Australian Competition and Consumer Commission v Chaste Corporation

REASONS FOR JUDGMENT 1 On 29 January 2003, the Australian Competition and Consumer Commission ("the ACCC") filed a notice of motion seeking orders on an ex parte basis against Peter Clarence Foster, the fourth respondent in the principal proceedings. The ACCC sought orders that: "1. Pending further or other order Peter Clarence Foster, the fourth respondent, be restrained from leaving Australia. 2. Peter Clarence Foster, the fourth respondent, deliver his passport forthwith to the District Registrar of the Federal Court, Brisbane. 3. Peter Clarence Foster, the fourth respondent, be restrained from removing from the jurisdiction or from disposing of, mortgaging, charging, assigning or otherwise dealing with assets wheresoever situate in which he has an interest, either legal or beneficial and whether the interest is held directly or through an agent, nominee or servant as at the date of making this order including: (a) any bank accounts; (b) real property except to pay money or transfer or assign assets to the Official Liquidators of Chaste Corporation Pty Ltd. 4. Up to and including noon on 5 February 2003, notwithstanding the preceding orders, the fourth respondent shall be entitled to draw and expend from a bank account or other source the identity of which shall first be notified by him to the applicant's solicitors: (a) a sum not exceeding $500 per week for ordinary living expenses; (b) a sum not exceeding $2000 for reasonable legal expenses; (c) such further sums as the applicant's solicitor may from time to time agree in writing save that nothing in subparagraphs (a) to (c) requires any third party to inquire as to the purpose for which any sum drawn by the fourth respondent is in fact used. 5. The fourth respondent shall file and serve, within seven days of the date of service of this order on him or, if such day is not an ordinary business day, the first business day thereafter, an affidavit which sets out full details as at the date of this order as to: (a) the name and address of any bank, building society or other financial institution anywhere in the world at which there is an account in his name, or under his control, together with the number of such accounts, the account name if not in his name alone and the balance therein; (b) the name and address of any person or persons indebted to him and the amount of the debt or debts owed by such persons; (c) an itemised inventory of any assets or property, whether real or personal, owned or controlled by him or in respect of which he has an interest setting out the nature, location and value of the assets or property and the nature and extent of the interest held by him; (d) an itemised inventory of any assets or property, whether real or personal, in which any company trust or other entity controlled by him, or in which he has an interest; (e) in respect of any of the real or personal property referred to above, whether it has been given as security for any debt, and if so, the nature of the security and the debt so secured; (f) a list of all receipts and the amount and date thereof received by or for the benefit of either him or Jillian Foster, the fifth respondent from Chaste Corporation Pty Ltd. 6. The applicant shall make its best endeavour to serve this order personally on the fourth respondent as soon as possible. 7. The applicant shall serve these orders on the fourth respondent by sending them by email to the address or . 8. Service of the application and supporting affidavits be abridged to such time as the Court deems fit. 9. This motion be returnable instanter, and service of the motion be abrogated on the grounds appearing in the accompanying letter of urgency. 10. The further hearing of this motion be adjourned to a date to be fixed by the Court, at which time the applicant may move the Court for an order that the fourth respondent's passport be returned to him provided that he first pay to the District Registrar a surety in such sum as the Court considers appropriate to ensure his compliance with such orders as the Court may subsequently make in these proceedings; for an order that the hearing be expedited and for such other orders as the Court deems appropriate in the circumstances. 11. Such further or other interlocutory orders as the Court considers appropriate. 12. Liberty to apply on 24 hours notice." 2 I then indicated my concern whether s 23 of the Federal Court of Australia Act 1976 (Cth) ("the Act"), which was said to be the source of the power in the Court to make such orders, was sufficiently wide to make the orders sought. So far as the relief claimed in pars 3 and 4 of the motion was concerned, I expressed the view: "Even if it be the case that the material before me provides a basis for thinking that Mr Foster has been involved in wide-scale dishonest activity, I have difficulty in seeing that material provides a foundation for concluding that there is threatened a dissipation of assets, such as to ground the relief claimed in pars 3 and 4." 3 I declined to make any order on 29 January, except to order that the notice of motion filed on 29 January 2003 by leave, and the material relied on by the ACCC in support, be served personally on Mr Foster as soon as possible, and I adjourned the notice of motion for mention at 10.15 am on 3 February 2003. I granted liberty to the applicant to apply on one hour's notice for any further or other order it might wish to make. 4 Section 23 of the Act provides: "The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds, including interlocutory orders, and to issue, or direct the issue of, writs of such kinds, as the Court thinks appropriate." 5 On 3 February 2003, both the ACCC and Mr Foster appeared by counsel concerning directions as to the hearing for interlocutory relief sought by the ACCC. 6 In the principal proceedings, the ACCC alleges that from about December 1999 to December 2001, Chaste Corporation Pty Ltd, not then in liquidation, ("Chaste") carried on the business of selling distributorships in a purported weight-loss product TRIMit, whereby Chaste entered into written agreements with approximately seventy persons called "Area Managers" pursuant to which each Area Manager was appointed as the exclusive distributor of TRIMit in a specified geographical territory. The agreement, it was said, shows that Chaste set the recommended retail price and the wholesale price that was to be adhered to by all Area Managers; there was to be no discounting or price cutting without the written permission of Chaste; and Area Managers were not to sell stock to retailers at a price less than the price specified by Chaste. Chaste issued to Area Managers presentation folders containing statements of prices at which the Area Manager was to sell the stock to retailers, which were to be used by Area Managers when presenting to potential retail outlets. 7 Mr Foster was made the fourth respondent in the principal proceedings, pursuant to orders made by Drummond J on 16 September 2002. The amended statement of claim filed by the ACCC on 18 September 2002 in the principal proceedings alleges that Peter Foster, at all material times, promoted, planned, controlled, managed and supervised the operation of Chaste and the Chaste business, gave detailed directions to the officers, servants and agents of Chaste in respect of all aspects of the system, marketing plan and operations of Chaste and the Chaste business, and was the Trustee or beneficiary of a trust called World Maps Marketing Trust ("WMMT"). It was alleged by the ACCC that a company, Orlawood Pty Ltd, was the sole registered shareholder of Chaste, and it held shares on trust for WMMT and the Webb Family Discretionary Trust as to 75% to WMMT and 25% to the Webb Family Discretionary Trust. 8 The ACCC claims that Mr Foster had detailed knowledge of, and was deliberately involved in, the contravention by Chaste of s 48 of the Trade Practices Act 1974 (Cth) ("the Trade Practices Act"). Section 48 provides: "A corporation or other person shall not engage in the practice of resale price maintenance." The object of s 48 is to ensure that competition in the market is unfettered by price restraints imposed by suppliers on resuppliers of goods or services: TPC v Annand & Thompson (1987) ATPR 40-772. The term "resale price maintenance" is defined by ss 96 and 96A of the Trade Practices Act by reference to particular enumerated conduct engaged in by a supplier. That conduct includes: · Attempting to induce a person not to sell the supplier's products or services at less than a price specified by the supplier; · Making it known to a person that the supplier will not supply her or him unless that person agrees not to sell below the supplier's specified price; or · Entering an agreement for the supply of goods or services containing a provision that the purchaser will not sell below the supplier's specified price. 9 Amongst other relief sought in the principal proceedings, the ACCC seeks pecuniary penalties. The consequence of a breach of s 48 can be the imposition of pecuniary penalties under s 76 of the Trade Practices Act of up to $10 million (corporations) or $500,000 (individuals). 10 It is important to note that in this case, the ACCC alleges that Mr Foster was knowingly concerned in Chaste maintaining the wholesale and retail price of the TRIMit product. The ACCC is not alleging that Mr Foster "fleeced Australian investors in a slimming pill company of more than $3 million", as alleged in the local press on Monday 10 March, or that the allegations against him in the Federal Court are that "he fleeced investors in a slimming pill company" as alleged in the local press on Tuesday 11 March, and in the local press of 12 March that "Foster duped investors in a slimming pill company of more than $3 million." 11 At the hearing for the interlocutory relief sought by the notice of motion against Mr Foster, the ACCC did not persist in its claim for the relief sought in pars 1 and 2 of the motion, as independent and separate relief. The ACCC, however, sought surrender of Mr Foster's passport for a short time in aid of the discovery order sought in par 5 of the motion. 12 In Bayer AG v Winter and Others [1986] 1 All ER 733, the plaintiffs had claimed damages in respect of the alleged wrongful worldwide distribution and sale of counterfeit insecticide purporting to be the products of the plaintiffs. They applied for a Mareva injunction and an Anton Piller order and sought further injunctive relief, namely that the first defendant deliver up his passports and that he be restrained from leaving the jurisdiction until the Anton Piller order had been executed. The primary judge granted the Mareva and Anton Piller orders, but refused to grant the further relief. 13 The subject of the appeal was the primary judge's refusal to include in the provisions of the order the following: " '(i) That the first defendant be restrained form leaving England and Wales … until after [a specified period] or further order in the mean time. (ii) That the first defendant do forthwith deliver up his passports to the person who shall serve this order upon him' provided that the plaintiffs' solicitors must return them to him on the expiry of the time referred to in the preceding paragraph of the order." 14 The plaintiffs appealed to the Court of Appeal, contending that the further relief was within the jurisdiction of the court conferred by s 37(1) of the Supreme Court Act 1981 which provided that the court had jurisdiction to grant "an injunction … in all cases in which it appears … to be just and convenient to do so." 15 The evidence showed that there was a real risk that the first defendant would leave the jurisdiction, thereby depriving the plaintiffs of the benefit of the Anton Piller order. It was conceded that a writ ne exeat regno was not appropriate in the circumstances. Fox LJ said at 737: "It is clear from the language of the section itself and from Jessel MR's statement of the general width of the practice of the court, and from the approach of the Court of Appeal itself in the Astro case that the court has a wide discretion to do what appears to be just and reasonable in the circumstances of the case. The court has to exercise that discretion according to established principles, and the particular matter with which we are concerned at the moment, namely of an injunctive restraint on a person leaving the jurisdiction, is not one on which there appears to be previous authority. It is clear, however, that the law in relation to the grant of injunctive relief for the protection of a litigant's rights pending the hearing of an action has been transformed over the past ten years by the Anton Piller and Mareva relief which has greatly extended the law on this topic as previously understood so as to meet the needs of justice. Bearing in mind we are exercising a jurisdiction which is statutory, and which is expressed in terms of considerable width, it seems to me that the court should not shrink, if it is of opinion that an injunction is necessary for the proper protection of a party to the action, from granting relief, notwithstanding it may, in its terms, be of a novel character." (Emphasis added) And at 738: "… I would be prepared … to grant … an injunction restraining the first defendant from leaving the jurisdiction, and secondly, that he deliver up his passport. The orders are, in my view, in Jessel MR's words, 'necessary and reasonable orders which are ancillary to the due performance of the Court's functions.' …" And later: "The time during which the first of those orders should run should, and counsel for the plaintiffs accepts this, be of very limited duration. It is an interference with the liberty of the subject, so that the period should be no longer than is necessary to enable the plaintiffs to serve the Mareva and Anton Piller orders which they have obtained, and endeavour to obtain from the defendant the information which is referred to in those orders. Counsel for the plaintiffs therefore propose, and I would accept, that in the first of the proposed orders a period of two days should be inserted, so that it will read: 'The first defendant be restrained until after two days or further order in the meantime …'" 16 There are a number of matters to be noted about the orders sought by the ACCC. 17 The first is that the geographical restraint on dealing with his assets is worldwide, as is the extent of the disclosure sought by the prayer for relief in par 5. The Court of Appeal in Derby & Co Ltd v Weldon (Nos 3 & 4) 1990 1 Ch 65 held that: " … although a Mareva injunction should normally be confined to assets within the jurisdiction, in an appropriate case the court had power to make an order concerning foreign assets in order to achieve the purpose of the injunction, subject to the ordinary principles of international law." Lord Donaldson, at 79, said that there had to be special circumstances in a case to justify the making of such an exceptional order. On the other hand, a Court of Appeal in Ashtiani v Kashi [1986] 2 All ER 970 held that: "Because the power of the court to grant a Mareva injunction restraining the defendant from disposing of his assets was restricted to those assets which were within the jurisdiction of the court, and because the requirement to disclose foreign assets could not be regarded as being ancillary to the making of a Mareva injunction when the injunction was limited to the English assets and nor could it stand on its own facts as a primary exercise of the court's jurisdiction if the Mareva order was limited to English assets, it followed that an order for discovery made ancillary to the grant of a Mareva injunction had to be restricted to requiring disclosure by the defendant of his assets within the jurisdiction." 18 In Brereton & Ors v Milstein & Ors (1988) VR 508, Justice Murphy said at 515-516: "It is true that in Hospital Products Ltd v Ballabil Holdings Pty Ltd [1984] 2 NSWLR 662, Rogers J held the Supreme Court of New South Wales had jurisdiction to grant a Mareva injunction extending to assets which are situate outside the jurisdiction, adding: 'It is almost superfluous to add that the discretion needs to be exercised with great prudence and with predisposition against the making of an order': see [1984] 2 NSWLR, at p. 668. The Court of Appeal (Street CJ and Glass JA) limited the application of such an injunction to those assets which were in New South Wales when the action was commenced, but which had since been removed. In my view, according to the principles of equity, it is extremely unlikely that a Mareva injunction would go in Victoria to prevent dealing with assets situate outside Victoria, over which assets the Victorian court was unable to exercise effective control and supervision. Moreover, in the present case, the assets in question, outside Victoria, were at all relevant times situate outside Victoria, and have not been removed outside Victoria, after action brought. The decision of the New South Wales Court of Appeal would not support a Mareva injunction purporting to apply to those assets. More recently in England, where the Mareva injunction was given its modern form in Mareva Compania Naviera S.A. v Internation Bulkcarriers S.A. [1975] 2 Lloyd's Rep. 509, by Lord Denning M.R., the Court of Appeal in Ashtiani v Kashi [1987] QB 888, set forth its view of the scope of a Mareva injunction. Their Lordships were unanimous in stating that the injunction should be limited to the assets within the jurisdiction of the Court." 19 In Planet International Ltd (in liq.) v Garcia [1989] 2 Qd R 427, Lee J considered that the Supreme Court of Queensland had power to grant a Mareva injunction on a worldwide basis following Derby & Co Ltd v Weldon (Nos 3 and 4) (supra). For the reasons which follow, I do not have to consider whether it would be competent or appropriate to make orders on a worldwide basis. 20 The second is that there is no cap to the amount up to which the dealing on his assets is confined. The ACCC referred to a number of cases where civil penalties had been imposed concerning retail price maintenance. The highest penalty imposed on an individual was $75,000 in ACCC v Hugo Boss (Australia) Pty Ltd (1996) ATPR 41-536. There was no attempt by the ACCC to quantify the amount of any costs order that might be sought. 21 The third and most important aspect is that these orders are not sought in aid of rights presently existing at law or in equity, the vindication of which by the courts is compensatory or restitutionary. These orders are sought in aid of the preservation of assets which might be applied to meet any penalties that the Court might be minded to impose for breaches of the retail price maintenance provisions of the Trade Practices Act that Mr Foster is shown to have committed, and also, importantly, for any costs order that the Court might be minded to make against Mr Foster in favour of the ACCC in those proceedings. 22 In ABC v Lenah Game Meats Pty Limited (2001) 208 CLR 199 the High Court, (Gleeson CJ, Gaudron, Gummow and Hayne JJ) held that where an interlocutory injunction is sought, it is necessary to identify the legal or equitable rights which are to be determined at the trial and in respect of which final relief is sought. The legal right may be a statutory right and the final relief need not be injunctive. Their Honours concluded that the jurisdiction of the Supreme Court of Tasmania did not extend to the grant of an interlocutory injunction where no legal or equitable rights were to be determined. In my judgment, in this case, the claim for the imposition of civil penalties for contravention of the Trade Practices Act dealing with retail price maintenance does not involve any legal or equitable right in the ACCC. Neither does a claim that a respondent to proceedings for a civil penalty pay the costs of those proceedings. 23 In Cardile v LED Builders Pty Ltd (1999) 198 CLR 380, Gaudron, McHugh, Gummow and Callinan JJ noted the emphasis by Lord Mustell in Mercedes Benz AG v Leiduck [1996] AC 284 at 300 that Mareva relief takes effect in personam only, and where his Lordship distinguished tracing and other such remedies protecting proprietary rights. Their Honours at 393 referred to the observation of the High Court in CSR Ltd v Cigna Insurance Australia Ltd (1997) 189 CLR 345 at 391: "The counterpart of a court's power to prevent its processes being abused is its power to protect the integrity of those processes once set in motion." (Emphasis in the original) Their Honours continued: "The integrity of those processes extends to preserving the efficacy of the execution which would lie against the actual or prospective judgment debtor: Jackson v Sterling Industries Ltd (1987) 162 CLR 612 at 623, 638. The protection of the administration of justice which this involves may, in a proper case, extend to asset preservation orders against third parties to the principal litigation. This appeal concerns the identification of such proper cases." At 395 their Honours observed that the House of Lords in several decisions [Bremer Vulkan Schiffbau und Maschinenfabrik v South India Shipping Corporation [1981] AC 909 at 979-980, 992; South Carolina Insurance Co v Assurantie Maatschappij "De Zeven Provincien" NV [1987] AC 24 at 40; Pickering v Liverpool Daily Post and Echo Newspapers Plc [1991] 2 AC 370 at 420-421. See also Mercedes Benz AG v Leiduck [1996] AC 284 at 298, 300-201] had established that the power "… that the court may grant an injunction in all cases in which it appears to the court to be just and convenient to do so - does not confer an unlimited power to grant injunctive relief. Regard must still be had to the existence of a legal or equitable right which the injunction protects against invasion or threatened invasion, or other unconscientious conduct or exercise of legal or equitable rights. The situation thus confirmed by these authorities reflects the point made by Ashburner that 'the power of the court to grant an injunction is limited by the nature of the act which it is sought to restrain'." (Emphasis added) 24 The High Court in Cardile referred to various ways in which "the courts developed doctrines and remedies, outside the injunction as understood in courts of equity, to protect the integrity of its processes once set in motion." Their Honours continued, at 399: "The Mareva order for the preservation of assets should be seen as a further development (Wasserman, 'Equity Renewed: Preliminary Injunctions to Secure Potential Money Judgments', Washington Law Review, vol 67 (1992) 257, pp 299-305). There is no harm in the use of the term Mareva to identify that development, provided the source of the remedy is kept in view when considering the form of the remedy in each particular case." 25 In Jackson v Sterling Industries Ltd (1987) 162 CLR 612, Deane J with whose reasoning Mason CJ, Wilson, Dawson and Brennan JJ agreed, referred, at 623, to the statement of Lord Denning M.R., in Rahman (Prince Abdul) v Abu-Taha [1980] 3 All ER 409 at 412: "As a general proposition, it should now be accepted in this country that 'a Mareva injunction can be granted … if the circumstances are such that there is a danger of [the defendant's] absconding, or a danger of the assets being removed out of the jurisdiction or disposed of within the jurisdiction, or otherwise dealt with so that there is a danger that the plaintiff, if he gets judgment, will not be able to get it satisfied'." (Emphasis added) 26 In my opinion, there is a real distinction between there being a danger that a plaintiff if he gets judgment will not be able to get it satisfied, and a danger that a fine or penalty ordered to be paid will not be paid. Satisfaction of a judgment is not an apt way of describing the payment of a fine or civil penalty. 27 As Gaudron, McHugh, Gummow and Callinan JJ noted in Cardile (at 389-390), in that case on the application for interlocutory relief: "At the jurisdictional level, the only real questions for the primary judge were first, whether there was a serious question to be tried as to whether assets presently under the control of Ultra [Modern] and Mr and Mrs Cardile could be available to satisfy a judgment against Eagle [Homes] in favour of [LED], and secondly, whether there was a danger of such assets being dealt with by Eagle [Homes], or the prospective respondents, so that the Court's process would be frustrated." 28 The imposition of a pecuniary penalty by a court against Mr Foster is not aptly to be described as a judgment against him in favour of the ACCC. 29 In the ordinary course, it is necessary for a plaintiff seeking a Mareva order to show a prima facie cause of action against the defendant: Patterson v BTR Engineering (Aust) Pty Ltd and Others (1989) 18 NSWLR 319 at 321 per Gleeson CJ. In determining whether there is a sufficiently substantial danger of the defendant disposing of assets in order to defeat a judgment that might be obtained against him, the Court may have regard to the evidence adduced by the plaintiff to prove its claim to the substantive relief sought: Patterson per Gleeson CJ at 325, Meagher JA at 326 and Rogers A-JA at 330-331. Ordinarily, however, one cannot infer a risk of dissipation of assets from the mere fact that the plaintiff has a prima facie cause of action. So observed Meagher JA in Paterson at 326. 30 Deane J in Jackson said at 625 that the purpose of the granting of a Mareva order: "… is to prevent a defendant from disposing of his actual assets (including claims and expectancies) so as to frustrate the process of the court by depriving the plaintiff of the fruits of any judgment obtained in the action." Nor, said his Honour, is the purpose to create a security for the plaintiff or to require a defendant to provide security as a condition of being allowed to defend the action. 31 As their Honours in Cardile said at 403: "… the reality [is] that the granting of a Mareva order is bound to have a significant impact on the property of the person against whom it is made: in a practical sense it operates as a very tight 'negative pledge' species of security over property, to which the contempt sanction is attached. It requires a high degree of caution on the part of a court invited to make an order of that kind. An order lightly or wrongly granted may have a capacity to impair or restrict commerce just as much as one appropriately granted may facilitate and ensure its due conduct." Their Honours agreed with the tenor of what was said with respect to Mareva relief by the Court of Appeal of New South Wales (Mason P, Sheller JA, Sheppard A-JA) in Frigo v Culhaci (Court of Appeal NSW, Unreported 17 July 1998), where their Honours said: "[A Mareva order] is a drastic remedy which should not be granted lightly … A [Mareva order] is an interlocutory order which, if granted, imposes a severe restriction upon a defendant's right to deal with his or her assets. It is granted at the suit of a plaintiff whose status as a creditor is in dispute and who need not be a secured creditor. Its purpose is to preserve the status quo, not to change it in favour of the plaintiff. The function of the order is not to (Abella v Anderson [1987] 2 Qd R 1 at 2-3, per McPherson J) 'provide a plaintiff with security in advance for a judgment that he hopes to obtain and that he fears might not be satisfied; nor is it to improve the position of the plaintiff in the event of the defendant's insolvency' … Many authorities attest to the care with which courts are required to scrutinise applications for [Mareva orders]. The leading decision in this State is Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319." Again, it hardly needs to be pointed out that the ACCC is not "a plaintiff whose status as a creditor is in dispute": the ACCC is the applicant for the imposition of pecuniary penalties for breach of the resale price maintenance provisions of the Trade Practices Act. 32 In Frigo, under the heading "General Comment" the Court said: "A mareva injunction is an exceptional interlocutory remedy. Its function is to minimise the possibility of an unscrupulous defendant seeking to render himself or herself 'Judgment proof' by taking steps to ensure that no assets within the jurisdiction can be found on the day of judgment." 33 Wilson and Dawson JJ in Jackson supra said at 619 that a Mareva order: …is neither a species of anticipatory execution nor does it give a form of security for any judgment which may ultimately be awarded." 34 As to the usual requirements for the making of Mareva orders, I am satisfied, first, that the applicant has a prima facie case against Mr Foster for a civil penalty pursuant to s 76(1) of the Trade Practices Act. Each of the Area Management Agreements contained a clause: "The statements made in the document titled 'We Answer Your Questions' and the Area Management Proposal shall apply as if same were incorporated in this Agreement." In the Area Management Proposal, under the heading "Profit Margins" the following appears: "Since massive distribution of the product will occur within weeks of the release date it is most important that a regulated price policy be adhered to in the interests of all parties involved."