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[2002] FCA 273
Federal Court of Australia
2002-03-19
Spender J
Original judgment source is linked above.
The Court makes the following findings of fact in respect of each of the charges against Hartwich Pty Ltd, Back to Basics Worldwide Education Aids Systems Pty Ltd, Wayne Baker and John Moon, for the purpose of s 83 of the TP Act.
Counts 1 and 2 Between about the 20th day of September 1997 and the 21st day of October 1997, Hartwich through Baker invited Craig James Clifton and Carunya Pty Ltd to engage in the business of selling education aids under the trading name "Back to Basics". Hartwich through Baker represented that a distributor could expect a profit of $150,000 per year from sales of the "school watch", and that the success rate for sales was eighty per cent of those approached. There were no reasonable grounds for making the first representation, and the second representation was false. Further, Hartwich through Baker represented to Clifton and Carunya Pty Ltd that "distributorships were selling quickly" which representation was false.
Count 3 Between about the 21st day of February 1998 and the 5th day of March 1998, Hartwich and Back to Basics through Baker and Moon invited Jacqueline Hole and Josephine Lamattina to engage in the business of selling education aids under the trading name "Back to Basics". Hartwich and Back to Basics represented through Baker and Moon that: "(i) a distributor could achieve comfortable profits of $150,000 per annum ongoing; (ii) other distributorships were doing well." There were no reasonable grounds for making the first representation, and the second representation was false.
Counts 5 and 7 Between about the 17th day of January 1998 and the 5th day of March 1998, Back to Basics through Baker and Moon invited Slavko (Steve) Rabik and Maree Joy Rabik to engage in the business of selling education aids under the trading name "Back to Basics", and the companies represented to Mr and Mrs Rabik that: "(i) a distributor could achieve comfortable earnings in excess of $150,000 per year ongoing; (ii) projected profits from the sale of the student's watch were $237,500 based upon achieving sales of 50 per cent; (iii) projected profits from the sale of the Times Table were $119,735 based upon achieving sales of 50 per cent. There were no reasonable grounds for making any of those representations. Further, Back to Basics through Baker and Moon represented to Mr and Mrs Rabik that "a South Australian distributor had paid $60,000 as a 20 % deposit on an order of watches",which representation was false.
Counts 9 and 10 Between about the 28th day of March 1998 and the 28th day of April 1998, Back to Basics through Baker and Moon invited Tony Anatoli Szloch and Jennifer Margaret Lewis Szloch to engage in the business of selling education aids under the trading name "Back to Basics" by representing to them that: "(i) a distributor could earn $150,000 per year; (ii) total projected earning for the first year of operation of a distributorship were $224,840.00; (iii) a success rate for sales of 30% of those approached could be expected." There were no reasonable grounds for making any of those representations. Further, Baker and Moon represented to Mr and Mrs Szloch that "the distributor Frank Cahjerah had operated a distributorship for 3 to 4 years",which representation was false.
Counts 11, 12 and 13 Between about the 8th day of July 1998 and the 24th day of August 1998, Back to Basics through Baker and Moon represented to John Andrew Carroll and Susan Margaret Carroll, in connection with the business of selling education aids under the trading name "Back to Basics", that: "(i) total earnings of $111,158.00 could be expected from sales in the first year; (ii) a success rate for sales of 15% of those approached could be expected." There were no reasonable grounds for making either of those representations. Further, it was represented that: "(i) they could earn income of $100,000 plus per annum; (ii) that projected profits working on the bottom end of the scale for the distributorship were $111,158 per annum; (iii) a success rate for sales of 15% of those approached could be expected." There were no reasonable grounds for making any of those representations. Further, it was represented to Mr and Mrs Carroll that Baker and Moon had been engaged in the business for five years, which representation was false.
Counts 14 and 15 Between about the 8th day of August and the 14th day of August 1998, Back to Basics through Baker and Moon invited Matina Vlandis, George Vlandis and Elegant Pty Ltd to engage in the business of selling education aids under the trading name "Back to Basics", and represented to them that: "(i) a gross income of $100,000.00 per annum could be expected; (ii) a minimum net income of $80,000 to $90,000 per annum could be expected; (iii) a success rate for sales between 12.5 and 15% of those approached could be expected; (iv) projected income for the first year of operation of the distributorship was a minimum of $142,491.00." There were no reasonable grounds for making any of those representations. It was further represented to Mr and Mrs Vlandis and Elegant Pty Ltd that the persons Gus D'Leo and Ray Parsons were distributors of Back to Basics, which representation was false.
Count 16 Between about the 8th day of August 1998 and the 27th day of August 1998, Back to Basics through Moon and Baker represented to Steven Nihas in connection with the invitation to engage in the business of selling education aids under the trading name "Back to Basics" that: "(i) an income of $100,000 per annum could be expected; (ii) projected income for the first year of operation of the distributorship was a minimum of $112,158.00; (iii) a success rate for sales in Queensland between 12 and 15% of those approached could be expected." There were no reasonable grounds for making any of those representations.
THE COURT ORDERS THAT: 1. The defendant Wayne Baker is convicted of counts 1, 2, 3, 5, 7, 9, 10, 11, 12, 13, 14, 15 and 16. The defendant John Moon, also known as John Robert Croke, is convicted of counts 3, 5, 7, 9, 10, 11, 12, 13, 14, 15 and 16. The company Hartwich Pty Ltd is convicted of counts 1, 2 and 3 and the company Back to Basics Worldwide Education Aids Systems Pty Ltd is convicted of counts 3, 5, 7, 9, 10, 11, 12, 13, 14, 15 and 16.
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
BACK TO BASICS WORLDWIDE EDUCATION AIDS SYSTEMS PTY LTD ACN NO 081 839 572
REASONS FOR JUDGMENT 1 Wayne Baker (Baker) has pleaded guilty to thirteen offences and John Moon, also known as John Robert Croke (Moon), has pleaded guilty to eleven offences against s 79(1)(d) of the Trade Practices Act 1974 (Cth) (the TP Act), which involved conduct by corporations contrary to s 59(2) of the TP Act. Section 59(2) provided: Where a corporation, in trade or commerce, invites, whether by advertisement or otherwise, persons to engage or participate, or to offer or apply to engage or participate, in a business activity requiring the performance by the persons concerned of work, or the investment of moneys by the persons concerned and the performance by them of work associated with the investment, the corporation shall not make, with respect to the profitability or risk or any other material aspect of the business activity, a representation that is false or misleading in a material particular." 2 Baker is guilty of being knowingly concerned in contraventions by Hartwich Pty Ltd (Hartwich) and offences by Back to Basics Worldwide Education Aids Systems Pty Ltd (Back to Basics), whereby those companies invited a total of seven single investors or groups of investors to partake in a business activity requiring the investment of moneys in the performance of work associated with the investment, namely the purchase of distributorships for marketing education aids, and made false or misleading statements with respect to either the profitability or a material aspect of the business activity. Moon is guilty of being knowingly concerned in contraventions involving six of the same investors or groups of investors. 3 A single information containing sixteen counts involving conduct contrary to s 59(2) was laid. This procedure was consistent with the procedure endorsed by von Doussa J in Trade Practices Commission v Farrow (1990) 95 ALR 53, particularly at 55. Baker sought to appear for the two corporate defendants, but neither Baker nor Moon have any authority to represent the corporations of which they both had been directors, because on their becoming bankrupt on 18 November 1999, s 224(1)(c) and s 224A of the Corporations Law deemed that they ceased to be capable of being directors of a company (see now ss 201F(3), 206B(3) and 206F of the Corporations Law). 4 The effect of the provisions of the Corporations Law is that the Official Trustee in Bankruptcy is given authority to appoint a substitute director. However, the Official Trustee in Bankruptcy has indicated that the Trustee does not propose to take any action in that respect, so that the companies are in a situation where there are no directors. Baker and Moon are the sole shareholders of Back to Basics. On 26 April 2000 an application for voluntary de-registration in respect of each company was lodged, but on 19 May 2000 the ACCC lodged applications to cancel or defer de-registration in respect of each company. 5 I am satisfied, on the evidence before me, that Hartwich is guilty of the offences in the first three counts in the information. I am satisfied that Back to Basics is guilty of the offences in counts 3, 5, 7, 9, 10, 11, 12, 13, 14, 15 and 16 of the information. Baker has pleaded guilty to being knowingly concerned in the offences set out in counts 1, 2, 3, 5, 7, 9, 10, 11, 12, 13, 14, 15 and 16, and Moon has pleaded guilty to being knowingly concerned in the offences set out in counts 3, 5, 7, 9, 10, 11, 12, 13, 14, 15 and 16. That is to say, Baker has pleaded guilty to thirteen offences and Moon to eleven offences. In respect of each offence to which Moon and Baker pleaded guilty, I recorded a conviction. 6 Having found the specified offences proved in respect of Hartwich and Back to Basics, I record a conviction against each company. 7 In broad terms, the ACCC has established that, from about September 1997 until about September 1998, initially Hartwich and later Back to Basics (in respect of each company, control was exercised by Moon and Baker) invited a number of persons and groups of investors to purchase distributorships for marketing what were described as educational aids to primary schools. In all but one case involving the first two counts, the invitations were in the form of newspaper advertisements. By way of example, an advertisement placed by Baker in the Sydney Morning Herald of 17 January 1998 provided: "Back to Basics Teaching aids requires Distributor 'NOW' To start the 98 school year, our company markets a unique range of teaching aids to the primary school sector. This opportunity would suit couples, early retiree, redundancy packaged persons with organisational skills. Full infrastructure supplied plus head office support. Capital outlay required $35,000. Comfortable earnings in excess of $150,000 pa ONGOING. Three areas avail- able. Interested?? Well we cer- tainly want to talk to you please fax your details or write to The Accountant Back to Basics PO Box 7850 GCMC Bundall 4217 Fax (07) 5574 0054." 8 An advertisement in the Sydney Morning Herald of 8 August 1998, placed by Moon, read: "AGENT DISTRIBUTION EDUCATIONAL SUPPLIES $100,000 P.A. We are a national company with an exciting proven concept. All infrastructure in place. Suit husband/wife Redundancy packaged person No selling involved Home/Office Interested?? CAPITAL REQUIRED $55,000 BACK TO BASICS Ph: 07 5574 2579. Fax: 07 5574 0054." 9 Section 79(1) of the TP Act relevantly provided: "(1) A person who: (a) contravenes; … (d) is in any way, directly or indirectly, knowingly concerned in, or party to, the contravention by a person of; or … a provision of Part V … is guilty of an offence punishable on conviction: (f) in the case of a person not being a body corporate - by a fine not exceeding $40,000; or (g) in the case of a person being a body corporate - by a fine not exceeding $200,000." Section 79(2) provided: "Where a person is convicted of two or more offences constituted by, or relating to, contraventions of the same provision of Part V, being contraventions that appear to the Court to have been of the same nature or a substantially similar nature and to have occurred at or about the same time (whether or not the person is also convicted of an offence or offences constituted by, or relating to, another contravention or other contraventions of that provision that were of a different nature or occurred at a different time), the Court shall not, in respect of the first-mentioned offences, impose on the person fines that, in the aggregate, exceed the maximum fine that would be applicable in respect of one offence by that person against that provision." 10 In the circumstances of this case, s 79(2) has application to counts 1 and 2, counts 5 and 7, counts 9 and 10, counts 11, 12 and 13, and counts 14 and 15. Counts 3 and 16 stand alone. 11 On the evidence before the Court, I make the following findings of fact in respect of each of the charges against Hartwich, Back to Basics, Baker and Moon, for the purpose of s 83 of the TP Act.
Counts 1 and 2 12 Between about the 20th day of September 1997 and the 21st day of October 1997, Hartwich through Baker invited Craig James Clifton and Carunya Pty Ltd to engage in the business of selling education aids under the trading name "Back to Basics". Hartwich through Baker represented that a distributor could expect a profit of $150,000 per year from sales of the "school watch", and that the success rate for sales was eighty per cent of those approached. There were no reasonable grounds for making the first representation, and the second representation was false. Further, Hartwich through Baker represented to Clifton and Carunya Pty Ltd that "distributorships were selling quickly" which representation was false.
Count 3 13 Between about the 21st day of February 1998 and the 5th day of March 1998, Hartwich and Back to Basics through Baker and Moon invited Jacqueline Hole and Josephine Lamattina to engage in the business of selling education aids under the trading name "Back to Basics". Hartwich and Back to Basics represented through Baker and Moon that: "(i) a distributor could achieve comfortable profits of $150,000 per annum ongoing; (ii) other distributorships were doing well." There were no reasonable grounds for making the first representation and the second representation was false.
Counts 5 and 7 14 Between about the 17th day of January 1998 and the 5th day of March 1998, Back to Basics through Baker and Moon invited Slavko (Steve) Rabik and Maree Joy Rabik to engage in the business of selling education aids under the trading name "Back to Basics", and the companies represented to Mr and Mrs Rabik that: "(i) a distributor could achieve comfortable earnings in excess of $150,000 per year ongoing; (ii) projected profits from the sale of the student's watch were $237,500 based upon achieving sales of 50 per cent; (iii) projected profits from the sale of the Times Table were $119,735 based upon achieving sales of 50 per cent. There were no reasonable grounds for making any of those representations. Further, Back to Basics through Baker and Moon represented to Mr and Mrs Rabik that "a South Australian distributor had paid $60,000 as a 20 % deposit on an order of watches",which representation was false.
Counts 9 and 10 15 Between about the 28th day of March 1998 and the 28th day of April 1998, Back to Basics through Baker and Moon invited Tony Anatoli Szloch and Jennifer Margaret Lewis Szloch to engage in the business of selling education aids under the trading name "Back to Basics" by representing to them that: "(i) a distributor could earn $150,000 per year; (ii) total projected earning for the first year of operation of a distributorship were $224,840.00; (iii) a success rate for sales of 30% of those approached could be expected." There were no reasonable grounds for making any of those representations. Further, Baker and Moon represented to Mr and Mrs Szloch that "the distributor Frank Cahjerah had operated a distributorship for 3 to 4 years",which representation was false.
Counts 11, 12 and 13 16 Between about the 8th day of July 1998 and the 24th day of August 1998, Back to Basics through Baker and Moon represented to John Andrew Carroll and Susan Margaret Carroll, in connection with the business of selling education aids under the trading name "Back to Basics", that: "(i) total earnings of $111,158.00 could be expected from sales in the first year; (ii) a success rate for sales of 15% of those approached could be expected." There were no reasonable grounds for making either of these representations. Further, it was represented that: "(i) they could earn income of $100,000 plus per annum; (ii) that projected profits working on the bottom end of the scale for the distributorship were $111,158 per annum; (iii) a success rate for sales of 15% of those approached could be expected." There were no reasonable grounds for making any of those representations. Further, it was represented to Mr and Mrs Carroll that Baker and Moon had been engaged in the business for five years, which representation was false.
Counts 14 and 15 17 Between about the 8th day of August and the 14th day of August 1998, Back to Basics through Baker and Moon invited Matina Vlandis, George Vlandis and Elegant Pty Ltd to engage in the business of selling education aids under the trading name "Back to Basics", and represented to them that: "(i) a gross income of $100,000.00 per annum could be expected; (ii) a minimum net income of $80,000 to $90,000 per annum could be expected; (iii) a success rate for sales between 12.5 and 15% of those approached could be expected; (iv) projected income for the first year of operation of the distributorship was a minimum of $142,491.00." There were no reasonable grounds for making any of those representations. It was further represented to Mr and Mrs Vlandis and Elegant Pty Ltd that the persons Gus D'Leo and Ray Parsons were distributors of Back to Basics, which representation was false.
Count 16 18 Between about the 8th day of August 1998 and the 27th day of August 1998, Back to Basics through Moon and Baker represented to Steven Nihas in connection with the invitation to engage in the business of selling education aids under the trading name "Back to Basics" that: "(i) an income of $100,000 per annum could be expected; (ii) projected income for the first year of operation of the distributorship was a minimum of $112,158.00; (iii) a success rate for sales in Queensland between 12 and 15% of those approached could be expected." There were no reasonable grounds for making any of those representations. 19 The findings of fact are amply justified by the evidence before me. Those findings represent just a skeletal outline of the conduct of the companies and the natural defendants over an extended period. 20 On the question of the sentences to be imposed, the provisions of s 16A of the Crimes Act 1914 (Cth) are applicable. That section provides: "16A Matters to which court to have regard when passing sentence etc. (1) In determining the sentence to be passed, or the order to be made, in respect of any person for a federal offence, a court must impose a sentence or make an order that is of a severity appropriate in all the circumstances of the offence. (2) In addition to any other matters, the court must take into account such of the following matters as are relevant and known to the court: (a) the nature and circumstances of the offence; (b) other offences (if any) that are required or permitted to be taken into account; (c) if the offence forms part of a course of conduct consisting of a series of criminal acts of the same or a similar character - that course of conduct; (d) the personal circumstances of any victim of the offence; (e) any injury, loss or damage resulting from the offence; (f) the degree to which the person has shown contrition for the offence; (i) by taking action to make reparation for any injury, loss or damage resulting from the offence; or (ii) in any other manner; (g) if the person has pleaded guilty to the charge in respect of the offence - that fact; (h) the degree to which the person has co-operated with law enforcement agencies in the investigation of the offence or of other offences; (j) the deterrent effect that any sentence or order under consideration may have on the person; (k) the need to ensure that the person is adequately punished for the offence; (m) the character, antecedents, cultural background, age, means and physical or mental condition of the person; (n) the prospect of rehabilitation of the person; (p) the probable effect that any sentence or order under consideration would have on any of the person's family or dependants. …" 21 The object of the TP Act as set out in s 2 of that Act is to: "…enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection." Section 59 of the TP Act is headed "Misleading representations about certain business activities". That section is contained in the Consumer Protection provisions of Part V of the TP Act. While s 16A(2)(j) of the Crimes Act 1914 (Cth) refers only to the deterrent effect that any sentence may have upon the offender, von Doussa J observed in Farrow at 64: "It is to be remembered that as the policy of the TP Act is consumer protection it is important that the penalty is such that it will not only deter the particular offenders from engaging in similar conduct again, but will also deter others from engaging in conduct that is prohibited by the TP Act." 22 In Guthrie v Robertson; Guthrie v Tarwarri No. 12 Pty Ltd (1986) ATPR 40-744 at 48,114, I noted in circumstances where the defendants had been charged with a number of offences which had a similar factual background: "…the proper approach …is not to view the matter by taking each information by itself but to view the matter as a course of conduct of a serious kind extending over a not inconsiderable period, and to have regard to the global effect of that conduct and fashion penalties which properly reflect the view that that conduct deserves to be very seriously punished." 23 The overall view of the defendants' conduct is aggravated by the fact that false representations were continued to be made after complaints had been made concerning the inability to sell merchandise. Ms Hole, a mother with children whose financial resources were extremely limited, began expressing her concerns to Moon on about 11 May 1998, and continued to do so throughout May and June. In early July, such concerns were the subject of correspondence from her solicitor. Notwithstanding this, further advertisements appeared in the Sydney Morning Herald in August 1998, and in that month representations were made by the defendants to Mr and Mrs Carroll, Mr and Mrs Vlandis and Mr Nihas, which resulted in those parties entering into distribution agreements and paying substantial amounts of money to the defendants. 24 I am satisfied that there was a reckless indifference on the part of Baker and Moon in making the representations. There was simply not the slightest reasonable basis on which the estimates of income could be based, and the conduct of the defendants was a cynical and deliberate plan to defraud members of the public. Those who lost money in response to the siren call of the advertisements were either highly gullible or very greedy, or both. In my assessment, it is a highly relevant circumstance that both Baker and Moon assert as some form of mitigation that the victims of their snake oil peddling were in some sense to blame, because of their failure to establish that what was being peddled was in fact snake oil. 25 It has to be borne in mind that the representations made to Mr and Mrs Vlandis and Mr Nihas occurred after correspondence from the ACCC raising concerns about the representations that had been made to Ms Hole and the profitability of the distributorships. The defendants, by their solicitors, denied the allegations concerning representations made to Ms Hole, and asserted that there was evidence to substantiate the projected incomes. No such evidence has ever been produced. When pressed to provide evidence to substantiate the representations, the defendants refused to do so, in purported reliance on confidentiality agreements. 26 I am satisfied that there has been no voluntary co-operation with the ACCC concerning these matters, and no effort has ever been made to correct the misrepresentations. It was only shortly before this matter was set down for trial that the individual defendants ceased to maintain their denial of the charges and pleaded guilty to the relevant offences. 27 There has been no action to make any reparation for losses suffered as a result of the defendants' conduct. The representations as to profit were instrumental, in fact central, in causing the victims to enter into distributor agreements, and the sums obtained from purchases of the distributorships by the misleading and deceptive conduct aggregated at least $335,000. The offences, I am satisfied, caused great personal hardship and suffering to those who were duped. 28 The attitude of Moon, even after the pleas of guilty, showed no appreciation of the fraud that had been perpetrated on the victims. Mr Moon, in submissions, said to me: "Each of the complainants did in fact enter into their contracts with us after due diligence on their behalf. They sought advice from their solicitors, accountants and whatever. The figures and the profits that were in the products that they had to sell were in fact achievable profits. Now, they didn't choose to work these distributorships with due diligence. They had an average per distributor of probably around six months in the businesses. Now, anyone would know, starting - and they knew that it was a fresh new business and it wasn't an established business. The outline of the business was plainly outlined to them: this is a fresh venture; it is a franchised cum distributorship agreement; and they didn't go in blind, your Worship. They knew the pitfalls. They knew they had to work at the business. They averaged six months each. Now, you can't get a new business up and running within six months. Then the ACCC come along and said, well, look, you know, to save all the hard work and the heartache, we're going to get these people to court and there's a chance we might get your money back. So they obviously abandoned their distributorship straight away. We aren't entirely at fault here. Although we can't mount a defence, I'm sure that if I got some of these witnesses in the box, you know, we would have probably discredited some of them." 29 I had earlier indicated to Mr Moon: "…they paid their money in the belief that they would earn $115,000 a year, for instance. MR MOON: Yes, that is correct, your Honour. Possibly we were rather remiss in the way we advertised this, and that is why we've, you know, pleaded guilty to this thing." 30 It is a matter relevantly to be taken into account that Moon has previous convictions, although the relevant convictions are some time ago. On 9 December 1993, Moon was convicted of stealing in excess of $5,000 and was sentenced to imprisonment for twelve months and recommended to be considered for parole after serving two months. The only other relevant matter is a conviction in the Melbourne County Court on 1 February 1978, where in respect of three counts of obtaining financial advantage by deception and two counts of obtaining property by deception, he was sentenced to concurrent terms of imprisonment totalling twelve months, to be served at the Thornbury Attendance Centre. In evidence, Moon indicated that this service was in the nature of community service. 31 Baker was born on 10 May 1954 and Moon on 6 June 1949. Baker has no previous criminal history. I take into account that the defendants Baker and Moon did enter pleas of guilty, which had the effect of saving the cost of a lengthy trial, but I am quite satisfied that there is very little genuine remorse from either Baker or Moon. 32 The real difficulty in the present circumstances arises as a consequence of the individual defendants' apparently parlous financial position. Each individual defendant had his estate sequestrated by an order of 18 November 1999. Both Baker and Moon gave evidence before me particularly directed to their capacity to pay any fines that the Court might impose. 33 The bankruptcy of Baker and Moon was a consequence of an action initiated by Irene and Peter Malishev who obtained a judgment for more than $30,000 against Back to Basics and Baker and Moon personally, in the Dandenong Court in Victoria. Mr and Mrs Malishev had bought a distributorship after seeing an advertisement. 34 Moon is unemployed, registered with Centrelink, and in receipt of a pension of $319.00 per fortnight. He lives in a unit which his wife owns, with his youngest son. 35 There are some aspects of Moon's evidence which are a cause for concern. He says that he drives a 1990 model Lexus supplied by a motor dealer friend of his which he has had for four years and in respect of which he pays nothing, except the registration. Moon says that the more than $335,000 received from the sale of the distributorships has gone . He said that he has been involved in selling a licensing business called Nanna's Oven Cleaning as a salesman selling franchises, for which he receives a commission of approximately $8,000 to $10,000 per distributorship. He has also been involved in the sale of other distributorships, one being a company called Oral Hygiene, in respect of which he received a commission for the sale of one distributorship of about $10,000. 36 He said that he had "around probably $5000" in cash which kept in the back yard in a shed, but which he had not disclosed to the Trustee in Bankruptcy. He said that he no longer has any credit cards. He had previously been declared bankrupt on 24 March 1994 and was discharged on 12 April 1997, but when asked by the Court of his recollection of when he was bankrupt, said, "Honestly, I don't remember." In relation to the business of Back to Basics, Moon said of his role: "I assisted Mr Baker in the running of the business: general sales and advertising and what have you." His past business experience was exclusively as a motor dealer. 37 Mr Baker was a hairdresser by occupation. His wife took over the hairdressing salon he had established in Nerang, and he works one or two days in that hairdressing salon when his wife is not there. He also works at a home for disabled people called Palm Lodge and does casual work in a set of stables. He claimed to have "probably about $800" in cash. When asked: "If you were fined, say, $10,000 or $20,000 how would you pay it?" he replied: "Well, obviously I would - I'm looking for jobs now. I would try and pay it off as best I could in - in different jobs. That's - that's the best way I could do it. Cleaning, working in a pub, I don't know, but I would pay it back." 38 In the course of his evidence, Baker accepted that the idea of Back to Basics was his. He said he met Moon as one of his clients in the hairdressing salon. In respect of complaints by some of the persons who had paid money for distributorships, Mr Baker said, concerning the complaints of Ms Hole: "…she would take weeks off a time and go tomato picking with Ms Lamattina" and concerning complaints by Mr and Mrs Rabik: "…the basic reasons [for trouble with the distributorship] we found out for that, Mr Rabik was working for a friend of his on building sites around Sydney as an electrician, and each time I would call him and it was a number of times. He would be in a pub and incoherent half the time, and I don't see how he could run a business by doing that. It was very upsetting for Mr Moon and myself with what was going on with some of these people." And later: "Well, I think probably most of the people's problem is they thought they could come into a new business and all of a sudden start making money hand over fist, if you like, straight away … to which I commented: "But that's what you told them?" 39 There was no reasonable basis for the projected profits or penetration rates, as appears from Mr Baker's oral evidence. 40 Von Doussa J in Farrow observed at 66: "In my view it is clear that s 79A of the TP Act contemplates that the sanction of imprisonment will be available to enforce payment only of a fine, not for the payment of other moneys which may incidentally be awarded to be paid by the defendants, such as costs, or damages or compensation awarded pursuant to s 87(1A) of the TP Act." Later his Honour said: "Á sentence of imprisonment is not an option provided by the TP Act in the case of a person involved in a contravention of s 59(2) by a corporation. The court must therefore recognise that to impose a heavy fine or fines on a defendant who is truly without the means and ability to meet the penalty is effectively to sentence the defendant to a long term of imprisonment. In the present case, for example, fines aggregating $27,375 or more against a defendant, if unpaid in the time allowed by the court for payment, would result in the defendant serving a term of imprisonment of three years, the maximum term prescribed by s 79A(7)." His Honour said (at 67): "On the other hand, as counsel for the prosecution stressed, adverse financial circumstances of a defendant convicted for serious offending against the TP Act cannot be permitted to so dominate the sentencing process that the offender becomes immune from punishment. There must be a balancingbetween the needs for general and particular deterrence, and for retribution which the community and the victims may reasonably expect the law to exact on the one hand, and the circumstances of the offender on the other hand. Where the means and ability of a defendant to pay are limited, the court should explore the position very carefully before departing from the penalty that is otherwise indicated by the circumstances of the offence. It is necessary to consider the defendant's present financial position, assets as well as income. It is necessary to consider the defendant's prospects. In appropriate cases, it may also be necessary to consider the defendant's motivation. Often the limited circumstances of a defendant can be accommodated by allowing a lengthy time to pay a fine." (Emphasis added) 41 As to the penalties to be imposed, I have had regard to cases dealing with offences against s 59(2) of the TP Act, including O'Dea v Casnot Pty Ltd (1981) ATPR 40-198, Juris Wilde v Menville Pty Ltd & Ors (1981) ATPR 40-195, Ducret v Colourshot Pty Ltd & Anor (1981) ATPR 40-196, Reardon v Aquajet Holdings (SA) Pty Ltd & Anor (1982) ATPR 40-328; (1983) ATPR 40-334, Crossan v Commons (1985) ATPR 40-542, Trade Practices Commission v Farrow & Anor (1990) 95 ALR 53, Trade Practices Commission v J & R Enterprises Pty Ltd & Anor (1991) ATPR 41-133, ACCC v Grant [2000]FCA 1564, Unreported Federal Court S91 of 1999, 9/11/00, ACCC v Dimmeys Store Pty Ltd; ACCC v Starite Distributors Pty Ltd (1999) ATPR 41-716, ACCC v Dimmeys Store Pty Ltd Q145 of 2000 and Q31 of 2001, 20/3/01 and 22/3/01. 42 It has to be borne in mind, of course, that the statutory provisions were not uniform throughout that period, and that the factual circumstances varied from case to case. Each matter has to be approached on its own facts and, in this particular case, the crucial factor concerns the likely capacity of the natural defendants to pay any fines that might be imposed and the consequences that might flow from default in meeting payment of those fines. I have nonetheless obtained significant assistance from the judgment of von Doussa J in Farrow, and the judgment of O'Loughlin J in Trade Practices Commission v J & R Enterprises. I respectfully adopt the view of O'Loughlin J in the J & R Enterprises case. His Honour said at 52-951: "It is clear that the legislature did not intend to punish for a breach of these provisions of the Act by way of imprisonment; hence, it seems to me that every effort must be made to avoid doing indirectly that which cannot be done directly. Imprisonment for failure to pay a fine should be reserved, if that is possible, for the offender who refuses, or fails for no just cause, to pay the fine. To impose a fine of an amount that the offender could never pay is tantamount to imposing a term of imprisonment - and that offends the spirit of the legislation. Needless to say, a sentencing Court must make careful investigations before extending this leniency to an offender." 43 It has to be accepted that neither individual defendant has the capacity to pay costs or moneys which will be ordered to be awarded to the persons affected by the defendants' conduct as compensation for loss or damage pursuant to s 87(1A) of the TP Act. 44 The customary sanction imposed by order of the Court to enforce payment of a fine is imprisonment. This is recognised by s 79A of the TP Act. Section 79A(5) provides: "The term of a sentence of imprisonment imposed by an order under a law of a State or Territory applied by section 18A of the Crimes Act 1914 in respect of a fine shall be calculated at the rate of one day's imprisonment for each $25 of the amount of the fine that is from time to time unpaid." 45 Section 18A of the Crimes Act 1914 was renumbered 15A by the Crimes Legislation Amendment Act (No 2) 1989 (Cth) being Act Number 4 of 1990. The relevant law of Queensland applied by that provision of the Crimes Act is s 182A of the Penalties and Sentences Act 1992 (Qld). 46 Notwithstanding the seriousness of the overall conduct exhibited in this case, the impact of s 79A is such that I think a just order is to impose on Baker and Moon an overall monetary penalty in the sum of $10,000 each. For the purpose of penalty, counts 1 and 2 are grouped, as are counts 5 and 7; 9 and 10; 11, 12 and 13; and 14 and 15. 47 The defendant Wayne Baker is convicted of counts 1, 2, 3, 5, 7, 9, 10, 11, 12, 13, 14, 15 and 16. The defendant John Moon, also known as John Robert Croke, is convicted of counts 3, 5, 7, 9, 10, 11, 12, 13, 14, 15 and 16. The company Hartwich Pty Ltd is convicted of counts 1, 2 and 3 and the company Back to Basics Worldwide Education Aids Systems Pty Ltd is convicted of counts 3, 5, 7, 9, 10, 11, 12, 13, 14, 15 and 16. 48 The following fines are imposed on Baker and Moon: BAKER MOON $ $ Count 1 715 - Count 2 715 - Count 3 1,430 1,660 Count 5 715 830 Count 7 715 830 Count 9 715 830 Count 10 715 830 Count 11 477 553 Count 12 477 553 Count 13 477 553 Count 14 715 830 Count 15 715 830 Count 16 1,419 1,701 10,000 10,000
49 Each defendant is to pay the total sum of $10,000 on or before 19 March 2003. In default of payment of the fines, there will be an order that each of Baker and Moon be imprisoned for a term calculated at a rate of one day's imprisonment for each $25 of the amount of his fines unpaid. 50 In the case of the corporate defendants, the matter of penalty is, regrettably, mainly academic. On Hartwich, in respect of counts 1, 2 and 3, I respectively impose fines as follows: $10,000, $10,000 and $20,000, a total of $40,000. In respect of Back to Basics I impose a total fine of $180,000 which, having regard to the grouping of counts, I impose individually as follows: Count 3 $30,000; Count 5 $15,000, Count 7 $15,000; Count 9 $15,000, Count 10 $15,000; Count 11 $10,000, Count 12 $10,000, Count 13 $10,000; Count 14 $15,000, Count 15 $15,000; and Count 16 $30,000. 51 Each of the four defendants, jointly and severally, are to pay the costs of the prosecution, to be taxed if not agreed. 52 By way of injunctive relief, pursuant to s 80 of the TP Act, I order: (1) For a period of five years from the date of this order, John Moon and Wayne Baker be restrained from: (a) selling or granting; (b) aiding, abetting, counselling or procuring any person or corporation to sell or grant; (c) inducing or attempting to induce any person or corporation to sell or grant; (d) in any way being directly or indirectly knowingly concerned in or party to the selling or granting; (e) conspiring with any person or corporation to sell or grant; franchises or rights for the distribution of products or services in the course of which representations are made concerning: (i) income or profit or expected income or profit derived or which may in the future be derived by the franchisee or distributor; (ii) the nature or extent of work required on the part of the franchisee or distributor; (iii) the amount of the investment of monies required by the franchisee or distributor; (iv) the risk to the franchisee or distributor; (v) any other material aspect of the business the subject of the franchise or distributorship; that is false or misleading or in respect of which there are no reasonable grounds to believe that such representation is true. (2) For a period of five years from the date of this order, if either of the said defendants is in any way concerned in the selling or granting or prospective selling or granting of franchises or right to distribution of products and services, that person ensure or take all such steps as are reasonable to ensure that the existence of these proceedings and the terms of these orders are disclosed to the purchaser or to any prospective purchaser of such franchise or distributorship before the purchaser purchases or acquires such franchise or distributorship. 53 Pursuant to s 87(1A) and s 87(1B) of the TP Act, (i) each of the corporate defendants and the defendant Wayne Baker jointly and severally pay by way of compensation for loss or damage: s To Craig James Clifton, the sum of $112,910.29, that sum being the net result of a payment of $25,000 for the distributorship, the gross expenditure of $103,417.35 and an income of $15,507.06; (ii) Each of the four defendants jointly and severally pay by way of compensation for loss or damage: s To Jacqueline Hole and Josephine Lamattina, the sum of $69,476.00, that sum being the net result of a payment of $5,000 for the deposit on the distributorship and $60,000 for the balance of the distributorship, the gross expenditure of $5,000 and an income of $524; (iii) The defendants, Back to Basics, Wayne Baker and John Moon jointly and severally pay by way of compensation for loss or damage: s To Slavko and Maree Joy Rabik, the sum of $62,320, being the net result of a payment of $5,000 for the deposit on the distributorship and $50,000 for the balance of the distributorship, the gross expenditure of $7,600 and an income of $280; s To Tony Anatoli and Jennifer Margaret Lewis Szloch, the sum of $63,817.70, being the net result of a payment of $5,000 for the deposit on the distributorship and $50,000 for the balance of the distributorship, the gross expenditure of $9,161.70, and an income of $344; s To John Andrew and Susan Margaret Carroll, the sum of $59,536.83, being the net result of a payment of $5,000 for the deposit on the distributorship and $50,000 for the balance of the distributorship, the gross expenditure of $4,687.73, and an income of $150.90; s To Matina and George Vlandis, the sum of $61,242.06, being the net result of a payment of $5,000 for the distributorship and $50,000 for the balance of the distributorship, the gross expenditure of $7,608.86, and an income of $1,366.80; s To Steven Nihas, the sum of $56,775.41, being the net result of a payment of $5,000 for the distributorship and $50,000 for the balance of the distributorship, the gross expenditure of $2,679.41, and an income of $904.00.
54 I grant liberty to apply. I certify that the preceding fifty-four (54) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Spender.
Counsel for the Prosecutor: Mr G.A. Thompson SC, with Ms K. McGinness
Solicitor for the Prosecutor: Australian Government Solicitor
Date of Hearing: 30 March 2001
Date of Judgment: 19 March 2002
ACCC
Hartwich
(1990) 95 ALR 53