FEDERAL COURT OF AUSTRALIA Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [2014] FCA 487 Citation: Australian Competition and Consumer Commission v Taxsmart Group Pty Ltd [2014] FCA 487 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v TAXSMART GROUP PTY LTD & ORS File number(s): VID 494 of 2013 Judge(s): DAVIES J Date of judgment: 16 May 2014 Catchwords: PRACTICE AND PROCEDURE – respondents admitted contravention of s 18 of the Australian Consumer Law – appropriate to make the orders sought by consent in the form of declarations, compensation, undertakings and costs Legislation: Australian Consumer Law ss 18, 232 and 237, being schedule 2 to the Competition and Consumer Act 2010 (Cth) Federal Court of Australia Act 1976 (Cth) ss 21 and 43 Cases cited: Australian Competition and Consumer Commission v Adepto Publications Pty Ltd [2013] FCA 247 Australian Competition and Consumer Commission v Chen (2003) 132 FCR 309; [2003] FCA 897 Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2006) 236 ALR 665; [2006] FCA 1427 Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2000] FCA 1885 Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378; [2012] FCAFC 56 Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352 Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200 Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 Date of hearing: 16 May 2014 Place: Melbourne Division: GENERAL DIVISION Category: Catchwords Number of paragraphs: 16 Counsel for the Applicant: Mr P Wallis Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the First, Second and Third Respondents: The first, second and third respondents did not appear Counsel for the Fourth and Fifth Respondents: The fourth and fifth respondents appeared in person IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 494 of 2013 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: TAXSMART GROUP PTY LTD & ORS Respondent JUDGE: DAVIES J DATE OF ORDER: 16 MAY 2014 WHERE MADE: MELBOURNE THE COURT DECLARES THAT: 1. The First, Second and Third Respondents ("Taxsmart") in trade or commerce engaged in conduct that was misleading or deceptive or likely to mislead or deceive and thereby contravened section 18 of the Australian Consumer Law ("ACL"), being schedule 2 to the Competition and Consumer Act 2010 (Cth) ("CCA"), by: 1.1 publishing or causing to be published advertisements on the website www.seek.com.au for accounting graduates to obtain employment and enter into franchise agreements with Taxsmart in Melbourne, Sydney, Brisbane, Gold Coast and Perth during the periods 8 January 2011 to 10 March 2011, and 10 April 2011 to 26 September 2011 ("Seek Advertisements"); and 1.2 sending emails to graduates who responded to the Seek Advertisements, and thereby making representations that Taxsmart was offering a graduate program and 12 months of employment to accounting graduates with no previous work experience in tax accounting that would enable such graduates to satisfy the requirements for registration as a tax agent under the Tax Agent Services Act 2009 (Cth) ("the Act") and Tax Agent Services Regulations 2009 (Cth) ("the Regulations") and commence as franchisees ("the graduate program representation"), when Taxsmart did not have reasonable grounds for making the graduate program representation because: 1.3 Taxsmart had not made proper enquiries or adequately considered whether the graduate program offered by Taxsmart would enable graduates with no prior experience in tax accounting to satisfy the legal requirements for registration as a tax agent; 1.4 the graduate program was not capable of enabling graduates with no previous work experience in tax accounting to satisfy the legal requirements for registration as a tax agent because at the time of the representation the program did not provide for the graduate: 1.4.1 to have the equivalent of 12 months of full time substantial involvement in work in the nature of Tax Agent Services done under the supervision and control of a Tax Agent, as required by the Act and the Regulations; 1.4.2 to complete the course requirements approved by the Tax Practitioners Board; 2. The Fourth Respondent ("Scott Andrews") aided, abetted, counselled or procured Taxsmart to contravene section 18 of the ACL referred to in paragraph 1 above by reason that he: 2.1 devised the terms on which Taxsmart would offer franchises to accounting graduates; 2.2 devised the plan under which accounting graduates would be employed by Taxsmart for 12 months; 2.3 determined the content and caused the publication of the advertisements referred to in paragraph 1 above; 2.4 wrote and sent, or approved the content and sending of, the pro-forma emails referred to in paragraph 1 above; and 2.5 knew of the making of the representations referred to in paragraph 1 and the matters that enabled those representations to be characterised as misleading. 3. Each franchise agreement made between the Second Respondent and: 3.1 Mr Arora; 3.2 Mr Hemdan; 3.3 Mr Singh; 3.4 Mr Yousef; and 3.5 Ms Pang, is void ab initio. AND, ON RECEIVING THE UNDERTAKINGS IN ANNEXURE 1, THE COURT ORDERS THAT: Compensation 4. Taxsmart and Scott Andrews pay the following amounts, in monthly instalments to be paid on the first Thursday of each month, on and from 7 August 2014, to the following former Taxsmart franchisees being the amount of loss or damage suffered by them by reason of the conduct referred to in paragraphs 1 and 2 above: 4.1 Mr Pankaj Arora, a sum of $62,150 in 36 monthly instalments of $1,726.39, comprising: 4.1.1 an application fee of $1,100 (paid on 4 May 2011); and 4.1.2 a franchise fee of $61,050 (paid on 3 June 2011); 4.2 Mr Ayman Hemdan, a sum of $55,000 in 36 monthly instalments of $1,527.78, comprising: 4.2.1 an application fee of $1,100 (paid on 3 March 2011); and 4.2.2 a franchise fee of $53,900 (paid on 14 June 2011); 4.3 Mr Manvir Singh, a sum of $26,100 in 36 monthly instalments of $725, comprising: 4.3.1 an application fee of $1,100 (paid on 25 May 2011); and 4.3.2 a franchise fee of $25,000 (paid on 29 June 2011); 4.4 Mr Magdy Yousef, a sum of $55,000 in 36 monthly instalments of $1,527.78, comprising: 4.4.1 an initial franchise fee of $50,000 (paid on 30 May 2011); and 4.4.2 a subsequent franchise fee of $5,000 (paid on 29 June 2011); 4.5 Ms Portia Pang, a sum of $62,150 in 36 monthly instalments of $1,726.39, comprising: 4.5.1 an application fee of $1,100 (paid on 2 March 2011); and 4.5.2 a franchise fee of $61,050 (paid on 18 April 2011). 5. In the event that Taxsmart and/or Scott Andrews default in the making of any monthly instalment payment referred to in paragraph 4 above, and that default continues for seven days, the balance of the amounts set out in sub-paragraphs 4(a) to 4(e) above shall be immediately due and payable jointly by Taxsmart and Scott Andrews. Other orders 6. Scott Andrews and Taxsmart must, by 28 July each year until they have paid in full the amounts set out in sub-paragraphs 4(a) to 4(e) above and upon making their final monthly instalment, serve on the ACCC an affidavit detailing their compliance with paragraph 4. 7. A copy of the Reasons for Judgment, with the seal of the Court thereon, be retained in the Court for the purposes of section 137H of the CCA. 8. Taxsmart and Scott Andrews pay the Applicant's costs of the proceeding fixed in the sum of $10,000. Annexure 1 Undertakings 9. The First Respondent, by its director, Janine Andrews, the Second Respondent, by its director, Scott Andrews and the Third Respondent, by its secretary, Scott Andrews, undertake that they will not, whether by themselves, their servants, agents or otherwise for a period of 3 years from the date of this order, make, publish, allow or authorise the publication of an offer to accounting graduates with no previous work experience in tax accounting to undertake a graduate program and 12 months of employment that it claims will enable such graduates to satisfy the requirements for registration as a tax agent under the Act and the Regulations. 10. Scott Andrews undertakes that he will not for a period of 3 years from the date of the order, be involved in or party to any entity howsoever making, publishing, allowing or authorising the publication of an offer to accounting graduates with no previous work experience in tax accounting to undertake a graduate program and 12 months of employment that is claimed will enable such graduates to satisfy the requirements for registration as a tax agent under the Act and the Regulations. 11. The First Respondent, by its director, Janine Andrews, the Second Respondent, by its director, Scott Andrews and the Third Respondent, by its secretary, Scott Andrews, undertake that they will not, whether by themselves, their servants, agents or otherwise for a period of 3 years from the date of this order, make an offer of employment that is contingent on the prospective employee agreeing to pay a franchise fee or other sum of money to Taxsmart. 12. Scott Andrews undertakes that he will not for a period of 3 years from the date of the order, be involved in or party to any entity howsoever making an offer of employment by any entity that is contingent on the prospective employee agreeing to pay a franchise fee or other sum of money to that or any other entity. Note: Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011. IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 494 of 2013 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: TAXSMART GROUP PTY LTD & ORS Respondent JUDGE: DAVIES J DATE: 16 MAY 2014 PLACE: MELBOURNE REASONS FOR JUDGMENT INTRODUCTION 1 The first to third respondents (collectively "Taxsmart") and the fourth respondent ("Mr Andrews") have each admitted that they engaged in conduct that contravened s 18 of the Australian Consumer Law ("ACL") being schedule 2 to the Competition and Consumer Act 2010 (Cth). The relevant conduct is set out in an agreed statement of facts which is Annexure A to these reasons for judgment, and the parties have agreed that the Court should make orders in the form of the proposed orders which are Annexure B. No relief is sought against the fifth respondent, Mrs Andrews. THE CONTRAVENTIONS 2 Taxsmart operated an accountancy business that provided "tax agent services" as defined under the Tax Agent Services Act 2009 (Cth) ("the Act"). In late 2010 Mr Andrews decided to seek to expand Taxsmart's business by offering up to 20 franchises to accounting graduates on the following terms: (a) the graduates would each pay an upfront franchise fee to Taxsmart; (b) the graduates would be employed by Taxsmart for a period of 12 months, commencing in approximately April each year; (c) the graduates would be located at new Taxsmart offices and/or shopping centre kiosks in Melbourne, Sydney and Brisbane; (d) during the 12 months of employment, Taxsmart would provide the graduates with training, supervision and experience sufficient to enable them to obtain registration as a tax agent under the Act; and (e) at the conclusion of the 12 months of employment, the graduates having obtained registration as a tax agent, would cease employment with Taxsmart and commence the operation of a Taxsmart accountancy franchise to provide tax agent services ("Taxsmart Franchise"). 3 In 2011, Taxsmart placed advertisements which conveyed a representation that Taxsmart was offering a graduate program for accounting graduates with no previous work experience in tax accounting that would enable such graduates to satisfy the legal requirements for registration as tax agents ("the graduate program representation"). Eighteen people took up employment with, and agreed to pay franchise fees to, Taxsmart, including five persons who, in reliance on the graduate program representation, paid Taxsmart up-front franchise fees of up to $62,150 (and a $1100 application fee) and signed twelve month employment contracts with Taxsmart. 4 The graduate program representation was misleading in that it was a representation as to a future matter and Taxsmart did not have reasonable grounds for making the representation, because at the time of the representation: a. the program that Mr Andrews had designed for graduates during their twelve month employment ("the graduate program") with Taxsmart was not capable of enabling graduates with no prior work experience in tax accounting to satisfy the legal requirements for registration as tax agents because the graduate program did not provide for a graduate: (i) to have the equivalent of twelve months of full time substantial involvement in work of the nature of tax agent services done under the supervision and control of a tax agent, as required by the Act and the Tax Agent Services Regulations 2009 (Cth) ("the Regulations"); and (ii) to complete the course requirements approved by the Tax Practitioners Board; and b. Taxsmart had not made proper inquiries or adequately considered whether the graduate program would enable such graduates with no prior experience in tax accounting to satisfy the legal requirements for registration as tax agents. 5 Taxsmart has admitted that by making the graduate program representation, it engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 18 of the ACL. 6 Mr Andrews has admitted that he: (a) devised the terms of the Taxsmart Franchise; (b) devised the graduate program; (c) determined the content and caused the publication of the advertisements for the graduate program; (d) wrote and sent pro-forma emails which also conveyed the graduate program representation to graduates who responded to the advertisements; and (e) approved the content and sending of pro-forma emails which also conveyed the graduate program representation to graduates who responded to the advertisements. 7 Mr Andrews has also admitted that at the times that Taxsmart made the graduate program representation, he: (a) knew that there were requirements for registration as a tax agent under the Act and the Regulations; and (b) knew what those requirements were. 8 By reason of those matters, Mr Andrews has admitted that he aided, abetted, counselled or procured the contraventions of s 18 of the ACL. 9 The parties ask that the Court: (a) make declarations pursuant to the power in s 21 of the Federal Court of Australia Act 1976 (Cth) ("Federal Court Act"); (b) make orders pursuant to s 237 of the ACL providing for the payment of compensation by Taxsmart and Mr Andrews to five former Taxsmart employees and franchisees; (c) receive undertakings from the respondents in the form set out at annexure 1 to the proposed consent orders, by which they undertake to refrain from engaging in certain conduct; (d) order that Mr Andrews and Taxsmart serve on the ACCC, each year until they have paid the compensation amounts in full and upon making their final monthly instalment, an affidavit detailing their compliance with the compensation order; (e) order that a copy of the reasons for judgment be retained in the Court for the purposes of s 137H of the Competition and Consumer Act 2010 (Cth); and (f) order the payment of costs in the amount of $10,000 by Taxsmart and Mr Andrews pursuant to s 43 of the Federal Court Act, in the form set out in the Consent Order. Declarations OF CONTRAVENING CONDUCT 10 The declarations sought by consent are declarations that Taxsmart and Mr Andrews, by the conduct admitted by them, contravened the ACL. It is undoubted that the Court has the power to make those declarations under s 21 of the Federal Court Act on the basis of agreed facts: Australian Competition and Consumer Commission v Adepto Publications Pty Ltd [2013] FCA 247 at [17] per Cowdroy J; and the respondents are proper contradictors: Australian Competition and Consumer Commission v MSY Technology Pty Ltd (2012) 201 FCR 378; [2012] FCAFC 56 at [30]. The declarations will have utility and are, in my view, both proper and appropriate as they will serve the public interest by identifying the contravening conduct and recording the Court's disapproval of that contravening conduct: Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (No 2) (1993) 41 FCR 89 at 100-101 per Sheppard J and at 107 per Hill J; Australian Competition and Consumer Commission v Chen (2003) 132 FCR 309; [2003] FCA 897 at [35]-[36] per Sackville J; Australian Competition and Consumer Commission v Goldy Motors Pty Ltd [2000] FCA 1885 at [34] per Carr J; Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2006) 236 ALR 665; [2006] FCA 1427 at [58]-[59] per Kiefel J. COMPENSATION ORDERS 11 It is an agreed fact that five of the people who entered into franchise agreements did so in reliance on the graduate program representation and that each of them had their employment with Taxsmart terminated within about four months of commencement without any refund of the franchise fees that they paid. Further orders by consent are sought declaring their franchise agreements void ab initio and requiring Taxsmart and Mr Andrews pursuant to s 237(1) of the ACL to pay them the following amounts in 36 equal monthly instalments over a period of three years: (a) Pankaj Arora – the amount of $62,150, comprising an application fee of $1,100 and a franchise fee of $61,050; (b) Ayman Hemdan – the amount of $55,000, comprising an application fee of $1,100 and a franchise fee of $53,700; (c) Manvir Singh – the amount of $26,100, comprising an application fee of $1,100 and a franchise fee of $25,000; (d) Magdy Yousef – the franchise fee of $55,000; (e) Portia Pang – the amount of $62,150, comprising an application fee of $1,100 and a franchise fee of $61,050. 12 I consider that these further orders are appropriate in order to compensate those people for, or to prevent the likely suffering of, loss or damage by those persons, by reason of the contravening conduct of Taxsmart and Mr Andrews: Awad v Twin Creeks Properties Pty Ltd [2012] NSWCA 200 at [43] per Allsop P (with whom Macfarlan JA and Sackville AJA agreed); Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352 at [128] per Gordon J. I also consider that it is appropriate that Taxsmart and Mr Andrews be given three years to pay that compensation in light of their limited financial resources and lack of immediate capacity to pay which was the subject of evidence adduced before the Court. UNDERTAKINGS 13 Taxsmart and Mr Andrews have offered the undertakings in annexure 1 to the proposed consent orders. By those undertakings, they agree for a period of three years: (a) not to make or publish an offer to accounting graduates with no previous work experience in tax accounting to undertake a graduate program and 12 months of employment that it claims will enable such graduates to satisfy the requirements for registration as a tax agent under the Act and the Regulations; and (b) not to make an offer of employment that is contingent on the prospective employee agreeing to pay a franchise fee or other sum of money to Taxsmart. 14 The undertakings are offered in lieu of injunctive relief under s 232 of the ACL and will enjoin Taxsmart and Mr Andrews from a repetition of the contravening conduct. As it would be appropriate to grant injunctive relief in this matter directed at preventing any further occurrence of the contravening conduct, the undertakings in lieu of that relief should therefore be accepted. OTHER ORDERS 15 The other proposed consent orders are directed at facilitating compliance with the orders addressed above and should be made in the terms proposed. COSTS 16 The respondents have agreed to pay costs to the ACCC in the amount of $10,000 and I will make that order. I certify that the preceding sixteen (16) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Davies. Associate: Dated: 16 May 2014 Annexure A Annexure B