The relevance of loss or damage
32 Another consideration arising in the present case is the extent of loss or damage suffered as a result of the acts or omissions giving rise to the relevant contraventions.
33 In MSY, Perram J rejected a submission that the absence of loss or damage is not a mitigating factor in the imposition of a penalty. His Honour reasoned (at [79]) that, in cases where it is easy to imagine detriment to consumers by reason of the impugned conduct, the absence of any evidence of such harm suggests that no harm was caused and that this must be taken as a mitigating circumstance.
34 His Honour applied that reasoning in Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 4) (2011) 282 ALR 246; [2011] FCA 761 at [28]. However, in that case, his Honour also said that it is important to distinguish the inability to prove loss or damage from the inability to quantify loss or damage; see also in that connection the observations made by Bennett J in Global One at 43,931. The case before his Honour involved conduct in an advertising campaign in which the "broadband speed" in respect of internet plans providing "peak" and "off-peak" allowances was misrepresented. At [29], Perram J said:
In this case, there is no doubt that a misleading advertisement would be expected to cause consumers loss and damage consisting, at least, of their purchase of a plan of 24 months duration which, but for the commercials, they might never have acquired. This is not, therefore, a case like [Australian Competition and Consumer Commission v Roche Vitamins Australia Pty Ltd [2001] ATPR 41-809; [2001] FCA 150]. There are difficulties in assessing the loss or damage ensuing from such a state of affairs but that, of course, is a different question.
35 On appeal, in Singtel Optus, the Full Court said (at [58]):
… the very existence of s 76E(2)(a) suggests that a contravention which has caused substantial loss or damage to consumers should, all other things being equal, attract a more severe penalty than a contravention which has not. The absence of loss or damage to consumers is a circumstance which would usually attract a less severe penalty than if substantial harm had been inflicted on consumers. We would respectfully adopt the conclusion of the primary judge that the absence of such evidence, in a case such as this, constitutes a factor in mitigation of penalty and we do so for the reasons referred to by the primary judge in his earlier decision in ACCC v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609; [2011] FCA 382 at [77]-[80].
36 In the present case, the applicant submits that relevant loss or damage was suffered having regard to the fact that Area Managers acquired a product (the SensaSlim product) whose efficacy as a weight loss product had not been established by a worldwide trial as represented. Moreover, Area Managers were not given the opportunity to earn the weekly income represented in the various newspaper advertisements directed to prospective franchisees. Further, the business opportunity that was offered to prospective franchisees was one associated with Mr Foster which, had that association been known, would not have been, generally speaking, an opportunity that a prospective franchisee would have taken up in light of Mr Foster's reputation as a conman. Thus, the applicant submits, real loss or damage was suffered by Area Managers because of the fraud perpetrated on them.
37 To support these submissions, the applicant referred to aspects of the evidence given at the liability hearing by Mr Driscoll, Mr Coffey, Ms Stanistreet, Mr Evans, Mr James and Mr Cook. In general terms, this evidence covered complaints concerning a lack of marketing and advertising of the SensaSlim product by SensaSlim, and the failure by SensaSlim to provide marketing materials, as promised. This evidence also covered the delay by SensaSlim in launching the SensaSlim product by the originally planned launch date. The difficulty with this evidence is that, whatever promises might have been made and broken in that regard, they were not advanced at the liability hearing as representations or conduct that contravened the TPA or the ACL, and no findings of contravention in that regard have been made.
38 The applicant also referred to evidence given by Mr Driscoll, Ms Stanistreet, Mr Evans and Mr Cook to the effect that they failed to achieve the earnings projected for a SensaSlim franchise and, in fact, receive little revenue from being a SensaSlim Area Manager. The difficulty with this evidence is that, in each case, the evidence was given at a high level of generality and the applicant has not shown that the Area Manager's failure to derive the projected revenue represented to him or her was caused by or related to the contravening representations or conduct.
39 Further, the evidence given by Mr Driscoll, Ms Stanistreet, Mr Evans and Mr Cook does not enable me to draw any specific conclusions about the financial impact of the contravening representations and conduct on other Area Managers. The applicant did seek to adduce "victim impact statements" from four other Area Managers, who had not given evidence at the liability hearing. I rejected that evidence based on its form and for discretionary reasons arising under s 135 of the Evidence Act 1995 (Cth): see Transcript page 11, lines 16 to 41 of the penalty hearing.
40 It is convenient to record here that the applicant has abandoned its claim for compensation orders under s 87AAA of the TPA or s 239 of the ACL.
41 Nonetheless, as I have found at [62] of the liability reasons, there is no evidence in this proceeding of any study or trial that establishes that the SensaSlim product has efficacy as a weight loss product or that it possesses any of the benefits asserted in the SensaSlim DVD used to promote the SensaSlim product to prospective franchisees. Significantly, there is no reason to believe on established objective grounds that the SensaSlim product is an efficacious weight loss product or has the benefits asserted in the SensaSlim DVD.
42 I am satisfied that had, for example, Mr Driscoll, Ms Stanistreet, Mr Evans and Mr Cook known that the efficacy of the SensaSlim product as a weight loss product or that its benefits asserted in the SensaSlim DVD had not been established, as represented, or that Mr Foster was the person behind the SensaSlim business and that Mr Boyle and Mr O'Brien only had, as I have found, roles calculated to create a façade of respectability for that business, then they would not have become Area Managers and parted with the substantial sums they paid to purchase stock of the SensaSlim product and associated point of sale material (the franchise fee). Common sense suggests that this conclusion would apply, generally, to all prospective franchisees who acquired a SensaSlim franchise and became an Area Manager. That was certainly the tenor of the evidence given by other Area Managers at the liability hearing.
43 Although no specific submissions were addressed on the matter, I do not leave out of consideration the likelihood of loss or damage, more generally, to ultimate consumers who purchased the SensaSlim product in the fraudulently induced belief that its efficacy as a weight loss product had been demonstrated, as represented. Consumers are, equally, victims of the scam perpetrated on the Area Managers. Even though I do not know the number of units involved, I have no reason to think, in the absence of evidence to the contrary, that a substantial quantity of the SensaSlim product that was foisted on Area Managers found its way onto retail shelves and, ultimately, into the homes of consumers. This, after all, was the intended destination of the product in question.
44 I am satisfied that the contravening representations and conduct caused loss or damage to consumers which, whilst not quantified, is nevertheless real and significant. In this connection, I am satisfied that it would be unlikely that consumers would have been induced to part with money to purchase the SensaSlim product (the recommended retail price was said to be $59.95 per unit) had they known that the product did not have the qualities or attributes of trial and efficacy that had been represented or, indeed, had they known that the product was a weight loss product associated with Mr Foster.
45 At this point it is convenient to note the size, in money terms, of the business activity with which the contraventions were concerned. The evidence establishes that the scam perpetrated on Area Managers yielded for SensaSlim, and ultimately those standing behind it, revenue of approximately $6.3 million (the evidence of the revenue varies, but this figure is the lowest point in the range and is most likely the correct figure). Approximately $4.54 million was paid before 2 December 2010, the date of Mr Boyle's resignation as a director of the company.