ACCC v Emerald Ocean Distributors Pty Ltd

Nature of proceeding 6 By an amended application (and a proposed further amended application) the applicant claims certain declarations in connection with the supply and promotion by the respondents of certain products described as the Slendertone Products. These comprise the Sequence 16; the Supreme; the Toptone 12 and the Gymbody 8. The declarations sought are that the respondents engaged in misleading and deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("the Act") and made false representations contrary to s 53(c) of the Act. Other associated remedial orders are sought. 7 In its amended statement of claim (and proposed further amended statement of claim) the applicant relies upon the alleged occurrence of certain advertisements by the respondents. The first is in the Women's Health Magazine in December 1999 in an advertisement promoting the Gymbody 8 and the Toptone 12. The second is in the Ultrafit Magazine on 17 March 2000 in respect of the Gymbody 8. The third was the publication in or about June 2000 of a Slendertone pamphlet. The fourth was the production of a website for Slendertone Products in or about June 2000. The amended claim asserts that the representations made in these four ways each breached the Act in the two ways previously identified. The claim also relies on alleged implied statements.

Respondents' defence 8 In an amended defence it is generally denied that the first respondent did any of the things alleged against it. However, in respect of the second respondent it is generally admitted that it did the things alleged against it save that certain implied statements are denied. In relation to the third respondent it is admitted that he aided, abetted, counselled and procured and was knowingly concerned in and a party to the making of the express statements and certain implied representations pleaded to the extent those are admitted by the second respondent. There are also some denials which it is not necessary to examine in detail. To the pleas relating to the breach of the Act it is generally pleaded in the amended defence on behalf of the respondents that the statements in relation to the Slendertone Products were ones for which they had reasonable grounds for making. The case which is sought to be made for the respondents is that all of the statements in question were based upon information and literature provided to the respondents by or on behalf of the proposed cross-claimant.

Proposed cross-claim 9 The claim which the respondents seek to make in the proposed cross-claim is worded as follows: "1. An Order that if any or all of the Cross Claimants are ordered to refund to customers of any or all of them any money paid by those customers for the purchase of Slendertone products, the Cross Respondent indemnify the relevant Cross Claimants against the liability to make the refund. 2. If all or any of the Cross Claimants are ordered to carry out corrective advertising as sought by the Applicant, the Cross Respondent indemnify the relevant Cross Claimants against the costs of producing and placing such advertisements. 3. Damages; and 4. Costs." It will be observed that paragraphs 1 and 2 seek in their terms to bring a cross-claim for indemnification of the respondents by the proposed cross-respondent. 10 In the proposed cross-claim it is stated that the second and third respondents made the statements referred to in the statement of claim for the sole reason that the statements were made to the second respondent by the proposed cross-respondent and the third respondent was advised by the proposed cross-respondent to repeat those statements to members of the public in Australia in the course of carrying on its business of selling the Slendertone Products. It is further claimed that at all material times when such advice was received by the third respondent, the third respondent was in Australia. 11 It is also claimed in the proposed cross-claim that had the proposed cross-respondent not made the statements about the Slendertone Products to the third respondent, the third respondent would not have commenced the business of marketing the Slendertone Products and would not have ceased a business of selling other electrotherapeutic goods and, additionally, would not have formed the second respondent or caused it to take over the business of selling Slendertone Products.

Respondents' supporting affidavits 12 The third respondent, who is a director of the first and second respondents and authorised to give evidence on their behalf, filed three affidavits in support. In an affidavit sworn on 14 February 2001 he identified the actions of the proposed cross-respondent (described as "BMR") in the following terms: "• In about 1990 I had a telephone conversation with James Murphy of BMR in which he offered me the exclusive distribution for BMR products at that time for Australia and New Zealand. · From time to time BMR made available for the Second Respondent to purchase various brochures promoting the benefits of various of the BMR products, and it purchased many of those. · During my role as managing director of the Second Respondent I did not use my own judgement in making any claims about BMR products which are the subject of this action. I relied upon as true and repeated statements in literature I obtained from BMR, sometimes changing the words used to a limited degree, as appears in this affidavit, but not their meaning." 13 In a further affidavit the third respondent stated that statements made on behalf of the proposed cross-respondent "were continuously repeated and elaborated on in the form of a large number of pamphlets and brochures sent to me by [it] regularly between 1990 and when this action was commenced".

Applicant's objections to grant of leave 14 The first objection made on behalf of the applicant is subsidiary in its nature to the main thrust of the objections. It is that the representations sought to be attributed to the proposed cross-respondent are "not located geographically" (Newave Investments Ltd v Complete Command SDNBHD [1999] FCA 1537 at [13] per French J). For the respondents in response it is said that the implication of their affidavit material is that such representations are geographically located in Australia. In any event on their behalf it is requested that should this point be the sole ground of precluding them a grant of the leave sought, opportunity should be given for filing supplementary affidavit evidence in relation to the issue. It has already been noted that the pleading of the proposed cross-claim asserts that at all material times when receiving advice from the proposed cross-respondent the third respondent was in Australia. This is not supported by any present express evidence. 15 The principal contention for the applicant is that leave should not be granted because there is no cause of action open to the respondents by which they can seek indemnification as sought in the proposed cross-claim. 16 The contentions for the applicant run as follows. 17 The source of the power to order indemnity or contribution as claimed by the respondents in the minute of proposed cross-claim is found in s 87(1A) of the Act. It is an established principle that the Act contemplates that the applicant for relief under s 87(1A) is not the person who commits the contravention: Re La Rosa: Ex parte Norgard v Rodpat Nominees Pty Ltd (1991) 104 ALR 237; Bialkower v Acohs Pty Ltd (1999) ATPR 41-685. It is submitted that there can be no claim for indemnity or contribution by the respondents against the proposed cross-respondent, pursuant to s 87(1A) or otherwise, in relation to the claim made by the applicant unless it was in some way engaged or involved in the respondents' conduct in breach of the Act: Bialkower at 42,762 and 42,765. Furthermore, s 87 of the Act confers no power on the Court to order contribution: Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535. 18 Any order for contribution can only be made on equitable grounds: Bialkower. To establish a claim for equitable (or common law) relief against the proposed cross-respondent, there must be some common or "co-ordinate" liability on it to share or shoulder the burden should the applicant succeed in this matter: Re La Rosa and Bialkower. There is nothing in the affidavit evidence or the pleadings to show any involvement by it in the conduct of the respondents in placing the advertisements and making the statements complained of by the applicant. 19 Accordingly, it is said there is nothing to sustain any claim for co-ordinate liability imposed on the parties by the Act. It is submitted the claim by the respondents against the proposed cross-respondent is, in essence, a separate claim for separate relief from that claimed by the applicant.

Consideration of contentions 20 Section 87(1A) of the Act reads as follows: "(1A) Without limiting the generality of section 80, the Court may, on the application of a person who has suffered, or is likely to suffer, loss or damage by conduct of another person that was engaged in (whether before or after the commencement of this subsection) in contravention of a provision of Part IVA, IVB or V or on the application of the Commission in accordance with subsection (1B) on behalf of such a person or 2 or more such persons, make such order or orders as the Court thinks appropriate against the person who engaged in the conduct or a person who was involved in the contravention (including all or any of the orders mentioned in subsection (2)) if the Court considers that the order or orders concerned will compensate the person who made the application, or the person or any of the persons on whose behalf the application was made, in whole or in part for the loss or damage, or will prevent or reduce the loss or damage suffered, or likely to be suffered, by such a person." That subsection is to be read together with s 87(2)(d) which provides that the orders referred to subs (1) and (1A) are: "… (d) an order directing the person who engaged in the conduct or a person who was involved in the contravention constituted by the conduct to pay to the person who suffered the loss or damage the amount of the loss or damage; …" 21 In La Rosa the proposed third cross-claim was one for indemnification or contribution from two persons if the cross-claimants were found to be liable to a bank. The basis of the claim was reliance upon s 87(1A) of the Act or in the alternative the principles of equitable contribution. In the course of this reasons (at 242) French J said: "It was stated from the bar table that there is no authority on the question whether s 87(1A) can be invoked to provide for indemnity or contribution under the Trade Practices Act. In my opinion, the reason for that scarcity is that the proposition is untenable. Section 87(1A) contemplates an application by "a person who has suffered or is likely to suffer loss or damage by conduct of another person…in contravention of a provision of Part V". Now it was contended that this would extend to a person who has suffered a judgment for contravention of the Act in which contravention another person was involved. But the Act contemplates that the applicant for relief under s 87(1A) is not the person who contravenes the relevant provisions of Part V. That becomes clearer when it is seen that before the court can make an order under this subsection, it must consider that the order or orders will compensate the person who made the application. And to the extent that s 87(2)(d) is relevant, it does not define the categories of person who may seek damages. In my opinion, there is no mechanism in s 87, nor in the Act generally, which would enable the court to make orders for contribution or indemnity against other contravenors of the Act or persons involved in the primary contravention. On this basis the third cross-claim could not succeed at all against Wheatley or Hughes nor, to the extent that it relies upon s 87, against Dolling and O'Neale." He went on to consider the second foundation for the third cross-claim in equitable contribution. He found that against some proposed cross-respondents arguably a claim of coordinate liability existed which could be the subject of contribution proceedings. He did not consider that an indemnity claim was open or that any claim based upon s 87 of the Act was available. In respect of the indemnity claims he said (at 244): "So far as the indemnity claims are concerned, there is no tenable generalisation of the principle underlying the doctrine of contributions as enunciated in the Albion Insurance case that would allow one of two persons under coordinate liabilities to claim a complete indemnity from the other. A claim for contribution is, by its very nature, one to rateable relief. The very purpose of the doctrine where it applies, is to avoid throwing the whole burden of liability on one of those liable to the exclusion of others: Commercial and General Insurance Co Ltd v Government Insurance Office of New South Wales (1973) 129 CLR 374 at 380." In its terms and as supported in argument to the Court the claims in the proposed cross-claim are ones for total indemnification. 22 The decision of the Full Court in Lezam Pty Ltd v Seabridge Australia Pty Limited (1992) ATPR 41-171 at 40354 (per Sheppard J with whom Burtchett and Hill JJ agreed) established authoritatively that no power arises under s 87 of the Act to order contribution. In Bialkower the Full Federal Court followed that aspect of the decision in Lezam. 23 In Bialkower the primary judge held that Dr Bialkower was the source of the misleading information published by a corporation and also authorised its publication, although suggesting but not requiring deletion of a certain reference. He was therefore "involved" in the contravention. That conclusion required a consideration of the provisions of s 75B(1) of the Act which reads: "(1) A reference in this Part to a person involved in a contravention of a provision of Part IV, IVA, IVB or V, or of section 75AU, shall be read as a reference to a person who: (a) has aided, abetted, counselled or procured the contravention; (b) has induced, whether by threats or promises or otherwise, the contravention; (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention." 24 In Yorke v Lucas (1985) 158 CLR 661, Mason ACJ, Wilson, Deane and Dawson JJ held (at CLR 667-8) that for para (a) of s 75B(1) to apply, it must be shown that the person intentionally aided etc; and that to form the necessary intent, the person must have knowledge of the essential matters which make up the contravention whether or not the person knows that these matters amount to a contravention. 25 In Yorke, the Full Court went on to hold (at ATPR 47,060; CLR 670) first, that before a person can be said to have been a party to a contravention within para (c) of s 75B(1), the person must be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention; and secondly, that the word "knowingly" in para (c) qualifies only the words "concerned in" and not also the words "party to". 26 In Lezam the Full Court gave consideration to the question on the basis of any arguable entitlement to an indemnity. There it was alleged in the course of argument that the indemnity arose as the consequence of an implied term of a contract of agency. 27 Applying these authorities to the present case: (1) As to the claim being founded on s 87(1A) of the Act: (a) There is no evidence brought on behalf of the applicant in relation to the intention or state of knowledge of the proposed cross-respondent in relation to the advertisements, publication of a pamphlet and establishment of a website being the conduct alleged against the respondents as having given rise to the contravention of the Act. Unlike the position reported in Bialkower, there is no evidence making that matter arguable at this point in time. There is the pleading that the proposed cross-respondent advised the third respondent to repeat those statements to members of the public in Australia but no evidence is brought to show that contention to be arguable. (b) In any event, the second and third respondents have made admissions of contravention. They are not therefore persons whom the subsection can assist: La Rosa at 242. (c) The subsection provides no power to order contribution (if the claims in the proposed cross-claim could even arguably be so construed): Lezam and Bialkower. (2) As to the claim being founded in common law or equity: (a) Here the respondents do not allege the existence of an agency or contract nor do they make any argument for any other express or implied foundation of indemnity save reliance upon s 87(1A) of the Act. See Lezam at 40,354 - 355. (b) No argument is made that there is any authority relevant in the present circumstances to support a complete indemnity at common law or in equity as proposed to be claimed: cf La Rosa at 244. (c) No case is made that the proposed cross-respondent and the respondents shared a common obligation upon which the equitable doctrine of contribution could operate - cf La Rosa at 244 - and none is apparent on the evidence. No evidence is brought to support allegations of involvement of the proposed cross-respondent in the contraventions.

Discretionary factors 28 Based on considerations of cost and delay, it is also contended for the applicant that leave should in any event be refused. It is unnecessary to consider these factors as the case for the applicant does not reach the threshold where they become relevant. However, it is also relevant that if the applicant where able to bring evidence of involvement of the proposed cross-respondent in the contraventions admitted, it would not be precluded from bringing a separate action if it had some presently unidentified basis for properly seeking indemnity or contribution.

Conclusion 29 For the reasons given, I consider the objections of the applicant to the motion are sound. Accordingly, it is not necessary to give the respondents the opportunity to file any additional affidavit evidence directed to the geographic location of the representations. The motion will be therefore refused. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.