Australian Competition and Consumer Commission v Global Prepaid Communications Pty Ltd

Australian Competition and Consumer Commission v Global Prepaid Communications Pty Ltd - [2006] FCA 146 - FCA 2006 case summary — Zoe

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swisscom 16 Swisscom is a telecommunications company based in Switzerland. Prior to late 2003, it sold a product known as an easyRoam card which has been referred to in the pleading as a Swisscom SIM Card. The product was a mobile telephone SIM card which could be inserted into a mobile telephone to allow the user to make and receive telephone calls and access other functions such as voicemail and short message service (SMS), also known as text messaging. The principal benefits of the product according to Swisscom were that the card could be used in many different countries and, subject to varying tariffs imposed in some countries, the cost of making and receiving telephone calls would be reasonably uniform and the credits remaining on the card could be recharged. The product would also permit the user to maintain the same Swisscom telephone number, which commenced with the country code '41' for Switzerland. 17 By an agreement dated 10 August 2000, Pahth Telecommunications Limited (Pahth), a company then based in Perth, became, the non-exclusive distributor for Swisscom in Australia and New Zealand. Pahth took various steps to promote and sell the Swisscom card product including appointing a sub-distributor in New Zealand and engaging Julian Good as a consultant to assist in the promotion of the Swisscom card. 18 By about July 2001, it was apparent that Pahth was having significant difficulties selling the Swisscom card product and it received communications from Swisscom because it had not been selling sufficient stock. In approximately September 2001, National Telecommunications Group Limited (NTG) purchased some of the Swisscom stock from Pahth. About that time, Pahth ceased its involvement with the Swisscom card product and Swisscom terminated its distribution agreement with Pahth. 19 From as early as April or May 2001, Frank Yates was in contact with representatives of Swisscom including Benedikt Fontana. He also had discussions with Peter Hanley, who was at the time the managing director of Pahth, and Mr Hanley told him that Pahth had not generated excessive card sales. In November 2001, Nicholas Yates met with Mr Fontana in Singapore and in late November 2001, In Touch entered into a non-exclusive distribution agreement with Swisscom. 20 From about February 2002, Global placed a number of newspaper advertisements for a business opportunity involving the sale of prepaid Swisscom SIM cards. It did so despite the fact that the distribution agreement with Swisscom was held by In Touch, a distinct corporate entity. The advertisements stated that distributors could make very significant profits from the operation of a Swisscom distributorship and that Global would assist distributors with marketing, training, public relations, point of sale materials as well as providing full backup and support. The advertisements also described the functionality of the Swisscom SIM card product. 21 A number of potential distributors found the statements in the advertisements appealing and contacted Global. The Swisscom distributors involved in these proceedings together with their geographical locations are summarised in the following table: Distributor Location Leanne and Scott Bowen Melbourne, Victoria Jeremy and Neville King Sydney, New South Wales Michael Loncaric Brisbane, Queensland Nigel Smith New Zealand Rose and Sandra Vella Sydney, New South Wales

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THIS proceeding 37 Rather than plead each of the schemes as a contravention with individual misrepresentations as particulars, each misrepresentation was separately pleaded as a contravention. This may have been seen as necessary because of the need to make a case for compensation sought on behalf of a number of participants in the schemes. However, it has resulted in a prolix further further statement of claim. 38 Global, In Touch, Nicholas Yates, Frank Yates and Nicholas Rhodin all filed appearances in the proceeding. Global and In Touch are currently in liquidation and leave to proceed against them was granted on the basis that no costs would be sought against either company. The solicitor for Global and In Touch indicated that he no longer had instructions from those parties before the hearing. Nicholas Yates and Frank Yates filed defences. The solicitor for Frank Yates ceased acting for him early in the hearing, although he apparently did not file any notice ceasing to act. The same solicitor made spasmodic appearances throughout the hearing, essentially on procedural matters, representing Nicholas Yates. Counsel was briefed to make some limited final submissions for Nicholas Yates. Nicholas Rhodin appeared on the first day of the hearing to say he represented himself and then effectively departed. Counsel was later permitted to make some limited final submissions on his behalf. The solicitor for Daniel Albert filed a defence, a submission on costs, and finally a notice ceasing to act in the period before the hearing. Daniel Albert did not appear thereafter. Russell Fielding was served but filed no appearance or defence. The ACCC filed a notice of discontinuance against John Rhodin after the hearing had begun. There were no objections to the evidence led for the ACCC. There was no cross-examination. No evidence was led on behalf of any respondent. 39 Thus, the matter has effectively proceeded until final submissions as an undefended action. Nonetheless, the ACCC has taken the prudent course of seeking to demonstrate proof of all of the elements of the pleaded case against all respondents. Counsel opened the case at some length. Detailed chronologies were provided. During the course of reception of the considerable body of evidence that was tendered, counsel provided both oral and written 'roadmaps' to assist in the reading and understanding of the evidence. A comprehensive summary of the pleaded representations and contraventions was provided. That summary is sorted in relation to each of Vending Machines and Swisscom by distributor, by representation type, by maker and by date. Counsel for the ACCC made comprehensive written closing submissions that were supplemented orally. The structure of the closing submissions for the ACCC is as follows. 40 The Vending Machine submissions are divided into: A. Legal submissions. These deal with a number of relevant legal questions.

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Nicholas Yates 62 Nicholas Yates was directly implicated in only some of the early representations and the entering into of only some of the agreements. It is submitted that he is not responsible for other representations and agreements. It is also submitted that he should not be found to be responsible for any representations that were misleading and deceptive either directly or by virtue of s 51A as it is not demonstrated that he had the requisite knowledge required to establish the breaches alleged pursuant to either s 75B or s 6. 63 I reject those contentions. The evidence referred to by counsel for the ACCC is a sound foundation for drawing the inference that Nicholas Yates was, in effect, an active principal in all the business conducted by Global and In Touch, both in relation to Vending Machines and Swisscom, from the beginning in early March 2001. I am satisfied that he was aware of, and authorised, the making of all of the misrepresentations sued upon. I am satisfied that he authorised the initial representations made by advertisements in each case and knew that there was then no proper or reasonable basis for those representations. He could not have believed them to be true. Further, he very quickly became actually aware of all of the serious deficiencies that occurred in relation to the successful operation of each of the Vending Machines and the Swisscom cards and all of the difficulties and deficiencies complained of by the distributors in relation to the conduct of the distributorships. The submissions in reply for the ACCC adequately answer the points sought to be made on behalf of Nicholas Yates. I reject the argument that these conclusions are speculation and conjecture. All of the facts in relation to Vending Machines and Swisscom taken together present a powerful case of both direct and circumstantial evidence against Nicholas Yates with no evidence in reply from him. I am satisfied that he authorised the representations that continued to be made by those involved in the business and knew that there was no proper or reasonable basis for those representations. In my opinion, it can safely be concluded that he had all the knowledge necessary for the application of s 75B of the Act in relation to the breaches by Global and In Touch. Furthermore, there is direct evidence of considerable use of the relevant postal etc facilities by Nicholas Yates and there was certainly some interstate trade and commerce involved in the relevant dealings.

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orders 66 The ACCC is entitled to declarations and injunctions along the lines sought with necessary modifications to accommodate these reasons. There are some drafting issues that I will discuss with counsel. I have previously questioned why injunctions of this type are limited in time but this is not the case to examine that question as all parties have not appeared. 67 The orders sought to compensate third parties require attention. There is no doubt as to the entitlement in principle to such an order in each case. I am satisfied, in particular, that each respondent was responsible for misleading conduct that contributed to the decision taken by the relevant party or parties respectively to enter into the arrangement leading to loss and damage. That is all that is required (I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 per Gaudron, Gummow and Hayne JJ at [57]). 68 Proof of the losses has to be examined. I am satisfied as to the quantum claimed in each case as to the losses flowing from each relationship. There is a question as to parties. In some cases, the relevant agreement was entered into by a company associated with and funded by the individual(s) who were influenced by the misleading conduct. The calculation of damages thus raises the issues discussed in the authorities referred to in Harris v Milfull [2002] FCAFC 442; (2002) 43 ACSR 542, particularly Gould v Vaggelas (1985) 157 CLR 215. There may be difficulties in sorting out losses suffered by the shareholders on the one hand and the company on the other. However, in the context of s 87(1B), there does not appear to be any barrier to claiming the overall losses jointly (and not severally) between the shareholder(s) and the company in such a case without dissection where each has consented to the proceeding as required. That is the case with the claims by Radcliffe and Tauto Investments Pty Limited; Bu and Tinson Far Eastern Group Pty Limited; Woldemichael and Red Sea International Pty Limited; Tony Savino and SAV Enterprises Pty Limited (all in relation to Vending Machines); Loncarie and Caslow Pty Limited; King and Flexprint Pty Limited; Vella and Global Mobile Solutions Pty Limited and Smith and Gelco Limited (all in relation to Swisscom). 69 There is no issue in relation to personal claims where no company was involved as with Crispin, Drazetic and Loncar, Elizabeth and Joe Garcia, Raphael, Kim and Sandra Bloom, Petrosyan, Tekirdaglis, Arida and Chaina, Bruce and Lorraine McKenzie, Remme and Kapoor (Vending Machines). 70 There is an issue where the only claim is personal, but where the business was conducted in whole or in part by a company. That was the case in relation to each of Bartlett and Singh (re Vending Machines) and Bowen (re Swisscom). Bartlett entered into the agreement himself, and the company was collateral to that agreement. Singh initially signed the agreement himself, and the early expenses were paid personally but there was a later novation to Perfect Communications Pty Limited. A second agreement was signed by Singh in person. The Swisscom agreement was signed by the Bowens personally. There is no evidence to suggest that any of the companies involved in these cases included external shareholders or carried on any separate businesses that could not be segregated from the company or of the subject businesses. That being so, Gould v Vaggelas permits an analysis that can include loss to the individuals by reference to the effect upon them of the affairs of the company. On that basis the evidence is sufficient to establish the loss claimed, although not as detailed as it might be. 71 Interest should be included in the compensation orders pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) at the rate of 10.5 per cent per year on the whole of each award for the period between the date when the cause of action arose and the date as of which the judgment is entered. 72 The ACCC is entitled to a general order for costs including reserved costs except as against Global and In Touch. There should be a special order as sought in relation to the costs of 10, 25 and 26 May 2005 that were reserved. 73 The proceeding should stand over to 27 February 2006 at 9.30 am at which time the ACCC should bring in short minutes of order. I will direct that all submissions and related documents be retained for 28 days pending the filing of any appeal and for the duration of any appeal. I certify that the preceding seventy-three (73) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Gyles.

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