Australian Communications and Media Authority v Mobilegate Ltd A Company Incorporated in Hong Kong

Federal Court of Australia|2010-12-01|Before: Logan J

A declaration that the eighth respondent, being the person who controlled and directed the conduct of International Machinery Parts Pty Ltd (now deregistered) ("IMP"), and with knowledge of its conduct: 1.1. aided, abetted, counselled and procured IMP, whose central management and control was in Australia, or IMP through its contractor or agent, the third respondent, to send short message service ("SMS") messages or cause SMS messages to be sent via the premium shortcode number 19773366; and 1.2. was knowingly concerned in IMP, whose central management and control was in Australia, or IMP through its contractor or agent, the third respondent, sending SMS messages or causing SMS messages to be sent via the premium shortcode number 19773366: to: 1.3. Australian mobile telephone numbers, which IMP or its contractors or agents had obtained by deception using fabricated dating website profiles, for the purpose of dishonestly obtaining the account holders' acceptance of its "Safe Divert" service; 1.4. Australian mobile telephone account holders who had replied "yes" to an initial message in circumstances where IMP and the eighth respondent knew that their acceptance of its "Safe Divert" service had been obtained by deception; 1.5. in contravention of s.16(1) of the Spam Act 2003 (Cth) (Spam Act), and thereby engaged in conduct in contravention of s. 16(9) of the Spam Act.
A declaration that the eighth respondent, being the person who controlled and directed the conduct of IMP, and with knowledge of its conduct: 2.1. aided, abetted, counselled and procured; and 2.2. was knowingly concerned in; IMP, or IMP through its contractor or agent, the third respondent, in trade or commerce: 2.3. by the use of dating website profiles created and registered on dating websites, representing to dating website members that the individuals described in those profiles were members of the respective dating website; and further; 2.4. by communicating with dating websites as those profiles, representing to dating website members that the communication was with the individuals described in those profiles; when in fact: 2.5. the individuals described in the profiles did not exist; 2.6. IMP did not inform the dating website members that it had created the profiles; 2.7. IMP did not inform the dating website members that their mobile telephone numbers were being obtained for the purpose of collecting mobile telephone numbers of Australian mobile telephone account holders to be recipients of commercial electronic messages via 19773366; and 2.8. any communication between dating website members and the profiles was between IMP and those members; in contravention of s 52 of the Trade Practices Act 1974 (Cth).

IN THE FEDERAL COURT OF AUSTRALIA QUEENSLAND DISTRICT REGISTRY GENERAL DIVISION QUD 426 of 2008

BETWEEN: AUSTRALIAN COMMUNICATIONS AND MEDIA AUTHORITY

AND: MOBILEGATE LTD A COMPANY INCORPORATED IN HONG KONG

JUDGE: LOGAN J DATE: 1 DECEMBER 2010 PLACE: BRISBANE

REASONS FOR JUDGMENT 1 On 5 November 2010, for reasons which I then published (see: Australian Communications and Media Authority v Mobilegate Ltd A Company Incorporated in Hong Kong (No 8) [2010] FCA 1197), I was satisfied on the balance of probabilities, and having regard to the gravity of the allegations that the Australian Communications and Media Authority (Authority) made against the eighth respondent, Scott Gregory Phillips, that Mr Phillips was an accessory to the sending of unsolicited, commercial electronic messages, contrary to s 16(1) of the Spam Act 2003 (Cth) (Spam Act) and to misleading or deceptive conduct contrary to s 52 of the Trade Practices Act 1974 (Cth) (Trade Practices Act). 2 The contraventions concerned were, as I found, either those of International Machinery Parts Pty Ltd (IMP) directly or those of another company, Jobspy Pty Ltd (Jobspy), on its behalf. I found that Mr Phillips was liable, as a person who had aided, abetted, counselled, or procured those corporate contraventions, or further, alternatively, was knowingly concerned in them. 3 These reasons for judgment must be read in conjunction with the reasons which I published on 5 November 2010. The question for today is what penalty, if any, ought be imposed upon Mr Phillips, in respect of his being found to be a party to corporate contraventions of the Spam Act and, further in respect of both the case under the Spam Act and that under the Trade Practices Act, whether declaratory and injunctive relief ought be granted? 4 As to the latter, there is no controversy between the parties. By that I mean that having regard to the terms of the draft order that was, in accordance with directions which I made on 5 November 2010, delivered to Mr Phillips, he does not oppose the granting of declaratory and injunctive relief in the form proposed by the Authority. That absence of opposition does not, of course, mean that such relief should be granted as a matter of course. I shall make some further observations in relation to declaratory and injunctive relief after dealing with the question of penalty. 5 As to penalty I have, in respect of other respondents, earlier had occasion to canvass considerations which I regard as relevant to the imposition of penalties under the Spam Act: see Australian Communications and Media Authority and Mobilegate Ltd A Company Incorporated in Hong Kong (No 4) (2009) 180 FCR 467 and Australian Communications and Media Authority v Mobilegate Ltd A Company Incorporated In Hong Kong (No 6) [2009] FCA 1533. I do not propose to rehearse all which I have stated in those earlier reasons for judgment as to principles applicable in relation to the imposition of penalty. Suffice it to say, I have taken into account the principles which I have set out, particularly those in the No 4 judgment. Therefore, these reasons for judgment should also be read in conjunction with the discussion of principle, in the No 4 and No 6 judgments. Those judgments are also pertinent, in terms of penalties which have been imposed on other respondents, in respect of contraventions, either corporate or accessorial, of the Spam Act. 6 A very real and difficult question, today, is how to achieve justice, both in the individual case, in respect of Mr Phillips, and also as between Mr Phillips and other respondents? 7 It is common ground that, having regard to the findings which I made in respect of liability, in my earlier judgment concerning Mr Phillips, that some 54 days of business activity by either or each of IMP and Jobspy are involved. The period concerned commences in December 2005 and concludes no later than 9 April 2006. The evidence is such that more than one message was sent on each of those days in a way that contravenes the Spam Act. That being so, the effect of s 25 of the Spam Act in the prevailing circumstances is that where on a particular day, two or more contraventions have occurred, the maximum penalty is 400 penalty units for a given day. The Spam Act directs attention to s 4AA of the Crimes Act 1914 (Cth) as to what constitutes a penalty unit. For the period in question, a penalty unit is $110. Thus, by a process of mathematics, the maximum applicable penalty per day on which more than one contravention by an individual is found to have occurred is $44,000. Again, by a process of mathematics, a multiplication of that daily maximum by 54 yields the total maximum penalty applicable. 8 The Authority's submission is that Mr Phillips' involvement is such that a penalty at or about the maximum should be imposed. In other words, the Authority's submission is that the appropriate penalty is in a range between $2 million to $2,376,000. 9 The foundation for that submission is in essence twofold. Mr Phillips is said to be the "mastermind of the scheme." He is further alleged to have ceased involvement only because of his imprisonment later in April 2006 in respect of an unrelated criminal offence. It should be noted at this point that the contraventions of the Spam Act which I have found proved are not criminal offences, but rather contraventions for which a civil penalty is prescribed by Parliament. Related to the second of those considerations is the Authority's submission that there are no mitigating circumstances. That was developed by way of highlighting that the case was one which was contested and one in which I had found that Mr Phillips had deliberately lied in the witness box. 10 Any citizen is, of course, entitled to contest an allegation made against him or her in respect of conduct which carries with it liability to civil penalty. As with violations alleged of the criminal law, a citizen is not to be penalised more for exercising a right to require the Crown or some other emanation of government to prove a case against him or her. All that is entailed in contesting a proceeding where liability is ultimately found is that, when it comes to penalty considerations, what is absent is an absence of cooperation in the administration of justice with the saving to the public purse thereby entailed, both in terms of expenditure on the prosecution of the proceeding as well as the saving of limited judicial resources for other uses. Also entailed is an absence of remorse in the contesting of the proceeding. So that the effect then is that, so far as Mr Phillips is concerned, whatever discounting of penalty I might otherwise have been disposed to provide for from a penalty ordinarily appropriate for the conduct concerned is a consideration which is not present in this case.

section 24 considerations 11 Section 24 of the Spam Act sets out a number of factors which are pertinent, expressly, insofar as they have application on the facts of the case, to the imposition of penalty. I have detailed these in my earlier reasons for judgment in relation to penalty. Also detailed there is the assistance which is to be gained from principles which have already been developed in relation to the imposition of pecuniary penalties under the Trade Practices Act. I propose to advert to particular considerations set out in s 24 which emerge from the facts of this case.

The nature and extent of the contraventions 12 The nature is already described in earlier judgment which I have delivered. What it involves is a systematic and studied deception of those who use internet-dating websites. The end to which that deception is directed is the derivation of profit. Mr Phillips' period of involvement is in what one might describe as the "start-up phase" of the business conducted by IMP and by Jobspy for IMP. 13 It is evident from the statements of income provided by the aggregator, Sybase, that the business became financially rewarding very quickly after its establishment. In the period of some 54 days, $140,000 was generated in terms of remissions. There were, of course, business expenses involved in the conduct of the business. Apart from fees in respect of the use of the 19-number, there were wages, seemingly, in the main paid in cash, to various backpackers. It is not possible, on the evidence, to give precision to the net amount which was gained by IMP. It seems unlikely, though, that IMP ran at a loss. That unlikelihood is, if nothing else, a reflection of the fact that it continued after Mr Phillips was imprisoned. 14 Even in that relatively short period, many, many thousands of messages were generated. That was a reflection of the nature of the software deployed (the Mobilegate software), which enabled the dispatch once particular contact numbers were obtained of multiple messages.

Nature and extent of any loss or damage suffered as a result of the contravention 15 Section 24 also directs attention to the nature and extent of any loss or damage suffered as a result of a contravention. There is an obvious loss, in monetary terms, to the person deceived. 16 There is also a more subtle loss involved which is, if anything, perhaps, of a more serious nature. That is the personal slight and embarrassment associated with the deception. I have earlier remarked that that particular quality of the deception carries with it, as is not unknown in the case of breaches of the criminal law involving sex offences, a potential for under-reporting of the contravening conduct as a result of the element of personal humiliation and embarrassment associated with the conduct. This is not, of course, an offence which violates a person's physical being, but it is conduct which plays with a person's emotions. And that is a factor that I take into account in relation to penalty.

The circumstances in which the contravention took place 17 The circumstances in which the contravention took place are set out in my earlier reasons for judgment in respect of Mr Phillips.

Prior contraventions of the Spam Act 18 Mr Phillips has not previously been found by this Court, or any other for that matter, in proceedings under this Act to have engaged in similar conduct. Nor do I have any evidence that he has been found by a court in a foreign country to have engaged in similar conduct.

Whether the conduct was deliberate 19 Such factors apart and, as I have highlighted in earlier judgments in respect of penalty, there are other considerations that are pertinent. IMP was not a large company but it became the vehicle for this particular contravening conduct after it had shed, through Mr Phillips' deliberate decision, its other role, namely, that of corporate trustee for a trust controlled by Mr Phillips. 20 The conduct was, undoubtedly, deliberate. IMP and its agent, Jobspy, which employed IMP's modus of operation, engaged in concerted deception. 21 Mr Phillips' involvement in that deception was at the most senior level. He was a controller of IMP. It is not possible, on the evidence, to be certain that Mr Phillips was the person who devised the deception that came to be practised. Mr Owen also seems to have had at least an inspirational role in the formulation of the deception plan. What is clear though is that Mr Phillips' business acumen was deployed, and successfully deployed, in the commercialisation of the deception plan. It is he who brought to bear his knowledge of internet business, in dealings with the aggregator Sybase, to secure the all-important 19 number. The emails which I scheduled to my judgment in respect of Mr Phillips' liability, also highlight his singular involvement, whenever the continuance of that 19-number was threatened.

Culture conducive to compliance 22 Another factor to which cases direct attention is whether a company has a culture conducive to compliance. In other words, was contravening conduct an aberration or lapse, on the part of a company whose ethos is otherwise that of encouraging compliance with the law of the land? IMP's ethos was the very antithesis of encouraging compliance. Its ethos, its whole reason for existence, was to practise deception for profit on those who used dating websites, and in particular, to deceive those vulnerable to being deceived.

Disposition to cooperate 23 Yet another factor which is relevant is whether a particular respondent has shown a disposition to cooperate with the authorities in relation to the contravention. I have already made reference to this. It was put on behalf of Mr Phillips that his acquiescence to the orders proposed by the Authority evidenced cooperation, and to a degree therefore, should be considered a mitigating circumstance. That degree is a slight one indeed. That, in the sense that the case was one where, having regard to the findings which I made, it was always likely that declaratory relief would be granted. Further, there was always a considerable likelihood that injunctive relief would follow. Nonetheless, I do take into account that there has been cooperation in the sense that there was room for debate about the nature and extent of injunctive relief, and the occasion for having that debate has been obviated by the acquiescence communicated on Mr Phillips' behalf. Of course, there may yet be a need for debate if I form the view that the proposed orders are not ones which ought to be made, notwithstanding acquiescence.

Financial position of the Respondent 24 Another consideration which is relevant is the financial position of the respondent concerned, and that person's capacity to pay. In this instance, that is something of an unknown. The Authority's investigations did not go the extent of tracing the money trail from Sybase, beyond IMP. By that I mean that there is no evidence of the disposition of funds from IMP. What I am left with is a situation where the company controlled by Mr Phillips was the recipient of the gains in the period in question. That does not, in itself, allow me to form a view as to Mr Phillips' present worth. 25 What I do have is evidence of Mr Phillips' involvement in companies that provided finance, and also in another e-commerce company, Dancertext. Though Mr Phillips is obviously enough, peculiarly able, if he wishes to remove that particular ignorance, he has chosen, as he is entitled to do, not to give evidence in relation to the subject of his financial position and capacity to pay. That means, of course, that I have no evidence that he is of no worth, but equally I have no evidence that he is of great worth. All that it means is that there is no evidence of an absence of capacity to pay, such as might intrude upon a question of penalty.

DETERRENCE 26 Another consideration which is always relevant is that of deterrence, both generally and in the particular case. 27 General deterrence is, in my opinion, a very powerful consideration in this case. In earlier times, commerce and also social contact was effected along highways. In the 18th century, the phenomenon of the highwayman was encountered in England on highways. The highwayman interrupted the flow of commerce and social interchange along highways. In those times, the threat presented by the highwayman was met by the legal system in England with the response of the death penalty. The phenomenon of the highwayman hanging at Tyburn is part of English folklore. 28 In modern times, we have what is termed by some "the information superhighway". The Oxford English Dictionary Online (Oxford University Press, http://dictionary.oed.com, viewed 1 December 2010) defines that term as "a route or network for the high-speed transfer of information especially … via a national fibre optic network … or by the internet". Mr Phillips in some way resembles the highwayman of the 18th century. He does not intercept a coach with a pistol and the words, "Stand and deliver." What he has done instead is to interrupt the flow of commerce and social contact on the internet by the creation or by the establishment of a company which practices deception on those who use particular websites. 29 I have already referred to the impact at an individual level on those who use those websites. 30 There is another impact which is highlighted in the Authority's submissions which is no less relevant, and that is the impact upon those who conduct such websites. It is a matter of popular knowledge now in Australia that many people use and indeed meet via dating websites. The behaviour in which IMP and Jobspy engaged at Mr Phillips' initial behest has a tendency to diminish the repute of legitimate operators of dating websites. It also has a tendency to cause loss to the operators of such websites via an enhanced need to respond not just to customer complaints, but also to endeavour to police such websites so as to assure their integrity for those who use them. That is another consideration to take into account in relation to the imposition of penalty. 31 Also relevant is that, whilst self-evidently from the evidence tendered by the Authority in this case, an audit trail is left electronically via various means, it is nonetheless conduct which is time consuming and difficult to investigate in terms of the gathering together of those various audit trails and their correlation. This is the last of the proceedings brought by the Authority against the various respondents. Because of that, it is apt to note that the Authority is to be commended and, in particular, its principal investigator, Mr Webber, for the investigatory effort deployed in exposing this particular contravening conduct. 32 The fact, though, that there is a considerable investment of public funds and an opportunity cost associated with that investment in the investigation of such behaviour means that it is pertinent to deter those who would engage in contravening conduct. I have earlier used the term "commercial suicide" as a way of describing the need to provide deterrence generally to those who would contravene the Spam Act, and that sentiment looms large in this case. 33 As to particular deterrence, it is undoubtedly the case that the very experience of proceedings by the Authority for a contravention of the Spam Act and the Trade Practices Act will have something of a salutary effect on Mr Phillips should he consider again engaging in such conduct. Nonetheless, it is apparent on the evidence that IMP was not his only journey in respect of e-commerce. There is, therefore, in my opinion, a need on a personal level as well for penalties to serve as a reminder, a deterrent, in respect of any contravention of the Spam Act.

the totality principle 34 I have in other cases adverted to the totality principle. That is also relevant in this case, the total penalty ought not to exceed what is proper for the entire contravening conduct.

parity 35 Parity must be considered. In that regard there are penalty outcomes in respect of other respondents. They have a role to play in terms of achieving, as best one can, parity between penalties imposed across the respondents to this proceeding. There are no comparable penalties that are pertinent, apart from those imposed on the other respondents in this case. I say that because, though there have been two other cases where contraventions of the Spam Act have yielded penalties, the facts of those are such as not to give any particular basis of comparison. It is certainly not a situation, as one encounters sometimes in the State criminal courts, whereby there is such a frequency of particular contravening conduct that patterns of sentencing readily emerge. 36 On behalf of Mr Phillips, the submission was made that his involvement was only for about 6.7% of the total time that the business was in operation; in other words, about 6.7% of 800 or so individual days of contravention. It was also said that his level of authority was no less than that assumed by Mr Salcedo, and that the latter had been involved for a much greater length of time. Another percentage exercise which was highlighted in the submissions made on behalf of Mr Phillips was the percentage of total revenue. It was submitted that the revenue of some $140,000 was but a small percentage of the total revenue derived over the course of the period of operation of the business. By these percentage exercises the appropriate range was submitted to be $87,500 to $210,000. 37 Such mathematical comparisons are not, in my opinion, an apt way in which to approach sentencing in this case. One way of illustrating that is to ask who is the more culpable, the head of state who takes his or her country to war, but then retires from office, or the field marshal who comes to prosecute that war over the ensuing years? That might seem a dramatic way of stating things, but it does, in my opinion, illustrate the point. Mr Phillips is in that analogy the head of state. Mr Salcedo might be conceived to be the field marshal. Each of them, though, occasioned particular loss. That the involvement of one was but relatively brief is not a factor, in my opinion, which ought count to the extent contended by Mr Phillips in relation to penalty and that is because, in all essential elements, the business was established and up and running during the period of Mr Phillips' involvement. 38 Mr Salcedo was an inheritor of the acumen of Mr Phillips. To impose a penalty in the range submitted on behalf of Mr Phillips would not be proportionate to Mr Phillips' role when compared with that of other respondents.

oppressive? 39 Also to be taken into account is the question of whether the penalty concerned would be oppressive. I have described the considerations involved in this regard in earlier reasons for judgment. I shall not repeat what is there stated.

conclusion as to penalty 40 As can be seen there are points and counterpoints that intrude in relation to penalty. The period is brief relative to those of other respondents, the income stream is limited relative to those of other respondents, but the acumen and the animus is not. Taking each of the matters to which I have adverted into account the penalty which in my opinion is appropriate, and I intend to impose one penalty, is $2 million.

declaratory relief 41 As to the declaratory relief, there is power to grant declaratory relief in respect of matters in which this court has jurisdiction: see s 21 of the Federal Court of Australia Act 1976 (Cth). Declaratory relief is not granted as a matter of course. However, there are considerations which make it appropriate to grant such relief in this case and they are these. Firstly, the declaration is, as the Authority submitted correctly, an appropriate vehicle to record the court's disapproval of the contravening conduct. Secondly, the granting of declaratory relief would serve in this case to vindicate the Authority's claim that Mr Phillips had contravened both the Spam Act as well as the Trade Practices Act. Again, as the Authority submitted, such declarations can be of assistance in the discharge of its responsibility for the administration of the Spam Act, and also for its related responsibilities in relation to the Trade Practices Act. Declarations can also have a beneficial effect in terms of informing the wider community, including consumers, of the dangers arising from a particular respondent's contravening conduct. 42 Each of those factors is, in my opinion, relevant here and tends in favour of the granting of declaratory relief.

injunctive relief 43 As to injunctive relief, the injunctions which are proposed provide, in essence, for a period of seven years in which Mr Phillips will be subject to very targeted restrictions related to the contravening conduct in respect of dating websites or social networking websites. The length of time is not, as I have indicated, the subject of opposition. I have reflected on whether, nonetheless, I should regard it as excessive. Having regard, though, to the type of contravening conduct in this case and also to considerations that persuaded me that a penalty near the maximum was appropriate it seems to me that it would be commensurate with those to have a seven year period of operation for the injunctive relief. 44 The only qualification I propose to make in relation to the injunctive relief proposed is in paragraph 3 of the draft, which enjoins Mr Phillips from creating, submitting or registering or causing to be created, submitted or registered, profiles on dating websites or social networking websites. The thought occurs that Mr Phillips may himself wish to use such a website. In that circumstance I would not wish him to be prevented from so doing by the terms of a court order. It is, after all, a popular form of social introduction in our society. For those reasons I propose to make orders in terms of the paragraph 1 through to, and including, paragraph 5 of the draft submitted, but with the alteration in paragraph 3.1, so as to insert after the word "profiles" the words "other than his own".

time to pay 45 In terms of time to pay, the proposed time in the draft order is 28 days. That has not been the subject of any particular opposition and, as I have said, I have no evidence before me of Mr Phillips' financial worth or capacity to pay. I propose, therefore, to leave the time to pay as 28 days.

costs 46 There remains for consideration the question of costs. In the course of the trial I made a particular ruling on evidence, the result of which was to exclude evidence in respect of the continuance of operations at West End. That, undoubtedly, had an effect of rendering particular work undertaken by those representing Mr Phillips in preparation for trial, unnecessary in the sense that it, after the ruling, became apparent in hindsight that the time and expenditure involved in preparing for trial to meet that body of evidence was not necessary. But that, of course, is the hindsight test. 47 It is appropriate in this case, in my opinion, to give some guidance to the taxing officer in relation to the effect of that ruling. I propose, therefore, to direct that on the taxation of the Authority's costs the taxing officer is not to allow to the Authority costs of, and incidental to, such of the material read by it at trial which was ruled inadmissible. 48 There was another question raised in relation to costs which would have seen an order in favour of Mr Phillips in respect of perusals of such material. Whilst I have considered whether to make such an order it seems to me that this is not one of those cases where such forensic success at trial as a respondent enjoyed should be rewarded by way of an order for costs in a respondent's favour, as would be the case, for example, where a respondent had succeeded on discrete issues. Instead, I consider that the justice of the matter will be met by the taxing officer conducting a taxation with that particular direction in mind. 49 The other factor which was raised in relation to costs was whether or not I should give a further direction to the taxing officer in respect of whether to allow the Authority two counsel. I do not propose to give a direction to the taxing officer not to allow two counsel. I see that as a matter within the discretion of a taxing officer. The taxing officer will doubtless take into account the nature and novelty of the case in that regard.

outcome 50 The orders then will be, as I have indicated, in terms of paragraphs 1 to 5 of the draft with the modification to paragraph 3.1. As to para 6 of the draft, the pecuniary penalty to be inserted is $2 million. And as to paragraph 7 of the draft, it is appropriate that the Authority have the costs of the proceeding as proposed, but subject to the direction that I have indicated. 51 If only out of an abundance of caution I shall direct that any person may search the registry and inspect and copy outlines of submissions lodged. 52 Orders accordingly. I certify that the preceding fifty-two (52) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Logan.

Spam Act 2003(Cth)ss 16, 24, 25

Crimes Act 1914(Cth)s 4AA

Trade Practices Act 1974(Cth)s 52

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