THE EVIDENCE
18 The ACCC led evidence from some members of its staff who were involved in the investigation of the alleged contraventions by Mr Hann; from volunteers whom he had persuaded to assist in the running of the business; and from people who had been induced to pay large sums of money to purchase exclusive distributorship rights in particular areas.
19 The distributors were attracted to the business opportunities by hundreds of advertisements placed in newspapers in many States between October 2007 and October 2009. Many of these advertisements were placed by Ms Diane Gill.
20 In 2006 Ms Gill saw an advertisement in her local newspaper, the "Portland Observer" asking people who were interested in doing volunteer work to contact a 1800 telephone number. She called the number and left a message on the answering service. Subsequently she received a telephone call from a man who identified himself as Laurie Hann. He told her about the Heartlink business. He sent her some brochures. Having looked at the material Ms Gill decided to volunteer. She telephoned Mr Hann and expressed her interest. Towards the end of 2006 Mr Hann visited her at her home. He gave her further information about the business. Shortly afterwards he returned with some promotional flyers which she was asked to fold and place back in the boxes. She did so.
21 Not long afterwards Mr Hann told Ms Gill that he proposed to open a Heartlink office in Portland and wanted her to run it. Advertisements were placed in the local newspaper seeking volunteers to work in the office. A number of people responded to the advertisement. Four were engaged. Mr Hann instructed Ms Gill to pay their expenses and provided her with a cheque book for this purpose. The account was in the name of "Retiree Warehouse Trust", an organisation of which Ms Gill had never heard.
22 After a short period the volunteers expressed dissatisfaction with what they were being paid. Mr Hann attended the office and shortly afterwards the volunteers stopped coming. In late February 2007 Mr Hann told Ms Gill that he had decided to close the office and told her to "pack it up".
23 Shortly afterwards Mr Hann asked Ms Gill to place advertisements in newspapers. Mr Hann instructed her as to the text of the advertisements and the newspapers in to which they were to be placed. These advertisements offered business opportunities for parcel delivery. They were placed in various names including "The Mature Age Group", "Mature Age Group Charity Association Inc", "Lander Freight", "ND Freight", "The Seniors Group" and "RJ Distributors".
24 A typical advertisement contained the following text:
"Sales distribution business part time, light parcels genuine unique opportunity for purchase amount of $10,000. Potential earnings for 3-4 days per week approximately $800 to $1,000 for the Mature Aged Group, 1800 267 583".
25 For reasons which will be become apparent it is appropriate to note that Halkalia caused ten such advertisements to be published in newspapers between 8 May 2010 and 15 May 2010. These advertisements are identified as Items 85 - 94 in Schedule A of the orders which I have made today.
26 Ms Gill arranged for payment to be made to the publishers of the newspapers for the advertisements. Initially she did so using cheques drawn on a Westpac banking account entitled "Mature Age Group Charity Association Inc". Ms Gill was an authorised signatory on the account. Later she was provided by Mr Hann with a Mastercard debit card in the name of Halkalia Pty Ltd which she used to pay for the advertising.
27 When placing advertisements Ms Gill did not normally provide her surname. She did this because Mr Hann had told her not to do so because: "[t]here was a woman a few years back in Warrnambool who ran off with all of Heartlink's money. If people see your surname on things, you might start to get angry phone calls."
28 There was also undisputed evidence that a large number of similar advertisements had been placed with newspapers by a person who identified himself as "Laurie". Some of these advertisements were paid for by cheques drawn on a Westpac account in the name of HLE. Other similar advertisements were also placed by a person identifying himself as "Laurie". They were placed by telephone. The telephone number appearing in these advertisements was 1800 267 586. Records obtained from Telstra disclosed that Mr Hann was the registered holder of this number. The nominated "booking entity" was the Heartlink Manufacturing Trust. NSRG was the trustee for that trust.
29 Persons who responded to the advertisements were sent a letter by Mr Hann. That letter contained the statements that:
"We are a most unique concept started by some people who had heart problems who … decided to help charities and communities by going into business manufacturing products and giving All profits back to the community where products are sold. This has opened a Pandora's Box as the community gets behind the products faster than was anticipated. … The real surge in sales commenced when the products became the Ultimate Fundraising Products … further sales are now surging since the Independent Grocery Stores are stocking our products … those who grasp our concept and make up their minds to proceed actually purchase a designated indefinite area for the amount of $20,000 and will then receive 15% of Gross Sales Turn Over in the designated area thereafter. A cheque for payment on delivery will be prepaid on each delivery which is brought to distributors area at Heartlink's expense then off loaded for local distributor to deliver around area… Once the area is fully established it is anticipated that the distributor will earn on a 2 to 3 day basis income of approx $1,600 per week. All products are made to the quality of top brand names in Australia but with lower prices due to volunteer labour. No other product manufacturer can complete [sic] with us because of our use of volunteer labour. The fact that we are a non profit charity organisation … is why the community gets behind our products, as does the media, to spread the word. We expect Heartlink products to become a household name within 6 months of arriving in each area."
30 Letters containing similar statements were sent, in February 2010, March 2010 and April 2010, to persons who responded to later advertisements.
31 In the course of 2007 Mr Hann gave Ms Gill other cheque books. One of these was for an account held in the name of Halkalia Pty Ltd at the Westpac Bank. Ms Gill became an authorised signatory of these accounts.
32 About the middle of 2010 Ms Gill advised Mr Hann that she no longer wished to be involved in the Heartlink business. She did no further work for Mr Hann.
33 Evidence was called from eight witnesses who had responded to advertisements for delivery or distribution businesses. Their accounts of their experiences in dealing with Mr Hann and others involved in the Heartlink business were remarkably similar.
34 The evidence of Ms Glamis Pearse is typical.
35 Ms Pearse and her husband had been self employed for many years but had decided, in 2009, to retire. Ms Pearse is now 70 years old. In September 2009 she saw an advertisement in the Adelaide Advertiser newspaper. The advertisement was placed under the heading "Business Opportunities." The advertisement read:
"SALES Distribution Business. Part Time Light Parcels. Genuine unique opportunity for purchase amount of $10,000. Potential earnings for 3 to 4 days per week approx. $800-$1,000. The Mature Age Group 1800 257 586."
36 Ms Pearse telephoned the listed number. It was answered by a voicemail service. She left her name and telephone number.
37 A few days later she received a telephone call from a man who introduced himself as Laurie Hann. Mr Hann told her about the Heartlink business. The conversation proceeded along the following lines:
"Mr Hann: "Heartlink is a charity which sells and distributes the Heartlink products."
"The Heartlink business was set up especially for retirees. I first became involved when I suffered a heart attack and was being treated in the Adelaide hospital. I spoke to someone at the hospital who was involved in the Heartlink business and decided to take over the Heartlink business because I wanted to put something back into the community."
Ms Pearse: "What would I need to do if I bought the business?"
Mr Hann: "The business would require you to deliver the Heartlink products. There is no selling involved. You don't need to sell the products. You just deliver the products that have been sold by sales representatives employed by the Heartlink business."
Ms Pearse: "How would I be paid?"
Ms Hann: "You would be paid by way of commissions on sales of the Heartlink products. You would earn approximately 12% commission on Heartlink products sold and you would be paid the commission by cheque."
Ms Pearse: "Where would I deliver the products?"
Mr Hann: "You would distribute the Heartlink products in your local area … I will send you some brochures explaining the Heartlink business to help you make your decision."
38 Ms Pearse was attracted to the business opportunity for a number of reasons: it did not involve sales; deliveries could be made at times which suited her husband and herself, and the business assisted charities.
39 A few days after she had spoken to Mr Hann she received a number of documents in the mail. They were:
A document titled "Australia's Ultimate Heart Warming Story…The Mature Age Group" which contained information about the Mature Age Group, the people who operated the Mature Age Group and the Heartlink products.
A document titled "Australia's Ultimate Heart Warming Story…The Mature Age Group" which contained details of the Heartlink products range and listed charities purported to have benefited from Heartlink.
A document titled "Heartlink TV ADS" which included images from television advertisements showing various Heartlink products.
A document titled "Heartlink Community Benefit Products" which displayed numerous messages from various charitable organisations thanking Heartlink for donations.
A document titled "Gift Voucher Donated to your School".
A document titled "Heartlink (Community Benefit Products) Wholesale Price List November 2009".
40 This material confirmed Ms Pearse's understanding that the Heartlink business provided financial support to a large number of charities. Statements in the documents persuaded her that the business was operating successfully. She noted statements that "fast growth creates freight demand" and that "vast expansions for Heartlink with 2 more packaging warehouses" had occurred. She also noted a statement to the effect that the business was sufficiently established so as to render realistic the expectation of earnings of $800 to $1,000 per week for three to four days' work.
41 Ms Pearse then had a further telephone conversation with Mr Hann on about 22 September 2009. Words to the following effect were exchanged:
"Ms Pearse: "Is there anyone in Adelaide or South Australia who is already involved in the Heartlink business who I could speak to before purchasing the business?"
Mr Hann: "No, there is no one else currently in South Australia. You and your husband would be the first."
Ms Pearse: "Has there been a lot of interest in response to the advertisement?"
Mr Hann: "There has been a lot of interest. There is a man in Brighton who is particularly interested…There are many sales representatives employed to sell the Heartlink products and television advertisements are scheduled to commence in October and November 2009… I'm giving up my time for the Heartlink charity. It's up to you whether you also give up your time for a charitable cause. I will send you a copy of the contract for the purchase of the business in the mail."
42 On about 6 October 2009 Ms Pearse received a letter from "R J Community Distributors". It was headed "PARCEL DELIVERY BUSINESS" and was signed "R. J. Searle, Director". Ms Jane Searle gave evidence that she had been asked by Mr Hann to provide a copy of her signature to him on a blank page. She was not aware that she was a director of an organisation known as R J Community Distributors, she had not placed her signature on the document and had not seen the document. The document read:
"This is a unique opportunity to a select few to have their own small business.
We are distributors for the new, HeartLink. Vast range of variety products now going Australia wide of which we deliver in our own vehicles utilising Pensioners as drivers providing a feeling of usefuleness [sic] in a time of community struggles.
We purchase second hand vans as deliveries are on a weekly basis with no fixed schedules to put our Pensioner members under stress. We privately fund our vans being second hand but as the HeartLink Products now have TV support so will grow the sales and so the demand to purchase more second hand vans. As we don't use hire purchase the idea arose that to raise capital to buy more vans we could sell from time to time a select area and give our profit to the distributor of 20% of gross sales which we feel that a population area of 15,000 to 20,000 would return potentially on a 3 to 4 day basis approximately per week of $900 or more.
This would take a while months of establishing as we have our Sales Pensioners requiring to go to all community customers and provide samples of product to satisfy the quality in establishing customers.
The simple procedure is you would purchase an indefinate [sic] area Delivery business for $15,000 of which you would deliver HeartLink Products to customers that our Pensioners would provide.
Product is despatched to you to store at your house to inturn [sic] deliver to customers as our Pensioner Sales people in your area create the orders and establish customers.
The Distributor would deliver products to customer and forward paperwork at end of each week of which a cheque will be returned to distributor for 20% of gross sales created and delivered in each week.
Our customers are Foodworks and IGA stores for the household range but in bulk to the commercial outlets we deliver all over the town to Hotels - Motels' [sic] - Caravan Parks - Fish & Chip Shops - Delis - Milk Bars - Takeways - Pizza Parlours - Restaurants - Hairdresser Salons - Garden Centres - Nurseries - Hardware and Fodder Stores - Chemist Shops - Tractor Machinery - Sales Industrial Factories - Engineering Outlets - Trucking Companies - New Car Dealerships - Service Stations - Pet Shops etc. (Emphasis in original).
Proprietors of these businesses mostly relate to the fact that the Heartlink Products are packaged by pensioners as also our delivery and sales people are all pensioners. Enclosed is HeartLinks information and product range that you would be delivering. We also agree to repurchase your delivery business any time after 12 months should you wish to sell for any reason. If you are at all interested to discuss this further then feel free to phone me on the above number." (Emphasis added).
43 Attached to the letter was a "DELIVERY BUSINESS AGREEMENT". It had been partly completed when Ms Pearse received it. Various X signs marked parts of the document which Ms Pearse was to complete. She executed the document on 12 October 2009. The document read:
44 Ms Pearse sent the executed agreement by post to Mr Hann. On the same day she paid $10,000 by credit transfer to the Westpac Bank account of National Community Link Pty Ltd. On 22 October 2009 she received a receipt by post. It was signed by Ms Searle.
45 In late October and early November 2009 Ms Pearse made a number of telephone calls to the 1800 number given to her by Mr Hann. She made these calls in an attempt to find out who was the sales representative appointed to her area. On each occasion her telephone call was "answered" by a recorded message. She left messages for Mr Hann to ring her back. He did not do so.
46 On 30 October 2009 she received a telephone call from a man who identified himself as "Eddie". Eddie told her that he worked for Heartlink at a warehouse in Gawler. He told her that he was organising a delivery of Heartlink products to her home that day. A delivery was subsequently made.
47 Between November 2009 and February 2010 Ms Pearse made a series of telephone calls and sent e-mails in an attempt to contact Mr Hann. She left messages on the telephone answering service which were not returned. Her e-mails were not responded to. In frustration, in about February 2010, she and her husband decided to visit the Heartlink warehouse in Gawler.
48 When they attended at the premises a man approached them and identified himself as Eddie Hann, Laurie's brother. Ms Pearse asked how she could make contact with Mr Laurie Hann. "Eddie" replied "I don't know, I have a hard job of contacting him myself." Ms Pearse said that she wanted to talk to Mr Laurie Hann. Following further exchanges in which Ms Pearce's husband were involved "Eddie" said: "Listen if you don't like the business, go and get your money back."
49 In early March 2010 Ms Pearse wrote a letter to Mr Laurie Hann. She complained of lack of communication, the unavailability of stock, the failure to supply information relating to representatives and distributors and the lack of effective advertising of Heartlink products. Some weeks later she received an undated hand written letter signed "Laurie". The letter said that Mr Hann "accept[ed] everything in [her] letter". He went on to explain that "health issues" had hindered his ability to deal with the problems raised in Ms Pearse's letter.
50 By April 2010 Mr and Ms Pearse had decided to discontinue their association with the Heartlink business. On 19 April 2010 they wrote a letter addressed to the CEOs of various entities which they understood were involved in the Heartlink group. They formally advised that they had determined to sell the delivery business "to which ever of the above named business [sic] is relevant." They requested a cheque for $10,000 to be forwarded within 14 days. This advice and the request were based on the statement in the delivery business agreement (see above at [43]) that, if Ms Pearse wished to re-sell the distribution area, she had first to offer it to the Community Distribution Trust for the price which she paid for it.
51 Despite a series of e-mail messages they received no response until 15 May 2010 when they received a document headed "FINAL URGENT CIRCULAR TO TERMINATING CONTRACTORS" which was signed by "Laurie". The circular advised that "the entity you purchased the delivery business from transferred your capital amount as a donation to the above Heartlink Manufacturing Trust to legally alleviate the GST component and therefore the legal entity you purchased the delivery business from has no assets to liquidate …" The circular further advised that "Laurie" was contemplating placing the businesses in liquidation and that the "terminating contractors" "would be fortunate to barely get 20 cents in the dollar."
52 Ms Pearse never received the $10,000 (or any part thereof) which she had sought.
53 Other witnesses recounted similar experiences in dealing with Mr Hann and the entities associated with him. They had each invested substantial sums under similar arrangements to those which applied to Ms Pearse. They had each sought a return of their funds to no avail. Some had borrowed the money. Others had invested monies which they had received as redundancy or other termination of employment benefits. Most of them were retired and looking for part time work. They could ill afford to lose the money which they invested in the distributorships. Mr Lyndsay Cox and his wife Carole, for example, invested $20,000 which they had borrowed. They gave evidence that they continue to suffer severe financial stress as a result of their loss. Similarly, Ms Kylie Little invested her redundancy payout and lost it.
54 Some of these other witnesses also gave evidence about statements made to them by Mr Hann in the course of conversations which he had had with them at various times between 2007 and 2010.
55 Mr Lyndsay Cox said that, in April 2007, Mr Hann had telephoned him. Mr Cox had expressed interest in the possible purchase of a distributor business in the Maitland area in New South Wales. Mr Hann had said to Mr Cox:
"The area is Maitland to Thornton, Branxton, Paterson and Morpeth. …[t]he way we have structured the commission is you will receive 10% for the first two months plus $100 per day as a retainer to do the delivery and sales work. With a population in the area the size of Maitland which is in the vicinity of 53,000 you should receive a return of approximately $10,000 gross per week and a net pay of $2,000 per week. Once the area is established you will receive 20% of the gross turnover."
56 Mr Ian Nicholls deposed that Mr Hann had telephoned him in about December 2009. Mr Nicholls had expressed interest in the possible purchase of a distribution business in the Strathalbyn area of South Australia. Mr Hann had said to him:
"I am a millionaire. I run Heartlink as a hobby to help charity .. Heartlink will appoint sales representatives in the area who will promote the product and take orders. You will not be required to make any sales, only to fill the orders and deliver stock … the $900 per week earnings figures in the advertisement are based on earnings achieved in similarly sized areas in Victoria. If your business goes really well you might earn income of around $1,200 to $1,400 per week."
57 Ms Carole Cox deposed that, in early May 2010, Mr Hann had telephoned her after she had responded to an advertisement for the "part time parcel delivery business" that had appeared in the Newcastle Herald newspaper. Mr Hann said to her:
"Our people come in and take orders and you deliver the orders. We are the only charity in Australia who makes money and gives it away. We have a huge range and variety of products. This is a new concept in Australia. … The Mature Age Group … We have WIN and PRIME with us. The way it works is our sales people go in and get the sales. You delivery the stock and get 25% gross turnover of the sales. … Gradually the sales work up to what we advertised. We go through the IGA stores because we don't like Woolies."
58 Mr Hann did not dispute the foregoing evidence.