (as the latter term defined by the ASIC Act). In such cases, complaint must be made under the parallel provisions of the ASIC Act instead. 87 The better view appears to be, as the applicants submit, that the alleged misleading conduct of Mama's in relation to the Jefferys, having occurred before 11 March 2002, is appropriately to be seen as contraventions of ss 52 and 53(g) of the TPA respectively. However, the misleading conduct in relation to the remaining proprietors, having occurred after 11 March 2002, needs to be considered under the parallel provisions in the ASIC Act rather than the TPA. 88 Section 51AF of the TPA limits the application of Part V of the TPA (which contains ss 52 and 53(g)) where "financial services" are concerned. Relevantly, s 51AF provides: (1) This Part does not apply to the supply, or possible supply of services, that are financial services. (2) Without limiting subsection (1): (a) sections 52 and 55A do not apply to conduct engaged in relation to financial services 89 By s 4 of the TPA, the words "financial service" have the same meaning as in Div 2 of Part 2 of the ASIC Act ("Unconscionable conduct and consumer protection in relation to financial services"). Section 12BAB (contained in Div 2 of Part 2) of the ASIC Act sets out a lengthy definition of the term "financial service". Relevantly, that section provides: (1) For the purposes of this Division, subject to paragraph (2)(b), a person provides a financial service if they [sic]: (a) provide financial product advice (see subsection (5)); or (b) deal in a financial product (see subsection (7)); or … (g) provide a service that is otherwise supplied in relation to a financial product; or (h) engage in conduct of a kind prescribed in regulations made for the purposes of this paragraph. 90 Section 12BAB(2) provides: The regulations may set out: (a) the circumstances in which persons facilitating the provision of a financial service (for example, by publishing information) are taken also to provide that service; or (b) the circumstances in which persons are taken to provide, or are taken not to provide, a financial service. 91 Thus the meaning of "financial service" depends upon the definition of "financial product". 92 It appears to be the case, as the applicants submit, that the leasing agreements with the third-party financiers are "financial products". By s 5 of the ASIC Act, "financial product" has the meaning, in Div 2 of Part 2, assigned to it in s 12BAA of the ASIC Act. In turn, s 12BAA sets out a complex definition of "financial product". Section 12BAA(7) sets out a series of products which are taken to be "financial products" for the purposes of Div 2 of Part 2 of the ASIC Act, and relevantly provides: (7) Subject to subsection (8) [which sets out a series of products that are not financial products; subs (8) is not relevant in the circumstances of this case], the following are financial products for the purposes of this Division: … (k) a credit facility (within the meaning of the regulations); (m) anything declared by the regulations to be a financial product for the purposes of this subsection. 93 The Australian Securities and Investments Commission Regulations 2001 (Cth) (ASIC Regulations) make further provision regarding what constitutes a "credit facility" for the purposes of s 12BAA(7)(k) of the ASIC Act. In this regard, reg 2B(1) of the ASIC Regulation relevantly provides: (1) For paragraph 12BAA(7)(k) of the Act, each of the following is a credit facility: (a) the provision of credit: (i) for any period; and (ii) with or without prior agreement between the credit provider and the debtor; and (iii) whether or not both credit and debit facilities are available; 94 Regulation 2B(3)(b)(iv) of the ASIC Regulations provides that "credit" means a contract, arrangement or understanding for the hire, lease or rental of goods and services (subject to certain presently irrelevant exceptions). It follows that a goods rental agreement is a "credit facility" within the meaning of s 12BAA(7)(k) and thus a "financial product". 95 In addition, reg 2B(1)(h) of the ASIC Regulations provides that a guarantee of obligations under a credit contract is a "credit facility" for the purposes of s 12BAA(7)(k) of the ASIC Act. It follows that wherever a proprietor has executed a guarantee in favour of a financier to secure rental payments (as happened in the cases of the Jefferys and Mr Nader), that is a further reason for characterising the agreement with the financier as a "financial product." 96 Section 12BAB(1) of the ASIC Act (quoted in [89] above) includes in the various classes of persons who interact with a "financial product" and may be taken to provide a "financial service", a person who "deals" with a "financial product". The meaning of "dealing" is explained in s 12BAB(7) which provides: For the purposes of this section, the following conduct constitutes dealing in a financial product: (a) applying for or acquiring a financial product; (b) issuing a financial product; (c) in relation to securities or managed investment interests—underwriting the securities or interests; (d) varying a financial product; (e) disposing of a financial product. 97 The applicants concede that the respondents did not engage in the kinds of conduct described in s 12BAB(7), taking the view that, in particular, they did not apply for or acquire the rental agreements. Rather, the proprietors applied for, and acquired those agreements. In the submission of the applicants, the fact that the respondents facilitated the making of those applications does not affect this conclusion. Further, it is the financiers who issued the rental agreements, not the respondents. This approach seems to me to be correct. 98 However, s 12BAB(8) further extends the notion of "dealing" and provides: Arranging for a person to engage in conduct referred to in subsection (7) is also dealing in a financial product, unless the actions concerned amount to providing financial product advice. 99 It appears correct to say that the respondents "arranged" for the proprietors to apply for and "acquire" the rental agreements, and so, pursuant to s 12BAB(8), the respondents would be taken to have dealt in "financial products". This has the result that the respondents were providing "financial services". 100 As noted above, the definitions of "financial services" and "financial products" were not always so wide. When the ASIC Act was originally enacted, these terms were much more narrowly defined in s12BA(1) as it then stood. The far more extensive definitions discussed above did not come into effect until 11 March 2002, when the Financial Services Reform Act 2001 (Cth) repealed the relevant definitions in s 12BA(1) and introduced ss 12BAA and 12BAB into the ASIC Act. 101 It is unlikely that an equipment rental agreement would have fallen within the old definition of "financial product", so that the respondents were not providing a "financial service" at that time. It follows that in respect of conduct engaged in before 11 March 2002, s 51AF of the TPA would not operate to prevent ss 52 and 53(g) of the TPA applying. However, the question of what happens after that time is more complex. 102 As indicated above, s 51AF of the TPA limits the application of Pt V of the TPA where "financial services" are concerned. Section 51AF(1) provides the general rule that Pt V does not apply to the "supply" of "financial services". Section 12BAB(1) of the ASIC Act uses the language of "providing" rather than "supplying" financial services, however nothing appears to turn on this distinction: a person who provides financial services would naturally be seen as supplying them. It follows that, to the extent that the misleading conduct is said to relate to the respondents having arranged for the proprietors to enter into the rental agreements, it falls outside Pt V of the TPA by virtue of s 51AF(1). "In relation to" financial services - characterisation 103 A question of characterisation then arises. If a misleading representation otherwise within s 53(g) of the TPA is "in relation to" supplying (by assisting in applying for) rental agreements, then s 51AF(1) would have the effect that s 53(g) should not apply. However, if the Court were to characterise a misleading representation within s 53(g) of the TPA as relating only to supplying of pizza ovens, and not to assisting applications for rental agreements, then s 51AF(1) would not have that effect. 104 The case law to which the applicants referred provides little assistance in determining what characterisation should properly be placed on the conduct in the circumstances of this case. The scope of s 51AF of the TPA was considered by McInnis FM in Mahoney v AGD Mining Ltd (2003) 23 ATPR 46,523; [2002] FMCA 237 (at [42]): the purpose of s 51AF is to eliminate from the consideration of the Trade Practices legislation those matters which could clearly be regarded as the provision of financial services. 105 However, the problem arises where the same conduct might be capable of more than one characterisation. 106 The position of s 52 of the TPA is dealt with expressly by s 51AF(2)(a). It provides that s 52 does not apply to conduct engaged in "in relation to financial services". The scope of s 51AF(2) was considered by Austin J in Cleary v Australian Co-operative Foods (No.2) (1999) 32 ACSR 701; [1999] NSWSC 991. At [109], his Honour said: The words "in relation to" are well recognised as words of expansive meaning (eg Tooheys Ltd v Commissioner of Stamp Duties (1960) 105 CLR 602). The fact that conduct is in relation to other matters does not prevent it from being in relation to financial services as well. Once it is so classified, the Trade Practices Act is inapplicable and the matter falls within legislation for which ASIC has sole responsibility, namely the ASIC Act and the Corporations Law. 107 His Honour was, in my respectful view, correct in the view that where the misleading conduct can fairly be characterised as being both in relation to financial services and otherwise, then the fact that it is so capable of that first characterisation is enough to produce the result that s 52 of the TPA does not apply to the conduct. 108 However, his Honour's observations do not provide guidance for answering the anterior question, namely, when can conduct be taken as being engaged in "in relation to financial services". 109 The extrinsic material to which I was referred suggests that the exemption in s 51AF of the TPA should be broadly construed. Section 51AF was inserted into the TPA by the Financial Sector Reform (Consequential Amendments) Act 1998 (Cth). In the second reading speech to the Bill which became that Act, the Treasurer said that the relevant amendment would "confer on ASIC sole responsibility for consumer protection in relation to financial services". The Treasurer also said that the amendment would remove regulatory overlap and that ASIC would become "the specialist regulator for consumer protection in the financial system". Comments such as these suggest that if there is a possibility of jurisdictional overlap, then the Parliament intended that the matter should more properly fall within the jurisdiction of ASIC and thus within the ambit of the ASIC Act rather than the TPA. 110 While it is true that, in general, the words "in relation to" are words of expansive meaning, it is also the case, as the applicants submit, that words of that kind take colour from their particular statutory context. As Deane, Dawson and Toohey JJ said in relation to the similarly much-litigated term "in respect of" in Workers' Compensation Board of Queensland vTechnical Products Proprietary Limited (1988)165 CLR 642 at 653-654: Undoubtedly the words "in respect of" have a wide meaning, although it is going somewhat too far to say …that "they have the widest possible meaning of any expression intended to convey some connection or relation between the two subject-matters to which the words refer". The phrase gathers meaning from the context in which it appears and it is that context which will determinethe matters to which it extends. (Emphasis added.) 111 The point was developed by the High Court in Technical Products Pty Limited v State Government Insurance Office (Queensland) (1989) 167 CLR 45 where the phrase "in respect of" was held to require a "discernible and rational link", and that a "material connection" (rather than a mere coincidental or extraneous connection) should exist between the two facts or concepts whose relation is in question. It is, to my mind, inescapable that, whether there is a "rational" link or a "material" connection involves a degree of judgment about the sufficiency of the link or connection for the relevant statutory purpose. 112 In Technical Products 167 CLR 45, a man fell off a pallet which was supported by a forklift, and sustained injury. He was on the pallet in order to load bags of cheese salt onto a trailer (a "motor vehicle" as relevantly defined). There was no adequate system to prevent him falling seven feet to the ground. The injured man sued his employer, which sought indemnification under a motor vehicle insurance policy taken out for the trailer. Whether or not the employer was entitled to indemnification turned upon whether the employer fell within s 3(1) of the Motor Vehicle Insurance Act 1936 (Qld). Section 3(1) required the owner of a motor vehicle to effect insurance cover against: all sums for which he ... shall become legally liable by way of damages in respect ofsuch motor vehicle for accidental bodily injury ... where such injury is caused by, through, or in connection with such motor vehicle. 113 The majority held that the employer's legal liability was not "in respect of" the motor vehicle. Brennan, Deane and Gaudron JJ concluded at 48 that: The effect of the words "in respect of such motor vehicle" ... [is to] add ... the further requirement that the circumstances giving rise to the relevant legal liability by way of damages for that injury show a discernible and rational link between the liability and the particular vehicle. (Emphasis added.) 114 Their Honours explained at 47-48: The words "in respect of" have a very wide meaning. Indeed, they have a chameleon-like quality in that they commonly reflect the context in which they appear. The nexus between legal liability and motor vehicle which their use introduces in s 3(1) is a broad one which is not susceptible of precise definition. That nexus will not, however, exist unless there be some discernible and rational link between the basis of legal liability and the particular motor vehicle. The point is well made in the judgment of Connolly J (with whom Andrews CJ and Thomas J concurred) in the Full Court of the Supreme Court in the present case: "… it is not sufficient, in order to satisfy the requirement that the person entitled to the benefit of the cover be "legally liable ... in respect of such motor vehicle", that there be no more than a connexion or relation in time or sequence between the motor vehicle and events which in law give rise to the liability. What is required is that there be a relationship between the motor vehicle and the very act or omission which gives rise to that liability." Thus, the requisite relationship between liability and the particular motor vehicle will ordinarily not exist where the liability is that of a person who is unconnected with that vehicle. The point can be illustrated by example. If, for example, a passenger in a motor vehicle is injured when the driver of the vehicle brakes suddenly to avoid another vehicle whose brakes have failed because of a mechanic's negligence in servicing them, the passenger's injuries can properly be seen as caused "in connection with" each of the two vehicles involved. Any liability of the mechanic in damages for the passenger's injuries would be a liability "in respect of" the second vehicle whose brakes he had negligently serviced. The mechanic's liability could not, however, rationally be seen as a liability "in respect of" the first vehicle with which he had no connexion at all. (Footnotes omitted. Emphasis added.) 115 Their Honours applied their reasoning to the facts as follows (at 49): Even accepting that the trailer and the container are properly to be regarded as one receptacle, the employer's liability cannot, in the circumstances, properly be described as a liability with respect to that receptacle. To the extent that the employer's liability was a liability "in respect of" any vehicle, it was a liability with respect to the unregistered fork-lift. There is nothing in the present case which would justify a conclusion that the trailer and container had any involvement in the employee's accident beyond their passive presence as the receptacle into which the bags were being loaded. 116 Dawson J came to a similar conclusion, at 51: It is true that the words "in respect of" may have a wide meaning but it is not correct to say that they extend to any relationship, however tenuous: see Workers' Compensation Board (Q) v Technical Products Pty Ltd … [at pp.653-654]. The words take their colour from the context in which they are found. … ... The words "in respect of" require some material connexionbetween the two matters referred to. Those matters are liability for damages for accidental injury on the one hand and, on the other, a motor vehicle. Having regard to the immediate context of s 3(1), a merely coincidental or extraneous connexion between those two things can hardly be sufficient and the wider context of the Act takes the matter no further. (Emphasis added.) 117 The statutory context also supports a similar conceptual approach here. It is not likely that the intention was to burden ASIC with responsibility for consumer complaints as to every transaction for the provision of goods or services which coincidentally involves the financing by credit arrangements of such provision. "Jurisdictional overlap" was to be avoided by changed statutory arrangements: such would however be needlessly created if proper limits were not attached to the expression "in relation to financial services" in s 51AF of the TPA. 118 There are many cases in which misleading conduct would not have a material connection to financial services even though there be some connection between the conduct and financial services. The applicants gave as an example the case of a sales assistant who makes untrue representations about certain qualities of a television set so that the consumer is induced by those representations to purchase the television and does so using the store's charge card. The charge card is a credit facility and hence a "financial product". The store deals in the "financial product" by offering the charge card and hence provides a "financial service". There is therefore at least some connection between the representations made by the sales assistant and the credit purchase because the representations induced the consumer to make the purchase. However, it could hardly be said that, without more, there was a material connection. In the words of Dawson J in Technical Products 167 CLR at 51it was a purely "coincidental or extraneous" connection. Such a case is hardly one that should be pursued under the ASIC Act. The misrepresentations have nothing of any substance to do with the financial service, no "material connection" with it. Such a misrepresentation about the nature and quality of a product would appear to fall squarely within the TPA. There might however be more. There might have been a concessional promotion of use of the store card and the store might have had a run of complaints about the product but be shown to have considered that profits and benefits occurring from use of the store card would pay for anticipated claims about product quality. In some cases, the judgment might not be a simple one. It is in such cases that the generally expansive nature of the phrase "in relation to" may come into its own. 119 It is impossible, were it thought desirable, to specify in advance all the situations in which it may be properly said that conduct is engaged in "in relation to financial services". Rather, the question should be decided on a case-by-case basis. 120 All that need be decided in this case is whether the conduct in respect of which complaint is made was engaged in relation to financial services. In this case, there is, in my opinion, a clear and material connection between the impugned conduct and the provision of the financial services. This is because it is alleged that the respondents' misrepresentations induced the shop owners to enter into long term equipment leases (which are "financial products"). More specifically, each of the impugned representations related to the financial product (the lease) because they were misrepresentations about the legal and financial effect of the lease, including the circumstances in which the lease could be brought to an end. The impugned representations did not in any way relate to the attributes or performance of the pizza oven system as such (although the proprietors were none too happy about such aspects). Further, it was integral to Mama's system of marketing as explained at paras [4] to [16] above that the "purchasers" of the pizza ovens should finance their acquisition by leases from third parties. That remains so, even if there were a couple of cases where Mr Hilder was able to sell the ovens for cash. 121 I note that recently, in Australian Securities & Investment Commission v Citrofresh [2007] FCA 1873, Goldberg J (at [71]) expressed similar cautions about a too expansive approach to the phrase "in relation to". Section 53(g) TPA cases 122 The above analysis has focused upon the terms of s 51AF(2) of the TPA, which relates to s 52 of the TPA. No special provision is made within s 51AF as to s 53(g) of the TPA. Accordingly, to determine whether a matter should be pursued under s 53(g) of the TPA or its ASIC Act analogue requires recourse only to s 51AF(1) which provides: "This Part does not apply to the supply, or possible supply, of services that are financial services." 123 On one view, it could be said that the more specific provision in s 51AF(2) carves out a wider field of exemption from the TPA than does s 51AF(1) when read in isolation. However, I agree with the applicants that such a construction makes little sense, particularly given that the same conduct can often involve the closest of distinctions as to whether it contravenes s 52 or s 53(g). The requisite purposive construction requires that s 53(g) of the TPA be rendered inapplicable in the same circumstances as s 52 of the TPA. 124 In the result, I agree with the applicants that if the first respondent engaged in misleading conduct after 11 March 2002 (when the definitions of "financial product" and "financial services" were broadened) in which the second and/or third respondents were knowingly concerned, then the respondents should be held to have contravened the ASIC Act and relief should be granted under that Act. The practical effect, would be to conclude that in dealing with Mr Hijazi, Mr Nader, Mr Hong and Ms Zhou, and Mr Macarounas, the ASIC Act was contravened. Factual conflicts 125 In at least some cases there is an issue as to the extent to which Mr Hilder assured the customer(s) concerned that if, after the trial period, they chose to return the oven, they could be sure of having no further liability to the finance company concerned. Mr Hilder would have the Court accept that, in general, he merely promised to "reallocate" the oven to some other intending customer and, on at least one occasion, he claimed that he had made this expressly conditional on the financier's being prepared to accept the new customer as the lessor of the goods. It might be thought that if any such reallocation had been promised that would imply at least a period during which the existing customer would remain liable to the financier. 126 As to this, I reject Mr Hilder's account and in each case prefer the alternative account given by the customers in each of the five cases at issue. My reasons for this include: (1) the intended economies of Mama's system (see [14] above) – there would be no reason for Mama's sales representative to quibble about the extent of the "risk-free" attractions of the scheme they were marketing, and (2) except as to the particular matters mentioned below, I decidedly prefer the credit of the applicants' witnesses to those of the respondent, particularly Mr Hilder. In general, except on particular issues I refer to, the oven recipients were truthful and, I thought, reliable, or in some cases over-concerned to make everyone understand their grievances. 127 Some of the oven purchasers claimed that, not until they sought to return the oven did they understand that there was a third-party financier involved. These claims are not crucial to the applicants' case, as precisely and properly pleaded. But I do not accept these claims, even of the most plausible, namely that of Mr Hijazi. These were all established small business people. All spoke and read English, except Mr Hong, whose wife, Ms Zhou did. They could all handle themselves commercially well enough at least to ask the nature of the various papers they were asked to sign. I accept that they may have relied on the Mama's representative, usually Mr Hilder, to give them an explanation of the effect of the documents and that such explanation as was given was partial, inadequate and misleading in various ways. However I am not persuaded that any who signed the documents did not understand that he or she was entering into a third-party financial arrangement. The Mama's sale pitch was that Mama's would meet the "rent" or "payments" for the oven for a few months and Mama's did in fact, on signing or soon after, supply cheques to them for such purposes. They were not so entirely naďve or deceived as they might now wish to believe. 128 The other frequent factual issue was whether Mr Hilder indicated that before he would accept the return of the oven, the operator should give it a fair trial – a "fair go" as Mr Hilder conceived it. It is highly likely that he and his sales people did indicate such a condition: Mr Hilder would not wish to be troubled with mere game-players. Secondly, it accords with my impression of Mr Hilder – that he subjectively saw himself as a fair man and entitled to expect a fair trial of what he had designed as an attractive system for potential customers. Thirdly, to suggest such a condition would assist his presentation of himself as a trustworthy person who wished to deal with fair-minded people. Some witnesses agree he indicated such a thing – why do it with some and not others? 129 To the extent that I do not accept some witnesses who have denied that Mr Hilder said such a thing, they have clearly been told or heard that Mr Hilder is an outright rogue; it assists their own self-esteem to consider him so, and they wish to see no fault or default in themselves. They were not, in my view, telling lies. 130 I add on this matter only that, as the applicants submit, the requirement of a "fair go" was, in any case, a fairly empty one: there was no objective way of judging it. Those returning the ovens were bound to feel and say that they had given it a fair trial and it had been found wanting. In cases where Mr Hilder thought there had been no fair trial, his views did not withstand testing. 131 The other matter urged by two of the witnesses for the applicants that I do not accept is the suggestion that Mr Macarounas was presented with a six month lease and the "6" was then later dishonestly changed to "60". Mr Hilder's credibility 132 That brings me to the subject of Mr Hilder's credit generally. Firstly I should exonerate him, on such evidence as is before me, of the more extreme characterisations of his and Mama's conduct which at least some of the applicants' witnesses would make. Mr Hilder did not, as it seems to me, set up Mama's as an exercise in wholesale deception. It is likely that he believed that he could make plenty of money out of selling a marketable system that would provide decent profits to a capable business operator and would be able to afford, because of the very high mark-up he intended to impose, entirely to placate other customers. To a degree, he misled and deceived himself along with others. I believe that, in the inception of the venture, he thought that he would be able to resell the ovens and, in such case, pay out the loan contracts of the dissatisfied customers. As is often the case, experience did not match up to hopes. Mr Soo, an experienced salesman, found it hard going to move Mama's product. It likely proved hard for Mama's as a whole to do so. There were evidently problems with the availability and supply of good quality uncooked pizzas for use by the oven operators. There was a substantial number of complaints, probably more than had been foreseen. At least in the instant cases, Mr Hilder largely reacted by refusing to respond to telephone calls, presumably hoping that the complainants might simply go away. 133 That said, Mr Hilder was, on contested issues, with the exception of the specific matters referred to above, not a witness who inspired confidence, and the evidence of others, including Mr Soo, where their evidence differed, is to be preferred. 134 I recorded my contemporaneous impressions of Mr Hilder in exchanges with counsel for the applicants and Mr Hilder's solicitor in the course of their closing addresses: see especially pp 380, 382, 390-1, 392-3, 399, 401, 404-7, 408-9, 414, 447 and 453 of the transcript. A re-reading of the whole of the evidence in the case renews my confidence in these impressions. 135 The applicants mounted a wholesale attack on Mr Hilder's credit. I agree with much of the criticism but not with some of it. The exchanges during addresses adequately indicated the scope of my reservations. It is enough here to say that: · Mr Hilder was, on a number of matters, not frank with the Court; · he has been prepared falsely to deny his identity in a business dispute; · he misled the ACCC in its investigations; · he has given inconsistent stories; · he was discreditably opportunistic as a witness and as a business operator; and · his business practices were in some respects unsavoury, for example foisting a second-hand oven on a customer who had contracted for a new one. Mr Soo's credibility 136 Though not in Mr Hilder's league, Mr Soo was also not an impressive witness. He tended to answer in ways that he thought would assist him, only to change his evidence in the light of more objective materials and considerations being drawn to his attention. 137 As an experienced business equipment salesman, necessarily experienced in arranging finance, his protestations of being, in effect, at most an unwitting participant in Mama's regrettable conduct were unconvincing. Conclusions 138 In each case, in my opinion the representations alleged were made out. 139 In each case, apart from that of Mr Hijazi, a "Deed of Assignment" was handed over. The Deed on its face is an assurance that · the equipment "will" be sold for the full amount owing; · this would "cease" any obligation to the financier; and · the oven recipient had an ability to "enforce" the agreement. 140 There is no reason to think that Mr Hijazi was not told similar things by Mr Soo (though Mr Hijazi denies he knew anything about a financier or a long-term lease, and Mr Soo denies saying that he promised a "six month free trial" or a preparedness thereafter to accept the oven back "at no cost to" Mr Hijazi.) 141 It was however the case that, as Mr Soo admitted, it would be difficult to resell a second-hand oven for more than the original purchaser had paid, for the same amount. (More than the original price would be required if Mama's were to avoid a loss in the transaction.) As noted above, according to Mr Soo there was a low success rate with canvassing the supply of new ovens. 142 The return of the oven and even its resale would not, by themselves, cease the oven recipient's obligations to the financier. The financier would want the full pay-out value and, in at least one instance, there was no discount for payment-out of the finance contract (in the form of a chattel lease with no option to purchase). 143 In any case Mr Hilder ultimately conceded that, in each of the five cases, he did convey to the customer(s) concerned that they had a right to have Mama's take the oven back and be released from all financial obligations after the nominated trial period. 144 Thus there was clearly a modus operandi for Mama's devised by Mr Hilder which involved such representations. There is no reason to think that the various sales representatives including Mr Soo would not have acted in accordance with that method of operation. I am satisfied that, where he was involved, Mr Soo did so. Misleading and deceptive 145 It is enough for conduct to infringe s 52 of the TPA as misleading or deceptive that it is capable of inducing error. The Court must decide objectively whether conduct had such a character. Both propositions are now well-settled, but were clarified by Gibbs CJ in Parkdale Custom Furniture Pty Ltd v Puxn Pty Ltd (1981-2) 149 CLR 191 at 198. 146 The applicants rely also on s 51A of the TPA (mirrored in s 12BB of the ASIC Act): where a corporation does not have reasonable grounds (proof being on the corporation) for making a representation as to a future matter, the representation is to be taken to be misleading. 147 Pursuant to s 75B of the TPA, any personal liability of Mr Hilder or Mr Soo requires proof that he had actual knowledge of the essential elements of the alleged contravention of the Act and that he intentionally participated in it: Yorke v Lucas (1985) 158 CLR 661. See also Medical Benefits Fund of Australia Limited v Cassidy (2003) 135 FCR 1; [2003] FCAFC 289. 148 A representation can be characterised as bearing both a present and a future character, see e.g. Ting v Blanche (1993) 118 ALR 543 and FuturetronicsInternational Pty Ltd v Gadzhis [1992] 2 VR 217. 149 Whether Mama's had reasonable grounds for believing the truth of representations about a future matter involves an objective test. The same is not true of the alleged personal accessories: the applicants must "demonstrate that such a person: · knew that the representation was made, and either: · knew that it was misleading; or · knew that the corporation had no reasonable grounds for making it": Australian Competition & Consumer Commission v Michigan Group Pty Ltd (ACN 065 378 029) [2002] FCA 1439 at [303] per Dowsett J. Nor, unlike the corporation involved (cf s 51 TPA) does a natural person bear any onus. 150 I accept the applicants' submissions that: · The following representations can be characterised as representations as to future matters: (a) if not satisfied and provided a 6 or 12 month period had expired since the oven was supplied, the proprietor had a right to require Mama's to take the oven back whereupon they would be released from all financial obligations in respect of the oven; (b) if not satisfied and provided a 6 or 12 month period had expired since the oven was supplied, the proprietor had a right to require Mama's to cancel the lease with the financier whereupon they would be released from all financial obligations in respect of the oven; (c) the supply of the oven was financially risk free. · There is no evidence that Mama's had reasonable grounds for believing that any of those representations was true. As to Mr Hilder and Mr Soo respectively, to the extent that each was involved, he knew that the representation was made and either knew that it was misleading or that Mama's had no reasonable grounds for making it. · There is no doubt that the representations were misleading and deceptive: (i) the oven recipient would not be released from all financial obligations in respect of the oven upon its return after the nominated trial period; (ii) Mama's was legally unable to cancel the lease with the financier upon such return; and (iii) the acceptance of the oven from Mama's was far from financially risk-free: any such freedom depended on Mama's willingness, if need be, to sustain a substantial loss in respect of the oven and, at least, to put itself heavily out of pocket in relation to the oven until a resale of the oven and, in reality, permanently out of pocket to some degree, even assuming the willingness of the financier to finance a resale or to accept termination of its lease arrangement. 151 Quite apart from these in limine ways in which the representations were misleading and deceptive, there are other grounds for so concluding: · In none of the five cases was the oven taken back as requested or provided. Nor were the oven operators released from their financial obligations to the financiers. They were landed with an overpriced oven which, on the respondents' recommended system, had proven unprofitable, and were subject to substantial credit charges under a long-term contract. That is a long way from supposedly having entered into a financially risk-free arrangement. · Neither Mama's nor Mr Hilder had any arrangement with the financiers that envisaged a six (or 12) month trial period or a release of the lessee from obligations after 6 (or 12) months for any reason whatsoever. · Both Mr Hilder and Mr Soo (especially Mr Hilder but, quite firmly in my mind, also Mr Soo) well knew that they were at least gilding the lily. They both knew the propensity of financiers to insist upon the performance of obligations to them by their borrowers and quasi-borrowers. They both knew that what they were telling their prospects who became oven recipients was not in accordance with the realities of loan financing and the ease of resale of a second-hand oven originally sold at greatly over value. · They both knew all the essential ingredients of the misleading and deceptive aspect of the transactions which I have identified. Mr Soo understood the financing arrangements. He knew that, as between the oven "owners" and the financiers, there was a 60 month deal, not one for a risk free 6 month trial. Mr Hilder negotiated the financing. · Mr Hilder preferred not to face up to the complainants. Mama's entire system of operations was his invention. 152 While it is not necessary for the applicants to show that the business owners who took the ovens were actually misled or deceived (see [168]-[169] and [172] above, it is clear that they were in each of the five cases, misled. Remedies (a) Mama's 153 There will be default judgment against Mama's and I will make relevant declarations as sought. (b) Declarations against Mr Hilder and Mr Soo 154 Declaratory relief is firstly sought. There is a well-recognised public interest in the declaration of a right in the public and individual members of it not to be misled or deceived from misrepresentations. See eg Sackville J's review of the matter in Australian Competition and Consumer Commission v Chen (2003) 132 FCR 309 at 322. The relevant applicant in each case has a real interest in seeking relief: Australian Competition and Consumer Commission v Albert [2005] FCA 1311 at [30]. Even a would-be judicial heretic has bowed under the weight of authority: see Australian Competition & Consumer Commission v Automotive, Food, Metals, Engineering, Printing & Kindred Industries Union [2004] FCA 517at [7]perGray J. 155 Declarations should be reasonably explicit and specific: Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53 at [89]-[90]. 156 I will make suitable declarations against each respondent. (c) Injunctions under s 80 TPA (and ASIC Act analogue) 157 Both personal respondents have experience in selling food preparation equipment to food retailers, and may be expected to wish to continue to do so. In any case s 80 has given the Court, as Lockhart J put it in ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 256: "the widest possible injunctive powers, devoid of traditional constraints, though the power must be exercised judicially and sensibly". 158 In the same case, French J pointed out, at 268: There is room within the statutory framework and the policy that underlies it for an injunction which is intended not to restrain an apprehended repetition of contravening conduct but to deter an offender from repeating the offence. That deterrence is effected by attaching to the repetition of the contravention the range of sanctions available for contempt of court. 159 In my view, it is desirable in this case to have regard to such likely deterrent effect of injunctions. I will issue appropriate injunctions. (d) Findings of Fact 160 Section 83 of the TPA provides (and its ASIC Act analogue provides in substance): In a proceeding against a person under section 82 or in an application under subsection 87(1A) for an order against a person, a finding of any fact by a court made in proceedings under section 77, 80, 81, 86C or 86D, or for an offence against a provision of Part VC, in which that person has been found to have contravened, or to have been involved in a contravention of, a provision of Part IV, IVA, IVB, V or VC is prima facie evidence of that fact and the finding may be proved by production of a document under the seal of the court from which the finding appears. 161 Section 83 is an evidentiary aid to the proof of facts. There are other proceedings on foot against the respondents and there may well be more to come. The applicants, however, appear to conceive that s 83 is the source of a positive remedy for the instant applicants, presumably for members of the public generally. They seek "findings of fact against [Mr Hilder and Mr Soo] pursuant to s 83 … and under its ASIC analogue …" (emphasis added). In ACCC v Leahy Petroleum (No 2) [2005] FCA 254 (at [74]) it appears from Merkel J's judgment that the ACCC "sought an order under s 83 … that the findings of fact contained in my reasons of judgment be findings of fact for the purposes of s 83". 162 In Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2006] FCA 244 Nicholson J, apparently following his line of thought, considered that the Court should formally record findings of fact in its orders. 163 The applicants say that such a practice reduces the difficulty for other courts in deciding whether a passage in reasons for judgment amounts to or contains a finding of fact, cf Australian Competition & Consumer Commission v Emerald Ocean Distributors Pty Ltd [2004] FCA 303 at [17] per Nicholson J. Merkel J had declined to do this. He thought it was enough (but, it seems, necessary) to order that a copy of the reasons "be under the seal of the Court and be held in the Melbourne Registry…". Nicholson J thought (and on this scope I agree with him) that such an order was unnecessary. 164 While s 83 occurs in Part VI of the TPA, entitled "Enforcement and Remedies", I do not see it as having been intended to provide a present applicant with a positive present remedy, even for other misled or deceived people, except insofar as that applicant might, like anyone else, wish to take advantage of the evidentiary help which the section provides of its own force to people at large against an erring respondent. It is to be contrasted with s 86C. In particular cases, it may indeed be generally helpful for the Court to collect and formalise its findings of fact. There is however no requirement for a busy court to do so. The suggested practice may also actually run up costs in some cases by causing debate (or even appeal) about the precise content of the proposed formal findings of fact. What degree of formality the findings of fact should take should be left to the good sense of the judge in the particular case. 165 I have, I hope, expressed myself with reasonable clarity. This case does not depend on fine distinctions. I do not intend to follow the course suggested. Other protective orders under s 86C of the TPA (or s 12GCA of the ASIC Act) 166 The applicants seek orders under s 86C that Mr Hilder and Mr Soo each: (1) disclose the persons to whom they have supplied food preparation equipment; (2) tell all such persons of my judgment and orders and advise them of TPA or ASIC Act rights they may have; (3) publicly advertise the information referred to in (1) and (2); (4) identify financiers of such supplied equipment; (5) verify their compliance with the foregoing orders; (6) attend, and verify attendance at, seminars on Part V TPA and Part 2 Div 2 ASIC Act compliance. 167 I will make the requested orders referred to as (1) to (5) inclusive above. I will however allow liberty to the second and third respondents to apply in relation to any bona fide difficulty either of them may face in complying with the orders as framed. 168 I will not make the sought orders referred to in (6). Neither personal respondent is stupid. By the time each has understood and attended to the foregoing orders and the costs orders against him, he is unlikely to need to be coerced into enlarging his appreciation of the relevant provisions of the two Acts referred to. Costs 169 The applicants submit simply that costs should follow the event. The personal respondents submit that, in effect, a sledgehammer has been used by the applicants to crack a nut, and that a good many collateral complaints were made by the business people in the five transactions examined that were not sustained and/or did not relate to the crucial misrepresentations, that enlarged the hearing time unreasonably. 170 To any extent that the respondents might now be, and perhaps might have been, inclined to admit at least some of the actual but limited statutory misconduct complained of, there were avenues for them to do so that might have minimised costs. Likewise in relation to any unreasonable enlargement of the length and documentary density of the proceedings. The avenues to which I allude were not availed of. I would not be justified in reducing the total amount of costs that might be recovered by the applicants. 171 However, there should be some limitation of Mr Soo's liability. He was about half responsible for two of the five proven instances of misconduct. I will limit his liability to one fifth of the costs. As to such one-fifth, as between the second and third respondents they should be equally liable: Mr Soo was implementing Mr Hilder's recommended and demonstrated methods. 172 The second respondent is to pay the applicants' costs of the proceedings. 173 The third respondent is to pay one-fifth of the applicants' costs of the proceedings. 174 As to such one-fifth, as between themselves, the second and third respondents shall be equally liable. Postscript 175 I should add two matters. The first is that my debt to the very detailed submissions of the applicants will be obvious to the parties but should be recorded. 176 Secondly, it may bear examination that financiers should be able to profit from transactions induced by unlawful conduct such as the respondents engaged in here when in fact, whatever the legal position may be, the perpetrators of the unlawful conduct constitute the means and bridge, in non-technical language: the agency, by which the financiers acquire their borrowers. I certify that the preceding one hundred and seventy-six (176) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Madgwick. Associate: Dated: 18 March 2008 Counsel for the Applicants: Ms N Sharp Solicitor for the Applicants: Corrs Chambers Westgarth No appearance for the First Respondent. Solicitor for the Second and Third Respondents: Ramrakha Jenkins Date of Hearing: 12-15 and 20 March 2007 Date of Judgment: 18 March 2008