Australian Competition and Consumer Commission v Emerald Ocean Distributors... [2005] FCA 1703 | Case summary

Australian Competition and Consumer Commission v Emerald Ocean Distributors... [2005] FCA 1703 | Case summary | Zoe

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Trade Practices Act 1974 (Cth) ss 51A, 51A(2), 52, 53(c), 75B, 80(1)(a)(i), 80(1)(c), 80(1)(e), 82, 84(2), 87, 87(1)(A) The Australian Concise Oxford Dictionary (2nd ed, Oxford University Press, Melbourne, 1992) The New Shorter Oxford English Dictionary (Clarendon Press, Oxford, 1993) 'Comparison of Isometric Exercise and High Volt Galvanic Stimulation on Quadriceps Femoris Muscle Strength' (1985) 65(5) Physical Therapy 149 'Effects of Electrical Muscle Stimulation on Body Composition, Muscle Strength, and Physical Appearance' (2002) 16(2) Journal of Strength and Conditioning Research 165 'Effects of Electrical Stimulation or Voluntary Contraction for Strengthening the Quadriceps Femoris Muscles in an Aged Male Population' (1994) 20(1) Journal of Orthopaedic and Sports Physical Therapy 22 'Electrical Stimulation in Exercise of the Quadriceps Femoris Muscle' (1979) 59(12) Physical Therapy 117 'Neuromuscular Electrical Stimulation' (1992) 13(5) Sports Medicine 320 'Neuromuscular Extra Stimulation and Voluntary Exercise' (1992) 13(5) Sports Medicine Journal 320 'Strength Changes in the Normal Quadriceps Femoris Muscle as a Result of Electrical Stimulation' (1983) 63(4) Physical Therapy 123 AL Baker, Neuromuscular Electrical Stimulation: A Practical Guide (4th ed) HJ Appell and M Cabric, Institute of Experimental Morphology of Cologne University Sports Academy, 'The Use of Electrical Stimulation for Strengthening of Muscles in Therapy and Rehabilitation' (1987) Physikalische Therapie Austotel Management Pty Ltd v Jamieson (1996) 57 FCR 411 Australia and New Zealand Banking Group Ltd v Turnbull & Partners (1991) 33 FCR 265 Australian Competition and Consumer Commission v Black on White Pty Ltd (2001) 110 FCR 1 Australian Competition and Consumer Commission v Danoz Direct Pty Ltd (2003) 60 IPR 296 Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2001] FCA 595 Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (No 2) (1999) 95 FCR 302 Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 Australian Competition and Consumer Commission v IMB Group Pty Ltd (1999) ATPR 41-704 Australian Competition and Consumer Commission v Optell Pty Ltd (1998) ATPR 41-640 Australian Competition and Consumer Commission v Universal Sports Challenge Ltd [2002] FCA 1276 Australian Securities and Investments Commission v National Exchange Pty Ltd (2003) 202 ALR 24 Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242 Bowler v Hilda Pty Ltd (1998) 80 FCR 191 Burke v LFOT Pty Ltd (2002) 209 CLR 282 Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 Cassidy v NRMA Health Pty Ltd (2002) ATPR 41-891 City of Botany Bay Council v Jazabas Pty Ltd [2001] NSWCA 94 CRW Pty Ltd v Sneddon [1972] A R (NSW) 17 Cummings v Lewis (1993) 41 FCR 559 Dorrough v Bank of Melbourne Ltd (1995) ATPR (Digest) 46-152 Elna Australia Pty Ltd v International Computers (Australia) Pty Ltd (No 2) (1987) 16 FCR 410 Emerald Ocean Distributors Pty Ltd v Australian Competition & Consumer Commission [2001] FCA 1920 Gardam v George Wills & Co Ltd (No.1) (1988) 82 ALR 415 Giorgianni v R (1985) 156 CLR 473 Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (No 1) (1988) 39 FCR 546 Henville v Walker (2001) 206 CLR 459 Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Limited (1978) 140 CLR 216 Keen Mar Corporation Pty Ltd v Labrador Shopping Centre Pty Ltd (1989) ATPR 46-048 Re La Rosa; Norgard v Rodpat Nominees Pty Ltd (1991) 31 FCR 83 Lezam Pty Ltd v Seabridge Australia Pty Ltd (1992) 35 FCR 535 Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700 Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 Pavich v Bobra Nominees Pty Ltd [1988] FCA 425 Poulet Frais Pty Ltd v The Silver Fox Company Pty Ltd (2005) 220 ALR 211 Sharp v Ramage (1995) 12 WAR 325 Siddons Pty Ltd v Stanley Works Pty Ltd (1991) 29 FCR 14 Sykes v Reserve Bank of Australia (1998) 88 FCR 511 Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444 Ting v Blanche (1993) 118 ALR 543 Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 Trade Practices Commission v Manfal Pty Ltd (in liq) (No.3) (1991) 33 FCR 382 Wheeler Grace & Pierucci Pty Ltd v Wright (1989) ATPR 40-940 Yorke v Lucas (1985) 158 CLR 661 Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691 AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v EMERALD OCEAN DISTRIBUTORS PTY LTD, SLENDERTONE HEALTH AND BEAUTY PTY LTD and SEAN O'DONOGHUE WAD 118 of 2000 NICHOLSON J 25 NOVEMBER 2005 PERTH

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TABLE OF CONTENTS PART A: THE CLAIM ADMISSIONS AND ISSUES CROSS-CLAIM RELEVANT LAW MISLEADING OR DECEPTIVE CONDUCT FUTURE REPRESENTATIONS CORPORATE LIABILITY ACCESSORIAL LIABILITY EVIDENCE EXPERT WITNESSES Applicant's experts Dr Coombes Dr Bakker Mr Wright Respondents' experts Cross-respondent's expert OTHER WITNESSES EXPRESS REPRESENTATIONS: s 52 and s 53(c) 'WORK OUT WITHOUT WORK' 'NO PAIN' EQUIVALENCE TO NORMAL EXERCISE TONING, FIRMING AND FLATTENING How muscle size and strength is achieved in a healthy person Will the Slendertone products increase muscle strength in healthy muscle in an ordinary consumer? What is body tone and the effect of body fat on body tone Application to this group of representations ABILITY TO REDUCE, ELIMINATE OR 'CONQUER' CELLULITE GIRTH REDUCTION - INCH LOSS, REDUCTION IN WAIST AND BODY MEASUREMENTS AND CHANGES IN BODY SHAPE TIME FOR IMPROVEMENTS PERFORMANCE CHARACTERISTICS: s 53(c) IMPLIED REPRESENTATIONS absence of effort, exertion or discomfort NEED FOR DIET AND EXERCISE SCIENTIFIC EVIDENCE ON PRODUCT EXPECTATIONS FUTURE REPRESENTATIONS: s 51A ONUS OF PROOF ON FUTURE MATTERS reasonable grounds INFORMATION FROM BMR Research papers Point of sale leaflets Whether information known at time of representations Whether representor relied on BMR information Whether reliance objectively reasonable Whether information was capable of supporting the representations CUSTOMER STATEMENTS Whether opinions known at time of representations Whether evidence of reliance on opinions Whether reliance objectively reasonable Whether the representations could have been supportive LIABILITY SLENDERTONE'S DIRECT LIABILITY EOD'S DIRECT LIABILITY MR O'DONOGHUE'S ACCESSORIAL LIABILITY orders on claim PART B: THE CROSS-CLAIM indemnity for losses being damages viability of claim for contribution whether contribution available under act whether contribution available under general law absence of causative conduct of cross-respondent whether Losses as particularised established loss of salary Sale of motor vehicle loss of rental life insurance policy goods returned to bmr wasted expenditure non-application of act exclusion of act conclusion on cross-claim

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PART A: THE CLAIM 1 These proceedings relate to representations made in Australia-wide advertising and promotion of various electronic muscle stimulation ('EMS') products. In its pleadings the applicant sought to rely on the lack of utility in certain EMS products of the first, or alternatively the second, respondents. However, as the applicant's case is now pressed following the hearing of evidence, the applicant does not dispute that, when used under appropriate clinical conditions, the EMS products may have a number of benefits. Therefore, in this proceeding the central issue is whether the EMS products in question will produce results consistent with advertised representations when used by a consumer at home in the manner specified in the instructions without more (including a healthy diet and exercise). The case of the applicant is that certain representations concerning the EMS products were false because the advertisements did not make clear under what conditions the products have to be used. Consequently it is claimed the first respondent ('EOD') and the second respondent ('Slendertone') engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (Cth) ('the Act') and made representations in contravention of s 53(c) of the Act. In the case of the third respondent ('Mr O'Donoghue') it is claimed that he aided, abetted, counselled or procured or, alternatively, was knowingly concerned in or party to the contraventions: s 75B of the Act. These issues were litigated with an agreed statement of facts. 2 EOD and Slendertone are incorporated companies. Mr O'Donoghue admits that he was at all material times the sole director, secretary and member of EOD and Slendertone. He was in effect the managing director of both companies. 3 It is common ground that Slendertone was engaged in trade or commerce and was the retailer of EMS products marketed under the trade name of Slendertone. They comprised the Sequence 16, the Supreme, the Top Tone 12, the Gymbody 8 and the Celluforme (collectively referred to as the 'Slendertone products'). It is agreed that the Slendertone products all operate on the same or similar principles and have the same or similar effects. These products comprise a boxed battery (or other larger power source) attached to a belt from which cords connect to electrodes contained in pads having a circumference of approximately 9 cm. The belt can be tied around the waist or a limb. The user is instructed to place the electrodes on the muscles intended to be exercised and select the required level of exercise by choosing the power level. This is intended to provide electronic stimulation to the selected muscle, causing it to contract. 4 It is important that any reader of these reasons appreciates that these reasons for judgment do not relate to any other Slendertone products than those defined above and do not relate to any of the named Slendertone products save as that product existed at the date relevant to this proceeding. It would therefore be wrong to extract any sentence referring to the Slendertone products without making clear precisely which products were being referred to at that point of the reasons. 5 The communications in which the contravening conduct is said to be evidenced consists of the following: i. Advertisements in Women's Health Magazine in February, March and April 2000, published Australia-wide ('the Women's Health advertisement'). ii. An advertisement in Ultrafit Magazine in March 2000 ('the Ultrafit advertisement'). iii. A pamphlet promoting the Top Tone 12 issued prior to and in June 2000 ('the pamphlet'). iv. A website with the web address 'www.slendertone.com.au' promoting Slendertone products ('the website'). These are collectively described as 'the communications'. 6 The applicant's closing submissions summarise the circumstances from which the contraventions are alleged to arise as follows: 1. The Women's Health advertisements promoted the products known as the Gymbody 8 and the Top Tone 12 and made express representations as to the use of these products as follows: 1.1 'Workout without the work'; 1.2 in relation to the Gymbody 8: (a) 'The power to tone and firm any part of your body with absolutely no effort'; (b) 'The Gymbody 8 … can … tighten slack tummy muscles, shape and lift your body; reduce waist measurements and improve your posture'; 1.3 '40 minutes per day is equivalent to 300 general exercises'; 1.4 'Be toned and firmer within 3-4 weeks'; and 1.5 in relation to the Top Tone 12, 'Help conquer cellulite with Celluforme'. 2. The Ultrafit advertisement promoted the Gymbody 8 product and made the following express representations: 2.1 'Workout without the work'; 2.2 'In just 3 weeks you'll have a six pack all worked out'; 2.3 'In just three weeks this revolutionary exerciser can give you washboard abs you'll be proud to bare'; 2.4 '[I]n only 40 minutes it contracts and relaxes your muscles 240 times - just like sit-ups'; 2.5 'The powerful, fast, effective way to tone and firm your body with absolutely no effort'; and 2.6 'Be toned and firmer within 3 - 4 weeks'; 3. The pamphlet was made available and distributed to members of the public from premises at 118 Wray Avenue, Fremantle, Western Australia, and also with the delivery of any Slendertone product purchased by a member of the public. In promoting the Top Tone 12 it referred to Celluforme by making the following express representations: 3.1 'Workout without the work'; 3.2 'Top Tone 12 gives you the benefits of 180 sit ups in just 30 minutes'; 3.3 'slack tummy muscles become flatter'; 3.4 'Flabby thighs are toned and tightened'; 3.5 'Stubborn cellulite is smoothed away'; 3.6 '[R]emarkable inch loss can be measured in as little as 3 weeks'; and 3.7 'Conquer cellulite with Celluforme'. 4. The website made the following express representations about all the Slendertone products: 4.1 'No Pain No Gain? NOT ANY MORE! With Slendertone you can gain that perfectly toned figure without the strain and pain'; 4.2 'By using an EMS system from Slendertone, you can sit back and relax while you do the equivalent of approx 300 sit ups in just 40 minutes'; 4.3 'Sleek in just 3 weeks without strain, you can flatten your stomach with absolutely no effort whatsoever'; and 4.4 'Tone and firm any problem area without the hard slog of going to a gym for endless sweat and strain sessions'. The applicant added that individual representations were also made about each product, repeating the representations set out in pars 1.1 to 1.3 above and setting out new claims. 7 In addition to these alleged express representations, it is pleaded that there are various implied representations. These implied representations give rise to issues, namely: A. whether each of the promised results from the Slendertone products can be achieved without the need for a healthy diet and exercise; B. whether there is a significant, valid and reliable body of scientific evidence demonstrating that the Slendertone products are able to produce the promised results; and C. whether the time stated as to how long it would take to achieve the promised results is valid. 8 The applicant's case, as argued, groups the promised results which are in issue as a consequence of the express and implied representations, as follows: a. the product can and will produce an improvement in the user's body and their appearance without any work or effort, e.g. 'workout without the work'; b. the use of the product is equivalent to regular exercise; c. the use of the product can and will tone and firm the body; d. the use of the product can and will reduce waist and body measurements; and e. the product can and will reduce, eliminate or 'conquer' cellulite. 9 The applicant's case against Slendertone is that it has breached s 52 (with or without the aid of the application of s 51A) and s 53(c) of the Act by making misleading or deceptive statements as to present fact, being the performance characteristics, uses or benefits of the Slendertone products, and future matters, being the results which a user of the Slendertone products will achieve. It is common ground that the communications were made on behalf of Slendertone and distributed to the public. 10 The applicant's case against EOD is that it either made the misleading or deceptive statements in the Women's Health and Ultrafit advertisements or aided, abetted, counselled or procured or was knowingly concerned in or a party to the contraventions by Slendertone in those advertisements. This case is based on the appearance of EOD's name and logo in each of the advertisements along with the express statement that it is a subsidiary of Slendertone and in the light of evidence of the association between the two companies, their common directorship, shared premises, joint invoices and letterhead. It is in issue whether in these circumstances the communications were also published on behalf of EOD. 11 The applicant's case against Mr O'Donoghue is that he aided, abetted, counselled or procured, or was knowingly concerned in or a party to all the contraventions by Slendertone or alternatively EOD: cfs 75B of the Act. He was the sole director, secretary and member of EOD and Slendertone and worked from Slendertone's premises (it being in issue whether such premises were also the premises of EOD). It is agreed that he was knowingly concerned in arranging the publication of the Women's Health and Ultrafit advertisements, the distribution of the pamphlet and the production of the website. 12 The applicant's case, although made with reference to the Act, applies equally in relation to the equivalent provisions of the Fair Trading Act 1987 (WA) as set out in the second further re-amended statement of claim ('the claim'). 13 In Australian Competition and Consumer Commission v Danoz Direct Pty Ltd (2003) 60 IPR 296, Dowsett J decided another claim in relation to an EMS device known as the AbTronic. The respondents submit the findings made there are to be distinguished. It is apparent from the reasons for judgement delivered by his Honour that both the pleaded circumstances and the expert and other evidence were specific to that case and cannot have any binding application here. However, it is the case that regard does not seem to have been had by the applicant to what was said by Dowsett J at [79]-[90] of his reasons in Danoz concerning the Byzantine character of the pleadings and the consequent effect which they have on the length of trial and time for judgement writing. Had the applicant accepted in respect of most of the pleaded misrepresentations that no determinative answer could be given on whether the Slendertone products had the performance characteristics claimed and invoked s 51A of the Act, the evidence would have been confined to whether there was a respectable body of opinion or other information of which the respondent had knowledge such that the respondent had reasonable grounds for making the representations. 14 In the context of the pleaded allegations two principal issues emerge, namely (1) whether EMS has efficacy and (2) whether the Slendertone products are efficacious in delivering EMS.

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ADMISSIONS AND ISSUES 15 The proceeding was conducted in the context of an agreed statement of facts, which identified matters still to be litigated. 16 Slendertone admits that it placed the advertisements including the express words complained of and that the magazines containing the advertisements were distributed to the public. However, it contests the applicant's pleaded meaning given to express statements and denies the implied representations. 17 In relation to the pamphlet, Slendertone admits it arranged for the production or delivery of copies of it to members of the public, these including the express words pleaded. The applicant's pleaded meanings to the pamphlet are denied and alternative meanings put forward. Again Slendertone denies the implied representations. 18 Slendertone admits it caused the website to be produced for access by the public. The express words pleaded are admitted but again the applicant's pleaded meanings are denied and alternative meanings put forward. Whether the advertisements, the pamphlet and the website contain implied representations, promissory or future representations, and representations concerning performance characteristics, uses or benefits is in issue. The false or misleading character of the representations is also in issue. 19 EOD denies its direct involvement as alleged by the applicant. 20 Mr O'Donoghue adopts the defence of Slendertone and denies the allegations of ancillary involvement in the breaches as so alleged while admitting that he was concerned in arranging publication of the advertisements and pamphlet on behalf of Slendertone and the establishment of its website in his capacity as managing director of Slendertone. 21 The respondents therefore see the outstanding issues on the pleadings as being: i. the liability of EOD; ii. the meaning of the express words contained in the advertisements, the pamphlet and on the website; whether the meaning is affected by context and whether the words are to be understood as referring to the words 'alone' (specifically without reference to usage in conjunction with a healthy diet and exercise) so as to give rise to falsity as pleaded; iii. whether the implied representations were made and, if so, their extent; iv. the liability of the Mr O'Donoghue; v. the scope of the remedies, if any.

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MISLEADING OR DECEPTIVE CONDUCT 23 The action is brought in reliance upon s 52 of the Act which prohibits a corporation from engaging in conduct in trade or commerce that is 'misleading or deceptive or likely to mislead or deceive'. 24 It is a question of fact whether conduct falls within that description: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199. In Australian Securities and Investments Commission v National Exchange Pty Ltd (2003) 202 ALR 24 at [13], Finkelstein J summarised instances where this may be so by reference to four categories: (1) where the statement is a half-truth by removal from its context; (2) where the statement has more than one meaning; (3) where the statement is framed in such a setting as to mislead or deceive; (4) where regard is had to its ultimate impression and its effect gauged. Evidence of persons actually being misled is possibly persuasive but not determinative: Global Sportsman Pty Ltd v Mirror Newspapers Ltd (1984) 2 FCR 82 at 87; Australian Competition and Consumer Commission v Optell Pty Ltd (1998) ATPR 41-640 at 41,081 and 41,082. It is the objective nature of the conduct which is in issue and not intention: Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Pty Limited (1978) 140 CLR 216 at 228; Parkdale at 197; Bowler v Hilda Pty Ltd (1998) 80 FCR 191 at 206. 25 An advertisement may be misleading even though it fails to deceive more wary readers: CRW Pty Ltd v Sneddon [1972] A R (NSW) 17 at 28; Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 at 49-50. Nevertheless its effect must be tested against ordinary or reasonable members of prospective purchasers, excluding those assumptions by persons whose reactions are extreme or fanciful: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at [102], [103] and [105]. Where the advertisement is directed to the general public by inclusion in a publication with a wide circulation, the applicant can rely on any meaning reasonably open to a significant number of readers: Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444 at 446. If it is capable of more than one meaning, it will be misleading or deceptive if any reasonable interpretation of it would lead into error a (ordinary and reasonable) member of the class who can be expected to read it: Tobacco Institute at 49-50. The circumstances in which the advertisements are read needs also to be kept in mind, including that many readers would read it fleetingly and loosely: Tobacco Institute at 64; Siddons Pty Ltd v Stanley Works Pty Ltd (1991) 29 FCR 14 at 18. 26 The advertisement must be read in context and the meaning of critical words and phrases should not be ascertained in isolation: Tobacco Institute at 49-50. The approach to interpretation of words should be that stated by Gibbs CJ in Parkdale at 199: 'The conduct of a defendant must be viewed as a whole. It would be wrong to select some words or acts, which, alone, would be likely to mislead if those words or acts, when viewed in their context, were not capable of misleading. It is obvious that where the conduct complained of consists of words it would not be right to select some words only and ignore others which provided the context which gave meaning to the particular words.' 27 Express representations may be misleading although factually correct. It is for the court to determine whether an advertisement, even if literally true, conveys a false impression. This involves consideration of whether terms are reasonably to be implied in the representation. 28 It is relevant also that s 53(c) of the Act provides that false representations concerning therapeutic effects of goods may constitute representations that the goods have performance characteristics, uses or benefits that they do not have: Australian Competition and Consumer Commission v Giraffe World Australia Pty Ltd (No 2) (1999) 95 FCR 302. 29 The onus of proof of all allegations made in terms of past or existing facts rests on the applicant.

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Dr Coombes 35 Dr Coombes has a Bachelor of Applied Science and a PhD obtained in 1958. He is the senior lecturer in Exercise Science at the University of Queensland, teaching and conducting research in exercise physiology, nutrition and exercise and muscle physiology. His publications include a number of studies using electrical stimulation to activate muscle contraction to test the effects of different treatments on force production and fatigue. He has worked in the health and fitness industry for over 10 years in various capacities including fitness assessor, personal trainer and gym manager. He has experience in EMS products and has studied the literature and review articles concerning EMS. 36 In his report Dr Coombes said he was supplied with three Slendertone products, the Gym Body 8, Top Tone 12 and Sequence 16. He was instructed by the applicant's lawyers to test the devices and comment on the truthfulness of the representations made concerning the Slendertone products. He was instructed to prepare a report that detailed the nature of the tests carried out and the methodology used by him in conducting the tests. Dr Coombes said that the aim of the test was to determine the effect of using the EMS devices on metabolic rate. Because of problems with the sequence 16 that was supplied only two devices were tested, the Gym Body 8 and the Top Tone 12. 37 According to Dr Coombes, the result of the test was that both the Gym Body 8 and the Top Tone 12 resulted in a very small increase in metabolic expenditure. Dr Coombes described the changes as so relatively small as to have no significant effect on overall energy expenditure. 38 In cross-examination a number of factors emerged which are relevant to the weight to be given to the evidence of Dr Coombes. The two subjects on whom the machines were tested were not called to give evidence. He did not base the test on a control group but accepted that a minimum of 30 participants selected at random and examined over a period of time would have been preferable. His tests did not endure for 40 minutes on any day or extend over 3-4 weeks. He had not obtained a certificate from the manufacturer that the two Slendertone products he tested were operating correctly or have them otherwise tested. He had no previous clinical experience in the use of the Slendertone products. He had not undertaken measurement of muscle size changes. He had stopped his tests on the two Slendertone products after 20 minutes usage because of his preconceived view that they were unlikely to achieve the benefits claimed and even though he had received data which showed that use of them resulted in a slight increase in metabolic rate. Nevertheless he accepted that, as stated by Dr Crowe, EMS was a well established technology in medicine and physiotherapy.

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Dr Bakker 39 Dr Bakker holds a Bachelor of Science, a Master of Science Preliminary and a PhD in physiology from La Trobe University, earned through the School of Zoology. He lectures in physiology in the Department of Physiology at The University of Western Australia. Additionally he has published papers and research conducted on skeletal muscle issues. 40 In his first report he set out the aims of his study as being to qualitatively examine the ability of two Slendertone products, namely, the Gym Body 8 and the Top Tone 12, to trigger muscle contractions and to investigate whether use of the devices in the manner specified in the instructions provided with the devices increased the heart rate in the test subject. The Gym Body 8 was tested on two male subjects. The Top Tone 12 was tested on one female subject. 41 In respect of the two male subjects there was no increase in the heart rate after 40 minutes of muscle activation using the Gym Body 8. The third subject experienced what was described as a very small and insignificant increase in her heart rate after 40 minutes of muscle activation using the Top Tone 12. From these results Dr Bakker concluded that in areas of low subcutaneous fat or in people with a lower percentage of body fat, the Gym Body 8 and the Top Tone 12 can produce muscle contractions reported as being equivalent to 60% of maximal voluntary contraction. 42 If the Gym Body 8 and the Top Tone 12 were causing significant contraction of the abdominal muscles, some flexions of the trunk should be observed. The amount of body fat seemed to be a significant factor that limited the size of the contractions, with high abdominal fat content resulting in reduced contractions. The Slendertone products were unlikely to produce any significant contractile responses in people that are moderately overweight, especially in areas such as the abdomen and the buttocks in women and that it is these areas of the body that are most likely to be targeted by the purchase of these devices. 43 Dr Bakker also prepared a second report responding to the report of Dr Crowe. The essence of that report was that electrical stimulation is effective under conditions where the muscles are activated to produce relatively large forces against a resistance, but because the EMS devices contained no limb or body immobilisation resulting in no substantial form of resistance training they could not have the effects intended. 44 Questioned by his counsel, Dr Bakker said there were a number of good reviews that showed that EMS can reduce the amount of atrophy in a limb that is immobilised. He also said there were some studies showing that in healthy muscles there can also be strengthening benefits with the use of EMS, the amount of stimulation was described as being somewhere between 30% and 70% of maximum voluntary force. He described the benefits of EMS as being no better than voluntary exercise and that the experiments in the studies found some evidence that, in addition to helping atrophied muscle, it also helped healthy muscle. 45 In cross-examination the following matters arose relevant to the credibility of his evidence. He had not obtained a manufacturer's certificate to determine that the tested machines were in proper working order nor had he tested them. He had not tested the strength of the muscle following the use of the Slendertone product, although an increase in the size and strength of the muscles would be sufficient to tone and firm the body.

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Cross-respondent's expert 50 BMR called its medical director Dr Crowe as an expert. He is a doctor of medicine. His evidence relied mainly upon 4 studies carried out and paid for by BMR and conducted by him. His report was not prepared for peer review. 51 In his report Dr Crowe states that to support its advertising claims BMR relied on published scientific literature, consumer trials commissioned by BMR, and trials commissioned by outside bodies, for example media companies and customer feedback. He stated that EMS is a well-established technology in medicine and physiotherapy. He described the process of EMS in the following terms: 'In electrical stimulation small impulses are sent from one electrode pad placed on the skin to another. These impulses alter the electric field surrounding a nerve. This triggers a nerve to fire. If the nerve's function is to contract a muscle, (a motorneuron), the muscle will contract as if the signal had come from a reflex or the brain. The muscle is unable to differentiate between an electrically induced contraction and a normal or 'voluntary' contraction. The products principally work by exercising muscle. (There are differences to voluntary exercise particularly in relation to the pattern of muscle recruitment and the contraction frequency elicited at the individual muscle fiber. The neurological training effects are also somewhat different).' 52 He said that EMS had the following well-documented benefits: (a) increase in muscular strength; (b) reduction of disuse atrophy; (c) increased local blood circulation; (d) increased range of motion; (e) muscle pump, prevention of deep vein thrombosis; and (f) pain relief. 53 Dr Crowe said that on the basis of his study and research he did not believe weight loss was a direct outcome of EMS. However, he said the product is very strongly associated with significant weight loss because users rarely use them in isolation and use them in conjunction with dieting and exercise and that the gains the products bring may be confused with weight loss. For instance, improvements in abdominal flatness, girth or fit of clothing may frequently, but inaccurately, be thought to be due to weight loss. 54 Dr Crowe's evidence was that the products in issue in the proceedings, the Sequence 16, Supreme, Top Tone 12, Gym Body 8 and Celluforme, though dissimilar in appearance and packaging, employed the same EMS technology throughout. The output and range of stimulation were broadly similar with the main differences being in the number of channels of stimulation, some minor program variations and accessories available.

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OTHER WITNESSES 55 An outline of Mr O'Donoghue's evidence is as follows. In 1984 he commenced on his own account to sell electro-therapeutic massage and beauty related equipment in Western Australia. In 1987 he set up his business under the name of Slendertone Electro Therapeutic Health Services. In 1989 or 1990 he was approached by a person who invited him to make contact with BMR, which was looking for an Australian distributor. He understood it to be a company doing medical research and manufacturing and distributing internationally EMS products under the brand name Slendertone as well as other similar products for hospitals and rehabilitation. BMR sent him information about the company and sample products. He inquired about the medical approvals, manufacturing warranty and public liability insurance on the Slendertone products and was sent information on these matters, including research approvals. His evidence was that the information convinced him to sell the Slendertone products. 56 Following negotiations, Mr O'Donoghue was then orally authorised by BMR to sell Slendertone products for it in Australia. For that purpose he incorporated Slendertone. He claims to have been authorised on an exclusive basis. Although he sought written confirmation of his appointment, it was not forthcoming. The website of BMR referred to 'Slendertone Australia' and gave the address of Mr O'Donoghue. It was similarly referred to in BMR's international products instruction booklet. 57 Mr O'Donoghue therefore set up Slendertone and advertised and promoted Slendertone products, incurring expenditures exceeding $1.029m from 1993 to 2002 and expending over $897 510 in purchasing products from BMR. His evidence was that profits which he made were reinvested in advertising and promoting the Slendertone brand name. BMR assured him on numerous occasions that it would continue to supply him with products. 58 In establishing the business Mr O'Donoghue refurbished premises in Fremantle. This was particularly to provide training and in-house treatment. He engaged Suzanne Chalkley as National Sales and Training Manager. She conducted seminars to educate students from various beauty colleges on the benefits of Slendertone products. By the mid-1990s Mr O'Donoghue was presenting Slendertone products at most of the national beauty exhibitions in Sydney, Melbourne, Adelaide and Perth. 59 From 1993 to 28 February 1995 he received invoices from BMR. On the latter date he noticed that the invoice he received now contained Terms and Conditions of Sale. He did not read them nor did he discuss them with BMR. 60 In 1997 he found that BMR had been supplying Slendertone products to another company in Sydney. After discussions with BMR, he received a written contract but for a non-exclusive appointment, which he did not sign. From 1999 he limited his advertising of the Slendertone products and reduced his staff because his confidence in BMR declined. 61 In the course of conducting this business the respondents received about 65 complaints, although most of these related to the mechanical problems rather than the effectiveness of EMS. They also received some letters from satisfied customers. Mesdames Molnarffy, Bannister, Good, Carslake, De Preston, Chapman, Talacko and McConkey gave evidence as satisfied customers. 62 It was in May 2000 that he received correspondence from the applicant in relation to matters now the subject of this proceeding.

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'WORK OUT WITHOUT WORK' 64 The representations made in this category to the effect that the Slendertone products can and will produce an improvement in the users' body and their appearance without any work or effort, are (the relevant paragraph of the claim appears in bold and italics next to each statement): 1. 'workout without the work': [8.1], 19.1, [31.1]; 2. 'the power to tone and firm any part of your body with absolutely no effort': 8.2.1, 43.1.3, 43.4.1; 3. 'the power to tone and firm with absolutely no effort': 43.4.3; 4. 'the powerful, fast, effective way to tone and firm you body with absolutely no effort': 19.5; 5. 'No Pain No Gain? Not any more! With Slendertone you can gain that perfectly toned figure without the strain or pain': [42.1]; 6. 'Sleek in just 3 weeks without strain, you can flatten your stomach with absolutely no effort whatsoever': [42.3]; 7. 'by using the EMS…system from Slendertone, you can sit back and relax while you do the equivalent of approx 300 sit-ups in just 40 minutes': [42.2]; 8. 'Tone and firm any problem area without the hard slog of going to a gym for endless sweat and strain sessions': 42.4; 9. 'sit back and relax while (the product) goes to work in daily 30 minute sessions': 43.2.3. 65 The verb 'work out' means to 'engage in physical exercise and training': The New Shorter Oxford English Dictionary (Clarendon Press, Oxford, 1993) at p 3719. Such a meaning necessarily implies that some physical benefit or improvement is expected from the activity: Danoz. 66 Although accepting that the Slendertone products can produce muscle contractions, the applicant contends that the use of them is inaccurately described as 'workout without the work'. Reliance is placed on the evidence of Dr Bakker and Dr Coombes. 67 Dr Bakker's evidence was that during exercise, fatty acids are released from fat storage sites for use as an energy supply, therefore exercise can lead to utilisation of fat reserves and result in weight loss. Oxygen is required for breakdown of fats and breakdown of carbohydrates during prolonged exercise. Therefore, at the onset of exercise, oxygen requirements of the body become greater and the heart rate increases rapidly to provide blood flow to muscles to provide for increased demand for oxygen and nutrients. However, the Slendertone products do not change heart-rate and therefore do not activate a level of activity which would normally be considered as exercise or its equivalent. He considered there was not really any benefit at all in the use of the products for a healthy person, although he agreed there was a respectable opinion held by scientists supporting the efficacy of EMS machines. He accepted in cross-examination for BMR that EMS may have some effects of voluntary exercise but that in some circumstances it might have benefits that voluntary exercise did not have (as in the case of muscular atrophy), so that comparison was like comparing chalk and cheese. His views were based on a test of three people for 40 minutes on one day. 68 Dr Coombes' evidence was that exercise is defined as structured physical activity. Physical activity is defined as any body movement produced by muscles that results in increased energy expenditure. Exercise is about movement. 69 He testified that involuntary contraction of muscle (e.g. with the EMS machines) uses very little energy because it is working against almost no resistance except that provided by the muscle itself and surrounding tissue. There is almost no change to energy expenditure when muscle is made to contract involuntarily. He said the use of the Slendertone products did not increase energy expenditure and therefore could not be regarded as equivalent to conventional exercise. 70 Additionally, the evidence of Dr Crowe was that statements like the representation presently under examination have never been made by BMR. He also testified that the Slendertone products do not bring about any increase in heart rate; EMS is not a form of aerobic exercise; and there is no direct comparability in all respects with exercise. 71 BMR submits that the evidence of Drs Bakker and Coombes should not generally be accepted because they have not examined EMS from the perspective of what occurs to the nerve stimuli. I do not consider that is a reason to discredit their evidence on this particular issue, especially in the light of the evidence of Dr Crowe. 72 The weight of the above evidence supports the applicant's submission that the assertions in the above representations concerning generally 'work out without work' do not accurately describe the effect of EMS and so are false in that respect. It is to be noted that the pleading, for instance in [9] of the second further re-amended statement of claim, is that the express statements 'were false' rather than 'misleading or deceptive or likely to mislead or deceive' (s 52) or 'false and misleading' (s 53(c)).

[26]

'NO PAIN' 73 Marian Wright was employed by Slendertone for 18 months from 1995 to 1997. She was trained as a beauty therapist. She deposed that the Slendertone products could be painful when used if turned up too high. That was in circumstances where 'great chunks of electric current' were put through or the machine had been used for longer than recommended. The sensation could be avoided by turning down the dial. She considered it was an individual thing whether persons liked very strong current or something more comfortable. It could be operated pain-free and still produce its result in relation to the muscle. If the product was used according to the recommendations made in relation to it, it would not produce muscle stiffness or soreness. 74 The applicant's witness Karen Wright, a user of a Gym Body 8 machine, felt a burning sensation when using the machine but only if she moved around rather than lay still; the sensation was one of discomfort rather than pain. 75 Dr Bakker stated in his report that increasing the stimulation intensity of the EMS products produced a painful sensation at higher levels, the level of pain increasing more quickly than the intensity of the contraction. In some instances the pain could be reduced by changing the position of the electrodes although that would not eliminate the pain. 76 Dr Coombes reported that a novice may experience an amount of pain but that the settings could be changed to meet the requirements of the user. In his test he had experienced one minute of pain out of twenty minutes of use and this occurred when he was testing the parameters of the machine by putting it up too high. When the frequency of the stimulus was reduced, it occurred without pain. He stated that the level of pain might vary from person to person. 77 Dr Crowe in his exhibited report drew attention to the statement in the Top Tone 12 manual that the user should ensure the intensity of the stimulus is comfortable and does not exceed tolerance levels. He deposed that intensity was able to be increased with experience of usage. 78 The respondents' expert Ms Cadariu testified that some people could experience pain when using EMS but the equipment was not devised to cause pain, that settings could be reduced and then increased to avoid discomfort and that it was used differently to treat sporting injuries rather than providing muscle stimulation. 79 The only pleaded future representation in this group is 42.1. I consider the evidence of Ms Cadariu establishes for Slendertone that it had reasonable grounds for making the representation. 80 In the application of s 52 of the Act, I am not satisfied that the evidence establishes the falsity of the claim in representations that the Slendertone products will operate without pain. The evidence is highly qualified as to the instances when pain may be experienced and addresses usage not in accord either with instructions, in the case of the Top Tone 12, or normal care to be expected from ordinary and reasonable members of prospective purchasers.

[27]

EQUIVALENCE TO NORMAL EXERCISE 81 The representations made in this category are as follows: As to general exercise: 1. '40 minutes per day is equivalent to 300 general exercises': 8.2.3, 43.1.1; 2. 'Tone and firm any problem area without the hard slog of going to a gym for endless sweat and strain sessions': 42.4; 3. 'sit back and relax while (the product) goes to work in daily 30 minute sessions': 43.2.3; 4. 'the ultimate workout for even the most figure conscious': 43.3.3. As to abdominal exercise: 5. 'by using an EMS (electronic muscles stimulation) system from Slendertone, you can sit back and relax while you do the equivalent of approx 300 sit-ups in just 40 minutes': [42.2]; 6. 'in just 3 weeks you'll have a six pack all worked out': [19.2]; 7. 'in just three weeks this revolutionary exerciser can give you washboard abs you'll be proud to bare': [19.3]; 8. 'in only 40 minutes contracts and relaxes your muscles 240 times - just like sit-ups': 19.4; 9. 'gives you the benefits of 180 sit-ups in just 30 minutes': 31.2. 82 In relation to general exercise, the evidence has been referred to above in connection with the representation 'no work'. Evidence of Dr Bakker and Dr Crowe was against the equivalence. Dr Coombes' evidence supported the view that if muscles are working in an exercise cycle, it would be expected they would burn calories. However, all experts were of the view that use of the Slendertone products would not burn large amounts of calories. 83 On the issue of abdominal exercise, Dr Bakker's evidence was that exercise such as sit ups require energy and result in an increase in heart rate because the energy is dissipated around all the muscles that are used. The exercise of only one muscle by EMS would not lead to an expectation of the same level of heart rate. Likewise Dr Crowe stated in his report that it is not possible to make a direct comparison that a session of EMS is equivalent to a specific number of sit-ups because the sit-up involves a greater cardiovascular effort, and also involves other muscles like hip flexors. His evidence in cross-examination was that it is not possible to make a comparison between EMS exercise and sit-ups just as a direct comparison between sit-ups and weight training abdominal exercise is not possible. 84 Reference has already been made to Dr Crowe's evidence that BMR no longer makes statements of equivalence because of the confusion they can cause in the mind of the consumer. In his report he stated that the consensus from review of articles and books on electrode therapy and on exercise physiology was that electrical stimulation can give results broadly equivalent to voluntary exercise. Equally some muscles which can easily be activated with EMS are difficult to voluntarily activate. The applicant relies upon this particularly to support its submission that representations made concerning equivalence of the use of the Slendertone products to both general and abdominal exercise are false and misleading. 85 BMR accepts that the assertions of exercise equivalence in the claim that '40 minutes a day is equivalent to approximately 300 general exercises' and in the claim of providing strong abdominal muscles cannot be maintained. However, the evidence relating to the equivalence issue is wider than just those two representations. 86 In my view the evidence of Dr Crowe and the concession by BMR as well as the other evidence establishes that the representations of equivalence generally were false.

[29]

How muscle size and strength is achieved in a healthy person 89 The applicant submits that on the basis of conventional scientific thinking and accepted definitions, muscle contraction alone, whether by the use of EMS or the voluntary contraction of muscle by a person, is not sufficient to cause an increase in size and strength of a healthy muscle. It is said in support that to produce muscle hypertrophy requires chronic resistance training, where the muscles act against some force; that is, some isometric exercise or resistance. The applicant's submissions rely upon the evidence of Dr Bakker and Dr Coombes whose evidence, it is submitted, was not challenged on this point. 90 Dr Bakker testified that the standard position taken in every textbook and article is that hypertrophy occurs through resistance training, whether isometric or lifting a load. In cross-examination, he said that a muscle cannot become stronger without becoming bigger. Resistance causes internal changes to the chemistry of the muscle that increase protein synthesis creating new muscle proteins that swell the size of the muscle fibre. He considered there was not any difference between the pathway stimulated by the brain or that stimulated by EMS so that they both create the same neural pathway to activate the muscle. The proportion of the fibres activated by EMS would undergo the same changes as voluntary exercise at the same intensity and under the same conditions. In re-examination he stated that all the tests of EMS working to strengthen muscles were done under isometric conditions, that is, with the limb or muscle in question under resistance training conditions. He did not doubt the possibility that EMS would cause strength training if used under those conditions. 91 Dr Coombes' evidence was that the major principle for increasing muscle size is the principle of overload, of continually stressing the muscle by resistance. Continual overload produced continual adaptation which increased the synthesis of more proteins which in turn led to muscle hypertrophy. On the basis of his testing, Dr Coombes' opinion was that as the ability to tone, trim and firm required a change in body composition such that there is less fat over muscle, and that there was little or no evidence that the devices would significantly affect metabolic rate such that it will result in a loss of body fat. Dr Coombes said that whilst an EMS device will increase the size of a muscle that has wasted away there is no evidence that muscle size can be increased in active muscle. In cross-examination Dr Coombes stated that he no longer held to his view in his report that there was no evidence that muscle size can be increased in active muscle with EMS. He agreed that some studies have demonstrated that EMS does give rise to strength improvements in normal muscle levels which are comparable to voluntary strength exercises.

[30]

Will the Slendertone products increase muscle strength in healthy muscle in an ordinary consumer? 92 Dr Bakker's evidence for the applicant was that the fact of a muscle contraction does not mean that it is strengthening in the absence of any resistance. He testified that the consensus in the scientific articles and literature is that there is some effect from the use of EMS on healthy muscles under certain specific conditions. Those conditions are that the limb to which EMS is applied is immobilised or attached to some form of weight system so that the muscle is working against resistance or under isometric conditions. The studies had all been done on the quadriceps at the top of the upper leg. EMS was found to have a minimising effect in cases of muscular atrophy where the persons concerned were unable to exercise. He said that in the case of a healthy person EMS did not really bring any benefit better than those obtainable by voluntary exercise. 93 His report says that in order to tone and firm particular parts of the body it was necessary to reduce subcutaneous body fat and increase the size of the muscles in the particular area and it was highly unlikely that the Gym Body 8 and Top Tone 12 would achieve those aims in the absence of any resistance, the absence of any elevation in heart rate and with decreased effectiveness of the units in regions of higher subcutaneous body fat. 94 Dr Coombes' evidence, as previously stated, is that to increase muscle size it is necessary to continually stress the muscle by overload through resistance. He said there was minimal evidence in a couple of studies published in lower level journals that slight increases in muscle size result from EMS. However, it was necessary to understand these firstly in the context of stimulation parameters and electrode size. Also, in most of those studies the muscle is being contracted against an isometric device so that it is working against a resistance. 95 Therefore both Dr Bakker and Dr Coombes were of the opinion that the Slendertone products could not cause any change to muscle size or strength because they did not cause muscles to contract isometrically or against any resistance. 96 Both Dr Bakker and Dr Coombes were challenged in cross-examination on the basis of general articles and studies, which supported the assertion that the use of EMS alone can strengthen muscle. A number of these sources also arose in the evidence of Dr Crowe. These included a study by Currier and Mann as well as a text by Wilmore and Costill. Dr Bakker stated that the authors of the text were referring to EMS under conditions where there are high levels of stimulation under conditions of resistance (e.g. leg or hip strapped at a certain joint articulation). He regarded this as supported by the description of the chapter in which the passage relied upon appears as dealing with 'Neuromuscular Adaptations to Resistance Training'. 97 Dr Crowe' s evidence for BMR was that authors of books on EMS and exercise physiology as well as the writers of review articles in respected journals and regulatory bodies are in consensus that there are strengthening and physiological effects of EMS and that these are comparable to voluntary exercise. He cited an article by Lake titled 'Neuromuscular Extra Stimulation and Voluntary Exercise' (1992) 13(5) Sports Medicine Journal 320 based on examination of 142 pieces of research. This article considers investigations which have looked at EMS 'under isometric conditions' compared to voluntary isometric exercise and non-exercise groups. It states 'there is a consensus that the force increases induced by [EMS] are similar to, but not greater than those induced by voluntary training'. It stated that 'it appears that when [EMS] and voluntary exercise are combined there is no significant difference in muscle strength after training when compared to either [EMS] or voluntary exercise alone' (at 320). 98 Dr Crowe also cited AL Baker, Neuromuscular Electrical Stimulation: A Practical Guide (4th ed) at 48 where it is stated: 'It can now be said unequivocally that [EMS] can, by itself, strengthen normal healthy muscle, and can even enhance the force generating capability of the athlete exhibiting some degree of hypertrophy.' (emphasis added) He relied on this to support the view that EMS can by itself strengthen normal healthy muscle. Against this the applicant points to the statement in the same text at 49 that 'the significance of [EMS] programs for the healthy individual who has not sustained injury needs to be carefully evaluated', asking whether it adds anything not attainable by other means. Further at 49-50 the same article states that: 'Addition of a stimulation program does not appear to alter the strengthening profile quantitatively beyond that which can be achieved through standard voluntary exercise in a well defined pattern in healthy individuals. If an individual can exercise, there is only a hint of evidence that the addition of [EMS] to a voluntary exercise program will provide an altered outcome.' (emphasis in original) 99 Reference was made by Dr Crowe to the graph in the Baker text at 50 referring to the effects of EMS compared to voluntary muscle strengthening. The graph is based on data compiled from four studies of normal individuals subject to strength training programs of voluntary or EMS induced exercise. The applicant contends that examination of the studies clearly shows that EMS was applied under isometric conditions involving strapping or restraint of limbs. The studies were those by Currier and Mann; Lai, De Domenico and Strauss; Selkowitz; and Szeto, Strauss and De Domenico (cited at footnotes 50, 115, 189 and 205 of the Baker text). Examination of these supports the applicant's contention. 100 In his evidence Dr Crowe expressed the opinion that the Slendertone products were in fact used isometrically. He testified that contracting the muscle using the body's own force is an isometric exercise so that EMS is a form of isometric exercise. 101 In cross-examination a definition of 'isometric' was put to Dr Crowe from The Australian Concise Oxford Dictionary, (2nd ed, Oxford University Press, Melbourne, 1992) at 599 where the word is relevantly defined to mean 'developing tension while the muscle is prevented from contracting'. He disagreed with this definition on the basis that he considered it envisages gross joint movement and this was not a necessary part. He preferred the definition of 'isometrics' at the same page (similar to that in The New Shorter Oxford English Dictionary at 1425) defining isometrics as 'a system of physical exercises in which muscles are caused to act against each other or against a fixed object'. He considered that the use of the body's co-contraction supplied the counteracting force so that the contraction of the muscle by EMS was a form of isometric exercise. 102 The applicant submits this is clearly inconsistent with other evidence of Dr Crowe. Elsewhere Dr Crowe had agreed that Slendertone products do not use strapping or restraints. . Additionally the applicant submits that the view is inconsistent with the studies of EMS which describe the use of EMS as a distinct form of exercise. Further, the applicant submits that it is contrary to the evidence of Dr Bakker, which should be preferred. In my view, the weight of evidence is that use of EMS is not considered to be an isometric exercise and I accept that evidence in preference to that of Dr Crowe on this issue. 103 A further issue which arose in the evidence of Dr Crowe is whether the Slendertone products were to be regarded as superior to machines which had been the subject of some of the studies of EMS. Dr Crowe was referred to a study by Porcari and others ('Effects of Electrical Muscle Stimulation on Body Composition, Muscle Strength, and Physical Appearance' (2002) 16(2) Journal of Strength and Conditioning Research 165-172). The authors there found no statistical difference in body composition, waist girth, muscle strength and physical appearance of subjects after the use of a consumer EMS product 3 times a week for 8 weeks. He was also referred to the passage from Lake, 'Neuromuscular Electrical Stimulation' (1992) 13(5) Sports Medicine 320-327 that 'multiple muscle group [EMS] as used in muscle toning clinics has proven totally ineffective in muscle strengthening' citing (Lake 1988, Lake and Gillespie 1988). He dismissed this evidence on the basis that the products there being tested were not products regulated like Slendertone products. He testified that it could be argued that Slendertone products were not consumer products but rather medical products because there are produced in a medically accredited factory audited by the US Food and Drug Administration and controlled by the Medical Device directive. 104 In forming his view of the Slendertone products Dr Crowe relied heavily on trials which BMR had conducted on its products in 1999, 2000, 2001 and 2002. The 1999 study tested the Slendertone Gymbody 8. It claimed the product improved body image, perceived flatness, firmness and strength with reduction in abdominal girth, strength maintenance and improvements in posture. The 2000 study, undertaken by application of Slendertone Flex, resulted in a report similar to the 1999 study but noted that improvements were greater than those previously observed. The 2001 study (applying the Slendertone Bottom and Thigh Toning System) sought to measure the effect of EMS on the muscles of the bottom and thighs over an 8 week period. It reported perceived improvements in firmness, tone and shape as well as improvements in body satisfaction and general well-being. The 2002 study (which applied a similar system to 2001) reported statistically significant improvements in strength of the quadriceps and hamstring muscles and significant improvements in perceived firmness and shape of the bottom and thigh area. It is to be noted that the reports, apart from the first, do not identify as being used in the tests any of the Slendertone products relevant in this proceeding as the source of the EMS. 105 The applicant submits that these 4 studies suffered from defects in research methodology and design so that little weight should be given to them. Issues thus raised are that the trials were done for BMR and that Dr Crowe, one of the persons responsible, was paid by it; they had not been peer reviewed; and the absence of such review was not adequately explained by avoidance of exposure to competition. Additionally, few overweight subjects were included; recruitment by newspaper advertisement had not been random; and other inappropriate qualifications excluded persons with certain characteristics. There was also a reward for participants, who knew whether or not they were in the treatment group and saw a video on treatment prior to separation into treatment and control groups. Also, there was a large variance in skin fold data due to a defective measuring device; the changes in dynamometer strength testing results of the treatment group were statistically and practically insignificant; data were missing; and the use of girth as a measurement of muscle size was extremely problematic. Likewise it is said that little weight should be given to the submission of one of the studies to the US Food and Drug Administration because it dealt with a different machine to the ones at issue in this action and the approval of the Food and Drug Administration had been granted after the publications the subject of these proceedings. 106 When Dr Crowe stated in his report that 'many studies have shown that EMS improves strength', he relied upon the following studies. The first group were the BMR studies considered immediately above. The second was a Trinity College Dublin study in abstract form only. It examined the '[e]ffects of neuromuscular stimulation and 'Ab worker' and supervised exercise on static, strength and dynamic endurance of the abdominal musculature'. It concluded that neuromuscular stimulation and supervised training were of equal benefit in terms of static isometric strength and dynamic endurance. The third group was the Baker text and the Lake article and other similar articles. As has been seen, the applicant submits this latter group has been shown to have involved examination of EMS applied under resistance or isometric conditions. 107 Dr Crowe also referred in his report to studies where EMS is not applied under resistance or isometric conditions. However, some of these were not available in the public domain and had not been peer reviewed. In the case of the Becker study (cited at footnote 4 of Dr Crowe's report) and the Le Faou and Pennamen report, weight loss had been experienced by participants. In the case of the former there had not been any control group. 108 The applicant submits that, based on the above evidence, the Court should not accept any argument from either the respondents or BMR that it has been shown that the Slendertone products as used by the consumer are in fact capable of strengthening muscles. 109 The evidence supports the view that the Slendertone products may increase muscle strength in cases of muscular atrophy. The effect of EMS on muscular strength generally is more difficult to decide on the evidence. The difficulty comes partly from the inability to assess the relative credibility of the evidence of Drs Bakker and Coombes, based on studies of a limited nature as earlier explained, against the studies referred to and relied upon by Dr Crowe when the authors of those studies are not themselves called. The respondents seek to have the Court find that Drs Bakker and Coombes did not conduct tests using scientific methods and approached their tests with pre-conceived views; that Mr Wright did not conduct tests at all; and that Dr Crowe was the only expert to exhibit a proper scientific approach. 110 In these circumstances I find myself in the same position as Dowsett J in Danoz at [74]-[77]. I do not believe that this conflict of opinion concerning EMS can be resolved by my preferring one view to another when I am not persuaded by the evidence that one is clearly correct. Reference also to the BMR information considered below makes apparent the serious division in expert opinion on the issue here under consideration. It can only be resolved by extensive research and experience over time. While an enormous amount of time in this proceeding was spent in hearing evidence, it could also only be resolved by considerably more evidence and experimentation under conditions satisfying all requirements of scientific method. I therefore reach the position where I do not consider the evidence establishes conclusively whether or not EMS as delivered by Slendertone or otherwise increases and strengthens healthy muscle. At least on one view, it is possible to strengthen healthy muscles by the use of EMS.

[31]

What is body tone and the effect of body fat on body tone 111 Even if the Court accepted that the use of an EMS product by a consumer at home could feasibly strengthen that person's muscles, the question still arises whether this leads to improvement in body 'tone'. That raises the question what is meant by the references to body tone in the communications. 112 Mr Wright in his report and his evidence stated that 60% of the adult population in Australia are overweight or obese, that is, have a body mass index ('BMI') of 25 or more. He said, roughly that would mean 10 kgs overweight. He calculated this by reference to height in metres squared divided into body weight. 113 In his report and in cross-examination Dr Crowe accepted the report of Mr Wright as a concise synopsis of the nature of fat in modern society. However, Dr Crowe regarded it as largely irrelevant as he considered Slendertone products do not work by burning fat. 114 In cross-examination of Mr Wright for the respondents and in submissions concerning his evidence, it is suggested that his evidence should not be accepted because he has not done any study of EMS. However, his evidence is based on his knowledge on how fat is actually lost or reduced. As will be seen, all experts agreed that EMS does not by itself burn large amounts of calories and therefore does not contribute to significant weight loss. I therefore agree with the applicant's submission that there is no reason not to accept the evidence of Mr Wright in those areas which he addressed. 115 The applicant submits that having regard to the nature of the Slendertone publications the subject of this proceeding and the magazines in which the advertisements were placed, references to the ability to firm, tone, flatten or tighten must be understood to refer to the consumer's appearance. Reinforcement for this is said to be found in the use of the photographs accompanying the representations and the publications, some of which indicate that muscle strengthening is not the only factor addressed by the products. 116 Reliance is also placed on the evidence of Marian Wright, Slendertone's former employee, who understood 'toning' to refer to appearance. She considered the Gymbody 8 worked in relation to toning in accordance with the claims made in the literature. 117 Additionally, reliance is placed on Karen Cook's evidence that, being a few kilograms overweight, she wanted to change her physical appearance and purchased a Gymbody 8 to tone her body. 118 The evidence of the experts was that the meaning of muscle or body tone means visible musculature. Dr Bakker said that the scientific meaning referred to a constant amount of muscular contraction between maximum and zero but he did not regard it as of use in muscle physiology. He distinguished the popular meaning where it referred to the look or appearance of the muscles, their flatness and absence of fat. In his report and evidence he said that in order to tone and firm it was necessary to reduce subcutaneous body fat and increase the size of muscles. 119 Dr Coombes, in whose experience there had been over 200 requests over a 10 year period from people wishing to 'tone themselves up', defined muscle tone as the ability to visualise the underlying muscle, so that its definition could be seen through the fat. In his report he stated that the ability to tone, trim and firm was a reference to the ability of a machine to change body composition such that there is less fat over the muscle. 120 Likewise Dr Rosenbaum testified that reference to someone being 'toned' meant visible muscles or visible musculature. Visibility would not be apparent if they were covered with too much fatty tissue. 121 In his evidence Mr Wright also stated that fat loss would have to occur before strong abdominal muscles would appear. 122 All experts therefore agreed that EMS does not by itself burn large amounts of calories and therefore does not contribute to significant weight loss. The experts also agreed that the use of EMS generally and of the Slendertone products in particular will not reduce the user's body fat. In his evidence Dr Crowe said that no actual claim of weight loss was made by BMR and that the scientific evidence supported the view that the products strengthened and toned the muscles. 123 Dr Crowe's position was that body fat has no effect on muscle tone and that 'tone' is not understood to mean the visibility of muscle. 124 Except for Dr Crowe, the experts expressed the view that the greater the quantity of body fat, the less effective EMS will be. This is because the greater the amount of body fat the more difficult it is for EMS to send any impulse to reach the muscle. Dr Bakker referred to the fat occasioning the need for the user of the product to increase the intensity of it to adequately get through the layer of fat. Dr Coombes stated that the point could be reached where there is so much fat that the EMS impulse will not get the muscle to contract. Marian Wright testified that the inhibiting effect of the fat depended on the type of fat and whether there were fluids around the fat. 125 Although Dr Crowe held a different position, the text relied upon by him (Baker), states at 48 that '[F]at markedly increases the electrical impedance to the underlying muscular tissue and physically separates the surface electrode from the targeted nerve'. 126 Additionally the applicant relies on the fact that BMR in its studies excluded women with a dress size greater than 18 or people who were obese. 127 The applicant also submits that Dr Crowe's evidence is contrary to his other evidence in relation to claims of 'washboard abs' or 'six pack'. That evidence was that the products could not give anyone washboard abs because they needed low body fat to begin with otherwise the layer of fat would mask changes to the muscle. 128 Ms Cadariu took the view that toning is not necessarily related to the amount of fat on the body. She perceived toning as an aspect of the skin rather than of muscular derivation. The applicant contends this evidence is contrary to her other evidence to the effect that EMS does not tone up in isolation but is associated with exercise, diet, age and mobility; that is, a combination of treatments or modalities. 129 The applicant submits that based on a consideration of all this evidence the claims of the ability to tone and firm made in the communications would be read by the ordinary reader to mean low body fat and visible musculature. It is said this is reinforced by the photographs used. I agree that the photographic context has a particular importance here. 130 I also agree with the applicant's summation of the effect of the evidence. There is a commonality of view between Mr Wright, Drs Bakker, Coombes and Rosenbaum, contrary to the views of Dr Crowe. I therefore consider an ordinary reader would understand the references to toning and firming to be references to low body fat and visible musculature.

[33]

ABILITY TO REDUCE, ELIMINATE OR 'CONQUER' CELLULITE 132 The representations made in this category are made in the Women's Health advertisement, the pamphlet and the website. They do not appear in the Ultrafit advertisement. The representations are: 1. 'help conquer cellulite': [8.3]; 2. 'conquer cellulite': [31.7]; 3. 'stubborn cellulite is smoothed away': [31.5]; 4. 'banish 'orange peel skin' for good': [43.4.2]; 5. 'no more cellulite': [43.2.1]; 6. 'break down cellulite': [43.2.2]; 7. 'for treatment of the 'orange peel' cellulite on the hips, thighs and buttocks by reversing the build up of toxins in the tissue': 43.3.2; 8. 'the most effective cellulite dispersal': 43.5.2. 133 Mr Wright and Dr Rosenbaum gave evidence on the subject of cellulite. The following propositions are said by the applicant to emerge from their evidence and are supported by that evidence: A. The nature of cellulite and its exact cause is uncertain but it relates to fat and the connective tissue in the fat. B. There are nine different potential causes of cellulite and probably up to 20 or so subtypes. Probably the form most commonly seen in Dr Rosenbaum's cosmetic surgery practice is due to an accumulation of fat and associated lymphatic fluid which forms pockets under the skin and gives rise to the dimpled effect known as cellulite. C. Where there are increased fat levels, there is an increase in the possibility of cellulite. D. Cellulite is more common in women. E. Cellulite is exacerbated by weight gain. F. There is a correlation between cellulite and the body mass index of a person. G. Use of EMS generally and of the Slendertone products will not, of itself, reduce the user's body fat. H. EMS may have an effect on cellulite associated with fluid retention. I. At best, EMS might have a short term effect only. J. To get sustained improvements in cellulite would require a combination of treatments including diet and conventional exercise. 134 Mr Wright's evidence was to the following effect. Mr Wright stated in his report that the literature indicated that fat loss occurs from a series of highly sophisticated biochemical changes. The role of nature, physiology, biochemistry and the interaction of diet and exercise all impact on fat and weight loss. He concluded that the issue is complex and there are a great number of people in the whole area of weight management and fat loss. There is clearly no one answer or one solution to the complex problem. He said that EMS devices were beyond his comprehension. He said that 'how an external device can be strapped to the desired part of your body to cause fat loss or reduction in fat (of any kind) is beyond me and the literature that I read'. In cross-examination he agreed strongly there was a level of uncertainty about cellulite, whether it exists and the nature of it. On the other hand, he also answered a number of questions in a way which made apparent that he did not have an understanding of the cell structure relevant to cellulite. 135 Dr Rosenbaum also testified that it is a mistake to think cellulite is purely from fat alone. In patients he had treated for cellulite there had been a fluid accumulation. Excess fat was almost always associated with some degree of lymphatic stasis or fluid retention and it was that which responded to the EMS treatment. He agreed that an entire approach was needed to the treatment of cellulite involving fat reduction, diet and exercise. While EMS would have a short-term effect, it would be necessary to use all of those things to obtain a long-lasting result. 136 Ms Cadariu considered cellulite was caused by a combination of factors requiring a combination of treatments. It was not exacerbated by weight gain but rather by fluid retention. EMS was one of the appropriate treatments and definitely improved the condition. She considered there is a significant correlation between a person's body mass index and cellulite. 137 Dr Coombes' report said that scientifically cellulite is an extremely controversial topic and experts agree that much research must be undertaken before any treatments can be validated as clinically effective. He said it can be safely stated that there is no topical medication or manipulative process to which advanced cellulite visibly responds in a treatment period of less than 2 months and that an extensive search of the medical literature failed to find any study investigating the effects of EMS devices on cellulite. 138 Dr Coombes' report said it was unknown how to get rid of cellulite, but there was a range of ideas how to do that and one of those ideas was the use of EMS equipment and that he had never carried out any attempts using this type of machine or any machine on the removal of cellulite. 139 Dr Bakker was of the opinion that the Slendertone products examined by him would have no effect on the presence of cellulite. This was because cellulite was due to fat accumulation and the use of the Slendertone products was unlikely to decrease fat levels in the user. However, he stated that he did not hold himself out as an expert on cellulite. 140 In his report Dr Crowe conceded that cellulite could not be permanently removed by EMS and claims of 'no more cellulite' could not be sustained. However, he claimed that an improvement in the level of cellulite could be achieved by the use of EMS but not a complete removal. He testified that three studies had addressed the issue of cellulite with BMR machines. The first was by Dr La Faou and Dr Pannamen; the second was by Dr V Salagnoc, a dermatologist, and the third by a French regulatory body, the Agence Francaise de Securite des Produits de Sante. He would be happier with the use of the phrase the EMS 'helps conquer cellulite'. 141 The applicant submits that this Dr Crowe's latter view is contrary to his own evidence, the evidence of the other experts and other matters arising from his report. It is contended that reliance by Dr Crowe on the report by Le Faou and Pennamen is misplaced because the majority of subjects in that study had weight loss. He reliance also on a BMR study undertaken in 2002 was also misplaced because that study post-dated the relevant representations, was not produced to the Court, and any observed improvement was measured by psychometric techniques, so that no weight should be attached to it. Further, Dr Bakker's evidence was that the studies referred to by Dr Crowe in relation to cellulite were not published in peer review journals. Dr Bakker accepted that a person may increase muscle strength without removing body fat, although he had not tested the muscle in the applications undertaken in his study. 142 The applicant's submission is that the evidence supports a finding that the use of the Slendertone products cannot eliminate or conquer cellulite. Further, it is said the Court should find that to the extent that the use of the Slendertone products may have an effect, it will not assist in reducing cellulite or improving the appearance of cellulite in all people (that is, in those whose cellulite is not associated with fluid retention) or unless the user of the product also diets and exercises. Having reached these findings it is said the Court should therefore find the representations that the Slendertone products can do something for cellulite without the qualifications just referred to, are false and/or misleading. 143 I consider the weight of the evidence supports the applicant's submissions in respect of all but the representations referred to in 1 and 6 above at the commencement of consideration of this sub-topic. Exception 1 and 6 are not absolute statements and admit of EMS having such effect as the evidence shows it may. The remainder are absolute statements which are false because they are not qualified to take account of the factors referred to in the evidence.

[34]

GIRTH REDUCTION - INCH LOSS, REDUCTION IN WAIST AND BODY MEASUREMENTS AND CHANGES IN BODY SHAPE 144 The representations made in this category are as follows: 1. that the use of the product can or will achieve 'fat reduction': 43.5.3; 2. 'reduce waist measurements': 8.2.2.3, [10.1.4], [12.1.4]; 3. 'remarkable inch loss can be measured in as little as 3 weeks': [31.6]; 4. 'shape and lift your body': 8.2.2.2, [10.1.3], [12.1.3]. 145 Mr Wright's evidence was that the only way waist measurement can be reduced is by fat reduction. In referring to this, Dr Crowe stated in his report that 'EMS does not involve significant calorie consumption and therefore could not be expected to burn significant body fat'. He stated that claims about a large inch loss lack a scientific basis. For that reason BMR had not made claims about girth reduction for a long time. Instead it concentrated on the core benefits of toning, flattening, firming and strengthening. He said in his report that posture, abdominal muscle tone, bowel contents and fluid retention were determinatives of abdominal circumference. Ms Cadariu agreed with all these and Dr Coombes agreed with all save posture. Ms Cadariu's view was that to sustain improvements in shape it was necessary to combine diet, exercise and the use of the EMS equipment. Dr Rosenbaum was prepared to accept that there can be some reduction of waist measurements occasioned by fluid shifts, assuming there was in the person a fluid retention problem. However, he was sceptical of relying on the products to shrink a thigh or an abdomen through muscle tightening alone. Dr Crowe in his report likewise stated that a reported measured reduction was most likely due to skin or fluid balance changes or confounding factors. It was Marian Wright's evidence that reduction in body measurements occurred after diet and exercise. 146 In his report Dr Crowe stated that he had advised BMR not to make such claims in recent years as large reductions cannot be solely attributable to EMS. It no longer made reduction of girth claims due to the difficulty of measuring the reduction free from assumptions about fat or weight loss, and to avoid confusion to the consumer of the mode of action of the product. 147 In his evidence Dr Crowe referred to the 2000 study which he had done for the US Food and Drug Administration in relation to the Slendertone Flex. The machine had received FDA approval for the improvement of abdominal muscles, tone, and development of a firmer abdomen. The study showed no change in girth measurements of the subject. Dr Crowe was not able to differentiate from his tests or observations any difference between the Gymbody 8 and the Slendertone Flex. However, as the machine is not one involved in this proceeding, I do not seek to draw any inferences from that evidence. 148 The applicant submits that the relevant representations under this head are not qualified to the effect that inch loss or girth reduction can occur through fluid reduction and that to achieve such a reduction, diet and exercise are required. Therefore the applicant submits that the ordinary and reasonable person and prospective purchaser of the Slendertone products would understand claims of 'inch loss' and body measurement reductions to equate to a fat or weight loss. It is said this should be seen as confirmed by the evidence of Dr Crowe that BMR no longer makes specific girth claims because of confusion to the consumer. 149 The evidence supports a finding in terms of the applicant's submission, which I make.

[39]

NEED FOR DIET AND EXERCISE 160 The applicant maintains that by reason of the express statements contained in each of the communications considered in the context of the photographs used, there was an implied representation that without the benefit of a healthy diet and regular exercise the user of the Slendertone products could achieve the promised results: see the claim at pars [12], [24], [35] and [47]. 161 In support the applicant relies on the foregoing evidence as establishing that the result expressly promised by the Slendertone products cannot be achieved without the benefit of such diet and exercise. In particular the need to diet and exercise was confirmed by the respondents' experts Ms Cadariu and Dr Rosenbaum. As considered later, it was known to Mr O'Donoghue that weight loss could not be achieved by use of the Slendertone products without a healthy diet and exercise. 162 Dr Crowe's evidence was that the use of the EMS through the Slendertone products acts as a motivator. He said that when people start using that type of product they generally have some other intention in mind. He saw the usage as very strongly associated with other weight loss methods so that the products are rarely used in isolation and are usually utilised in conjunction with dieting and exercise. 163 The respondents make the submission that the type of exercise and diet which might be implied was left unexplored by the applicant. Consequently, the nature of the implication is left substantially at large. 164 In my view it has not been established that the pleaded implied representations concerning diet and exercise were in fact implied. It is one thing to establish, as the applicant has in the case of some of the express representations, that the representations were false and misleading because the effect stated could not be achieved without, inter alia, appropriate exercise and diet. It is another to establish that the implication was in fact made in the comprehensive manner pleaded in the paragraphs identified in this section of the reasons. I do not consider the applicant has made out the case for this implication.

[40]

SCIENTIFIC EVIDENCE ON PRODUCT EXPECTATIONS 165 The applicant next submits that there was an implied representation that there is a significant, valid and reliable body of scientific evidence demonstrating that the Slendertone products are able to produce the promised results: see the claim 14.1, 14.2, 26 (referrable to [24]), 37 (referrable to [35]) and 49 (referrable to [47]). 166 In support the applicant submits that it has been accepted by all witnesses that EMS has legitimate and documented uses where a muscle is injured or atrophic. However, based on the evidence previously set out, it is submitted that what is not established by a significant or reliable body of evidence is the effect of EMS on healthy muscle when it is used without resistance or without isometric conditions. The few studies referred to by Dr Coombes as having been published in 'low level journals' do not have this effect, it is said. Furthermore, it is argued that the BMR studies cannot be relied on because they have not been published or presented for peer review. (The credibility of these studies has been considered above). The reality is, says the applicant, there is no large body of scientific evidence or considerable body of scientific studies or literature about the effectiveness of EMS machines when used by the consumer in their own home, reliance for this submission being placed on evidence of Dr Coombes. 167 The applicant accordingly submits that, to the extent it is found that there was an implied representation in each of the communications that there is a significant, valued and reliable body of evidence demonstrating that Slendertone products are able to produce the promised results, such a representation is false and/or misleading. 168 I have already made findings (see the reference to the issue of 'will the Slendertone products increase muscle strength in healthy muscle in an ordinary consumer?' under the representations relating to 'toning, firming and flattening') which support a finding in terms of these submissions of the applicant. 169 However, I am unable to see how the claims on this topic exhibit reliance on an implied term to the effect contended or how any of the representations there invoked do so. The claims are open to being supported in terms of actual performance. I do not consider that as a matter of fact there are any implied representations in the manner contended by the applicant in relation to scientific evidence. It is one thing for Dr Crowe to rely on allegedly scientific evidence and to refer to it but a quite different thing for the reliance on such evidence to be implied in the representations made. In my view this latter aspect has not been established.

[42]

ONUS OF PROOF ON FUTURE MATTERS 173 The respondents submit that the application of the onus in respect of future matters is not as clear as the usual rule dictates. This is said to be because the applicant has pleaded in the negative. For example, in par 55 of the claim the applicant has pleaded that the representations made by Slendertone which were promissory or related to a future matter or event were, by virtue of s 51A of the Act, misleading in that it 'never had reasonable grounds for making all or any of the said representations in contravention of s 52 of the Act being conduct of the kind referred to in s 80(1)(a)(i) of the Act'. The respondents also contend that the issue of onus also arises from the way the applicant's case was run. It is said that in the normal course of the applicant's case witnesses were called to prove the negative on substantive grounds by calling witnesses Cook, Cromwell, Discerni and expert witnesses Mr Wright, Dr Bakker and Dr Coombes. It is said this evidence was met by the evidence of witnesses from the respondents, including experts. The respondents having adduced evidence to the contrary as provided for in s 51A(2) of the Act, it is submitted by them that there is no basis for the application of the deeming provision provided for in that section. This is said to be because the burden of proof had been undertaken by the applicant as a consequence of the pleaded allegation by it that there were no reasonable grounds. 174 The respondents' submissions refer on this issue to Australian Competition and Consumer Commission v IMB Group Pty Ltd (1999) ATPR 41-704. Approaching the issue in the context of this proceeding in the light of what was there said by Drummond J, it is clear that this proceeding is one in which the pleading of the applicant put the respondents on notice of the intended reliance by the applicant on s 51A(2) of the Act and hence of the need for the respondents to bring a case to discharge the onus cast on them by that reliance. Such reliance by the applicant does not preclude it from bringing evidence as to the absence of reasonable grounds for such representations. As Drummond J stated in IMB at 43,023 [22]: an applicant 'must be able, whether in anticipation or by way of rebuttal of evidence adduced by the respondent in such a case as to the reasonableness of its predictions, to show, by evidence of its own, that the respondent's material should not be accepted as probative of the issue'. This is not a case in which the applicant has not relied upon s 51A. The consequence is that the relevant burden of proof remains on the respondents. However, the effect of the evidence they adduce in the purported discharge of that burden will fall to be judged in the context of the allegedly rebutting evidence adduced by the applicant. 175 As to what level of proof will discharge the onus, BMR submits that it is not necessary for Slendertone as the representor to do more than to adduce some evidence as to reasonable grounds: Australian Competition and Consumer Commission v Universal Sports Challenge Ltd at [46] per Emmett J. It is submitted that such interpretation affords greater synergy with the long accepted position that the fact a statement concerning a future matter may prove to be incorrect does not mean that there were not reasonable grounds for making it: Bill Acceptance Corporation Ltd v GWA Ltd (1983) 50 ALR 242 at 250. 176 In Danoz at [173] Dowsett J said that the above view is inconsistent with the explanatory memorandum but accurately reflected the wording of s 51A. He noted that most of the authorities, which he identified at 334 [173], placed the ultimate burden of proof of reasonable grounds upon the representor. I consider I should follow the weight of that authority, at least until the issue is authoritatively decided otherwise.

[45]

Research papers 180 The research papers received from BMR comprised the following. The first was a translation of a paper by HJ Appell and M Cabric of the Institute of Experimental Morphology of Cologne University Sports Academy titled 'The Use of Electrical Stimulation for Strengthening of Muscles in Therapy and Rehabilitation' in (1987) Physikalische Therapie. At p 6 it stated that: 'In summary it can be stated that functional electrical stimulation applied daily for about 20 minutes over a period of a few weeks leads to considerably positive effects. These refer to muscular strength, clearly visible to the physiotherapist, yet the muscular structure is also optimised in accordance with an increase in volume and activation.' Mr O'Donoghue was forwarded a one-page commentary titled 'The use of Transcutaneous Electric nerve Stimulation as a means of reducing Fat Depots in Subcutaneous Adipose Tissue'. This asserted that '[b]y selecting appropriate conditions [EMS] can influence muscles in a manner that is mirrored by voluntary exercise'. It stated that some publications 'provided some promising results' although recent literature had not disclosed any data on the use of EMS to reduce body fat. 181 A further five articles where forwarded under the heading of 'General Medical'. They concerned the use of EMS in treatment or post-treatment phases relating to stress incontinence, knee reconstruction and replacement and in cases of treatment of multiple sclerosis and Bell's Palsy. A further paper addressed its possible effect as a deterrent to atrophy and strength loss of lower limb musculature during 30 days of bed rest. It concluded that preliminary data suggested that the efficacy of EMS in that situation warranted further investigation. 182 An extract from USA Today Collegiate Program raised the issue whether any EMS products could produce the results advertised without a combination of genetics, very low body fat, a vigorous exercise program, proper diet and a good lifestyle. It referred to the position taken by the US Food and Drug Administration that such products were medical devices requiring its approval. It stated that at the date of the article (6 March 2002) only one had been so approved, namely Slendertone Flex. 183 Also included in the BMR information was a copy of the 1991 study by Dr Crowe with Ms Cullinane and Ms White on the effects of EMS applied abdominally. This study reported the improved body carriage and well-being, perceived firmness, flatness and strength. 184 A typed page on the Slendertone Celluforme System was included, attached to which were 5 pages of information on cellulite, an information sheet for approved retailers on 'Sant'Angelica' Up Lift Glutei and an article in the French language. 185 Next was an article by Mohr, Carlson, Sulentic and Landry titled 'Comparison of Isometric Exercise and High Volt Galvanic Stimulation on Quadriceps Femoris Muscle Strength' published in (1985) 65(5) Physical Therapy 149. The findings of the study were that an isometric exercise group was found to have an increase in strength significantly greater than either a control or EMS group, so that EMS was not as effective as isometric exercise in increasing strength in muscle. 186 From the same journal came an article by Laughman, Youdas, Garrett and Chao titled 'Strength Changes in the Normal Quadriceps Femoris Muscle as a Result of Electrical Stimulation' (1983) 63(4) Physical Therapy 123. This examined the effectiveness of an electronic muscle stimulator in strengthening normal quadriceps femoris muscle without the assistance of simultaneous isometric muscle contraction. The data collected in the study supported the use of the particular EMS machine used for the study as an appropriate device for strengthening skeletal muscle without voluntary effort. The chosen stimulator was not one of the Slendertone products. 187 Additionally there was an article by Currier, Lehman and Lightfoot, 'Electrical Stimulation in Exercise of the Quadriceps Femoris Muscle' (1979) 59(12) Physical Therapy 117. The finding of the study was that EMS combined with maximum isometric contractions (exercise) had no greater effect on enhancing strength than does conventional static exercise. 188 Also forwarded by BMR was a copy of an article by Caggiano, Emrey, Shirley and Craik titled 'Effects of Electrical Stimulation or Voluntary Contraction for Strengthening the Quadriceps Femoris Muscles in an Aged Male Population' (1994) 20(1) Journal of Orthopaedic and Sports Physical Therapy 22. It concluded that EMS has the same potential as traditional exercise to provide improved strength for aged males. 189 An article by Currier and Mann 'Muscular Strength Development by Electrical Stimulation in Healthy Individuals' (1983) 63(6) Physical Therapy 129 reported on a study of the effects of EMS and its comparison with various resistance training modes. It found high intensity EMS delivered under the conditions of the experiment did augment torque when subjects trained with isometric contractions. It also found no increase in muscle size (girth measurements) was produced after five weeks of training by isometric exercise, EMS or a combination of them. While resistance methods produced torque gains, no statistical difference was found in torque among the three modes. 190 With these papers and articles were a copy of a 'Certificate of Free Sale' from the Department of Health in Ireland. It certified that certain units being described as Neurotech Neuromuscular Stimulators were manufactured by BMR, were sold freely in Ireland and their exportation was not prohibited. (Neurotech is company related to BMR). Other documents attested to the conformance of the BMR/Neurotech EMS products (without necessarily identifying them) with the requirements of International Standard ISO9001, the European standard EN290001 and British standard 5750 Pt 1. Some of these certificates relate specifically to the Gymbody 8.

[48]

Whether representor relied on BMR information 196 Based on the testimony of Mr O'Donoghue, the applicant submits that it has not been established that he in fact relied upon the BMR information. 197 It is apparent from the preceding evidence that it cannot be concluded that Mr O'Donoghue relied upon the BMR research papers in making the communications by publishing the advertisements. 198 His evidence was that he had relied upon as true and had repeated statements in BMR leaflets. BMR was known to him as the manufacturer of EMS products for health and beauty specialists in nearly 40 countries. He had visited BMR's head offices in 1988 and met with an international marketing director. At that time he was provided with a certificate of compliance issued by the relevant authorities in a number of these countries. He testified that it was from the leaflets supplied by BMR that information was extracted for the advertisements. The extent of selection depended upon the size of the advertisement. Subject to limitations of space, he said every endeavour had been made to utilise the information supplied by featuring the benefits in the most efficient way. However, the formulation of the advertisements was mostly done by graphics companies. He supplied them with the material from BMR and those companies did the coordination. The resulting advertisements were forwarded to BMR and sometimes it requested changes, which would be accommodated if possible. However, Mr O'Donoghue testified that there was a conscious attempt to adhere to being a conduit of the message from the manufacturer to the prospective buyer rather than amend the statements. 199 Mr O'Donoghue said in re-examination he had relied upon the total experience which he had in the industry and the information supplied by the manufacturer. He had also relied on point of sale leaflets. Later he said he had relied on all the information supplied by BMR and reliance on BMR literature was also deposed to by him in an affidavit in support of the joinder of BMR. 200 Marian Wright's evidence was that part of her duties at Slendertone had been to update advertising with the new literature sent by 'Slendertone Ireland'. 201 I find that reliance was placed by Mr O'Donoghue on behalf of Slendertone upon the BMR leaflets.

[49]

Whether reliance objectively reasonable 202 The applicant submits that this is not a situation of a retailer recommending a product to a customer acting upon information provided by a reputable manufacturer such as those considered by Dowsett J in Danoz at [174], namely a pharmacist and a retailer of electrical goods. However, as Dowsett J said in that paragraph, reasonableness will depend upon the reputation of the supplier and past dealings between it and the retailer. The evidence did not address the requisite reputation of BMR or the history of past dealings in a major way. To the extent it was addressed, it did not raise any reason why reliance on its information would not be objectively reasonable. 203 However, the applicant also submits it has not been established that reliance on the BMR information would have been objectively reasonable in circumstances where Mr O'Donoghue knew of the need for diet and exercise. His evidence in cross examination was that he had told his staff to inform clients or purchasers, irrespective of whether they wanted to lose weight, that use of the Slendertone products did not allow them to abdicate responsibility for their diet if they wished to lose weight. He had been willing to insert those words in the communications and had offered to do so when first approached by the applicant. When interviewed by Mr Cromwell, a senior investigation officer of the applicant, and Mr Di Scerni, Acting Regional Director of the applicant, Mr O'Donoghue had accepted that users needed to follow a healthy lifestyle involving diet and exercise. . 204 Knowing this, Mr O'Donoghue did not establish any system designed to ensure the representations could be justified. It is clear that he accepted the BMR information in the leaflets at face value. 205 In these circumstances I do not consider it can be found that Mr O'Donoghue's reliance on that BMR information was objectively reasonable. That is further supported by the instances in which BMR no longer made the representations relied upon in the communications. As will appear below, I do not consider the customer statements can affect this conclusion.

[57]

EOD'S DIRECT LIABILITY 218 With regard to EOD, the first question is whether it was engaged in trade or commerce as a retailer of the Slendertone products. It is not in dispute that Mr O'Donoghue was the sole director, secretary and member of EOD. He admits to having operated from the premises where Slendertone operated and in relation to which it is in issue whether EOD also operated. 219 Marian Wright's evidence was that while she was employed by Slendertone, Mr O'Donoghue set up EOD. It had been in operation about six months when her employment ended in 1997. During that time she said it did not have a significant role in the selling of Slendertone products. Mr O'Donoghue had business cards made up in the name of EOD but there were not letterheads. No signs were installed at the premises in respect of EOD. A telephone was set up for EOD but rarely used. 220 The evidence which the applicant relies upon to establish the engagement of EOD as a retailer of Slendertone products is: 1. Throughout 1999 and 2000, Mr O'Donoghue gave prospective purchasers of Slendertone products a business card bearing the logos of both EOD and Slendertone and utilising only one telephone number. 2. Throughout 1999 and 2000, prospective purchasers of Slendertone products were given a pro forma letter bearing the logos of EOD and Slendertone. 3. Karen Cook was given an invoice bearing the logos of EOD and Slendertone. 4. Although the invoice given to Karen Cook had a sticker with the logo of Slendertone, this was not intended to and did not obscure the EOD logo. 5. EOD invoices were used for the sale of Slendertone products for the whole period from September 1997 to June 2000. Although EOD sold massage products in its own right, very few of the invoices produced in this action related to EOD products and nearly all related to the sale of Slendertone products. 6. Slendertone invoices were used for a year from 30 June 1997 to July 1998. From mid July 1998 customers who bought Slendertone products were given invoices with the logos of both EOD and Slendertone. 7. When Mr O'Donoghue corresponded with BMR concerning the supply of the Slendertone products, he did so using EOD's facsimile. The advertisements contained the EOD logo and a description of Slendertone as a 'subsidiary' of EOD. This was Mr O'Donoghue's description of what he wanted it to be and they were intertwined in his mind. It was his decision to include the EOD logo and he authorised it. Therefore the applicant submits that the allegation that EOD was engaged in trade or commerce as a retailer of the Slendertone products has been made out. 221 EOD accepts that its logo was used but submits that there is an issue whether it had any role in the placement of the advertisements. BMR contends that EOD did not have any role in marketing and selling the Slendertone products, a role which was undertaken by Mr O'Donoghue as managing director of Slendertone. 222 When Mr O'Donoghue acted for Slendertone he did so in a manner which evinced that he was also acting for EOD. This is supported by the above 7 items and the authority which he gave to the use of the EOD logo in advertisements. I therefore do not consider it is possible to find that in placing the advertisements and making the other communications he acted only for Slendertone. I therefore accept the applicant's submission on EOD's role. 223 It is not therefore necessary for me to consider EOD's liability as an accessory.

[58]

MR O'DONOGHUE'S ACCESSORIAL LIABILITY 224 It is an agreed fact that Mr O'Donoghue was the sole director, secretary and member of EOD and Slendertone and worked from the premises at which Slendertone and EOD operated. 225 Mr O'Donoghue does not dispute that he was actively involved in publishing the communications containing the words complained of in his capacity as managing director of Slendertone. He accepts that it is sufficient to create accessorial liability if the individual knows or ought to have known the 'essential elements of the contravention': Yorke v Lucas at 670 226 However, Mr O'Donoghue contends that the applicant has not discharged the onus of proving his knowledge of the falsity of the conduct. In Yorke v Lucas at 667-668 it was found that Lucas lacked the knowledge necessary to form the required intent to bring him within the application of s 75B of the Act. This was in circumstances where the conduct relied upon in the case against him consisted of the making of certain false representations. It was said that while Lucas was aware of the representations, which were made by him, he had no knowledge of their falsity and could not for that reasons be said to have intentionally participated in the contravention. 227 The applicant submits that, in the circumstances, by his arranging of the advertisements and the making of the other communications, Mr O'Donoghue in fact aided, abetted, counselled or procured and was directly or indirectly, knowing concerned in or party to the contraventions of s 52 and s 53(c) of the Act. As to his knowing participation, it is argued by the applicant that this follows from his sole directorship and his admitted acts of arranging the communications. At the very least, it is said by the applicant, he knew that Slendertone products would not achieve the promised results without the need for diet and exercise so that he knew there were no reasonable grounds for making the promised results and that they could not be achieved by use of the products alone. In the light of the evidence on the need for diet and exercise, it is submitted that his actual knowledge can be inferred and that the circumstances satisfy the requirements of Yorke v Lucas at 670. 228 The extent of Mr O'Donoghue's knowledge has been addressed in these reasons. I have found that he did not rely upon the research papers; he did rely upon the leaflets; and his reliance upon the latter was not objectively reasonable. This latter finding is based on his knowledge of the need for diet and exercise and the absence of any system designed by him to ensure the representations he was passing on could be justified. It is the knowledge of the need for diet and exercise in conjunction with the use of the Slendertone products that distinguishes Mr O'Donoghue from Mr Lucas in Yorke v Lucas. 229 In my view, the applicant's submission accurately states the effect of the evidence against Mr O'Donoghue. I find that accessorial liability has been established in respect of Mr O'Donoghue in relation to those representations concerning which the issue of diet and exercise is relevant. These are the bulk of the representations listed under 'work out without work', 'equivalence to normal exercise', 'toning, firming and flattening' and 'time for improvements'.

[60]

PART B: THE CROSS-CLAIM 231 The cross-claim alleges that from 1990 to 1993 BMR sold and delivered to Mr O'Donoghue in Western Australia a series of products including the Slendertone products. It further alleges that from about 1993 Mr O'Donoghue became a director of and shareholder in Slendertone. From 1999 to around August 2000 it is alleged that BMR sold and delivered to Slendertone from time to time various products including the Slendertone products. It is claimed that BMR knew that Slendertone purchased the products for resale to the public in Australia. 232 Then the cross-claim asserts that BMR made representations to Mr O'Donoghue who received them on his own behalf and on behalf of Slendertone. The representations are said to have been concerning the nature and quality of the Slendertone products and to have been contained in the promotional material supplied by BMR to Mr O'Donoghue and Slendertone ('the BMR information'). It is further alleged that Slendertone and Mr O'Donoghue relied upon the material as containing accurate information and that BMR knew of such reliance. It is also contended that there was an implied representation that the BMR information did not contain anything misleading or deceptive or intended to be such or which represented that the Slendertone products had performance characteristics, uses or benefits that they did not have. In pursuit of the reliance Slendertone is said to have made the impugned communications in reliance on the BMR Information. 233 The cross-claim is enlivened in the events pleaded in par 13 of the cross-claim. They are that if the Court finds that the cross-claimants or any of them, in publishing or causing to be published the advertisements referred to in Part A (a) made false representations; (b) engaged in conduct which was misleading or deceptive in trade or commerce; (c) engaged in conduct in trade or commerce which tended to mislead or deceive; (d) made representations that the Slendertone products or any of them had performance characteristics, uses and/or benefits that they do not have; or (e) one or more of those matters, and in consequence makes certain orders or any of them then the cross-claimants seek damages and indemnity against BMR. The orders referred to are (i) certain declarations (covering any of the claims made by the applicant pleaded in [6]-[52] of the further re-amended statement of claim); (ii) certain injunctions; (iii) orders for publication of advertisements; (iv) orders for attendance at a Trade Practices Compliance Program Seminar; and (v) an order that the cross-claimants or any of them pay the applicant's costs of the proceedings or part of them. I proceed to consider the cross-claim on the assumption that, as a consequence of the orders which will follow the findings made in Part A, the cross-claim will have been enlivened. 234 The cross-claim against BMR is for: (a) damages for any losses sustained by the cross-claimants as a consequence of any orders made against them; (b) an indemnity or alternatively contribution against such losses to the extent the Court considers just against all losses sustained by a cross-claimant consequent upon complying with such orders - as referred to in the above paragraph; and (c) damages consequent upon any injunction.

[62]

whether contribution available under act 237 BMR submits that it ought now be considered settled that an applicant for relief under s 87(1)(A) of the Act cannot be a person who contravenes the provisions of Pt IV of the Act and cannot in reliance on that section obtain relief by way of contribution. The relevant authorities are said to have been set out in the decision of Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd [2001] FCA 595, especially at [20]-[23] (overturned on appeal, arguably on another issue) and see Trade Practices Commission v Manfal Pty Ltd (in liq) (No.3) (1991) 33 FCR 382 at 385. That principle is said to have been endorsed by the High Court in Burke v LFOT Pty Ltd (2002) 209 CLR 282. BMR submits that nothing in the decision in Burke casts doubt on the decision of the Full Court in Lezam at 553 per Sheppard J, with whom Burchett and Hill JJ agreed, that s 87 of the TPA does not extend to empowering the court to order a contribution. See also Elna Australia Pty Ltd v International Computers (Aust) Pty Ltd (No 2) (1987) 16 FCR 410 at 419 per Gummow J. Accordingly, it is contended by BMR that any order for 'indemnification' can only be made on equitable grounds. 238 The cross-claimants contend, without more, that there is nothing in Burke to affect the decision in Emerald Ocean of the Full Court. That latter decision, however, expressly abjured any decision on the issue whether the facts pleaded in the cross-claim as then proposed would give rise to a cause of action: at [14]. 239 In Bialkower the Full Court was of the view that the decision of the Full Court in Lezam and the decisions of single judges reaching the same conclusion in Re La Rosa; Norgard v Rodpat Nominees Pty Ltd (1991) 31 FCR 83, Australia and New Zealand Banking Group Ltd v Turnbull & Partners (1991) 33 FCR 265, Trade Practices Commission v Manfal Pty Ltd (in liq) (No 3), Dorrough v Bank of Melbourne Ltd (1995) ATPR (Digest) 46-152, and Austotel Management Pty Ltd v Jamieson (1996) 57 FCR 411 were correct. The Full Court accepted that the relevant principle so decided was that s 87 of the Act did not confer any power to order contribution. I therefore regard that issue as settled. There is nothing in Burke which affects that position. However, as stated above, it does not settle the issue of whether the Act supports an order for indemnification. 240 In Emerald Ocean the Full Court at [13] stated that Bialkower did not involve a claim for indemnity, the claim being for contribution. However, in Bialkower at [8] the Full Court there stated that 'although the cross claim sought indemnity alone, the case appears to have been conducted on the basis that it was a claim for indemnity or contribution'. Bialkower cannot therefore be distinguished on that basis from this proceeding.

[63]

whether contribution available under general law 241 The other source of power to order contribution is the general law, whether the common law or the equitable doctrine of contribution. There has not been any argument made here that there is a source of power from the application of the Judiciary Act 1903 (Cth) making applicable a procedural enactment of a State. 242 Burke was a case in which the High Court considered the principles of contribution. As stated by McHugh J at the paragraphs identified below, these are: 1. 'Both common law and equity give a person the right to obtain contribution to a payment made by that person in discharging "a common obligation" that is owed by that person and others': at [38]. 2. 'When a person pays more than his or her share of a common monetary obligation, the payment pro tanto discharges the obligation of all who owe the common obligation. In accordance with the maxim that equality is equity, equity requires the common burden to be shared equally so that none of those owing the common obligation will pay more than his or her share of the burden': at [38]. 3. 'In order to establish a right of contribution it is often said that the claimant must prove that its own liability is "co-ordinate" with that of the party against whom it claims contribution. … Thus contribution will not lie simply because the respective liabilities of parties arise out of similar relationships or related transactions': at [43]. 4. 'Similarly, the doctrine will not apply if the obligations in question are merely owed to the same party or are "otherwise connected in time or circumstance". Nor will it apply merely because the claimant's payment has benefited or relieved the other party financially': at [44]. 5. 'If the parties are not on the same level of liability, there can be no common interest and no common burden with joinder in a common end and purpose by the several obligations': at [62]. 243 Similar observations were made by Gaudron ACJ and Hayne J at [14]-[16]; and Callinan J at [138]-[139]. 244 BMR contends that, as McHugh J observed in Burke, the right to obtain contribution to a payment depends on the discharge of a 'common obligation'. The test is whether the liability of each party 'is of the same nature and to the same extent' (at [38]). It is submitted that in the present case there is no common obligation between BMR and the cross-claimants to give rise to an obligation on BMR to make contribution. 245 In support it is submitted that, save to plead that the advertisements were fair and accurate representations of promotional material supplied to the respondents in the cross-respondent's promotional material, no plea said to give rise to a common obligation is made. In particular, it is not pleaded that: (a) the cross-claimants or any of them were agents of BMR; (b) the publications were as a result of any agreement between BMR and the cross-claimants or any of them; (c) the cross-claimants or any of them and BMR otherwise shared or were discharging a common obligation. In this regard BMR makes the observation that by the statement of agreed facts in the proceedings it was agreed that the publications were made by Slendertone and that Mr O'Donoghue was knowingly concerned in the publications. It was not in issue whether BMR was in any way a party to, involved in, or had anything to do with publications of the communications. 246 The cross-claimants rely on Emerald Ocean at [13] where the Full Court said: 'In Lezam there was no claim for indemnity under the Act until the matter reached the Full Court. In our opinion it was implicit in the Full Court's reasoning that an indemnity would be available under the Act, depending upon how the facts were found.' This is relevant to whether the Act provides a source of power to order indemnity. It does not provide a response to BMR's submissions that there is no source of common obligation to ground an order for contribution under the general law. I therefore accept BMR's submissions that the general law does not provide such a source in the circumstances as found here. That continues to leave open the issue of whether there is a source of power to order indemnity.

[64]

absence of causative conduct of cross-respondent 247 On the basis that indemnity is available, BMR submits that if it is found that Mr O'Donoghue was knowingly concerned in the contravention, the cross-claim does not arise for determination because there was no reliance on any representations made by BMR. If the position was that in reliance on BMR's material the cross-claimants believed the Slendertone products could achieve the benefits claimed in the communications without the need to pay attention to diet and exercise, BMR contends that it was the cross-claimants own conduct that was the effective cause of their loss. In support BMR argues that the courts have acknowledged that there may come a point when the plaintiff's conduct is the effective cause of a loss: Pavich v Bobra Nominees Pty Ltd [1988] FCA 425 per French J cited with approval in Munchies Management Pty Ltd v Belperio (1988) 84 ALR 700 at 712-713; Sharp v Ramage (1995) 12 WAR 325 at 328 per Ipp J. It is submitted by BMR that when a person is involved in the contravention within the meaning of s 75B of the Act, that person should bear the responsibility for the loss. 248 The cross-claimants reject these contentions, saying Mr O'Donoghue was misled along with the companies which he represented. 249 Section 82 of the Act provides that the amount of loss or damage suffered by conduct of another person where that conduct was in contravention of (broadly) the Act, may be recovered by action against that other person or against any person involved in the contravention. The Full Court (Fisher, Gummow and Lee JJ) in Munchies at 712 said the measure of damages marked out by the section hangs on the words 'by conduct', the preposition 'by' having been interpreted to mean 'by reason of' or 'as a result of'. It said there was therefore an apparent telescoping of what to the common law would be concepts of causation, remoteness and measure of damages. BMR relies on these concepts in contending the loss and damage was not occasioned by its conduct and is too remote. 250 In Pavich French J referred to Yorkshire Dale Steamship Co Ltd v Minister of War Transport [1942] AC 691 at 706, and Elna Australia Pty Ltd at 418-419 and to the view that the selection of a sufficient cause to establish the connection which gives rise to liability under ss 52 and 82 was properly influenced by policy and not merely logic. His Honour continued: 'The primacy of the causation principle in s 82 would seem to exclude reliance upon such concepts as mitigation or contributory negligence, unless it can be shown that the applicant's own carelessness or disregard for his or her interest is the cause of all or some part of the claimed loss. It may still be in such a case that the misleading or deceptive conduct complained of may be identified as a sine qua non of the loss claimed. There may come a point, however, where the applicant's own conduct is so dominant in the causal chain as to constitute a novus actus interveniens. It is perhaps simply putting it another way to say that in such a case a selection principle of the kind adverted to [in the Elna Australia case, supra] comes into operation to exclude liability. The criteria for such selection may import concepts analogous to remoteness, mitigation or contributory negligence.' 251 There are two forms of conduct relied upon by BMR in its submissions. 252 Firstly BMR contends that the cross-claimants failed to amend the representations in the manner they knew to be necessary. It is submitted they left unqualified the BMR information by the addition of the need for a healthy diet and exercise. Such failure of qualification is said to have occurred without reliance on any material provided by BMR to the cross-claimants in circumstances where Mr O'Donoghue knew of the need for the qualification and BMR had expressly referred to the need to use the Slendertone products in conjunction with a healthy diet and regular exercise. 253 It contends this failure by the cross-claimants is explained by the fact that the business of Slendertone was failing. The evidence which BMR relies in this respect is as follows. The intervention of the applicant occurred in June and July 2000. The financial statements of Slendertone for the year ended 30 June 2000 show that as a result of losses from the preceding years, the company had accumulated losses of $145 733. Of its total assets of $291 558, the amount of $220 808 was in respect of property, plant and equipment. It is said that its lack of stock on hand was significant. Further, contrary to its balance sheet, it did not own the Wray St premises from which it operated, that being owned by Mr O'Donoghue. Additionally the same financial statements show that no wages were paid to any staff (there being no staff) for the year. No rental was paid by Slendertone from 1997-1998 financial year onwards. Mr O'Donoghue resided at the Wray St premises from 1998 onwards, that being the only premises he owned since 2001. Prior to July 2000, Mr O'Donoghue had supplemented his income from personal funds to meet his tax liabilities and to put into the business of Slendertone. 254 Secondly, BMR refers to the nature of its contractual and business relationship with the cross-claimants. BMR states it was and is a company incorporated in Ireland having no presence in Australia. It exported to over 40 countries. The cross-claimants chose to purchase and resell their goods but, beyond that, BMR had no involvement with the cross-claimants or their business. Clauses 3 and 10 of the Terms and Conditions of Sale pursuant to which the goods were sold by BMR to Slendertone and Mr O'Donoghue provided that '"Advertising matter (was) intended merely to present a general idea of the goods or services provided by the company and are not intended thereby to constitute a sale by description" nor the seller (BMR) make any warranty as to the quality of the goods or fitness of the goods for any purpose'. Moreover, by cll 14 and 15 of the Terms and Conditions of Sale was intended to reflect the entire agreement between the parties and the contract was to be governed in accordance with the laws of Ireland. The cross-claimants prepared their communications based on material received from Ireland, but these were determined exclusively by the cross-claimants who did not seek the approval, consent acquiescence or comment of BMR. BMR exercised no control over the content of the advertisements or other communications. BMR left it to Slendertone to determine compliance with Australian law. In all the circumstances, it is contended by BMR the point has been reached where the effective cause of the loss was the cross-claimants own conduct and not the conduct of BMR. 255 It does not assist the cross-claimants that BMR advised it not to sign anything involving Slendertone. This is because that advice related to Slendertone in the United Kingdom. 256 The cross-claimants also contend that just after three months from the applicant's approach to them, BMR ceased to supply Slendertone. However, the position was that BMR was not in the position to supply any of the Australian market, not only Slendertone. Moreover, the cross-claimants had no right to be supplied with products from the cross-respondent. 257 In Henville v Walker (2001) 206 CLR 459 at [103], [110] and [119] McHugh J stated that recovery of loss is not permitted for actions that might be said to be a 'reason' for the loss as distinct from being a 'decisive consideration' for the claimed loss. The present is not an instance where the cross-claimants or any of them asserted that the absence in the communications of reference to diet and exercise induced them to enter into the business of selling Slendertone products: cf Henville per McHugh J at [134]. Rather Slendertone's evidence was that it was aware at all times that the use of the Slendertone products did not abrogate the need for users to pay attention to their diet and to exercise and that purchasers of the products were told that fact. No evidence was put forward by Slendertone that it would have altered its position in any way had the material provided by BMR referred to the need to undertake a healthy diet and to exercise: cf Henville per McHugh J at [132]. 258 Additionally, the finding of accessorial liability against Mr O'Donoghue in respect of the communications in relation to which he had knowledge of the need for diet and exercise has the consequence that the cross-claimants would be unable to establish reliance and causation against BMR. It has the consequence contended for in the cross-respondent's submissions, namely that it vitiated reliance and meant that it was the cross-claimants own conduct which was the cause of their loss. 259 The views expressed in the two preceding paragraphs are not based on what the cross-claimants' submissions in reply to further submissions of the cross-respondent filed on 8 June 2005 describe as 'the incorrect premise' that the cross-respondent told the cross-claimants of the necessity for diet and additional exercise (not a proposition on which the case was conducted). They are founded on the evidence addressed in Part A and in particular on the evidence in relation to the finding that Mr O'Donoghue's reliance on the BMR leaflets was not objectively reasonable and the evidence leading to the finding concerning Mr O'Donoghue's accessorial liability as well as on the evidence referred to in the two preceding paragraphs.

Australian Competition and Consumer Commission v Emerald Ocean Distributors Pty Ltd

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Judgment (82 paragraphs)

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Legislation Cited (3)

Cases Cited (38)

Cited By (3)