Australian Competition and Consumer Commission v SMS Global Pty Ltd

Relevant legal principles Transitional arrangements 7 The title of the TPA, and certain of its provisions, were amended by the Trade Practices Amendment (Australian Consumer Law) Act (No 2) 2010 (Cth) (No 103, 2010) and its short title is now the Competition and Consumer Act 2010 (Cth) ("CCA"). The transitional arrangements are detailed in Australian Competition and Consumer Commission v Yellow Page Marketing BV (No 2) [2011] FCA 352 at [20]-[23] ("Yellow Page Marketing"). They relevantly operate to ensure that the TPA in its form prior to 1 January 2011 continues to apply to this matter, except in relation to injunctive relief which is now provided for in s 232 of Schedule 2 of the CCA ("the Australian Consumer Law"). Section 52 of the TPA 8 The ACCC contended that each of the representations pleaded constituted a breach of s 52 of the TPA. Section 52 provides: (1) A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive, or likely to mislead or deceive. 9 The legal principles relating to s 52 of the TPA are uncontroversial. In Australian Competition and Consumer Commission v Telstra Corporation Limited [2007] FCA 1904; 244 ALR 470 at 474-476 [14]-[17] and [19] Gordon J usefully identified the relevant legal principles and also summarised the approach taken by Finkelstein J in .au Domain Administration Ltd v Domain Names Australia Pty Ltd (2004) 207 ALR 521 at [12-[26]. At [14]-[17] and [19] Gordon J said; 14 The relevant legal principles have been well traversed by Australian courts. A two-step analysis is required. First, it is necessary to ask whether each or any of the pleaded representations is conveyed by the particular events complained of: Campomar Sociedad, Limitada v Nike International Ltd (2000) 202 CLR 45 at [105]; National Exchange Pty Ltd v Australian Securities and Investments Commission [2004] ATPR 42-000 at [18] per Dowsett J (with whom Jacobson and Bennett JJ agreed) and Astrazeneca Pty Ltd v GlaxoSmithKline Australia Pty Ltd [2006] ATPR 42-106 at [37] … 15 Secondly, it is necessary to ask whether the representations conveyed are false, misleading or deceptive or likely to mislead or deceive. This is a "quintessential question of fact": Australian Competition and Consumer Commission v Telstra (2004) 208 ALR 459 at [49]. 16 Because the conduct complained of in the present matter was not directed at a specific individual both questions that have been identified must be considered by reference to the class or classes of consumers likely to be affected by the conduct: Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 at 199 per Gibbs CJ; Nike at [102], [103], [105] and [106]; Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 at [36] per Gleeson CJ, Hayne and Heydon JJ. 17 In .au Domain Administration Ltd v Domain Names Australia Pty Ltd (2004) 207 ALR 521 at [12]-[26] Finkelstein J provided a useful summary of the approach that might be taken where a court is required to assess conduct by reference to a specific class or classes of consumers and did that by particular reference to Taco Co of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202-203 per Deane and Fitzgerald JJ and Nike at [100]-[103]. The approach may be summarised in six points, as follows: (1) first, identify the relevant section or sections of the public by reference to which the issue is to be tested. The target section or sections of the public would, of course, vary according to the facts of each case: Parkdale at 209 per Mason J; Finucane v New South Wales Egg Corp (1988) 80 ALR 486 at 516. The relevant section or sections of the public may be confined by factors such as the time period over which the alleged representations were made and the geographical circulation of the advertisements containing the alleged representations. (For an example of geographical circulation defining the relevant test section, see Talmax Pty Ltd v Telstra Corporation Ltd [1997] 2 Qd R 444 at 446); (2) second, having identified the relevant section or sections of the public, consider who comes within that section or those sections. This may include the astute and the gullible, the intelligent and the not so intelligent, the well educated and the poorly educated: see also Parkdale at 199 per Gibbs CJ; (3) third, it is permissible, but not essential, to have regard to evidence that some person has in fact been misled, though this evidence will not be conclusive; (4) fourth, it is necessary to enquire whether any proven misconception has arisen because of the misleading or deceptive conduct; (5) fifth, where the persons alleged to have been misled are members of a class, it is necessary to isolate a representative member of the class and enquire whether that hypothetical person is likely to be deceived; (6) sixth, when considering the likely effect of the misrepresentation on this hypothetical person, he or she should be judged as an "ordinary" or "reasonable" member of the class, excluding reactions to the representation that are "extreme" or "fanciful". … 19 As noted, under the two-step analysis that has been described, the court cannot consider each event in isolation. Each event must be considered within the context of the advertising campaign of which it formed part: see Telstra Corporation Ltd v Optus Communications Pty Ltd (1996) 36 IPR 515 at 523-524; Trade Practices Commission v Optus Communications Pty Ltd (1996) 64 FCR 326 at 338; Astrazeneca at [24]; Johnson & Johnson Pacific Pty Ltd v Unilever Australia Ltd (No 2) [2007] ATPR 42-136 at [16]. 10 In this matter the alleged representations were not directed at any specific individual and the first question is therefore whether an ordinary or reasonable member of the class or classes that I identify would perceive the alleged conduct, singularly or collectively, as conveying the representations alleged. If that question is answered affirmatively, the next question is whether the representations are misleading or deceptive or likely to mislead or deceive an ordinary or reasonable member of the class or classes that I identify. In order to deal with each question I must first identify the target section of the public to which the representations are directed and confine it by any relevant factors. Section 53(d) of the TPA 11 The ACCC contended that four of the alleged representations also constituted a breach of s 53(d) of the TPA. Section 53(d) provides: 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. …. (d) represent that the corporation has a sponsorship, approval or affiliation it does not have. 12 Where breaches of ss 52 and 53 of the TPA overlap it is not uncommon for the Court's finding of a contravention of s 53 to fall to be determined upon the finding that the representations were misleading or deceptive or likely to mislead or deceive in breach of s 52 of the TPA: Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682 at [15] in relation to s 53(e); and Yellow Page Marketing at [27] in relation to ss 53(c) and (d). That course is appropriate in this matter because a finding that either of the respondents represented that it had a particular sponsorship, approval or affiliation, and a finding that this representation was misleading or deceptive conduct in breach of s 52 of the TPA because it did not, will lead to a finding that the representation also breached s 53(d). 13 It is also clear that intention is not an element of contravention under s 53 of the TPA as it is not an element of contravention under s 52: Yellow Page Marketing at [29]; and Given v C V Holland (Holdings) Pty Ltd (1977) 15 ALR 439 at 443.

Identifying the class 14 Four instances of the alleged conduct related to the publication of some logos and some statements about SMS Global's industry experience on the websites of SMS Global and the KAS Business. Any resultant representations thereby had a geographical dissemination at least across Australia. The remaining instance of alleged conduct was the distribution of brochures at a large international trade fair in Sydney attended by businesses from at least across Australia. Accordingly the representations were targeted Australia wide. 15 It is clear from the context and the words of each of the representations on the websites and in the brochure, that the conduct was intended to promote the respondents' businesses. This was not disputed by the respondents. This promotional conduct was not directed at any specific individual but rather at the broad class of persons who were users or potential users of the respondents' services. The conduct on the KAS Business website had a target audience of users and potential users of domain name registration, web design, email hosting, server hosting and web hosting, which were offered primarily to business users. The conduct on the SMS Global website had a target audience of users and potential users of SMS and MMS services like those offered by SMS Global. On the evidence, these services were also predominantly for business rather than consumer use. The class is therefore Australian users or potential users of either internet based SMS and MMS services, or domain name registration, web design, email hosting, server hosting and web hosting services, primarily business users. However the class also includes some consumers. 16 Although a more knowledgeable and sophisticated class than the general community because of the preponderance of business people, the class is likely to have included a broad range of persons including both business persons and consumers, the shrewd and the ingenuous, the educated and the uneducated, both the commercially experienced and the inexperienced, and the informed and less well informed. Accordingly, the hypothetical ordinary or reasonable class member is an Australian user or potential user of either internet based SMS or MMS services or domain name registration, web design, email hosting, server hosting and web hosting services.

Were the representations made, and if so were they misleading or deceptive? 17 The ACCC contended that the conduct summarised at [3] above gave rise to the representations also set out there, which representations constituted misleading and deceptive conduct in breach of s 52 of the TPA. That the conduct occurred is largely uncontroversial as the respondents substantially admit the relevant facts. The representations that I find would have been conveyed to an ordinary or reasonable member of the class that I identified above are also substantially admitted. However, the differences between the positions of the parties has required that I make findings as to some relevant facts, and as to the representations conveyed by the conduct, as well as findings as to whether the representations were misleading or deceptive conduct. I will also set out the facts in some detail as these inform my later findings on relief. The government endorsement representations 18 I will describe the SMS Global ESA Representation, the KAS ESA Representation and the Brochure Representation collectively as "the government endorsement representations", as the relevant conduct in each case is alleged by the ACCC to be a claim of government endorsement or approval. The background facts and the conduct 19 From 1994 to 2006 the Commonwealth Government implemented what it described as the "Endorsed Supplier Arrangement" which was a scheme administered by the Department of Finance Administration under which suppliers that wished to sell products and services to the Australian Government in certain business sectors could be endorsed by the Australian Government. To qualify for the ESA, businesses were required to apply for endorsement and were assessed against criteria such as the financial viability of the business (as determined by an independent expert), the adequacy of insurance cover, a successful track record of delivery (as shown by favourable referee reports), and a commitment to adhere with agreed product and service industry standards and certain government policies. If qualified, the businesses were required to sign an appropriate heads of agreement. 20 If the business qualified it became "endorsed". Endorsement meant that the business was included on an Australian Government list of endorsed government suppliers providing formal recognition that the business complied with the requirements of the ESA. An "endorsed" business was allowed to use the ESA logo in information it provided to the public, including its letterhead and its website, to show that it was an "Australian Government Endorsed Supplier". 21 The Australian Government announced the closure of the ESA on 29 November 2006 but allowed suppliers who had previously been endorsed to continue to use the logo until the end of September 2007. The ESA was replaced in 2006 by another government list, the "Information and Communication Technology Multi Use List" ("ICT MUL"). This list had much less stringent requirements for participation. For example, inclusion of a business on this list did not require proof of financial viability, proof of adequacy of insurance cover, a successful track record of delivery or a commitment to maintain certain performance guarantees. It expressly did not allow a listed business to promote itself as government endorsed. The website of the ICT MUL provided that "[i]nclusion on the ICT MUL does not imply that the Australian Government endorses the use of that supplier's product or services." 22 Mr Krumins gave evidence that in 2007 he noticed that many information technology and communications websites contained an ESA logo, but when he enquired of the relevant government departmental officer about ESA endorsement he was informed that the program had been terminated in 2006. According to Mr Krumins, he was told that it was being replaced by the ICT MUL. In 2007 Mr Krumins registered "SMS Global" on the ICT MUL. He stated that, because he thought that the ESA and the ICT MUL programs were more or less the same, he thought that being registered on the ICT MUL authorised him to use the ESA logo. 23 Mr Krumins gave evidence that in 2007 he took a copy of the ESA logo from another company's website, and placed it onto both the SMS Global and the KAS Business websites (although there was a contradiction in his evidence as to whether he copied the logo himself or asked a contractor to do so). The evidence was that the ESA logo remained on the SMS Global website until it was removed on 11 January 2011, and remained on the KAS website until that website was removed from the internet on 24 December 2010. 24 As well as placing the ESA logo on the respective websites, in May 2010 SMS Global published a promotional brochure ("the Brochure") to distribute at the CeBIT trade fair, a large business to business trade fair held in Sydney between 12 to 14 May 2010. The CeBIT trade fair was promoted as an important opportunity for businesses to find new customers at a fair which was promoted as "the leading business event in the Asia Pacific region for Information and Communications Technology…..", and "the worlds leading business event for the digital economy…". The evidence was that at the trade fair the Brochure, which contained the words "SMS Global, a Government Endorsed specialist", was handed to those people who wanted more information about SMS Global's services. Mr Krumins accepted that he was responsible for the contents of the Brochure. What representations if any were conveyed by the conduct? 25 In my view, through the display of a logo containing the words "Australian Government Endorsed Supplier" on its website from at least 1 July 2010 until 31 December 2010, SMS Global represented that it was endorsed by the Australian Government as a supplier under what had been an Endorsed Supplier Arrangement. This representation arises directly from the words of the logo and its presence on the website. SMS Global admitted making this representation. 26 Similarly, through the display of the same logo on the KAS Business website from early 2007 to 24 December 2010, Mr Krumins represented that he (trading as the KAS Business) was similarly endorsed. This representation also arises directly from the words of the logo and its presence on the website. Mr Krumins admitted making this representation. 27 I find that by distributing the Brochure containing the words "SMS Global, a Government Endorsed specialist" at the 2010 CeBIT trade fair in Sydney between 24 May 2010 and 26 May 2010, SMS Global further represented that it was endorsed by the Australian federal government or a state government. The representation arises directly from the express words "Government Endorsed specialist" in the Brochure. The ACCC contended that the representation of endorsement related to endorsement by the Australian Government. I consider that the Brochure Representation was that SMS Global had endorsement by either the Australian federal or a state government. SMS Global admitted the representation as I have found it. Were the representations misleading or deceptive? 28 I find that in making each of the government endorsement representations SMS Global and Mr Krumins engaged in conduct, in trade or commerce, that was misleading and deceptive or likely to mislead and deceive in contravention of s 52 of the TPA. I make this finding because neither SMS Global nor Mr Krumins were ever endorsed by the Australian Government or by a state government, whether under the ESA or otherwise. The respondents admitted that they were never so endorsed or approved and that their conduct was "misleading" in contravention of s 52. 29 In my view, users and potential users of the services provided by each of these businesses were likely to be misled into the belief that they enjoyed government endorsement. This wrongly implied that they had met vetting procedures which were likely to be stringent, and that they were more likely to be respectable and reliable providers of a good quality service. Was the conduct "deceptive" or "likely to deceive"? 30 Whilst admitting that their conduct was "misleading" in breach of s 52 of the TPA, the respondents opposed a finding that it was "deceptive" or "likely to deceive" because they contended that it had not been deliberately misleading. They relied on the decisions of Lockhart J in Henjo Investments v Collins Marrickville (1988) 39 FCR 546 at 555, and Bridge Stockbrokers v Bridges (1984) 4 FCR 460 at 475 where his Honour held that "deceptive" conduct required an element of trickery, craft, guile or some degree of moral turpitude. 31 The ACCC contended that I should find the contravening conduct "misleading and deceptive" as the two words in s 52 of the TPA were effectively synonymous. It noted the well established principle that intent is not relevant to contravention of s 52, and relied on the view of Gibbs CJ in Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 ("Parkdale") at 198 who said: The words of s 52 require the court to consider the nature of the conduct of the corporation against which proceedings are brought and to decide whether that conduct was, within the meaning of that section, misleading or deceptive or likely to mislead or deceive. Those words are on any view tautologous. One meaning which the words "mislead" and "deceive" share in common is "to lead into error". 32 The finding in Parkdale has been followed in numerous cases including Moss v Lowe Hunt & Partners Pty Ltd [2010] FCA 1181 at [43]; Specsavers Pty Ltd v The Optical Superstores Pty Ltd (No 2) [2010] FCA 566 at [68]; Gollel Holdings Pty Ltd v Kenneth Maurer Funerals Pty Ltd (1987) 9 IPR 109 at 117; Menhaden Pty Ltd v Citibank N.A. (1984) 1 FCR 542 at 544; and Australian Ocean Line Pty Ltd v West Australian Newspapers Limited (1983) 47 ALR 497 at 501. In accordance with these authorities, I find that the respondents' conduct was misleading and deceptive, one meaning of which is "to lead into error". 33 I am satisfied that consumers of the services provided by these two businesses were, or were likely to have been, led into error by the government endorsement representations. I do not consider it necessary, in relation to my finding that the conduct constitutes misleading and deceptive conduct in contravention of s 52, that I make any finding as to intent, or in other words as to whether that conduct was deliberate. I will however deal with the question of whether the government endorsement representations were deliberate in relation to questions of relief, where it is relevant. 34 The respondents made the contention that their conduct should not be found to be "deceptive" or "likely to deceive" in relation to each of the five representations alleged. For the reasons set out above I reject this contention in relation to each of the pleaded representations. Was the KAS ESA Representation made in "trade or commerce" after 1 September 2008? 35 Whilst Mr Krumins admitted that the KAS ESA Representation was "misleading", he denied that the representation was made in trade or commerce after 1 September 2008 because the KAS Business ceased to trade with the public on that date. 36 Having considered the evidence as to the various structures through which Mr Krumins traded and the time over which he did so, I find that between 2001 and 1 September 2008 Mr Krumins conducted the KAS Business in his own name through the use of two registered business names "KAS Net" and "KAS Hosting". The KAS Business provided quite different services to the internet based SMS and MMS services provided by SMS Global. I find that Mr Krumins commenced developing internet based SMS and MMS communication systems in 2003, and started trading using the unregistered business name "SMS Global" in 2004. I accept Mr Krumins' contention that he (trading as the KAS Business) ceased trading with the public on 1 September 2008 and, although still providing some services to SMS Global through the KAS Business, these services were not available to the public. Mr Krumins was the sole shareholder and director of SMS Global, and after September 2008 he was effectively just providing these services to himself whenever he (trading as KAS) supplied a service to SMS Global. 37 On the evidence before me I find that, although it remained on the internet, the KAS website was redundant between 1 September 2008 and 24 December 2010. Its redundancy was illustrated when Mr Krumins resolved to take the website down from the internet altogether when these proceedings were commenced, rather than simply remove the offending representation from the website. 38 In Concrete Constructions (NSW) Pty Ltd v Nelson (1990) 169 CLR 594 at 604 Mason CJ and Deane, Dawson and Gaudron JJ said the following in relation to s 52 of the TPA: 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. 39 In my view, the KAS ESA Representation on the KAS website after 1 September 2008 did not have a "trading or commercial character" because any promotional activity was not in relation to "the supply of services" and/or because the "promotional activity" did not relate to any "actual or potential customers, be they identified persons or merely an unidentifiable section of the public". As the business had then ceased trading with the public there were no actual or potential customers, and in my view it is artificial to treat information on a redundant website as being "in trade or commerce". Accordingly I find that the making of the KAS ESA Representation was misleading and deceptive conduct in contravention of s 52 of the TPA only up to 1 September 2008. The AIMIA Representation The background facts and the conduct 40 AIMIA is the national peak body representing the interactive media and digital content sector, and is incorporated under the Associations Incorporation Act 1987 (WA). Membership of AIMIA is governed by its Constitution which was tendered as evidence. Members of AIMIA are able to display the AIMIA logo, utilise AIMIA's professional insurance program and enjoy other benefits of membership. 41 SMS Global became a member of AIMIA on 6 November 2008 by completing an application form, paying the annual membership subscription set by AIMIA and being accepted into membership. Having become a member, SMS Global placed a copy of the AIMIA logo on its website as it was then authorised to do. However, it did not then pay the annual AIMIA membership subscription due on 6 November 2009. 42 Clause 16.3 of the AIMIA Constitution provides that membership of AIMIA ceases 3 months after non-payment of any annual membership subscription that is due, unless the Chief Executive Officer of AIMIA (or his nominee) decides otherwise. There was no evidence of any such decision by the CEO or his nominee. The Constitution does not provide for a category of membership named 'inactive members' as was suggested in correspondence from AIMIA in 2011 which was tendered as evidence. SMS Global renewed its annual membership of AIMIA shortly after the commencement of these proceedings, and paid all membership subscriptions in arrears. However it had ceased to be a member of AIMIA from on or about 6 February 2010 until 10 January 2011 when the membership renewal payments were received by AIMIA and membership was reinstated. 43 Mr Krumins' evidence was that the failure to renew the membership arose out of his failure to read relevant emails and to forward them to an accounts clerk for payment, which he typified as an administrative oversight. I accept this evidence. In my view this inadvertence related to a relatively insignificant matter in the business, rather than to its important functions. What representation if any was conveyed by the conduct? 44 In my view, through the display of the AIMIA membership emblem on its website from at least 1 July 2010 to 31 December 2010, SMS Global represented that it was an AIMIA member. This representation arises directly from the display of the membership emblem, as its display carries the implication that its bearer is a member. Was the representation misleading or deceptive? 45 I find that in making the AIMIA representation SMS Global engaged in conduct in trade or commerce that was misleading and deceptive or likely to mislead and deceive in contravention of s 52 of the TPA because it was not a member at the relevant time. SMS Global admitted the substance of the contravention. In my view, during the period from 6 February 2010 until 10 January 2011, users and potential users of its services were likely to be misled into the belief that SMS Global was an AIMIA member. This carried an implication that it was in good standing with the other members of its industry, and more likely to be a respectable, good quality company. 46 SMS Global contended that its misrepresentation was that it was an "active" member whilst in fact being an "inactive" member. I do not accept this submission, as the Constitution of AIMIA makes it clear that SMS Global was not a member at all during the relevant period. The Industry Experience Representations The background facts and the conduct 47 From May 2009 to at least 31 December 2010 the SMS Global website contained statements that: (a) "for over 6 years, SMS Global has been a trusted partner to thousands of clients including some of the world's best known companies"; and (b) "Over the past 10 years SMS Global has developed powerful SMS communication systems, providing access to more than one hundred and forty countries worldwide". 48 I found at [36] of these reasons that Mr Krumins started developing his SMS communication systems in 2003 and commenced to trade as SMS Global in 2004. The evidence was that the SMS Global Business had its 2000th cumulative customer in October 2007. What representations if any were conveyed by the conduct? 49 In my view, by making the statements set out at [47] on its website from at least May 2009 to 31 December 2010 SMS Global represented that; (a) it had been established as a business and servicing thousands of clients since at least 2003; and (b) its development of SMS technology had commenced in at least 1999. SMS Global admitted the substance of these representations. In my view, the representations arise from the clear words of the statements at the time they were placed onto the website. 50 The ACCC contended that the statements should be understood as making a representation relating to SMS Global as a corporate entity. It contended that it was of significance that it was the company that made the representations on its website, noting that they appeared under a heading "Company Information" along with the statement "SMS Global are a 100% Australian privately owned company". I consider the statements are better characterised as being representations about the experience and size (in terms of client numbers) of SMS Global as a business. Further, in setting out the company's experience in its promotional materials it is reasonable in my view to attribute the experience of a senior company officer like Mr Krumins to the company. The significance of the ACCC's contention is that, if accepted, SMS Global's claimed experience would be calculated from its date of incorporation in June 2008. For the reasons set out above, I consider it appropriate to calculate SMS Global's experience from 2004, when Mr Krumins commenced trading under that name. Were the representations misleading or deceptive? 51 Even taking the experience of Mr Krumins in the earlier SMS Global Business into account, the representations exaggerated SMS Global's experience as follows: (a) The representation that SMS Global had "thousands of clients" for over 6 years was misleading as to the length of time that SMS Global had been a business of substance, because it did not reach the 2000th cumulative customer mark until October 2007. When the statement was placed onto the SMS Global website in May 2009, it had only about 19 months of such experience, rather than the claimed 6 years. Even if viewed in December 2010 it was still misleading and deceptive because by then it had about 3 years of such experience. (b) Less significantly, having commenced to trade as SMS Global in 2004 through Mr Krumins, the business had been trading for about 5 years in May 2009 rather than the claimed 6 years. Of course, viewed in December 2010 that part of the statement was not misleading or deceptive as the business had been trading for six years. (c) When the statement that SMS Global had 10 years experience in developing SMS communication systems was placed onto its website in May 2009, the actual experience was about 6 years as the development had commenced through Mr Krumins in 2003. Viewed in December 2010 it was still misleading and deceptive. In my opinion these representations were likely to mislead users and potential users of internet based SMS and MMS as to the experience and capacity of SMS Global as a provider of such services. 52 Accordingly, I find that in making these representations SMS Global engaged in conduct in trade and commerce that was misleading and deceptive or likely to mislead and deceive in contravention of s 52 of the TPA. SMS Global substantially admitted the contravention as I have found it.

Liability under SECTION 53(d) of the TPA 53 I have found that the SMS Global ESA Representation, the KAS ESA Representation and the Brochure Representation were claims that SMS Global or Mr Krumins respectively had government endorsement or approval, and that the AIMIA Representation was a claim by SMS Global of affiliation with AIMIA. I have found each of those representations to be misleading and deceptive on the basis that SMS Global or Mr Krumins respectively were not government approved and were not affiliated with AIMIA. Accordingly, I find that SMS Global contravened s 53(d) of the TPA by making the SMS Global ESA Representation, the Brochure Representation and the AIMIA Representation over the same period that I have found that it contravened s 52. I find that Mr Krumins contravened s 53(d) of the TPA by making the KAS ESA Representation over the same period that I have found that he contravened s 52.

Ancillary Liability 54 I find that Mr Krumins was knowingly concerned in or party to each of the contraventions of ss 52 and 53(d) of the TPA by SMS Global. The evidence was that at all material times he controlled and maintained and/or was responsible for approving the contents of the SMS Global website, he directed the placing of the ESA logo, the AIMIA logo and the Industry Experience Representations onto the website, and that he was responsible for approving the contents of the Brochure and arranging for its distribution. He admitted this contravention.

Relief 55 In relation to the contraventions the ACCC sought declarations, injunctions, and pecuniary penalties totalling in the range of $150,000 to $200,000 for the breaches of s 53(d) of the TPA, a corrective advertising order, an ACCC designed compliance program in place of an existing program, and an order for costs which it roughly estimated, albeit on an indemnity basis, at approximately $130,000.

Declarations 56 The ACCC sought declarations in relation to each of the contraventions of ss 52 and 53(d) of the TPA. The respondents opposed some declarations and proposed different more limited declarations in relation to others. The considerations relevant to my exercise of discretion under s 21 of the Federal Court of Australia Act 1976 (Cth) ("FCA") were common ground: Tobacco Institute of Australia Ltd v Australian Federation of Consumer Organisation Inc (No 2) (1993) 41 FCR 89 at 97-98; Australian Competition and Consumer Commission v Powerballwin.com.au Pty Ltd [2010] FCA 378 at [41]; and Yellow Page Marketing at [65]-[68]. 57 In my view it is appropriate to make declarations relating to the three government endorsement representations and the Industry Experience Representations in the form delivered with these reasons. In my view, these declarations will have some utility as they will at least serve to clearly identify the contravening conduct, and will serve the public interest by providing a warning to businesses not to misuse logos, falsely claim government endorsement or overstate industry experience. The circumstances of the contraventions are serious. Further, as I set out below at [87], in my view they involve a degree of deliberate misleading conduct and call for making known the Court's disapproval. 58 I decline to make a declaration in relation to the AIMIA Representation. The contravention was not serious in my view, and arose from an administrative error in relation to a relatively unimportant issue. I do not consider that there is a real utility or a public interest in making a declaration relating to this contravention, and do not consider that the circumstances call for the Court to make known its disapproval. The contravention is sufficiently set out in these reasons.

Injunctions 59 The ACCC seeks injunctions under s 232 of the Australian Consumer Law in relation to each of the contraventions of ss 52 and 53(d) of the TPA. That section operates pursuant to the transitional arrangements previously set out at [7] of these reasons and is relevantly identical to s 80 of the TPA, providing broad powers to the Court subject to at least three limitations: (i) the relief should be designed to prevent a repetition of the contravening conduct; (ii) there must be a sufficient nexus or relationship between the contravention and the injunction; and (iii) the injunction must relate to the case or controversy: Australian Competition and Consumer Commission v Z-Tek Computers Pty Ltd (1997) 78 FCR 197 at 203-4. 60 The Court must also consider whether an injunction is appropriate as a matter of discretion. Relevant factors include matters such as: (a) whether the TPA needs to be supplemented by the availability of sanctions applicable to contempt of court; (b) the contraventions found; (c) the risk of similar contraventions and the utility of an injunction in making that less likely; (d) whether the conduct was intended, isolated or occurred many years before the enforcement proceedings; (e) the clarity and specificity of the injunction; and (f) intended methods of enforcement of the injunction. See BMW Australia Ltd v Australian Competition and Consumer Commission [2004] FCAFC 167; 207 ALR 452 at 465-466 [35]-[39]; Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd (2007) 161 FCR 513 at 542-544 [108], and [110]-[114]; and Australian Competition and Consumer Commission v Leahy Petroleum (No 3) [2005] FCA 265; 215 ALR 301 at 323-325 [119]-[125]. Injunctions against SMS Global 61 The ACCC sought injunctions that operate to restrain SMS Global for 3 years from; (a) using the ESA logo in any way; and (b) making any representations to the effect that it has a government endorsement that it does not have. 62 SMS Global consented to these injunctions and I consider them appropriate because they should operate to deter repetition of the conduct by attaching the sanctions available for contempt of court to any such repetition. In my view the false claims of government endorsement constituted serious contraventions of the TPA which called for injunctive relief. Whilst I do not consider that the risk of SMS Global committing similar breaches is high, in ordering the injunctions I took into account the SMS Global's submission which accepted that the injunctions sought were appropriate having regard to the evidence and submissions made. Further factors militating in favour of injunctive relief were my finding at [87] of these reasons that this conduct was deliberate, that the conduct was not isolated in that it occurred on two websites over more than three years and in a brochure, and not stale in that it continued until January 2011. 63 The ACCC also sought injunctions that operate to restrain SMS Global for 3 years from: (a) using the AIMIA membership emblem in any way without first obtaining AIMIA membership; and (b) making any representation to the effect that it was incorporated before 6 June 2008. 64 These injunctions were opposed by SMS Global and I decline to order them. In my view the proposed injunction restraining use of the AIMIA membership emblem has no utility and there is little or no public interest in granting it. I have found that the conduct was unintended in that it arose from an administrative error, and also that it was not a serious contravention. Further, a three year injunction against SMS Global using the AIMIA emblem unless it holds a membership is unnecessary in circumstances where it has already paid its membership subscriptions through to 2014. 65 I note that in Australian Competition and Consumer Commission v Dataline.net.au Pty Ltd (2007) 161 FCR 513, 543 the Full Court held at [111] that; [m]any contraventions simply will not justify injunctive relief. We doubt whether unintentional misconduct in contravention of s 52 would lead to such relief. Whilst the contravention in this matter is a breach of both s 52 and s53(d) of the TPA, in my view the Full Court's approach is equally applicable to unintended and minor breaches of s 53(d). 66 I decline to order an injunction restraining a claim of incorporation prior to 6 June 2008. The injunction sought is not designed to prevent the repetition of a contravention, as I have not found any such breach. As I have set out at [50] of these reasons, the Industry Experience Representations are not claims of incorporation prior to 6 June 2008. Injunctions against Mr Krumins 67 The ACCC sought injunctions that operate to restrain Mr Krumins for three years from; (a) using the ESA logo in any way; (b) making any representations to the effect that he has a government endorsement that he does not have; and (c) from being directly or indirectly knowingly concerned in, or a party to, conduct by SMS Global or any other corporation in trade or commerce that; (i) uses the ESA logo in any way; (ii) uses the AIMIA membership emblem in any way without first obtaining AIMIA membership; (iii) makes any representations to the effect that he has a government endorsement that he does not have; and (iv) makes any representation to the effect that it was incorporated for a period longer than it has been incorporated. These injunctions were opposed by Mr Krumins. 68 I decline to order the injunctions sought against Mr Krumins seeking to restrain future use of the ESA logo, false claims of government endorsement, or his being knowingly concerned in such conduct by SMS Global or another company in the future. In my view they are unnecessary or lack utility. The only business conducted by Mr Krumins in Australia is SMS Global against which I have already ordered injunctions. Whilst it is true that Mr Krumins has used a variety of businesses to pursue his commercial interests over the past decade, the only one that has been trading since September 2008 is SMS Global, which already faces the prospect of sanctions for contempt of court if it breaches the injunctions granted against it. Further, I accept the submissions of Mr Krumins that he is unlikely to be involved in any repetition of similar conduct. Insofar as any further deterrence is necessary, I consider that the declarations and orders that I have made, the significant pecuniary penalty I have imposed at [122] of these reasons, and the legal costs he has incurred, will deter him from any repetition of similar conduct. 69 I decline to order the injunction sought against Mr Krumins restraining his being knowingly concerned in the use of the AIMIA membership emblem without first obtaining AIMIA membership, for the same reasons that I declined such relief against SMS Global at [64] and [65]. I decline to order the injunction sought against Mr Krumins restraining his being concerned in or a party to a claim that SMS Global was incorporated for longer than it had been, for the same reasons that I declined such relief against SMS Global at [66].

Pecuniary Penalties 70 The Trade Practices Amendment Act (No 1) 2010 (Cth) introduced a new s 76E which came into effect on 15 April 2010 and for the first time empowered this Court to order a person to pay to the Commonwealth such pecuniary penalty as the Court determines appropriate for each contravention of "a provision of Division 1.…of Part V (other than s 52)". Section 53 is contained in Division 1 of Part V and, accordingly, the Court's power to order a pecuniary penalty under s 76E is enlivened in this matter. By s 76E(3), the maximum penalty for each act or omission is relevantly fixed at 10,000 penalty units which, by application of the present penalty unit value of $110 in s 4AA of the Crimes Act 1914 (Cth) makes the present maximum pecuniary penalty $1.1 million. 71 Pecuniary penalties are sought by the ACCC against SMS Global for the contraventions of s 53(d) of the TPA in relation to the SMS Global ESA Representation, the Brochure Representation and the AIMIA Representation, and against Mr Krumins for the KAS ESA Representation and in relation to his ancillary liability for SMS Global's breaches.

Relevant legal principles 72 Section 76E of the TPA provides that in determining the appropriate penalty the Court must have regard to "all relevant matters", and sets out some mandatory but not exclusive criteria which the Court must take into account. The mandatory factors are; (a) the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; (b) the circumstances in which the act or omission took place; and (c) whether the person has previously been found by the Court in proceedings under, relevantly, Part VI to have engaged in any similar conduct. 73 It is uncontroversial that in having regard to all relevant matters under s 76E the principles applicable to determining penalties under s 76 of the TPA for contraventions of Part IV of the TPA can be adopted: Yellow Page Marketing at [88]-[92]; and Australian Competition and Consumer Commission v MSY Technology Pty Ltd (No 2) [2011] FCA 382 at [68]-[69] ("ACCC v MSY Technology"). 74 The principles for assessment of penalty under s 76 were summarised by French J (as he then was) in Trade Practices Commission v CSR Ltd [1990] FCA 762; (1991) ATPR 41-076 at 52,152-53 ("TPC v CSR Ltd") and expanded on by the Full Court of the Federal Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 ("NW Frozen Foods"); and J McPhee and Son (Aust) Pty Ltd v Australian Competition and Consumer Commission [2000] FCA 365; 172 ALR 532 ("J McPhee & Son"), as well as developed in some other decisions cited below. The relevant factors include the following; (a) the size of the contravening company; (b) the deliberateness of the contravention and period over which it extended; (c) whether the contravention arose out of the conduct of senior management of the contravener or at a lower level; (d) whether the contravener has a corporate culture conducive to compliance with the TPA, as evidenced by educational programs and disciplinary of other corrective measures in response to an acknowledged contravention; (e) whether the contravener has shown a disposition to cooperate with the authorities responsible for enforcement of the TPA; (f) the financial position of the contravener; (g) whether the contravening conduct was systematic, deliberate or covert: ACCC v MSY Technology at [68]-[69]; and (h) the contravener's position of influence and importance in its industry sector: Trade Practices Commission v Prestige Motors Pty Ltd [1994] FCA 874; ATPR 41-359; Australian Competition and Consumer Commission v Rural Press Ltd [2001] FCA 1065; ATPR 41-833 at [10]; and Australian Competition and Consumer Commission v Telstra Corporation Ltd (2010) 188 FCR 238 at [210] ("ACCC v Telstra"). 75 I have not included in the list above a factor referred to by French J in TPC v CSR Ltd at 52,153 which concerned the degree of market power of the contravener as evidenced by its market share and ease of entry into the market, or a factor referred to in NW Frozen Foods and J McPhee & Sons which concerns the effect on the functioning of the market and other economic effects of the contravening conduct. I do not consider that Part V is concerned substantially with matters of that kind, and in any event those factors have no relevance on the facts of this case. Deterrence 76 The effect of the factors above in relation to determination of a penalty must be gauged by reference to the purpose for which a penalty is imposed, and it is clear that a principal object of a penalty under s 76E is deterrence. The Explanatory Memorandum to the Bill that introduced s 76E, the Trade Practices Amendment (Australian Consumer Law) Bill 2009 - Explanatory Memorandum, pp 49-50, referred to pecuniary penalties as a feature of the legislation which would operate to increase the deterrent effect of consumer law provisions. 77 As was recently noted by Middleton J in ACCC v Telstra at [205] in relation to penalties under s 570 of the Telecommunications Act 1997 (Cth): The primary object of pecuniary penalties is deterrence. In Trade Practices Commission v CSR Ltd (1991) ATPR 41-076, French J stated: The principle, and I think probably the only, object of the penalties imposed by s 76 is to attempt to put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the Act. There are aspects of general deterrence and specific deterrence to consider. In relation to [the contravener], even though it may be that there is no indication that it will contravene a provision of the TPA in the proximate future, a penalty must be imposed which will act as a reminder to [the contravener] and the community of the consequences of the admitted contraventions: Australian Competition and Consumer Commission v Rural Press (2001) ATPR 41-833 at [15]. I regard this as the most significant factor in determining the penalties in this proceeding. 78 In NW Frozen Foods the court noted the importance of deterrence when it said at 294: The Court should not leave room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay… 79 It is also well established that, in seeking to deter, a penalty must not be set so high as to be oppressive: Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd (1978) ATPR 40-091 at 17,896; NW Frozen Foods at [293]; and Australian Competition and Consumer Commission v Leahy Petroleum (No 2) [2005] FCA 254; 215 ALR 281 at [9]. Parity principle 80 Assessments of penalty in analogous cases may provide guidance to the Court to ensure equal treatment in similar circumstances, meeting the principle of equal justice. However, those cases show that the circumstances in different cases are rarely the same, which means that it is difficult to apply this principle, and when applied it is a guide only: Schneider Electric (Australia) Pty Ltd v Australian Competition and Consumer Commission (2003) 127 FCR 170 at [10]-[17] per Sackville J and [52]-[60] per Merkel J; Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (No 2) [2002] FCA 192; 201 ALR 618 at [17]; NW Frozen Foods at 295; and ACCC v Telstra at [210]. Totality principle 81 This principle requires that I must consider the entirety of the conduct and then determine whether the proposed penalty is just and appropriate "as a whole". The rationale is to ensure that the proposed penalty is proportionate when the contraventions are viewed collectively: Mill v The Queen (1988) 166 CLR 59 at 62 to 63; Trade Practices Commission v Allied Mills Industries Pty Ltd and Others (No 5) (1981) 37 ALR 256 at 258-259; Trade Practices Commission v TNT Australia Pty Limited (1995) ATPR 40,161 (41-375) at 40,167 and ACCC v ABB Transmission and Distribution Limited (No 2) [2002] FCA 559; 190 ALR 169 at [39]. Separate representations 82 It was contended by the ACCC that I should treat each of the contraventions separately for the purposes of penalty and in my view it is appropriate to do so. It would be disproportionate to treat each day on which the representations appeared on the websites over the periods found as separate infringements, just as it would be wrong to treat all of the respondents' representations as a single course of conduct of misstatement and exaggeration. The ACCC contended, and I accept, that it is appropriate to treat each of the separate representations as separate contraventions as this will not punish the respondents for the same conduct twice. Although the representations overlap, particularly the government endorsement representations, they were largely different conduct, for different time periods, using different media and of differing degrees of seriousness. The Brochure Representation was made to a smaller subset of the class of users and potential users of SMS & MMS services than the internet based representations: Trade Practices Commission v Advance Bank Australia Ltd (1993) ATPR 41,160 (41-229) at 41,164; Trade Practices Commission v Bata Shoe Co of Australia Pty Ltd (No 2) (1980) 44 FLR 149 at 176; and Yellow Page Marketing at [83]-[87] and [108]-[111]. Discretion 83 Finally, it is also clear that whilst I should pay careful attention to the maximum penalty, I should not just make a proportionate reduction from it. The authorities are clear that it is inappropriate for the Court to adopt a mathematical approach of increases or decreases in the sentence within a predetermined range, or assign numerical or proportionate values to the various relevant factors. Generally, mathematical adjustments to a sentence or use of an arithmetical process are to be avoided. My assessment of the appropriate penalty must be a discretionary judgment synthesising all of the relevant factors: Markarian v R (2005) 228 CLR 357 at [31]-[39]; Australian Competition and Consumer Commission v Liquorland (Australia) Pty Ltd [2005] FCA 683; ATPR 42-070 at [68]; and Yellow Page Marketing at [97].

Pecuniary penalty not applicable to KAS ESA Representation 84 Pecuniary penalties were not applicable to contraventions of s 53(d) of the TPA prior to the introduction of s 76E on 15 April 2010, and can only be ordered in respect of contravening conduct that took place on or after that date. Because I have found that the contravention of s 53(d) by Mr Krumins in making the KAS ESA Representation occurred between early 2007 and 1 September 2008, no pecuniary penalty can be ordered for this breach.

Penalty for the SMS Global ESA Representation and the Brochure Representation 85 In relation to the contraventions of s 53(d) of the TPA relating to the SMS Global ESA Representation and the Brochure Representation I will deal first with each of three mandatory factors under s 76E(2) in relation to the facts of this matter, and then the other factors I have identified. (a) The nature and extent of the act or omission: s 76E(2)(a) 86 The two government endorsement contraventions related to the false claims of government endorsement on the SMS Global website and in the Brochure. The relevant website representation was made from early 2007 to 31 December 2010, although a finding of contravention was only sought in relation to the last six months of 2010. The Brochure Representation was made over two days in May 2010. The representations likely had a wide dissemination to current and potential users of internet based SMS and MMS. I have found that it likely misled consumers by implying that SMS Global had met vetting procedures that were likely to be stringent, and that it was a respectable, reliable provider with a good quality service. The evidence was that the market for such messaging services was highly competitive, and in such a market a representation of government endorsement was likely to have given SMS Global an edge on its competitors. 87 I find that in making the false claims of government endorsement on its website and in the Brochure, SMS Global and Mr Krumins were being, at least to a degree, deliberately misleading. Mr Krumins' evidence was that in copying the ESA logo onto the website he merely displayed a lack of diligence in properly checking whether a business listed on the ICT MUL was able to display a logo asserting government endorsement. I do not accept that he believed that he was authorised to use the ESA logo because of his listing of SMS Global on the ICT MUL. I find that he was aware that the ICT MUL was different from the ESA, and that it did not provide any government endorsement of his business. It is likely that he knew this from his discussion with the government official in 2007, and from the clear words on the ICT MUL website that it did not provide any endorsement. Further, he concedes having been told that the ESA scheme was finished, and in those circumstances I find it impossible to accept that he genuinely thought that he was authorised to use the ESA logo. Finally, in my view if he genuinely thought that he was authorised to use the ESA logo it is likely that he would have sought a copy of the logo from the appropriate government department, rather than taking it from another company's website and copying it onto his own. 88 Counsel for the respondents argued that it would be "unfair" and that it was "not open to the Court" to find that the conduct was deliberately misleading, because this suggestion was not put to Mr Krumins in cross examination. I do not accept this. The respondents were on notice from the ACCC's written and oral submissions that it contended that the government endorsement representations were deliberate, and disputed that they arose only from a lack of diligence by Mr Krumins. 89 In my view the SMS Global ESA Representation constituted the most serious contravention of the TPA that was before me. The Brochure Representation contravention made a similarly false claim of government endorsement but over only a 2 day period, to a smaller audience, and to more sophisticated business consumers only. I consider this to be a less serious contravention. 90 However, there are some matters which I find significantly reduce the seriousness of these contraventions. There was no evidence of consumers being defrauded, taken advantage of or otherwise being harmed. There was no evidence of any consumer complaints at all. On the evidence SMS Global was an apparently reliable business, and had many apparently contented government and business customers. For example, in August 2010 it reached a Government Information Technology Contracting Agreement with the Government of Queensland which was a framework agreement for the provision of information and technology communication services. 91 The evidence showed that the vast majority of SMS Global customers undertook a free trial of its services before purchasing them, and having done so there was a low "churn" rate indicating a good level of customer satisfaction. Of course, this does not mean that consumers were not enticed by the false claim of government endorsement into becoming clients of SMS Global, but it is an indication that they found the service to be of reasonable quality when they did become clients. (b) The amount of any loss and damage: s 76E(2)(a) 92 The amount of any loss and damage is a mandatory factor for consideration of pecuniary penalty under s 76E(2)(a), yet the ACCC adduced no evidence of actual loss or damage. It relied on Australian Competition and Consumer Commission v Universal Music Australia Pty Ltd (2002) 201 ALR 618 at [17] which cited Trade Practices Commission v ICI Australia Operations Pty Ltd (1991) 105 ALR 115 at 119. I agree with Perram J in ACCC v MSY Technology at [77]-[80] where he observed that Trade Practices Commission v ICI is authority only for the proposition that in situations where loss or damage rarely arises, its absence is not a mitigating factor. Australian Competition and Consumer Commission v Universal Music stands for the proposition that absence of evidence of loss does not necessarily mean a penalty will not be imposed. Whilst I accept this, I am nevertheless required to take the amount of any loss or damage into account by s 76E. 93 In my view it is reasonable to expect some loss or damage to be suffered by consumers if they were enticed into engaging SMS Global by the false claim of government endorsement, and then either charged too much or provided with low quality or unreliable service. For example, the loss might be the difference in price between what consumers paid to SMS Global and the price offered for similar services by other providers, or damage to consumers might have arisen from failure to send SMS and MMS messages accurately and on time. It may have been difficult to quantify but that is not the same thing: Australian Competition and Consumer Commission v Global One Mobile Entertainment [2011] FCA 393 at [135]. 94 The absence of any evidence of loss or damage in circumstances where the conduct might have been expected to cause some, allows me more readily to draw the conclusion that none was suffered. This conclusion is also consistent with the absence of any evidence of complaint, and the evidence of customer satisfaction I have already referred to at [90] and [91] of these reasons. 95 It is also relevant that the evidence was that the market was highly competitive. If services were provided to consumers at a competitive price, and as I have found, the services were apparently of reasonable quality provided after a free trial period, it is difficult to see how consumers would have suffered loss or damage. Of course, it is not difficult to see SMS Global profiting from its untrue claim of government endorsement, but that is a different matter. 96 I conclude therefore that little or no loss or damage has been suffered by consumers on this occasion and this is a significant mitigating factor with regard to penalty. (c) The circumstances in which the act or omission took place: s 76E(2)(b) 97 I have already set out my view as to the deliberate nature of the SMS Global ESA Representation and the Brochure Representation, and my rejection of the respondents' submission that they were made only because of a lack of diligence. I have noted that these false claims of government endorsement were likely communicated to a large number of consumers. (d) Whether the person has been found by the Court in proceedings under Part VC or Part VI to have engaged in any similar conduct: s 76E(2)(c) 98 The evidence was that neither of the respondents had been found to have engaged in any similar conduct in the past. 99 I turn now to the non-mandatory factors. (e) the size of the contravening company 100 SMS Global is a small proprietary limited company with 9 full time employees in its Melbourne office including Mr Krumins and 4 part time employees. It also has 4 employees in a separate but connected company based in Dubai. 101 The respondents sought orders under s 50 of the FCA that certain evidence tendered relating to the turnover, profitability, income and clients of the respondents be kept confidential on the basis that it is private, personal and commercially sensitive information which could assist its competitors. I have made some such orders and declined to make others for the reasons I explain at [123]-[127] of these orders. However, I will not set out in these reasons the sensitive information that I have declined to order as confidential. 102 The respondents' final and draft tax returns for the three financial years from 2008 to 2010 and an estimate of likely income for 2011 were in evidence, together with a statement of Mr Krumins' assets and liabilities. Whilst the turnover of SMS Global was significant for a small business, the profit made was quite modest in two years, it made a loss in another, and a very low profit was likely for 2011. It has a client list over that three year period which includes many government departments and businesses but it was not clear whether these clients were current clients or not. Having regard to this evidence, as well as that of sizeable competitors in the market such as Telstra and Optus, SMS Global is best described as small and not significant in its sector. (f) the deliberateness of the contravention and period over which it extended 103 As I have already set out at [87], in my view the false claims of government endorsement were deliberate. The relevant representation on the website was admitted to have occurred from early 2007 through to December 2010, although the ACCC only sought orders in relation to conduct in the last six months of 2010. (g) whether the contravention arose out of the conduct of senior management of the contravener or at a lower level 104 The false claims of government endorsement were made by Mr Krumins who was the managing director of the company. (h) whether the contravener has a corporate culture conducive to compliance with the TPA as evidenced by educational programs and disciplinary of other corrective measures in response to an acknowledged contravention 105 There was no trade practices compliance program in place at SMS Global at the time of the contraventions, but one was introduced in March 2011 in response to these proceedings. In my view this operates to reduce the penalty otherwise payable. (i) whether the contravener has shown a disposition to cooperate with the authorities responsible for enforcement of the TPA 106 Following the commencement of proceedings, the respondents moved speedily to correct the various contraventions. The KAS website was speedily taken down, and the ESA logo was immediately removed from SMS Global's website, as were the Industry Experience Representations. The company speedily renewed its AIMIA annual membership fee, commenced a compliance program, and substantially admitted the contraventions. In fact, SMS Global contended that the proceedings were unnecessary and that it would have acted immediately had it received a letter from the ACCC raising its concerns. I accept its submission that it would have speedily rectified the problems had the ACCC raised its concerns prior to commencement of these proceedings. However this does not mean that the ACCC was not justified in commencing them. 107 SMS Global substantially admitted the contraventions at an early date. Whilst it did contest some of the declarations and orders sought in the proceeding, the position it took in the proceedings is not entirely unwarranted. 108 In my view, the respondents have shown a good level of cooperation, and this operates to reduce the penalty otherwise payable. In relation to the reduced specific deterrence that will arguably arise from a lower penalty, I agree with the view of Jagot J in Australian Competition and Consumer Commission v Gourmet Goody's Family Restaurant Pty Ltd [2010] FCA 1216, where her Honour said: Specific deterrence of the respondents themselves is not a weighty consideration in this case because as soon as the respondents were notified of the problem by the ACCC, they took immediate action to rectify the problem. (j) the financial position of the contravener 109 The financial position of the company is not strong. It is a small company in a sector with large competitors. It has a healthy turnover for a small company but this has not resulted in stable or recurrent profit. In the last 4 years it has made modest profits in two years, suffered a loss in a third, and it will make a very low profit in 2011. I note however that the very low 2011 profit is due in part to the costs incurred in defending these proceedings which were estimated at approximately $170,000. 110 Further, whatever its past profit position, in my view it is likely that the injunctions ordered, the publication order, and other publicity around this decision, will operate to damage the company's financial position in the future. 111 The respondents argued, and I accept, that their financial position is such that it would be harsh and oppressive to order them to pay penalties of the size sought by the ACCC. In my view the imposition of a lower penalty would not offend the parity principle, as I agree with Sackville J in Schneider Electric v Australian Competition and Consumer Commission (2003) 127 FCR 170 where his Honour held at [13] It does not offend the parity principle to impose on a contravener whose capacity to pay is not in doubt a penalty greater than that imposed on a contravener whose conduct is similar but who could not bear the higher penalty without being subjected to financial hardship… 112 Of course, the financial position of the respondents must be weighed against the need for general deterrence. As Goldberg J noted in Australian Competition and Consumer Commission v Leahy Petroleum (No 3) [2005] FCA 265; 215 ALR 301 at [39]. The penalty imposed must be substantial enough that the party realises the seriousness of the conduct and is not inclined to repeat such conduct. Obviously the sum required to achieve this object will be larger where the court is setting a penalty for a company with vast resources. However, as specific deterrence is only one element and general deterrence must also be achieved, consideration of the party's capacity to pay must be weighed against the need to impose a sum which members of the public will recognise as significant and proportionate to the seriousness of the contravention. I have taken account of this in my determination of the appropriate penalty. (k) whether the contravening conduct was systematic, deliberate or covert I have already dealt with this factor at [87] of these reasons. It was deliberate, but not covert. (l) the contravener's position at influence and importance in its industry sector 113 On the evidence SMS Global is not in a position of influence and importance in its sector. It is a small company in a sector in which much larger competitors operate. This too is relevant in reducing the appropriate penalty.

No pecuniary penalty for AIMIA Representation 114 In relation to the contravention of s 53(d) of the TPA concerning the AIMIA Representation I will deal briefly with the various factors I have identified above. SMS Global failed to renew its membership of the peak industry body, which I found, at [43] of these reasons, arose out of the failure of Mr Krumins to read relevant emails and to forward them to an accounts clerk for payment. Despite it not then being a member, the SMS Global website continued to carry the AIMIA logo. This mistake was correctly typified by Mr Krumins as an administrative oversight. I have found at [96] that no loss or damage was suffered by consumers. SMS Global has not previously committed any similar breach of the TPA. 115 In my view specific deterrence is not called for in relation to this breach because of the cooperation of the respondents, and because it is highly unlikely in all the circumstances that the respondents will commit another breach of this type. The problem was speedily rectified when brought to their attention, and membership subscriptions have now been paid through to 2014. In relation to general deterrence, whilst it is important in my view that companies be required to have administrative processes adequate to ensure compliance with the TPA, the administrative error regarding the use of the AIMIA emblem was a small one. It did not relate to a core business function and there was no evidence of the type of administrative failure that might call for a penalty so as to deter others. 116 Unlike the claim of government endorsement, the claim of AIMIA affiliation was not false when the logo was placed onto the website, and it only became misleading when the membership lapsed through inadvertence. The conduct was not deliberate, systematic or covert. In my view the contravention was minor. In these circumstances, having regard to all the factors set out above at [86]-[113], I decline to order a penalty in relation to this contravention.

The appropriate penalty 117 Whilst I have had careful regard to the maximum penalty for those contraventions for which a penalty is payable, I will not order a penalty anywhere near the maximum as, having regard to all the factors I must consider, a penalty in that realm would be inappropriate. The parties have provided me with numerous examples of other penalty findings in circumstances where the conduct was asserted to be in some way similar to the conduct in these proceedings. The penalties imposed were both greater and lesser than I propose to impose. I am not satisfied that the examples provided to me had the same or similar circumstances to this matter, and I did not get any real assistance from them. I have taken an overall view, and sought to arrive at a penalty for the two remaining government endorsement representation contraventions which is appropriate as a whole. 118 I note that evidence was before the Court that, although endorsed businesses were required to cease using the ESA logo by the end of September 2007, a large number of companies still continue to carry it on their websites. The parties each sought to rely on this evidence to support their own position. The respondents contended that it illustrated that the misconduct was widespread, not serious, and should not have been pursued by the ACCC without first sending a letter requiring rectification. The ACCC contended that it illustrated the need for a penalty sufficient to provide general deterrence. The ACCC also indicated that following judgment in this proceeding it would write to companies still using the logo, advising them of the decision. In my view, both contentions have some merit. However, deterrence is the more important consideration. 119 In relation to the penalty sought for Mr Krumins' ancillary liability it is clear that, as the sole shareholder and director, any penalty imposed on SMS Global is effectively paid by Mr Krumins. The authorities make clear that if a pecuniary penalty will ultimately be borne by an individual, that should be taken into account: Australian Competition and Consumer Commission v Ithaca Ice Works Pty Ltd [2000] FCA 997; ATPR 41,159 (41-777) at [11] and [13]; ACCC v ABB Transmission and Distribution Limited (No 2) [2002] FCA 559; 190 ALR 169 [45]; Australian Competition and Consumer Commission v Commercial and General Publications (No 2) [2002] FCA 1349 at [27]-[29]; Australian Competition and Consumer Commission v Visy Industries Holdings (No 3) [2007] FCA 1617; 244 ALR 673 at [294]; and Australian Competition and Consumer Commission v Oobi Baby [2008] FCA 1488 at [12]. 120 In these circumstances I will not order that Mr Krumins pay a pecuniary penalty on top of the penalty which I order against SMS Global. However I will order that Mr Krumins be jointly and severally liable with SMS Global for payment of the penalty I have set. 121 The ACCC sought the imposition of penalties on the respondents which totalled in the range of $150,000 to $200,000. It sought penalties in the range of $105,000 to $128,000 for the SMS Global ESA Representation contravention, and in the range of $20,000 to $34,000 for the Brochure Representation contravention. It also sought penalties relating to the KAS ESA Representation and the AIMIA Representation. As no penalty is available in relation to the KAS ESA Representation, and as I have declined to order any penalty in relation to the AIMIA Representation, the penalty range on the ACCC submissions is reduced to $125,000 to $162,000. The respondents opposed any penalty. 122 Taking into account all of the factors and considerations I have set out above I have determined to order a total penalty of $85,000, payable jointly and severally by the respondents, as follows; (a) in respect of the SMS Global ESA Representation contravention penalty of $75,000; and (b) in respect of the Brochure Representation contravention a penalty of $10,000.

Section 50 orders 123 Section 17 of the FCA provides that the jurisdiction of the Federal Court is to be conducted in open court. The respondents sought orders under s 50 of the FCA to keep confidential various documents. The section provides that a confidentiality order should only be made "in order to prevent prejudice to the administration of justice or the security of the Commonwealth". Plainly, no question as to the security of the Commonwealth arises in this matter, but the question remains whether it is necessary to prevent prejudice to the administration of justice. The word "necessary" in s 50 of the FCA is "a strong word" and it means just that, rather than "convenient, reasonable or sensible": Hogan v Australian Crime Commission (2010) 240 CLR 651 at 664 [30]-[31] ("Hogan"). 124 Section 50 does enable the making of a confidentiality order relating to commercial information if, for example, its value as an asset would be seriously compromised by disclosure: Hogan at 666 [38]-[39] which approved the considerations of Jessup J in the Full Federal Court in Hogan v Australian Crime Commission (2009) 177 FCR 205 at 220-221 [42]. It has also been held that documents indicating the profitability of a private company, whose information is not publicly available, and which information could damage that company if it got into the hands of competitors, and documents containing market sensitive pricing information, can justify orders under s 50: Yara Australia Pty Ltd v Burrup Holdings Ltd (No 2) [2010] FCA 1304 at [25]; and Qantas Airways Ltd v Rolls-Royce PLC [2010] FCA 1481. 125 I have been requested to make confidentiality orders in relation to four identified documents or categories of documents. I will make a confidentiality order for some documents and not for others. 126 I will make a confidentiality order relating to the following documents: (a) Confidential exhibit CBK-8 to the affidavit of Carl Bryan Krumins of 1 June 2011. This document contains the names of several government clients of SMS Global and some pricing information. (b) Confidential exhibit CBK-9 to the affidavit of Carl Bryan Krumins of 1 June 2011. This is a table of the work performed by SMS Global for government departments over the years, and lists SMS Global's past and present government clients. I order that these documents be kept confidential as this information in the hands of competitors could enable them to target these clients, possibly damaging the business significantly. 127 I refuse to make a confidentiality order in relation to the following documents: (a) Confidential exhibit CBK-24 to the affidavit of Carl Bryan Krumins of 1 June 2011. This document sets the financial position, assets, liabilities of Mr Krumins and his likely income in 2011. (b) Confidential affidavit of Emese Ildiko Colaneri of 31 May 2011 and confidential exhibits EIC-1, EIC-2, EIC-3, EIC-4 and EIC-5. This affidavit and the exhibits set out the income of the respondents, and includes their final and draft tax returns for the 2008 to 2010 financial years. I do not consider it is necessary for the administration of justice that I make these confidentiality orders. In my view it is unlikely that the business of the respondents will be seriously compromised if this information was to be made public, and the importance of the principle of open justice outweighs any inconvenience or embarrassment that might be suffered by the respondents should the information become public.

Publication order 128 The ACCC sought publication orders pursuant to s 86C or alternatively s 86D of the TPA, which was opposed by the respondents. In Medical Benefits Fund of Australia Ltd v Cassidy (2003) 135 FCR 1, the Full Court of this Court set out three key purposes to a corrective advertising order made under s 86C; (a) protecting the public interest in dispelling incorrect of false impressions that were created by the misleading and deceptive conduct, especially where the conduct arose from public statements, advertisements or promotions: Australian Competition and Consumer Commission v On Clinic Australia Pty Ltd (1996) 35 IPR 635 ("On Clinic"); (b) alerting consumers to the fact that there has been misleading and deceptive conduct: Australian Competition and Consumer Commission v Virgin Mobile Australia Pty Ld (No 2) [2002] FCA 1548 at [22]; and (c) aiding enforcement of primary orders and preventing repetition of contravening conduct: Australian Competition and Consumer Commission v Real Estate Institute of Western Australia Inc (1999) 95 FCR 114. 129 The power is to be used protectively and not punitively: On Clinic at 640-642. The Court has often refused to order corrective advertising where there has been a considerable lapse of time since the contravening conduct, and where it is unlikely that consumers continue to labour under a misapprehension as a result of the contravening conduct: Luxottica Retail Australia v Specsavers (No 2) [2010] FCA 644 at [10]-[12]; Australian Competition and Consumer Commission v Panasonic Australia [2010] FCA 856; 269 ALR 622 at [62]-[64]; Australian Competition and Consumer Commission v Harris Scarfe Australia [2009] FCA 54 at [115]-[120]; and Australian Competition and Consumer Commission v Telstra Corporation [2007] FCA 2058 at [5]. 130 In my view, a publication order is appropriate in this matter. The false claim of government endorsement appeared on SMS Global's website for more than 3½ years, and only ceased in early January 2011. The false claim on the website was bolstered by a false claim of government endorsement in the Brochure distributed in May 2010 at a large international trade fair. The exaggerated claims of industry experience appeared on the SMS Global website for more than 1½ years and only ceased in January 2011. In my view there may well be consumers who entered a commercial relationship with SMS Global based in part upon these misleading representations. It is appropriate that any such misapprehension be corrected. 131 I do not consider that any corrective order is appropriate in relation to the AIMIA Representation contraventions. In my view there is no public interest in a publication order to correct any related misapprehension, and no necessity to alert consumers as to the conduct. 132 I decline to make an order pursuant to s 86D of the TPA. Such an order would be aimed at deterrence and I consider that the other orders that I have made provide sufficient deterrence: para 59 Explanatory Memorandum - Trade Practices Amendment Bill (No 1) 2000 (Cth). In any event, I have made publication orders pursuant to s 86C. I have amended the public notice proposed by the ACCC to more accurately reflect my findings and for clearer expression.

Compliance Program 133 Following the commencement of the proceedings SMS Global engaged the legal firm Minter Ellison to implement a training and compliance program which it did. The plan was tendered and I am satisfied that Mr Krumins and the staff of SMS Global have undergone the relevant training. The ACCC seeks to impose its preferred compliance plan on SMS Global, in place of that already designed and implemented by Minter Ellison. The ACCC plan had some features that illustrated a "one size fits all" approach which in my view was unsuited to a small company like SMS Global. 134 The Court has been reluctant on a number of occasions to order compliance programs in the detailed form proposed by the ACCC, unless the respondent consents: Australian Competition and Consumer Commission v Rural Press Ltd (2001) ATPR 41-833 at [23]; Australian Competition and Consumer Commission v Harris Scarfe Australia [2009] FCA 54 at [121]-[127]; and Australian Competition and Consumer Commission v Panasonic Australia [2010] FCA 856; 269 ALR 622 at [70]-[71]. In Australian Competition and Consumer Commission v Hobie Cat Australasia [2008] FCA 402 at [23] Finn J expressed reservations about the utility of a detailed compliance program but ultimately did so by consent. 135 SMS Global contended that the ACCC compliance plan would cause unnecessary extra cost and inconvenience, and that it had some features that were inappropriate for a small company like it. I accept some of the examples it provided in that regard. In circumstances where SMS Global has already implemented and paid for a plan through an apparently competent provider, I will not impose a new and more intrusive compliance plan over its objections. Further, I was not persuaded that there was any serious deficiency in the compliance plan already in place. 136 I will not order a compliance program in the form sought by the ACCC. I will make an order in the form consented to by SMS Global with one variation. I will insert a provision in the order that the education and training program continue to be delivered by Minter Ellison so that the ACCC may have some comfort that there is a level of quality control in its delivery. Should SMS Global become unsatisfied with that firm's services for any reason it will be required to agree with the ACCC on the new provider, again to ensure a level of quality control.

Costs 137 The issue of costs has been deferred pending these reasons and I will list the matter for short submissions on the question of costs on 10 August 2011 at 2.15 pm. I certify that the preceding one hundred and thirty-seven (137) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Murphy.