She submitted that, in order to make out reasonable grounds, it was sufficient if the evidence established that all that Mr Kaye said "can be done".
139 As we have seen, if I rejected his submissions concerning the meaning of "property millionaire", Mr Kaye did not seek to argue that there were reasonable grounds for the statements made in pars 8(a) and 14(b) and (d) (or 21(b) and (d) discussed below) of the statement of claim, as amended, although he did contend there were reasonable grounds for the representations in pars (c), (e) and (f) (and the balance of the "future" representations in par 21: see below). That is, counsel for Mr Kaye contended that, if these representations were future representations, then Mr Kaye had "reasonable grounds for making the statements which do not rely upon the definition of 'property millionaire' to mean net equity of $1 million". In order to make out reasonable grounds, Mr Kaye relied on the strategies set out in the course materials (the modules) and the evidence of Messrs Keck, Dudakov, Barnard and the witness who described himself as a professional property investor (referred to in the following discussion as "the investor"): see [95] and following.
140 As Heerey J said in Sykes at 513:
If there was a representation as to a future matter, s 51A requires the representor to show:
· some facts or circumstances
· existing at the time of the representation
· on which the representor in fact relied
· which are objectively reasonable and
· which support the representation made.
What is evidence of reasonable grounds depends on the circumstances of the case.
141 On the one hand, counsel for Mr Kaye referred to the fact that both Messrs Keck and Dudakov agreed that much of the IM Program was common sense. According to her, if the expression "property millionaire" meant a person who had secured a million dollars of property in his or her own right (or in a joint venture or syndicate) then the experts agreed that "the co-opting strategy would enable someone to secure $1 million worth of property with no money down, no equity and without incurring debt". She relied on Mr Dudakov's evidence that, taken as a whole, the course "modules" were helpful to potential investors; it was possible for the strategies to be implemented; and that, if a deal were a good one, a financier would be found. She emphasised that:
The eligibility criteria of the Million Dollar Challenge was that the five participants would spend between 10-25 hours per week learning the strategy. Over a six month period this equates to between 250-600 learning hours. In addition, as made clear in the letter from NII to the applicant they were to receive personal coaching from Kaye.
142 The Commission submitted, on the other hand, that Mr Dudakov's evidence did not support any basis for reasonable grounds for belief in the representation. Counsel for the Commission noted that Mr Kaye apparently conceded that, if it were found that "property millionaire" had the meaning for which the Commission contended, then this would be the end of the case. I do not, however, consider that counsel for Mr Kaye intended this at all: neither her conduct of the case nor her final submissions reflected such an understanding.
143 I accept that Messrs Keck and Dudakov agreed that the IM Program material contained much common sense and would have assisted inexperienced property investors. I also accept Mr Keck's evidence that there were practical obstacles to an ordinary Australian's pursuit of the core course strategies. This was clearly demonstrated in his evidence.
144 Mr Keck's evidence at [49] was, and I accept, that it was extremely difficult to buy below market value, because, as he pointed out, there were various factors that tended to maximise the purchase price, notwithstanding the buyer's best endeavours to the contrary. Further, for the reasons given by Mr Keck (which I find cogent) I accept that it was rare to obtain significant discounts from developers. I also accept his evidence that renounceable contracts were not ordinarily available in the general residential or residential sub-apartment market; that, though theoretically possible, it would generally be difficult to co-opt friends and acquaintances as investors either to put up their own money or to incur a liability in respect of borrowed funds, especially where the co-opting party proposed to use no money of his or her own and to incur no liability in respect of borrowed funds. Further, I prefer Mr Keck's evidence to that of Mr Dudakov concerning a borrower's capacity to persuade a valuer to make a significantly higher valuation than otherwise. The investor's evidence showed very limited success in this regard. I accept Mr Keck's evidence, based on his experience, that, generally, valuers have little, if any, contact with borrowers, such contact not uncommonly being prohibited by the lender for whom the valuer acted. Whilst I accept that, as Mr Dudakov's evidence indicated, there may be instances in which an investor could discharge the level of due diligence recommended in the Kaye strategies, I accept Mr Keck's evidence that, at least in many instances, the recommended level of due diligence would be virtually impossible to achieve.
145 As Mr Keck maintained, and the investor's evidence exemplified, I find that it was likely that many participants in the IM Program, who were exposed to its course materials, would have completed the course with varying degrees of false anticipation about their ability to make wealth out of property investment, by carrying out the Kaye strategies. I accept that, as Mr Keck maintained, the Kaye strategies focused on buying below market value, presenting the property at a higher value to valuers and financiers to assist with 100% finance, and selling at a profit. This is confirmed by the course material. As the evidence of Mr Keck and the investor highlighted, the Kaye strategies were deficient because, in many instances, they did not address who was going to take on the debt or put up the equity to enable the investment to proceed. If property were to be "secured" by anyone, with no money down, no debt, no equity and no risk, it could only be done with co-opted parties providing all the funds or taking all the borrowing liability and risk. As Mr Keck said, this would ordinarily be an extraordinary arrangement.
146 Mr Keck's evidence was, and I accept, that an inexperienced property investor, having completed the course in which the Kaye strategies were taught, would not be in a position to take practical advantage of these strategies in any real market. I accept his evidence that an ordinary Australian would have virtually no prospects of accumulating sufficient wealth to be a "property millionaire" (in the sense of having net wealth in property of $1 million) simply by applying the knowledge he could acquire from the course in the two years or so following its completion. As Mr Keck said, even joining together, ordinary Australians would not have "the financial horsepower", that would support the requisite borrowing. I find that, as Mr Keck said, it would be virtually impossible for five people to become property millionaires (in this sense) in six months with no money down, no debt, no equity and no financial risk. Further, I accept Mr Keck's evidence that whether a "property millionaire" meant (as I have found) a person having net wealth in property exceeding $1 million or a person who has secured a million dollars worth of property in a joint venture or otherwise, it was unlikely that such a person, being an ordinary Australian, could be involved in a joint venture or syndicate without incurring some liability for the debt that the joint venture or syndicate carried. Even if the expression, "property millionaire", had the more limited meaning for which Kaye contended, I accept that, as Mr Keck said, the strategies could assist some individuals to secure $1 million worth of property, but only with very considerable difficulty and uncertainty of success.
147 When Mr Dudakov's evidence is considered as a whole, it was consistent with that of Mr Keck in a number of respects, including that some Kaye strategies were impossible to achieve. Although some of Mr Dudakov's evidence was apparently supportive of Mr Kaye, when it is examined, it would appear that, in some cases, it was based on assumptions that even Mr Dudakov conceded were faulty. For example, his evidence in cross-examination was that there was, as Mr Keck said, limited opportunity for a purchasing borrower to speak with the lendor's valuer. When Mr Dudakov's disagreement with Mr Keck over purchasing "below market" and co-opting other parties is considered, it is apparent that the disagreement is more about characterisation and emphasis than about the facts. Mr Dudakov did not contravert Mr Keck's essential point that, in the main, all joint venturers would be obliged to contribute funds or carry some of the debt.
148 Since I have found that the expression "property millionaire" referred to a person having net wealth in property of a million dollars or more, Mr Dudakov's evidence is, in any case, of limited assistance to Mr Kaye, because, as already noted, his evidence was based on attributing a different meaning to the expression. Even on the basis of the more limited definition, Mr Dudakov conceded that, although perhaps not impossible, it was not the "norm" to acquire property portfolios of value other than by the investment of personal funds, borrowing, or inheritance. Mr Dudakov's evidence was, in effect, that the strategies would assist in enabling ordinary Australians to accumulate wealth through property investment, and not that it could reasonably be expected that they would acquire such wealth. His evidence amounted to no more than this: although not the "norm", if the deal was right, prospective investors could be found; with luck, an investor might make very large sums of money out of property investment; and, in the normal course, no property could be commercially acquired other than by an investor putting up his own funds or borrowing them (in which case, he would need to service the borrowing). When regard is had to Mr Dudakov's definition of "property millionaire", it is apparent that his disagreement with Mr Keck is relatively slight.
149 Counsel for Mr Kaye submitted that the evidence of the investor was "overwhelmingly proof that due diligence and equity/debt co-opting strategies can be understood and implemented by the 'ordinary Australian'". She submitted that his experience illustrated that, despite Mr Keck's reservations, persons who have been taught the strategies can successfully implement them. I reject these submissions. As counsel for the Commission submitted, although the witness was (quite properly in the circumstances) not subject to vigorous cross-examination, his evidence made it abundantly clear that his claims to be a successful professional investor were without foundation. His evidence did not advance Mr Kaye's case. His evidence showed that a person might, by studying the Kaye strategies, acquire some limited information about property investment and the confidence to enter the property market. His evidence showed that he had a very limited grasp of the legal and financial significance of the transactions in which he was involved.
150 Counsel for Mr Kaye submitted that the evidence of Mr Fowler was either irrelevant or should not be accorded any weight. The Commission also conceded that his evidence did not take the case very far. I accept this submission, because Mr Fowler's evidence was, in substance, directed to the extent to which former customers of NII had the capacity to raise loan funds for their investments. Nothing ultimately turned upon this question.
151 Mr Kaye did not establish that he had reasonable grounds for the representations in question, in the manner asserted in the particulars accompanying his statement of claim, as amended. It will be recalled that, by way of particulars, Mr Kaye had asserted that "it was likely, and/or there was a reasonable chance" that certain strategies, which were identified, would enable a person to become a property millionaire (i.e., having an interest in property worth $1 million) in six months using no money down, no debt and no equity. This is not made out on the evidence (unless the term "property millionaire" is understood as not indicative of wealth and/or is virtually meaningless). Furthermore, the evidence did not show that it was reasonably practicable to follow the Kaye strategies and that there was a reasonable prospect of achieving the results to which Mr Kaye referred. I accept the Commission's submission that this was, in the circumstances of the case, what was required for Mr Kaye to make out his case of reasonable grounds. It was not sufficient for him merely to establish, as his counsel submitted, that, by following these strategies, a person might achieve the promised results, irrespective of the improbability of so doing.
152 As noted above, Kaye conceded that, in the case of paragraphs 8(a), 14(b) and (d) of the statement of claim, as amended, he could not make out a case of reasonable grounds if the expression "property millionaire" was understood to mean having net wealth in property investments exceeding one million dollars. The concession was plainly properly made, having regard to the evidence. By virtue of the concession, which is borne out by the evidence, and s 51A, the following radio or Internet representations are to be taken to be misleading:
Kaye would teach 5 volunteers (who are ordinary Australians) to become property millionaires (meaning having net wealth in property investments exceeding one million dollars) in 6 months without using their own money or taking on the risk of debt: statement of claim, as amended, par 8(a).
Kaye would make 5 ordinary Australians into property millionaires (meaning having net wealth in property investments exceeding one million dollars) in just 6 months using no money down, no debt and no equity: statement of claim, as amended, par 14(b).
Kaye would turn 1,000 ordinary people into property millionaires (meaning having net wealth in property investments exceeding one million dollars) within 12 months: statement of claim, as amended, par 14(d).
153 This left the following representations:
Those 5 people to be selected to become property millionaires would be representative of the ordinary Australian: statement of claim, as amended, par 14(c).
At the free seminars it would be proved that Henry Kaye could teach anyone to acquire a million dollar plus property portfolio within 6 months: statement of claim, as amended, par 14(e).
Kaye would teach 5 volunteers to build a million dollar property portfolio in 6 months using no money down, no equity and no debt: statement of claim, as amended, par 14(f).
154 It follows from the foregoing discussion that Mr Kaye did not make out reasonable grounds for the representation pleaded in paragraph 14(f) of the statement of claim, as amended; and I so find.
155 As noted above, by paragraph 19(b) of his Defence, Mr Kaye admitted that, at the free seminars, he did notprove that he could teach anyone to acquire a million dollar plus property portfolio within six months; and that therefore the statement was not fulfilled. Again, it follows from the foregoing discussion that Mr Kaye did not make out reasonable grounds for the representation pleaded in paragraph 14(e) of the statement of claim, as amended; and I so find.
156 Further, as the earlier discussion shows, Kaye did not establish that there were any reasonable grounds for the representation, forming part of the pleading in paragraph 14(c), that the five selected persons would "become millionaires" in any sense at all. That is not, however, how the parties approached this representation. Instead, the parties focused on the representation so far as it concerned the selection of ordinary Australians. Counsel for Mr Kaye relied on a letter dated 24 September 2003 from a Mr Guy Solling (described as General Counsel). Mr Solling wrote to the Commission concerning the Challenge and informed it that he was instructed that these five people would not be chosen at random but on merit. A copy of a brochure accompanying the letter stated that an independent judging panel would select the five persons and referred to conditions of eligibility. There was, however, no evidence from Mr Kaye or anyone else concerning the composition of the panel or any specific criteria that it was to apply in making its selection. Mr Kaye was in court for much of the trial and it could not be suggested that he was unavailable to give this evidence. In the circumstances, I am not satisfied that Mr Kaye has shown that he had reasonable grounds for the representation that the effect of the panel's choice would be to select five representative "ordinary Australians".
157 As already noted, the parties accepted that, in order to make out its case with regard to the newspaper representations, it was incumbent on the Commission to establish that, in so far as the newspaper representations were as to future matters, there were no reasonable grounds for making them. As also noted above, Kaye conceded that, in the case of paragraphs 21(b) and (d) of the statement of claim, as amended, he could not make out a case of reasonable grounds if the expression "property millionaire" was understood to mean having net wealth in property investments exceeding one million dollars. Has the Commission positively shown, however, that there were no reasonable grounds for the newspaper representations? These representations were:
Kaye would make 5 ordinary Australians into property millionaires (meaning having net wealth in property investments exceeding one million dollars) in just 6 months using no money down, no debt and no equity: statement of claim, as amended, par 21(b).
Those 5 people to be selected to become property millionaires would be representative of the ordinary Australian: statement of claim, as amended, par 21(c).
Kaye would turn 1,000 ordinary people into property millionaires (meaning having net wealth in property investments exceeding one million dollars) within 12 months: statement of claim, as amended, par 21(d).
Kaye would teach 5 volunteers to build a million dollar property portfolio in 6 months using no money down, no equity and no debt: statement of claim, as amended, par 21(e).
158 The evidence of Mr Keck established that there were no reasonable grounds for the representations pleaded in paragraphs 21(b), (d) and (e), and I so find. The evidence of the investor confirmed this want of reasonable grounds. I have already observed that the weight to be accorded the evidence of Mr Dudakov was affected by the fact that it rested on a definition of property millionaire that I have rejected; and, in any event, on examination, his differences with Mr Keck were not significant.
159 As already noted, in connection with the pleading in paragraph 21(c), the parties concentrated on the claimed selection of ordinary Australians. I am not satisfied, however, that the Commission has established that there were no reasonable grounds for this claim. The published conditions and what is known of the selection process did not exclude the selection of such persons.
The non-future representations were misleading and deceptive
160 The representations that did not attract s 51A were:
Kaye could turn ordinary Australian into property millionaires: statement of claim, as amended, par 8(b);
Anyone, by following Kaye's property investment strategies, can acquire a million dollars plus property portfolio with no money down, no equity, no debt and price protection guarantee (meaning that if the market were to go down, they would not lose money): statement of claim, as amended, pars 14(a); 21(a)).
161 The application of s 52 of the TPA is not restricted to conduct that is intended to mislead or deceive: see Puxu at 197 per Gibbs CJ; and Hornsby Building Information Centre Pty Ltd v Sydney Building Information Centre Ltd (1978) 140 CLR 216, at 228 per Stephen J. As Gibbs CJ observed in Puxu, at 197:
A corporation which has acted honestly and reasonably may therefore nevertheless be rendered liable to be restrained by injunction, or to pay damages, if its conduct has in fact misled or deceived or is likely to mislead or deceive.
162 The conduct complained of must, however, be viewed as a whole. Again, as Gibbs CJ observed in Puxu, at 199:
It would be wrong to select some words or act, 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 conduct complained of consists of words it would not be right to select some words only and to ignore others which provided the context which gave meaning to the particular words.
163 A statement in an advertisement will be misleading or deceptive, or likely to mislead or deceive, for the purposes of s 52 of the TPA, if any reasonable interpretation of it would lead ordinary or reasonable members of the class to whom it is addressed into error: see [107] above; and Campomar at 85-86. There must be a sufficient nexus between the impugned conduct and the misconception or deception that arises in consequence of the impugned conduct: Campomar at 83, 85.
164 Counsel for Mr Kaye contended that the representations pleaded in paragraphs 8(b), 14(a) and 21(a) of the statement of claim, as amended, were properly characterised as statements of opinion, rather than statements of fact, and their capacity to mislead or deceive should be assessed accordingly. I reject this submission. Numbers of ordinary or reasonable members of the listening or reading public would reasonably have perceived the representations as statements of fact. They were held out as such in the advertisements in which they were made. The statements concerned the acquisition of the status of "property millionaire" or the acquisition of a million dollar portfolio, which was held forth as an objectively achievable status. This was underscored in the electronic and print forms by the definition that attached to the expression "property millionaire". In the context of the advertisements, a property millionaire was someone who had a "million dollars plus property portfolio". The latter expression was just another way of referring to the acquisition of the status of a property millionaire, being a person having net wealth in property investments exceeding $1 million dollars. The representations were reasonably open to be interpreted as a statement of fact and, having general regard to the matters discussed at [144]-[149] above, they were plainly misleading and deceptive. The lack of evidence that any specific person or persons was misled does not, in the circumstances of the case, persuade me to a contrary view. An inexperienced property investor, or "ordinary Australian", having been taught the Kaye strategies, would not be in a position to take practical advantage of these strategies in any real market. An ordinary Australian would have virtually no prospects of accumulating sufficient wealth to be a "property millionaire" or acquire "a million dollars plus property portfolio" (in the sense of net wealth) simply by following the Kaye strategies: see generally [144]-[149] above.
165 In final submissions, counsel for Mr Kaye also contended that the Commission's pleading was fatally flawed. The Commission's pleading in paragraph 9 of the statement of claim, as amended, was that Kaye could not turn ordinary Australians into millionaires; and, by way of particulars, referred to Annexure E. Annexure E listed some propositions about the capacity of ordinary Australians to acquire wealth by means of property investment, which was the subject of much of Mr Keck's evidence. The point made by counsel for Mr Kaye was that "the plea does not rely on any allegation that the strategies in the IM Program could not be achieved". She reiterated and expanded on this submission in reply. She submitted that the Commission had failed properly to plead lack of reasonable grounds. She said that the Commission had not, in its pleading, said why the representations in the "1,000 Property Millionaires" Challenge were false or why the Kaye strategies would not work. There was, she said, also no evidence of these matters. I reject this submission. The Commission's pleading included Annexures D and F. Annexure F specifically challenged the practicability or workability of the strategies. Mr Keck gave ample evidence about these matters. As counsel for the Commission noted, Annexure D contained a lengthy list of impugned Kaye strategies, the challenge to which was confined by the parties' subsequent pleadings and the conduct of the case. There was no substance to the pleading submission made on behalf of Mr Kaye and, in any case, the point was taken much too late in the day. The case had been opened and run without Mr Kaye raising the point. Mr Kaye's case was conducted throughout in the full knowledge of the Commission's case against him. The trial was conducted by both parties on the basis that, if the evidence of Mr Keck were accepted, then this was evidence that the strategies in the IM Program were either impractical or could not achieve their ends; and, in this event, the Commission's case about the misrepresentations and deceptions would be made out.
166 Counsel for Mr Kaye also submitted that the representations were not capable of being misleading or deceptive because they were not capable of being acted on without further inquiry. She submitted further that the advertisements did not promote or offer any product for sale. In final written submissions, counsel said:
The advertisements did no more than announce a challenge to teach people how to become 'property millionaires' and invite the public to attend or register for an information evening to learn the terms and conditions applicable to the challenge. The purpose and, as it turned out, the effect of the advertisements was to attract the public to the information evenings but that is all they did. In short, the public could not act on the advertisements without further inquiry. Those that were interested enough attended the information evenings and received further information about the Million Dollar Challenge and the 1000 Property Millionaires Challenge. Those that did not attend were not misled about anything.
167 Although attendees at the free seminars were given more information about the challenge, NII, the Kaye strategies and NII's products, this does not mean that the representations in the advertisements were not misleading. There may have been members of the public who attended the free seminars and lost interest in the Challenge and the Kaye strategies as a result, although this was not the object of the seminars. It does not follow from this, however, that ordinary and reasonable members of the public were not misled or deceived into believing that, by following the Kaye strategies, ordinary Australians could become property millionaires: compare Cassidy at [59] per Hill J. As Stone J said, on appeal, in Medical Benefits Fund at [43]:
Although evidence of the public being misled or deceived may be persuasive, it is not necessary for there to be any such evidence; Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177. The submissions that there is room under the TPA … for publication of misleading or deceptive advertising so long as it is corrected by later material is not sustainable. [Section 52 of the TPA] prohibits conduct that is 'misleading or deceptive or is likely to misled or deceive' and neither intent nor effect is determinative of whether the conduct is in breach of this provision; Yorke v Lucas (1985) 61 ALR 307 … at 666 and Equity Access Pty Ltd v Westpac Banking Corporation (1989) 16 IPR 431 at 441. Nor is it to the point that the misleading or deceptive impression may or will be corrected before or after any contract is made. Whether a representation is misleading or deceptive (or likely to be so) depends on the circumstances in which it is made and not on what might happen in the future; St Luke's Health Insurance v Medical Benefits Fund of Australia Limited (1995) ATPR 41-428; Minister for Health and Aged Care v Harrington Associates Ltd (2000) 107 FCR 212.
Her Honour's observations are applicable in this case. For the reasons her Honour gives, I reject the submission referred to in [165] above. Further, as already stated, I reject the submission that the representations were relevantly qualified. I find, on the balance of probabilities, that a not insignificant part of the listening and reading public, being "ordinary" or "reasonable" members of it, were mislead or deceived or likely to have been misled or deceived by the representations pleading in paragraphs 8(b), 14(a) and 21(a) of the statement of claim, as amended.
The newspaper advertisements were made "on behalf of" NII
168 In order to succeed against Mr Kaye under s 75B of the TPA in respect of the newspaper representations, it was necessary for the Commission to establish that the newspaper representations were made on behalf of NII. As noted at the outset of these reasons, the Commission relied on s 84(2) of the TPA in respect of the newspaper advertisements. Section 84(2) relevantly provides:
Any conduct engaged in on behalf of a body corporate:
(a) by a director, servant or agent of the body corporate within the scope of the person's actual or apparent authority; …
(b) …
shall be deemed, for the purposes of this Act, to have been engaged in also by the body corporate.
169 Lindgren J discussed s 84(2) in NMFM Property Pty Ltd v Citibank Ltd (No 10) (2001) 186 ALR 442 at 702, where his Honour said:
It seems to me that an act is done 'on behalf of' a corporation for the purpose of s 84(2) if either one or two conditions is satisfied: that the actor engaged in the conduct intending to do so 'as representative of' or 'for' the corporation, or that the actor engaged in the conduct in the course of the corporation's business, affairs or activities. This view accords with what Kiefel J said in Lisciandro v Official Trustee in Bankruptcy (1995) 80 PR 41-436 at 40,903‑4.
170 For the reasons I am about to give, I find that Kaye published the newspaper advertisements in the course of NII's business or activities and on behalf of NII.
171 There was a large body of evidence that the newspaper advertisements were made "on behalf" of NII. The evidence established that Mr Porritt, who was a director of NII, placed the advertisements. Mr Porritt did not give evidence. The unchallenged affidavits of Ms Stronach, Ms Bourke, Mr Humphrey, Mr Leahy and Ms Moore established that Porritt placed the newspaper advertisements in the AFR, SMH, The Sunday Telegraph, The Age and The Herald Sun newspapers. In her affidavit, Ms Stronach, who was the Manager of the Agency Team selling advertising space in the AFR, set out the procedures for booking and placing advertisements with the AFR. Exhibited to her affidavit were documents that, in accordance with these procedures, were produced in respect of advertisements booked for proposed publication dates of 6 and 12 September 2003, bearing the name of "Nicholas" on NII letterhead, "Nicholas Porritt", and "Nicholas" at National Investment Institute, credit card details, a fax number and an email address Nicholas.Porritt@nii.com.au. I infer that Porritt gave the instructions and confirmed the booking in the name of NII. A copy of the advertisement, which appeared on the relevant dates, was exhibited to her second affidavit. Ms Bourke's evidence was to similar effect, save that it related to The Sunday Telegraph. Exhibited to Ms Bourke's affidavit were documents that, in accordance with the newspaper's procedures, were produced in respect of advertisements booked for proposed publication dates of 7 and 14 September 2003, bearing the name of "Nicholas Porritt and "National Investment Institute". Ms Bourke deposed:
[O]n the basis of my investigations that [NII] had applied for a credit trading account with the newspaper when the first of the advertisements was booked. The advertisement published on 7 September 2003 was paid for prior to its publication, because [NII's] application for its credit card account was still being process[ed] at the time. Payment for that advertisement was made by $10,000 being charged to diners club card number 36172962760018 in the name of card holder Leonard N. McDowall; and by a cheque for $8,452.42 (cheque number 104879 drawn by [NII] by the Commonwealth Bank in Melbourne). The newspaper subsequently approved [NII's] application for a thirty day credit trading account and the ad published on 14 September 2003 was charged to that account.
It is apparent from this that the first advertisement was paid for on the credit card of NII's Chief Executive Officer, whilst the subsequent advertisement was charged to the credit trading account in the name of NII.
172 Similarly, Porritt booked the advertisements in The Age and charged payment to an account in the name of "Choice Property Group". Save that Mr Humphrey's affidavit evidence related to placing advertisements in The Age, it was to similar effect as that of Ms Stronach and Ms Bourke. Exhibited to his affidavit were documents that, in accordance with the newspaper's procedures, were produced in respect of advertisements booked for proposed publication dates of 6 and 14 September 2003, bearing the name of "Nicholas" or "Nicholas Porritt" and National Investment Institute (as well as "Choice Property Co"). Porritt also booked the advertisements in The Herald Sun, and charged payment to NII's account. In his affidavit, Mr Leahy gave evidence concerning the placing of advertisements in The Herald Sun on 7 and 12 September 2003. Exhibited to his affidavit were documents that, in accordance with the newspaper's procedures, were produced in respect of the advertisements, bearing the name of "Nicholas" or National Investment Institute. Lastly, Ms Moore's affidavit established that Porritt, who applied for an account in the name of NII, also booked the advertisements in the SMH.
173 I find that, as Mr Barnard said in cross-examination, the Kaye strategies of property investment, which were promoted in the Challenge, were NII's product: see [93] above. The adverse criticism to which the advertisements referred was criticism of NII's products; and NII's products bore Henry Kaye's image and identity: see [93] above. I accept that, as Mr Barnard said, the advertisements and free seminars were part of the one promotional strategy; and that the 1,000 "Property Millionaires" Program was an integral part of the Challenge. Having regard to the transcript of the free seminar in Melbourne on 15 September 2003, it is plain enough that the evident object of the 1,000 "Property Millionaires" program was to induce 1,000 people to pay an enrolment fee in the IM Program (i.e., to sell the IM Program to 1,000 members of the public). Mr Barnard could not deny that this aspect of the Challenge had the potential to lift revenue for NII. It was, after all, NII that guaranteed the results of the IM Program to the potential participants in it: see [93] above. The evidence of Messrs Barnard, Azize and Crouche established that the free seminars were a means of obtaining expressions of interest in the NII products from consumers. After the seminars, as this evidence established, NII marketing people telephoned those who had expressed interest, with a view to arranging a consultation concerning NII's products. The evidence clearly establishes that the newspaper advertisements were made "on behalf of" NII.
kaye caused the advertisements to be published on behalf of nii with actual or apparent authority to do so
174 Mr Kaye was a director and ultimate owner of NII, being the sole shareholder in the ultimate parent company. Accordingly, he had implied actual authority to broadcast and publish the newspaper advertisements on behalf of NII within the rule in Re Duomatic Ltd [1969] 2 Ch 365 ("Duomatic"). See Brick and Pipe Industries Ltd v Occidental Life Nominees Pty Ltd [1992] 2 VR 279 ("Brick and Pipe") at 314-320 per Ormiston J. The Appeal Division of the Supreme Court of Victoria found it unnecessary to decide whether the rule in Duomatic applied: see [1992] 2 VR 279 at 369.
175 The Commission also submitted (and I find) that the majority of the Board of Directors of NII at the time gave their consent to, or acquiescence in, the publication of the newspaper advertisements. Porritt, as found above, placed the advertisements on behalf of NII. Kaye admitted that he caused the newspaper advertisements to be published, but said (and I reject) that they were not published for or on behalf of NII. Although Mr Barnard gave evidence to the effect that the Challenge was Kaye's idea, that it received no Board approval, and that he was told by Kaye that the Challenge was his affair, Mr Barnard's evidence in cross-examination made it clear that he knew that the placing of the newspaper advertisements was part of a promotional campaign to market NII's products, and that he took no steps to prevent Kaye from proceeding with it. In these circumstances, I accept that, as the Commission submitted, there was at least the implied consent or acquiescence of a majority of the Board, if not the entire Board, constituting implied actual authority: see Brick and Pipe at 319; and Equiticorp Finance Ltd (in liq) v Bank of New Zealand (1993) 32 NSWLR 50 at 132-134 per Clarke and Cripps JJA.
Kaye is not liable as an accessory
176 There is little doubt that the officers of a corporation whose conduct is attributed to the corporation (by the operation of s 84) and in respect of which the corporation is in breach of s 52 may, by that conduct, be themselves "involved in the contravention" within the meaning of s 75B: see Yorke v Lucas (1985) 158 CLR 661 ("Yorke v Lucas") at 670 and 677. In the present case, NII contravened s 52 of the TPA by publishing the newspaper advertisements containing representations that would lead ordinary or reasonable members of the public to believe that they could obtain significant net wealth ($1 million or more) in property investments by adopting the Kaye strategies, being the strategies taught by NII in its IM Program, when the fact was that it was not reasonably practicable to obtain such wealth by following such strategies.
177 Counsel for Mr Kaye submitted that Mr Kaye could not be liable as an accessory to any contravention by NII of s 52 of the TPA. Having regard to the transcript of the free seminar in Melbourne and to Mr Solling's letter (see [156] above), it was apparent, so she said, that Kaye very much believed in the strategies taught in the IM Program. She submitted that there was no evidence to support the submission that Kaye knew that his strategies were not reasonably capable of achieving the represented results or that he knew the representations were misleading or deceptive.
178 Section 75B of the TPA relevantly provides that a reference to a person involved in a contravention of s 52 shall be read as a reference to a person who has "aided, abetted, counselled or procured the contravention" (s 75B(1)(a)) or who "has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention" (s 75B(1)(c)). Section 75B indicates the various ways in which a person can be involved in a contravention sufficiently to extend to the making of compensatory orders against that person.
179 In relation to s 75B(1)(a), Mason ACJ, Wilson, Deane and Dawson JJ said in Yorke v Lucas at 667:
[T]he words used, 'aided, abetted, counselled or procured', are taken from the criminal law where they are used to designate participation in a crime as a principal in the second degree or as an accessory before the fact. Both in the case of felonies where the principal offender and secondary participant commit separate offences, and in the case of misdemeanours where no distinction is drawn between the two, a person will be guilty of the offences of aiding and abetting or counselling and procuring the commission of an offence only if he intentionally participates in it. To form the requisite intent he must have knowledge of the essential matters which go to make up the offence whether or not he knows that those matters amount to a crime.
Their Honours added at 669:
Notwithstanding that s 75B operates as an adjunct to the imposition of civil liability, its derivation is to be found in the criminal law and there is nothing to support the view that the concepts which it introduces should be given a new or special meaning.
180 Section 75B(1)(c) extends the liability to someone "knowingly concerned" in contravening conduct. In Yorke v Lucas, the joint judgment concluded at 670:
There can be no question that a person cannot be knowingly concerned in a contravention unless he has knowledge of the essential facts constituting the contravention. …
We have already indicated why par (a) requires knowledge. … In our view, the proper construction of par (c) requires a party to a contravention to be an intentional participant, the necessary intent being based upon knowledge of the essential elements of the contravention.
181 In this Court, this approach has been consistently followed: see, e.g., Australian Competition and Consumer Commission v IMB Group Pty Ltd [2003] FCAFC 17 at [134] per Cooper, Kiefel and Emmett JJ; Fernandez v Glev Pty Ltd [2000] FCA 1859 at [18]; and Chan Cuong Su T/A Ausviet Travel v Direct Flights International Pty Limited (No 2) (1999) ATPR 41-677 at 42, 666.
182 Judicial opinion in this Court has differed as to the extent of knowledge required by s 75B(1)(c): see Medical Benefits Fund at [3]-[7] per Moore J and [83]-[93] per Stone J; and King v GIO Australia Holdings Ltd (2001) 184 ALR 98 at 104 per Moore J. In Medical Benefits Fund, for example,Stone J adopted a different approach to this issue from Moore J (with whom Mansfield J agreed). After referring to Yorke v Lucas at 667-8, Stone J said, at [82], that, in order to be liable as an accessory to a breach of s 52:
[I]t is necessary to know the essential elements of the contravention, by which I understand that one must know that which makes the conduct a contravention; in this case, its misleading and deceptive character. Only then can one form the intention to participate in conduct of that character.
Accordingly, her Honour held, at [93], that the primary judge fell into error because he did not consider it relevant to determine if the alleged accessory knew whether the conduct was misleading or deceptive or likely to mislead or deceive.
183 Moore J, with whom Mansfield J agreed, differed from Stone J in this regard. Referring to Yorke v Lucas at 669-670, Moore J held, at [12], that, on any view, accessorial liability only arose in the case under appeal "if it is at least demonstrated that the alleged accessory knew of the facts which constituted the conduct of MBF which contravene the … Act." His Honour continued at [13]:
In relation to the television advertisements, the conduct of MBF was (firstly) the publication of the advertisements in the context where (secondly) the content of the advertisements (being the visual images, the sound and the way they were formatted and sequenced) might lead members of the public to believe that certain benefits would be enjoyed or rights conferred by taking out insurance with MBF where (thirdly), in fact, they would not be. In my opinion, these three matters constitute, as a minimum, "essential matters" for the purpose of applying the principle established in Yorke v Lucas. I have included the contents of the advertisements and what they might convey as a second essential element because it is the probable impact of their content which transforms what otherwise would be unexceptionable commercial conduct into unlawful conduct.
184 Moore J held, at [14], that the primary judge had erred because the alleged accessory was not aware of the second matter. His Honour explained that while the alleged accessory was aware of what the advertisements contained, the accessory was not aware that the advertisements might lead members of the public to believe that certain benefits would be enjoyed or rights conferred by taking out insurance with MBF. Accordingly, on this view, the primary judge erred in concluding that the alleged accessory was liable as an accessory. Moore J added at [15]-[16] that:
[I]n my opinion, liability as an accessory (in circumstances where the contravening conduct of the principal was making false or misleading representations) does not depend on an affirmative answer to the question whether the alleged accessory knew the representations were false or misleading. All that would be necessary would be for the accessory to know of the matters that enabled the representations to be characterised in that way. In a comparatively simple situation, such as the situation considered in Yorke v Lucas, where particular representations were made to individuals or groups of individuals, knowledge of those matters would almost inevitably result in the alleged accessory also knowing the representations were false or misleading. …
However, in a situation where representations are made to the public and whether they are misleading or deceptive is to be approached at a level of abstraction (to use the language of the High Court in Campomar Sociedad, Limitata v Nike International Ltd (2000) 202 CLR 45 (at [101]) it seems inapt to explore the question of whether the alleged accessory knew the representations were false or misleading in some subjective sense. As illustrated by the preceding consideration of the facts of this case, it is probably appropriate to consider, and only consider, the question of whether the alleged accessory knew that the conduct of the principal might lead members of the public to assume a state of affairs which was not the true state of affairs. If this analysis is correct, then the division of judicial opinion … may, at least in many instances, be illusory rather than real. It is not a large step to say knowledge that a representation may convey a meaning contrary to the facts is also knowledge that the representation is false and the making of the representation is misleading and deceptive conduct.
185 As already noted, Kaye knew that the advertisements were to be and were in fact published. Kaye also knew that the advertisements contained the impugned representations. Since the advertisements were plainly calculated to lead members of the public to believe that they could obtain significant net wealth (at least $1 million) through property investment by adopting the Kaye strategies, I find that Kaye knew that the contents of the advertisements would lead ordinary and reasonable members of the public to believe that they could acquire such wealth by adopting the strategies as taught in the IM Program. Indeed the transcript of the free seminar in Melbourne records that Mr Kaye repeatedly said as much.
186 Did the evidence establish that Mr Kaye knew that his strategies were not reasonably capable of achieving the represented results or that he knew the representations were misleading or deceptive? For the reasons I am about to give, I do not consider that it did.
187 In written submissions, the Commission drew attention to Mr Kaye's concessions concerning the lack of reasonable grounds for some of the radio and Internet representations and to his failure to establish reasonable grounds in relation to other radio and Internet representations. I do not, however, consider that these matters constitute evidence of Mr Kaye's state of mind at the time the newspaper representations were made.
188 The Commission also drew attention to some of the circumstances surrounding the publication of the advertisements and submitted that, bearing in mind that Mr Kaye had been present in court for much of the trial, the Court should infer that he knew the representations were misleading or deceptive or were likely to mislead or deceive.
189 No inference can be drawn from Mr Kaye's failure to give evidence unless there was evidence adduced at trial concerning his state of mind that required an answer (i.e., evidence that would support an inference adverse to Mr Kaye): compare Jones v Dunkel (1959) 101 CLR 298 at 304 per Dixon J, 308 per Kitto J, 309 per Taylor J, 311 per Menzies J, 322 per Windeyer J. Absent some evidence concerning Mr Kaye's state of mind, including evidence that he deliberately shut his eyes to what was going on, there is no basis upon which the Court can draw any inference against Mr Kaye concerning his knowledge. There was, however, no evidence of Mr Kaye's actual state of mind, at the relevant time, other than, perhaps, the transcript of the free seminar in Melbourne (and it did not provide a basis for any inference of the kind the Commission invited me to draw). Wilful blindness is not easily imputed and I would not do so in this case. Accordingly, I reject the Commission's submission that the Court should draw an inference from Mr Kaye's failure to give evidence that he knew either that NII's conduct might lead members of the public to assume a state of affairs which was not true or that the representations were misleading or deceptive or likely to mislead or deceive. I would not therefore conclude that Mr Kaye was liable as an accessory under s 75B of the TPA.
The representations were made in trade and commerce
190 Referring to Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 ("Concrete Constructions") at 603, Yates v Whitlam [1999] NSWSC 976; 32 ACSR 595 and NRMA Limited v Yates (2000) 18 ACLC 45 ("NRMA Limited v Yates"), counsel for Mr Kaye submitted that the publication of the advertisements was not conduct in trade or commerce within the meaning of s 52 of the TPA. Counsel submitted that "[m]edia advertising was not an integral part of NII's trading activities"; and that "the advertisements did not market NII's courses". She referred to NII's marketing arrangements, which were the subject of Mr Barnard's evidence, and to the fact that NII's name did not appear anywhere in the advertisements. She submitted that the purpose of the advertisements was to answer Mr Kaye's critics, rather than to promote NII and its products.
191 Referring to Concrete Constructions at 602-603 and 605, Meadow Gem Pty Ltd v ANZ Executors & Trustee Co Ltd (1994) ATPR (Digest) 46-130 ("Meadow Gem"), Fasold v Roberts (1997) 70 FCR 489 ("Fasold v Roberts") and Glorie v WA Chip and Pulp Co Pty Ltd (1981) 55 FLR 310 ("Glorie v WA Chip and Pulp"), the Commission contended that the advertisements in which the representations were made constituted conduct in trade or commerce, because they were promotional activities in relation to the business of NII.
192 The meaning of the expression "in trade or commerce" was, as the parties agreed, settled in Concrete Constructions, where Mason CJ, Deane, Dawson and Gaudron JJ said at 604:
What the section is concerned with is the conduct of a corporation towards persons, be they consumers or not, with whom it (or those whose interests it represents or is seeking to promote) has or may have dealings in the course of those activities or transactions which, of their nature, bear a trading or commercial character. Such conduct includes, of course, promotional activities in relation to, or for the purposes of, the supply of goods or services to actual or potential consumers, be they identified persons or merely an unidentifiable section of the public.
193 In Meadow Gem at 53,631, Hedigan J said, applying Concrete Constructions, that "the conduct in question does not have to be conduct in connection with one's own business, and that it would be sufficient if the conduct engaged in was for the purpose of promoting the business of some other person or corporation". As Sackville J said in Fasold v Roberts, at 528:
Promotional activities in relation to the supply of goods and services constitute conduct which usually bears a trading or commercial character.