The third respondent (Mr Kritas), as:
1.1 Chief Executive Officer of the first respondent (Mailpost Australia) at all material times until March 2009;
1.2 Executive Chairman of Mailpost Australia at all material times from April 2009; and
1.3 Director and Secretary of Mailpost Australia at all material times,
was, for the purposes of s 75B of the Trade Practices Act 1974 (Cth) (the Act), directly or indirectly knowingly concerned in or party to conduct by Mailpost Australia in contravention of ss 51AD, 52, 53(g) and 59 of the Act as specified in pars 1.4 to 1.9 below:
1.4 Mailpost Australia, in the period from at least 12 August 2008 until around 12 October 2009, engaged in conduct, in trade or commerce, in contravention of s 51AD of the Act by failing to give prospective franchisees of the business it operated (Mailpost Business) a copy of a disclosure document in accordance with cl 6B of the Trade Practices (Industry Codes - Franchising) Regulations 1998 (the Franchising Code).
1.5 Mailpost Australia, in the period from around November 2007 until around 12 October 2009, engaged in conduct, in trade or commerce, in contravention of s 52 of the Act by preparing and providing material to State Master Agents of the Mailpost Business and their representatives for the purpose of recruiting franchisees, which material contained representations to the following effect:
1.5.1 the Mailpost Business was not a franchise; and
1.5.2 thereby franchisees and/or prospective franchisees did not have rights under the Franchising Code,
which representations were misleading or deceptive or likely to mislead or deceive.
1.6 Mailpost Australia, in the period from at least 12 August 2008 until around 12 October 2009, engaged in conduct, in trade or commerce, in contravention of s 53(g) of the Act by making representations in seminars, promotional documents, and orally to franchisees and/or prospective franchisees to the following effect:
1.6.1 the Mailpost Business was not a franchise; and
1.6.2 thereby franchisees and/or prospective franchisees did not have rights under the Franchising Code,
which representations were false or misleading as to the existence or exclusion of rights or remedies of franchisees and/or prospective franchisees.
1.7 Mailpost Australia engaged in conduct, in trade or commerce, in contravention of s 52 and s 59 of the Act by making representations:
1.7.1 in promotional documents distributed, and orally, to franchisees and/or prospective franchises, in the period from at least November 2007 until at least February 2009 to the effect that the Mailpost Business included the following revenue streams:
1.7.1.1 "iMailpost", a secure same day letter delivery service; and
1.7.1.2 "Thunderprint", an optional digital print on demand service;
1.7.2 orally to franchisees and/or prospective franchisees during presentations on 24 and 25 March 2009 that:
1.7.2.1 the Mailpost Business model was "recession proof";
1.7.2.2 the Mailpost Business was "growing in recessive times";
1.7.2.3 the Mailpost Business was "probably the fastest growing franchise type operation in the whole world";
which representations were:
1.7.3 misleading or deceptive, or likely to mislead or deceive, for the purposes of s 52 of the Act; and
1.7.4 false or misleading in a material particular as to the profitability or risk of the Mailpost Business, for the purposes of s 59 of the Act.
1.8 Mailpost Australia, in the period from around November 2007 until at least February 2009, engaged in conduct, in trade or commerce, in contravention of s 52 and s 59 of the Act by preparing and providing to State Master Agents of the Mailpost Business and their representatives for the purpose of recruiting franchisees, material which contained representations to the effect that the Mailpost Business included the following revenue streams:
1.8.1 "iMailpost", a secure same day letter delivery service; and
1.8.2 "Thunderprint", an optional digital print on demand service,
which representations were:
1.8.3 misleading or deceptive, or likely to mislead or deceive, for the purposes of s 52 of the Act; and
1.8.4 false or misleading in a material particular as to the profitability or risk of the Mailpost Business, for the purposes of s 59 of the Act.
1.9 Mailpost Australia, in the period from around January 2009 until at least August 2009, engaged in conduct, in trade or commerce, in contravention of s 52 and s 59 of the Act by causing on-line advertisements to be published with Seek Limited and providing copies of such advertisements to State Master Agents of the Mailpost Business for the purpose of recruiting franchisees, which advertisements contained representations to the following effect:
1.9.1 "Business Development Agents" for the Mailpost Business would earn or could reasonably be expected to earn "$160K OTE" per year; and
1.9.2 regional franchisees of the Mailpost Business would earn or could reasonably be expected to earn "$180,000 + pa";
which representations were:
1.9.3 misleading or deceptive, or likely to mislead or deceive, for the purposes of s 52 of the Act; and
1.9.4 false or misleading in a material particular as to the profitability or risk of the Mailpost Business, for the purposes of s 59 of the Act.
The second respondent (Mailpost Postie Network), in trade or commerce, engaged in conduct in contravention of s 51AD of the Act as specified in pars 2.1 to 2.2 below:
2.1 Mailpost Postie Network, in the period from at least 12 August 2008 until around 12 October 2009, failed to give prospective franchisees of the Mailpost Business a copy of:
2.1.1 a disclosure document, in accordance with cl 6B and cl 10 of the Franchising Code;
2.1.2 the Franchising Code, in accordance with cl 10 of the Franchising Code; and
2.1.3 the franchise agreement in the form in which it was to be executed, in accordance with cl 10 of the Franchising Code.
2.2 Mailpost Postie Network, in the period from at least 12 August 2008 until around 12 October 2009, entered into franchise agreements without first obtaining from prospective franchisees of the Mailpost Business, in accordance with cl 11 of the Franchising Code:
2.2.1 a copy of a written statement that the prospective franchisee had received, read and had a reasonable opportunity to understand the disclosure document and the Franchising Code; and
2.2.2 a signed statement or signed statements by an independent legal adviser, business adviser or accountant that the prospective franchisee had been given advice about the proposed franchise agreement or franchised business by that independent legal adviser, business adviser or accountant; or
2.2.3 a signed statement by the prospective franchisee that the prospective franchisee:
2.2.3.1 had been given advice about the proposed franchise agreement referred to in par 2.2.2; or
2.2.3.2 had been told that advice about the proposed franchise agreement or the franchised business referred to in par 2.2.2 should be sought but had decided not to seek that advice.
Mr Kritas, as Secretary of Mailpost Postie Network at all material times, was, for the purposes of s 75B of the Act, directly or indirectly knowingly concerned in or party to conduct by Mailpost Postie Network, in trade or commerce, in contravention of s 51AD of the Act as specified in par 2.1 and par 2.2 above.
BY CONSENT, THE COURT ORDERS THAT:
Injunctions
Mailpost Postie Network provide a copy of a disclosure document, the Franchising Code and the relevant franchise agreement in the form in which it is to be executed to each prospective franchisee at least 14 days before the prospective franchisee:
4.1 enters into a franchise agreement with Mailpost Postie Network;
4.2 enters into an agreement to enter into a franchise agreement with Mailpost Postie Network; or
4.3 makes a non-refundable payment to Mailpost Postie Network in connection with any prospective franchise agreement.
Mailpost Postie Network obtain from each prospective franchisee prior to the prospective franchisee entering into a franchise agreement with Mailpost Postie Network:
5.1 a written statement that the prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and the Franchising Code; and
5.2 a signed statement or signed statements by an independent legal adviser, business adviser or accountant that the prospective franchisee has been given advice about the proposed franchise agreement or franchised business by that independent legal adviser, business adviser or accountant; or
5.3 a signed statement by the prospective franchisee that the prospective franchisee:
5.3.1 has been given advice about the proposed franchise agreement or franchised business referred to in par 5.2; or
5.3.2 has been told that advice about the proposed franchise agreement or the franchised business referred to in par 5.2 should be sought but has decided not to seek that advice.
Mr Kritas be restrained for a period of five years from 20 April 2010, whether by himself, his agents or otherwise from being directly or indirectly knowingly concerned in or party to any corporation associated with the Mailpost Business, or any other corporation which fails to provide a copy of a disclosure document, the Franchising Code and the relevant franchise agreement in the form in which it is to be executed to any prospective franchisee of a franchised business operated by that corporation, at least 14 days before the prospective franchisee:
6.1 enters into a franchise agreement with that corporation;
6.2 enters into an agreement to enter into a franchise agreement with that corporation; or
6.3 makes a non-refundable payment to that corporation in connection with any prospective franchise agreement.
Mr Kritas be restrained for a period of five years from 20 April 2010, whether by himself, his agents or otherwise from being directly or indirectly knowingly concerned in or party to any corporation associated with the Mailpost Business, or any other corporation which fails to obtain from any prospective franchisee of a franchised business operated by that corporation, prior to the prospective franchisee entering into a franchise agreement with that corporation:
7.1 a written statement that the prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and the Franchising Code; and
7.2 a signed statement or signed statements by an independent legal adviser, business adviser or accountant that the prospective franchisee has been given advice about the proposed franchise agreement or franchised business by that independent legal adviser, business adviser or accountant; or
7.3 a signed statement by the prospective franchisee that the prospective franchisee:
7.3.1 has been given advice about the proposed franchise agreement or franchised business; or
7.3.2 has been told that advice about the proposed franchise agreement or the franchised business should be sought but has decided not to seek that advice.
Mr Kritas be restrained for a period of five years from 20 April 2010, whether by himself, his agents or otherwise from being directly or indirectly knowingly concerned in or party to any corporation associated with the Mailpost Business, or any other corporation which provides material to master franchisees of a franchise operated by that corporation for the purposes of recruiting franchisees, which material contains representations to the effect that the franchised business is not a franchise.
Mr Kritas be restrained for a period of five years from 20 April 2010, whether by himself, his agents or otherwise from being directly or indirectly knowingly concerned in or party to any corporation associated with the Mailpost Business, or any other corporation which represents to franchisees or prospective franchisees of a franchised business operated by that corporation that the franchised business is not a franchise.
Mr Kritas be restrained for a period of five years from 20 April 2010, whether by himself, his agents or otherwise from being directly or indirectly knowingly concerned in or party to any corporation associated with the Mailpost Business, or any other corporation which represents to franchisees or prospective franchisees of a franchised business operated by the corporation that the franchised business includes products and/or services which generate other revenue streams for franchisees of that business when the franchised business does not include those products and/or services.
Mr Kritas be restrained for a period of five years from 20 April 2010, whether by himself, his agents or otherwise from being directly or indirectly knowingly concerned in or party to any corporation associated with the Mailpost Business, or any other corporation which represents to franchisees or prospective franchisees of a franchised business operated by that corporation that the franchised business model is such that it is "recession proof" or which uses other terminology that suggests that its business would not be substantially affected by a downturn in the economy, unless the corporation has reasonable grounds for making such representations at the time when they are made.
Mr Kritas be restrained for a period of five years from 20 April 2010, whether by himself, his agents or otherwise from being directly or indirectly knowingly concerned in or party to any corporation associated with the Mailpost Business, or any other corporation which provides material to master franchisees of a franchise operated by that corporation for the purposes of recruiting franchisees, which material contains representations to the effect that the franchised business includes products and/or services which generate other revenue streams for franchisees of that business when the franchised business does not include those products and/or services.
Mr Kritas be restrained for a period of five years from 20 April 2010, whether by himself, his agents or otherwise from being directly or indirectly knowingly concerned in or party to any corporation associated with the Mailpost Business, or any other corporation which represents that:
13.1 sales agents for a franchised business operated by the corporation will earn, or could reasonably be expected to earn, a specific salary or commission amount per year; or
13.2 franchisees of the franchised business will earn, or could reasonably be expected to earn, a certain salary or commission amount per year;
unless that corporation has reasonable grounds for making such representations at the time when they are made.
Mr Kritas be restrained for a period of five years from 20 April 2010, whether by himself, his agents or otherwise from being directly or indirectly knowingly concerned in or party to any corporation associated with the Mailpost Business, or any other corporation which provides material to master franchisees of a franchised business operated by that corporation for the purpose of recruiting franchisees, which material contains representations to the following effect:
14.1 sales agents for a franchised business operated by the corporation will earn, or could reasonably be expected to earn, a certain salary or commission amount per year; or
14.2 franchisees of the franchised business will earn, or could reasonably be expected to earn, a certain salary or commission amount per year;
unless that corporation has reasonable grounds for making such representations at the time when they are made.
Disclosure and Publication Orders
By 4 May 2010, Mailpost Postie Network send, at its own expense, a sealed copy of these orders and a sealed copy of the Reasons for Judgment published herein on 20 April 2010 by email and by prepaid post to the last known email address and postal address of each person who purchased a franchise from Mailpost Postie Network.
By 4 May 2010, Mr Kritas send, at his own expense, a sealed copy of these orders and a sealed copy of the Reasons for Judgment published herein on 20 April 2010 by email and by prepaid post to the last known email address and postal address of each person who purchased a franchise of the Mailpost Business except those persons who purchased a franchise from Mailpost Postie Network.
Trade Practices Compliance Program Orders
Mailpost Postie Network:
17.1 by 19 May 2010, establish and implement a Trade Practices Compliance Program in accordance with the requirements set out in Annexure A to these Orders for the employees, officers and/or agents involved in the business of Mailpost Postie Network, being a program designed to minimise the risk of future breaches of s 51AD of the Act by Mailpost Postie Network and to ensure awareness of its responsibilities and obligations in relation to the requirements of s 51AD of the Act;
17.2 maintain and continue to implement that Trade Practices Compliance Program for a period of three years from 20 April 2010; and
17.3 within 14 days of any request, provide at its own expense a copy of any documents or information requested by the applicant (the ACCC) concerning such Trade Practices Compliance Program.
In accordance with the requirements set out in Annexure A to these Orders, Mailpost Postie Network:
18.1 by 16 June 2010:
18.1.1 establish a trade practices complaints handling mechanism, including procedures for recording and responding to such requests; and
18.1.2 provide the ACCC with an outline of the complaints handling mechanism developed;
18.2 within 14 days of the request being received, provide, at its own expense, copies of any documents or information requested by the ACCC concerning such trade practices complaints handling mechanism.
By 19 May 2010, and at least once within the period of one year thereafter, Mr Kritas attend practical trade practices training focusing on ss 51AD, 52, 53(g), and 59 of the Act, such training to be administered by a suitably qualified compliance professional or legal practitioner.
Mr Kritas provide to the ACCC within 14 days of completion of each training session a written statement or certificate from the trade practices professional who conducts the training referred to in Order 19 above.
Other Orders
A copy of these Orders and the Reasons for Judgment published on 20 April 2010, with the seal of the Court applied, be placed on the Court file for the purposes of s 83 of the Act.
The proceeding against the respondents otherwise be dismissed.
THE COURT NOTES THAT:
Mr Kritas is to pay a contribution to the ACCC's costs in such amount as may be or has been agreed between Mr Kritas and the ACCC.
[2]
Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.
The text of entered orders can be located using Federal Law Search on the Court's website.
[3]
Training of employees
1.1 By 19 May 2010, and thereafter at least once a year for a period of three years, Mailpost Postie Network will cause all employees, officers and/or agents of Mailpost Postie Network whose duties could result in them being concerned with conduct that may contravene s 51AD of the Trade Practices Act 1974 (Cth) (the Act) to attend regular (at least once a year) practical training administered by a suitably qualified compliance professional or legal practitioner with expertise in trade practices law, that focuses on s 51AD of the Act.
1.2 Mailpost Postie Network will cause all new employees, officers and/or agents of Mailpost Postie Network whose duties could result in them being concerned with conduct that may contravene s 51AD of the Act to attend the training referred to in par 1.1 above within one month of commencing employment or otherwise with Mailpost Postie Network.
Complaints handling
2.1 By 16 June 2010, Mailpost Postie Network will:
2.1.1 develop procedures for recording, storing and responding to trade practices complaints; and
2.1.2 provide the ACCC with an outline of the complaint handling system developed.
2.2 If requested by the ACCC, Mailpost Postie Network will provide, at its own expense, copies of any other documents or information in respect of matters which are the subject of the Compliance Program within 14 days of the request being received.
[4]
GENERAL DIVISION NSD 1474 of 2009
[5]
BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION
[6]
AND: MAILPOST AUSTRALIA LIMITED (ACN 120 581 599)
[7]
MAILPOST POSTIE NETWORK SYDNEY PTY LIMITED (ACN 125 913 573)
[8]
REASONS FOR JUDGMENT
1 The first respondent (Mailpost Australia) commenced business in early 2007. Its principal business activity was as the Australian master franchisor of a print and distribution business for unaddressed mail called Mailpost. Mailpost Australia was placed into liquidation on 2 February 2010. It has taken no active part in this proceeding.
2 Mailpost Australia appointed various corporations as State Master Agents in respect of its activities in each of the States of New South Wales, Victoria, Queensland, South Australia and Western Australia. State Master Agents were authorised to grant franchises of the Mailpost Business to individuals and corporations. These franchisees were classified as Posties, Managing Posties and Regional Agents.
3 The second respondent (Mailpost Postie Network) carries on business in New South Wales as the State Master Agent for the Mailpost Business in that State.
4 The third respondent (Mr Kritas) was the Chief Executive Officer of Mailpost Australia from early 2007 until March 2009. After March 2009, Mr Kritas was the Executive Chairman of Mailpost Australia. At all relevant times, Mr Kritas was a Director and the Secretary of Mailpost Australia. Throughout the period from 2007 to early 2010, Mr Kritas controlled Mailpost Australia and its businesses. He was also the Secretary of Mailpost Postie Network throughout the period from 12 June 2007 to 1 January 2010.
5 In July 2009, the applicant (the ACCC) commenced an investigation into the activities of Mailpost Australia and Mailpost Postie Network after receiving a number of complaints from franchisees appointed by Mailpost Postie Network concerning the manner in which that corporation and Mailpost Australia were operating the franchised Mailpost Business in New South Wales.
6 After concluding its investigation, the ACCC commenced this proceeding. In this proceeding, the ACCC claimed declaratory and injunctive relief in respect of alleged contraventions of ss 51AD, 52, 53(g) and 59 of the Trade Practices Act 1974 (Cth) (the Act). The breaches of s 51AD of the Act alleged against Mailpost Australia and Mailpost Postie Network concerned non-compliance by those companies with the Trade Practices (Industry Codes - Franchising) Regulations 1998 (Statutory Rules No 162 of 1998) (the Franchising Code). The alleged contraventions of ss 52, 53(g) and 59 of the Act involved the making of misleading or false representations. The Application was filed on 23 December 2009. The proceeding first came before the Court on 2 February 2010. Thereafter, it was adjourned on two occasions in order to enable settlement discussions to proceed. The proceeding has now been settled and was listed before me on 26 March 2010 for the purpose of my considering and, if appropriate, making final orders by consent.
7 Some of the injunctions agreed amongst the parties (those to be made against Mr Kritas) are limited to a period of five years from the date when the orders are made. During the course of argument on 26 March 2010, I indicated to the legal representatives of the parties that I had some reservations as to the Court's power to grant final injunctions, even if by consent, the effect of which was to restrain parties from committing contraventions of the Act for a limited period of time. I also raised the question of whether, assuming the Court has power to grant final injunctions for a limited period of time, such relief should, in the exercise of the Court's discretion, be granted in the present case. In broad terms, I was otherwise prepared to make the declarations and to grant the final injunctions in the form agreed by the active parties. That remains the position.
8 In light of the remarks which I made on 26 March 2010, the parties requested an opportunity to address the concerns which I had raised. Subsequently, a Joint Written Submission addressing those concerns was filed on behalf of the ACCC, Mailpost Postie Network and Mr Kritas. In that submission, those parties renewed their joint application for declarations and orders in the terms of the consent declarations and orders which they had presented to the Court on 26 March 2010. The precise declarations and orders sought are to be found in the Annexure to the Statement of Agreed Facts dated and filed on 24 March 2010 (Exhibit A). Exhibit A will remain in the Court file.
9 Having reflected further on the matter and having been assisted by the active parties' Joint Written Submission, I am now prepared to grant final injunctive relief against Mr Kritas in the terms sought.
10 These Reasons for Judgment constitute my reasons for making the declarations and orders sought by the active parties to this proceeding substantially in the form agreed amongst those parties.
[9]
The Respondents' Conduct
11 In the Statement of Agreed Facts (Exhibit A) the following facts and matters were agreed and thus admitted by both Mailpost Postie Network and Mr Kritas for the purposes of this proceeding:
(a) At all times since early 2007, franchisees and prospective franchisees of the Mailpost Business had rights under the Franchising Code (Par 12.3 of Exhibit A).
(b) Franchisees paid money in connection with Mailpost franchise agreements into a bank account owned and operated by Mailpost Australia. Mr Kritas opened that account and was one of the authorised signatories on that account (Par 12.7 of Exhibit A).
(c) On or about 12 August 2008, Zach Marrett, Legal Director of Mailpost Australia, issued a directive on behalf of Mailpost Australia to persons associated with Mailpost Postie Network including a director of Mailpost Postie Network and representatives of other State Master Agents in Western Australia, South Australia and Queensland. The email setting out the directive was copied to Mr Kritas. The directive included the following:
With immediate effect please discontinue the practise [sic] of issuing the Franchise Code of Conduct and Disclosure Document to prospective Posties and Managing Posties. Our position is that we have a Principal-Agent relationship with the Postie and MP and not a Franchisor-Franchisee relationship. Therefore, we need to emphasise this relationship rather than confuse the Postie (or its solicitor) by handing out the FCC and DD.
(Par 13 of Exhibit A)
(d) The directive was issued with Mr Kritas' authority and/or knowledge in reliance on advice provided by Mr Marrett (Par 14 of Exhibit A).
(e) From at least 12 August 2008 until around 12 October 2009, Mailpost Australia failed to give prospective franchisees of the Mailpost Business a copy of a disclosure document in accordance with cl 6B of the Franchising Code (Par 15 of Exhibit A).
(f) During the period from around September 2007 to around 12 August 2008, Mailpost Postie Network failed to give copies of each of:
(1) a disclosure document, in accordance with cl 6B and cl 10 of the Franchising Code;
(2) the Franchising Code, in accordance with cl 10 of the Franchising Code; and/or
(3) the franchise agreement in the form in which it was to be executed, in accordance with cl 10 of the Franchising Code
to a number of prospective franchisees of the Mailpost Business (Par 16 of Exhibit A).
(g) From around 12 August 2008 until around 12 October 2009, Mailpost Postie Network did not give any prospective franchisees of the Mailpost Business a copy of:
(1) a disclosure document, in accordance with cl 6B and cl 10 of the Franchising Code;
(2) the Franchising Code, in accordance with cl 10 of the Franchising Code; and
(3) the franchise agreement in the form in which it was to be executed, in accordance with cl 10 of the Franchising Code.
(Par 17 of Exhibit A)
(h) During the period from around September 2007 to around 12 August 2008, Mailpost Postie Network entered into franchise agreements for the Mailpost Business with a number of franchisees, without first obtaining from those franchisees:
(1) in accordance with cl 11(1) of the Franchising Code, a copy of a written statement that the prospective franchisee had received, read and had a reasonable opportunity to understand the requisite disclosure document and the Franchising Code; and
(2) in accordance with cl 11(2) of the Franchising Code:
(2.1) a signed statement or signed statements by an independent legal adviser, business adviser or accountant that the prospective franchisee had been given advice about the proposed franchise agreement or franchised business by that independent legal adviser, business adviser or accountant; or
(2.2) a signed statement by the prospective franchisee that the prospective franchisee:
(2.2.1) had been given advice about the proposed franchise agreement referred to in par (h)(2.1) above; or
(2.2.2) had been told that advice about the proposed franchise agreement or the franchised business referred to in par (h)(2.1) above should be sought but had decided not to seek that advice.
(Par 18 of Exhibit A)
(i) From around 12 August 2008 until around 12 October 2009, Mailpost Postie Network entered into franchise agreements for the Mailpost Business without first obtaining from any prospective franchisee both of the following:
(1) in accordance with cl 11(1) of the Franchising Code, a copy of a written statement that the prospective franchisee had received, read and had a reasonable opportunity to understand the requisite disclosure document and the Franchising Code; and
(2) in accordance with cl 11(2) of the Franchising Code:
(2.1) a signed statement or signed statements by an independent legal adviser, business adviser or accountant that the prospective franchisee had been given advice about the proposed franchise agreement or franchised business by that independent legal adviser, business adviser or accountant; or
(2.2) a signed statement by the prospective franchisee that the prospective franchisee:
(2.2.1) had been given advice about the proposed franchise agreement referred to in par (i)(2.1) above; or
(2.2.2) had been told that advice about the proposed franchise agreement or the franchised business referred to in par (i)(2.1) above should be sought but had decided not to seek that advice.
(Par 19 of Exhibit A)
(j) Mr Kritas knew that, from at least 12 August 2008 to 12 October 2009:
(1) Mailpost Australia was not giving to prospective franchisees of the Mailpost Business a copy of the requisite disclosure document in accordance with cl 6B of the Franchising Code;
(2) Mailpost Postie Network was not giving to prospective franchisees of the Mailpost Business copies of the documents referred to in pars (f)(1), (f)(2), (f)(3), (g)(1), (g)(2) and (g)(3) above; and
(3) Mailpost Postie Network was entering into franchise agreements for the Mailpost Business without first obtaining from prospective franchisees the documents referred to in pars (h)(1), (h)(2), (i)(1) and (i)(2) above; and
was directly or indirectly concerned in or a party to those omissions (Par 20 of Exhibit A).
(k) In the period from around November 2007 until around 12 October 2009, Mailpost Australia prepared and provided material to State Master Agents of the Mailpost Business and their representatives for the purpose of recruiting franchisees, which material contained representations to the following effect:
(1) the Mailpost Business was not a franchise; and
(2) franchisees and/or prospective franchisees therefore did not have rights under the Franchising Code.
(Par 21 of Exhibit A)
(l) In the period from around November 2007 until around 12 October 2009, Mailpost Australia made representations in seminars, promotional documents and orally to franchisees and/or prospective franchisees to the following effect:
(1) the Mailpost Business was not a franchise; and
(2) franchisees and/or prospective franchisees therefore did not have rights under the Franchising Code.
(Par 22 of Exhibit A)
(m) As set out in par (a) and par (b) above, throughout the period from early 2007 to late 2009, the Mailpost Business was a franchise for the purposes of the Franchising Code and consequently franchisees and prospective franchisees had rights under the Franchising Code (Par 23 of Exhibit A).
(n) The material referred to in par (k) above and the promotional documents referred to in par (l) above, included a document styled as a "Certificate of Understanding", setting out the concept of the Mailpost Business for prospective "agents", versions of which were dated November 2007 and January 2008, both prepared by Mr Kritas, and February 2009, which version had been modified by Mr Marrett (Par 24 of Exhibit A).
(o) The seminars referred to in par (l) above included the Mailpost Australia "Mailpost National RSA training conference" conducted on or about 16 February 2008. At that conference Mr Marrett made oral statements, on behalf of Mailpost Australia, for the purposes of training Regional Sales Agents to sell franchises, which included statements to the following effect:
(1) the Mailpost Business was an agency and not a franchise;
(2) referring to the Mailpost Business as a franchise was misleading;
(3) verbal or written references to the Mailpost Business being a franchise should now cease;
(4) the Mailpost Business was not obliged to comply with the Franchising Code of conduct because the Mailpost Business was not a franchise; and
(5) nonetheless, the Mailpost Business did comply with the disclosure requirements under the Franchising Code.
(Par 25 of Exhibit A)
(p) Mr Kritas was present at the conference referred to in par (o) above when Mr Marrett made the statements noted in par (o) above. Mr Kritas participated in the training session where those statements were made. The oral representations made by Mr Marrett at that conference were made with Mr Kritas' authority and knowledge in reliance on advice provided by Mr Marrett (Par 26 of Exhibit A).
(q) Mr Kritas either made the representations referred to in pars (k), (l) and (o) above or was otherwise directly or indirectly concerned, or a party to, the making of them (Par 27 of Exhibit A).
(r) In the period from at least November 2007 until at least March 2009, Mailpost Australia:
(1) made representations in writing in promotional documents distributed by it and orally to franchisees and/or prospective franchisees of the Mailpost Business; and
(2) prepared, and provided to State Master Agents of the Mailpost Business and their representatives for the purpose of recruiting franchisees, material which contained representations
that the Mailpost Business included the following revenue streams:
(3) "iMailpost", a secure same day letter delivery service; and
(4) "Thunderprint", an optional digital print on demand service;
when the Mailpost Business did not include either of those products or services as a revenue stream at any of those times. Rather, those products or services were intended to be (but never in fact were) introduced at a future date (Par 28 of Exhibit A).
(s) The occasions on which the representations referred to in par (r)(1) above were made orally included, in relation to iMailpost, presentations about the Mailpost Business made to franchisees and/or prospective franchisees on behalf of Mailpost Australia by Mr Kritas on 24 and 25 March 2009 (Par 29 Exhibit A).
(t) The occasions on which the representations referred to in par (r)(1) above were made orally included, in relation to Thunderprint, a presentation about the Mailpost Business made to franchisees and/or prospective franchisees on behalf of Mailpost Australia by Mr Kritas on 31 March 2009 (Par 30 of Exhibit A).
(u) The promotional documents referred to in par (r)(1) above and the material referred to in par (r)(2) above included documents styled as "Business Overviews" in relation to the Mailpost Business, versions of which were prepared by Mr Kritas in November 2007 and January 2008 and modified by Mr Marrett in February 2009 (Par 31 of Exhibit A).
(v) Mr Kritas made the representations referred to in par (r) above or was otherwise directly or indirectly concerned, or a party to, the making of them (Par 32 of Exhibit A).
(w) Mr Kritas knew that, in the period from at least November 2007 until at least March 2009, the Mailpost Business did not include either iMailpost or Thunderprint as a revenue stream (Par 33 of Exhibit A).
(x) During presentations about the Mailpost Business to franchisees and/or prospective franchisees on 24 and 25 March 2009, Mr Kritas, on behalf of Mailpost Australia, made representations orally that:
(1) the Mailpost Business model was "recession proof";
(2) the Mailpost Business was "growing in recessive times";
(3) the Mailpost Business was "probably the fastest growing franchise type operation in the whole world",
when each of those representations was false or was at least misleading at the time each of them was made (Par 34 of Exhibit A).
(y) Mr Kritas was directly involved in the making of the representations referred to in par (x) above (Par 35 of Exhibit A).
(z) In the period from around January 2009 until at least August 2009, Mailpost Australia caused on-line advertisements to be published with Seek Limited and provided copies of the advertisements to State Master Agents of the Mailpost Business for the purpose of recruiting franchisees, which advertisements contained representations to the following effect:
(1) "Business Development Agents" for the Mailpost Business would earn or could reasonably be expected to earn "$160K OTE" per year;
(2) regional franchisees of the Mailpost Business would earn or could reasonably be expected to earn "$180,000 + pa";
when, during that period:
(3) Business Development Agents for the Mailpost Business were not earning and could not reasonably be expected to earn "$160K OTE" per year; and
(4) regional franchisees of the Mailpost Business were not earning and could not reasonably be expected to earn "$180,000 + pa".
(Par 36 of Exhibit A)
(aa) Mr Kritas was directly or indirectly knowingly concerned in, or a party to, the making of, the representations referred to in par (z) above (Par 37 of Exhibit A).
[10]
The Franchising Code
12 The regulations made under the Act may prescribe an industry code, or specified provisions of an industry code, for the purposes of Pt IVB of the Act and declare such a prescribed industry code, or prescribed specified provisions of an industry code, to be a mandatory industry code or a voluntary industry code (s 51AE of the Act).
13 Pursuant to s 51AE of the Act, the Franchising Code was prescribed as a mandatory industry code as and from 1 July 1998 (cl 2 and cl 3 of the Franchising Code). The Franchising Code applies to a franchise agreement entered into on or after 1 October 1998 (cl 5(1)). It also generally applies to parties involved in negotiations for a franchise and to other franchising activities carried out on or after 1 October 1998 (cl 5(2)(b)). Some provisions of the Franchising Code apply to conduct which took place between 1 July 1998 and 1 October 1998 (cl 5(2)(a)). These provisions are not presently relevant. Clause 5(3) and cl 5(4) provide for some exemptions from the Franchising Code. These exemptions are not presently relevant.
14 A franchisor whose activities are covered by the Franchising Code must create a disclosure document for the relevant franchise which is to be operative in the period prior to any franchise agreement being entered into and which must be reconsidered and revised where necessary within four months after the end of each financial year thereafter (cl 6(1)). The disclosure document must conform to pro forma disclosure documents attached to the Franchising Code as Annexures 1 and 2 as appropriate (cl 6(2)).
15 Clause 6A of the Franchising Code is in the following terms:
6A Purpose of disclosure document
The purposes of a disclosure document are:
[11]
(a) to give to a prospective franchisee, or a franchisee proposing to enter into, renew or extend a franchise agreement, information from the franchisor to help the franchisee to make a reasonably informed decision about the franchise; and
(b) to give a franchisee current information from the franchisor that is material to the running of the franchised business.
16 A franchisor must give a current disclosure document to a prospective franchisee or, if appropriate, to an existing franchisee who proposes to renew an existing franchise agreement or extend the scope or term of an existing franchise agreement. Subfranchisors must provide appropriate disclosure documents in respect of the master franchise as well as the subfranchise (cl 6B).
17 Clause 10 and cl 11 of the Franchising Code are in the following terms:
10 Franchisor obligations
[12]
(a) a copy of this code; and
(b) a disclosure document; and
[13]
(c) a copy of the franchise agreement, in the form in which it is to be executed;
to:
[14]
(d) a prospective franchisee at least 14 days before the prospective franchisee:
(i) enters into a franchise agreement or an agreement to enter into a franchise agreement; or
(ii) makes a non refundable payment (whether of money or of other valuable consideration) to the franchisor or an associate of the franchisor in connection with the proposed franchise agreement; or
(e) a franchisee at least 14 days before renewal or extension of the franchise agreement.
Note Subsection 9 (1) of the Electronic Transactions Act 1999 provides that a requirement under a law of the Commonwealth to give information in writing is satisfied by giving the information electronically if it is reasonable to expect that the information will be readily accessible so as to be useable for subsequent reference, and the person to whom the information is given consents to it being provided electronically.
[15]
11 Advice before entering into franchise agreement
(1) The franchisor must not:
[16]
(a) enter into, renew or extend a franchise agreement; or
(b) enter into an agreement to enter into, renew or extend a franchise agreement; or
(c) receive a non refundable payment (whether of money or of other valuable consideration) under a franchise agreement or an agreement to enter into a franchise agreement;
unless the franchisor has received from the franchisee or prospective franchisee a written statement that the franchisee or prospective franchisee has received, read and had a reasonable opportunity to understand the disclosure document and this code.
[17]
(2) Before a franchise agreement is entered into, the franchisor must have received from the prospective franchisee:
(a) signed statements, that the prospective franchisee has been given advice about the proposed franchise agreement or franchised business, by any of:
(i) an independent legal adviser;
(ii) an independent business adviser:
(iii) an independent accountant; or
(b) for each kind of statement not received under paragraph (a), a signed statement by the prospective franchisee that the prospective franchisee:
(i) has been given that kind of advice about the proposed franchise agreement or franchised business; or
(ii) has been told that that kind of advice should be sought but has decided not to seek it.
(3) Subclause (2):
[18]
(a) does not apply to the renewal or extension of a franchise agreement with a franchisor; and
(b) does not prevent the franchisor from requiring any or all of the statements mentioned in paragraph (2)(a).
18 The form of disclosure document provided for in Annexure 1 to the Franchising Code requires the franchisor to set out in the document specified particulars of the relevant business experience in the last ten years of various specific persons associated with the franchise and to address specified matters in respect of any intellectual property said to be licensed as part of the franchise.
[19]
The Relevant Provisions of the Act
19 Sections 51AD, 52, 53(g) and 59 of the Act are in the following terms:
51AD Contravention of industry codes
A corporation must not, in trade or commerce, contravene an applicable industry code.
[20]
52 Misleading or deceptive conduct
(1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.
(2) Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).
Note: For rules relating to representations as to the country of origin of goods, see Division 1AA (sections 65AA to 65AN).
…
53 False or misleading representations
A corporation shall not, in trade or commerce, in connexion with the supply or possible supply of goods or services or in connexion with the promotion by any means of the supply or use of goods or services:
[21]
…
(g) make a false or misleading representation concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy.
…
59 Misleading representations about certain business activities
(1) A corporation shall not, in trade or commerce, make a representation that is false or misleading in a material particular concerning the profitability or risk or any other material aspect of any business activity that the corporation has represented as one that can be, or can be to a considerable extent, carried on at or from a person's place of residence.
(2) Where a corporation, in trade or commerce, invites, whether by advertisement or otherwise, persons to engage or participate, or to offer or apply to engage or participate, in a business activity requiring the performance by the persons concerned of work, or the investment of moneys by the persons concerned and the performance by them of work associated with the investment, the corporation shall not make, with respect to the profitability or risk or any other material aspect of the business activity, a representation that is false or misleading in a material particular.
20 Declaratory relief (pursuant to s 21 of the Federal Court of Australia Act 1976 (Cth) and s 163A of the Act (insofar as contraventions of ss 52, 53(g) and 59 of the Act are concerned)), injunctions (pursuant to s 80 of the Act) and other relief (pursuant to s 82 and s 87 of the Act) may be sought for contraventions of the various provisions relied upon by the ACCC in the present case.
21 In the present case, I have been asked to make declarations and injunctions by consent and to make findings for the purposes of s 83 of the Act.
[22]
Findings
22 I make the findings set out in [1]-[5] and [11] above. I make those findings for the purposes of s 83 of the Act. I make those findings upon the basis of the Statement of Agreed Facts (Exhibit A) and the admissions made therein.
23 Those findings are sufficient to support the declarations and orders sought by consent (including the Trade Practices Compliance Program Orders and the order which I propose to make for the purposes of s 83 of the Act).
24 As noted at [9] and [10] above, I propose to make declarations and orders substantially in the form of the consent declarations and orders submitted by the parties. There will be orders accordingly.
[23]
Final Injunctions Limited as to Time
25 In ICI Australia Operations Pty Limited v Trade Practices Commission (1992) 38 FCR 248 at 268-269, French J, when sitting as a Judge of this Court, said:
I have read the judgment of Lockhart J and agree with the orders his Honour proposes and generally for the reasons which he has set out.
[24]
The Trade Practices Act 1974 (Cth) is concerned primarily with the protection of the public interest in the prevention of anti-competitive conduct in markets within Australia (Pt IV) and the fair treatment of consumers (Pt V). Section 80 is a widely drawn remedial provision available to restrain conduct which may infringe upon that public interest by contraventions of provisions of the Act in Pt IV and Pt V. The standing of persons, other than those whose proprietary interests may be affected by such conduct, to obtain injunctive relief is an indication of the regulatory function of this statutory remedy. The special standing of the Minister and the Commission lends emphasis to that characterisation. I accept that s 80(1) which empowers the court by providing that it "may grant an injunction" does not thereby establish a presumption in favour of such a grant where a contravention or proposed contravention of the Act is made out. Nevertheless, the broad nature of the discretion is underlined by s 80(4) which authorises the grant of relief against a person:
[25]
"(a) whether or not it appears to the Court that the person intends to engage again or to continue to engage in contravening conduct;
(b) whether or not the person has previously engaged in conduct of that kind; and
(c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind."
There is room within the statutory framework and the policy that underlies it for an injunction which is intended not to restrain an apprehended repetition of contravening conduct but to deter an offender from repeating the offence. That deterrence is effected by attaching to the repetition of the contravention the range of sanctions available for contempt of court. The possibility remains open, by virtue of s 80(3), that after a suitable period unmarked by further contravention the party restrained may apply to the court to rescind the order.
[26]
The remedy is flexible and may be applied in service of a variety of functions to support the policy of the Act. This was a proper case for the grant of that relief.
[27]
I should add that as a matter of form the terms of an injunction should generally be self-contained. Although I do not disagree with the order proposed by Lockhart J it is, in my opinion, generally preferable, where practicable, to have the entire text of the restraint expressed in the order itself so that it is not necessary to refer to any attached documents.
26 In the same case, Lockhart J (at 254-259) discussed the provenance, nature and scope of what his Honour called a "statutory injunctive power used in regulatory legislation". His Honour's observations were made in respect of s 80 of the Act. At 255 his Honour observed that s 80 was essentially a public interest provision designed to secure compliance with the statutory norms mandated by the Act.
27 The third member of the Full Court in ICI Australia Operations Pty Limited 38 FCR 248, Gummow J, said (at 267):
Section 80(1) confers upon the court the power to grant an injunction where it is satisfied that a person has engaged or is proposing to engage in conduct that constitutes or would constitute conduct of the description in pars (a)-(f). The power of the court to grant an injunction is controlled by the words "in such terms as the Court determines to be appropriate".
[28]
Thus, the terms of the injunction will not be "appropriate" if, on its face, it operates upon a range of conduct some of which does, but some of which does not, have the relationship required by s 80 with contravention of the Act. The injunction should not prohibit conduct falling outside the boundaries drawn by s 80: see Thomson Australian Holdings Pty Ltd v Trade Practices Commission (1981) 148 CLR 150 at 161. The same limitation applies to mandatory injunctive relief. It is, in my view, no support for the grant of an injunction which, from the outset, has an operation outside the boundaries of s 80, to say that it is open for the party enjoined to apply under s 80(3) to vary the injunction so as to bring its operation wholly within proper limits. The party in question should not be placed under any such obligation in the first place.
[29]
The succeeding subsections, in particular subss (4) and (5), take subs (1) further by indicating that the power may be exercised whether or not there are present certain circumstances which I have described as ordinarily considered essential by courts of equity exercising their inherent or traditional jurisdiction. But that is not to say that the matters referred to in s 80(4) and (5) are irrelevant to the consideration by the court of the question of whether an injunction is to be granted, and if so, to the determination of the appropriate terms of such an injunction.
28 The injunctions actually granted in ICI Australia Operations Pty Limited 38 FCR 248 were not limited as to time. The observations of French J to the effect that deterrence of the particular contravener in the future is a legitimate consideration for the Court to take into account when deciding whether to grant an injunction and, if so, on what terms, were not approved by either Lockhart J or Gummow J. French J did not propose that the injunctions in ICI Australia Operations Pty Limited 38 FCR 248 be granted for a limited time. His suggestion was that, if the injunction were granted for reasons of special deterrence, the contravener could apply to the Court to rescind the order "… after a suitable period unmarked by further contravention".
29 The notion to which French J referred in ICI Australia Operations Pty Limited 38 FCR 248 that, in the regulatory context of actions brought by the ACCC for contraventions of the Act, the remedy of injunction pursuant to s 80 of the Act could, and, in appropriate circumstances, should, be used as a means to deter future contraventions of the Act has been explained in subsequent authorities in this Court as the justification for granting injunctions limited as to time. Rather than making the injunction permanent and unlimited as to time and thus leaving it to the affected party to apply at some later date to discharge the injunction with no guarantee or certainty that such an application would be successful, it has been thought preferable to use the mechanism of an injunction limited as to time as the means by which the desired deterrence is to be effected. This provides certainty for all parties and an incentive for the contravener to pay extra attention to compliance with the law.
30 There is now a body of authority in this Court in which final injunctions limited as to time have been granted (see Australian Competition and Consumer Commission v Wizard Mortgage Corporation Ltd [2002] ATPR 41-903; Australian Competition and Consumer Commission v Signature Security Group Pty Ltd [2003] ATPR 41-942; Australian Competition and Consumer Commission v George Weston Foods Ltd (2004) 210 ALR 486; Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2005] ATPR 42-070; Australian Competition and Consumer Commission v IPM Operation and Maintenance Loy Yang Pty Ltd (2006) 157 FCR 162; Australian Competition and Consumer Commission v Construction, Forestry, Mining and Energy Union [2007] ATPR 42-192; and Australian Competition and Consumer Commission v Qantas Airways Ltd (2008) 253 ALR 89).
31 Factors which will often be relevant to the Court's consideration of whether it will grant an injunction limited as to time include the following:
(a) Whether the contravener has agreed to implement or has been ordered to implement a Trade Practices Compliance Program and other training and educational arrangements;
(b) The likelihood of the contraventions being repeated in the future especially in light of the past conduct of the contravener;
(c) Whether the circumstances of the contravention and the nature of the conduct constituting the contravention justify the imposition of the sanction of contempt of Court indefinitely or rather suggest in the interests of justice that such a serious sanction not be held for an indefinite period over the head of the contravener; and
(d) The terms of other declarations and injunctions granted at the same time as those limited by time. In particular, if the scope of a particular injunction is to travel beyond the strict confines of the proven contravention, there will be good reason to limit the injunction to a specified period of time.
32 In Foster v Australian Competition and Consumer Commission (2006) 149 FCR 135, the Full Court approved an injunction which was limited to a five year period from the date the injunction was granted. Although the point at issue in Foster 149 FCR 135 was whether the scope of the injunction had been drawn too widely, the Full Court did not take issue with the fact that the injunction was limited as to time. Indeed, the appropriateness of such a limitation seems to have been assumed. At [35] (p 149), the Court said:
35 In our view, the need, suggested by the authorities, for a nexus between the contravention of the Act which the Court has found and the terms of the restraint which it then decides to impose is a specific reflection of Lockhart J's insistence that the power be exercised "judicially and sensibly". It goes to the appropriateness of the relief contemplated by the concluding words of s 80(1), not to the extent of the power to grant it. If the Court considers that a complete prohibition, whether permanently or for a specified period, on a respondent's engaging in a particular field of commercial activity or industry is required to protect the public from conduct of the kind which constituted the contravention, s 80 is wide enough to support such a prohibition as a matter of power. This analysis of s 80 conforms, we consider, with that recently undertaken by Goldberg J in Australian Competition and Consumer Commission v Dermalogica Pty Ltd (2005) 215 ALR 482 at [110].
33 In the present case, Mailpost Postie Network and Mr Kritas have consented to orders which require them to notify the franchisees in the Mailpost Business of the orders made today as well as these Reasons for Judgment. Mailpost Postie Network has also consented to implementing a Trade Practices Compliance Program and a trade practices complaints handling mechanism. Mr Kritas has agreed to be tutored in the requirements of the Act insofar as they affect the type of business in which he has been engaged to date.
34 Given that the injunctions directed to Mr Kritas cover franchising activities beyond those associated with the Mailpost Business and given the other matters to which I have referred to at [33] above, it is appropriate that the injunctions be limited as to time. This was the approach taken by Young J in IPM Operation and Maintenance Loy Yang Pty Ltd 157 FCR 162 at [233]-[234] and by Stone J in Signature Security Group Pty Ltd [2003] ATPR 41-942 at [3]-[4].
35 For these reasons, I am prepared to give effect to the arrangements agreed amongst the parties whereby the injunctions directed to Mr Kritas are limited as to time.
I certify that the preceding thirty-five (35) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Foster.