Australian Competition & Consumer Commission v Jutsen

(a) to take part in the scheme, some or all new participants must make a payment (a participation payment) to another participant or participants in the scheme; (b) the participation payments are entirely or substantially induced by the prospect held out to new participants that they will be entitled to a payment (a recruitment payment) in relation to the introduction to the scheme of further new participants. 5 The TVI Express System is a system which purports to offer discounted accommodation and travel opportunities to members, as well as income earning opportunities. To become a member of the system, a person must apply either through the TVI Express website located at URL www.tviexpress.com or by providing a completed application form to an existing member. In addition, a membership fee of US$250 must be paid. A person who becomes a member of the system is allocated a unique user ID and a position on a "Traveller Board". They also receive a travel certificate which is said to entitle them to free accommodation for 6 nights and 7 days, a free companion flight, a virtual back office, access to an online travel portal, a self-replicating website and access to business tools. 6 The TVI Express System is designed to allow a member to earn income by recruiting new members to the scheme so that he or she may move up the Traveller Board and the Express Board. Each of these has 4 levels, with room for 8 user IDs at level 1, 4 user IDs at level 2, 2 user ID's at level 3 and 1 user ID at level 4. New members enter the Traveller Board at level 1 and cannot progress up the levels until all 8 level 1 positions are filled. To reach level 4, a member must have 'sponsored' at least 2 new members. When all positions on the Traveller Board are filled, the person situated at level 4 exits the Traveller Board and enters level 1 of an Express Board. Upon exiting the Traveller Board, he or she receives a credit of US$250 in their e-Wallet and an e-Voucher purportedly worth US$250. 7 The Express Board operates in a similar fashion except that in order for a member to exit the Express Board, at least 2 other people in the Express Board must be people who were sponsored to become members of the TVI Express System by the first member. These people are known as "downlines". Upon exiting the Express Board, a member receives a credit of US$10,000 in their e-Wallet and re-enters the Express Board at level 1. A member who has exited the Express Board also becomes entitled to receive a percentage of group revenue generated by membership fees derived by the member and the member's downlines. 8 The Amended Statement of Claim defines the relevant pyramid selling scheme as the "TVI Team Oz Scheme". It alleges that the respondents have promoted the TVI Team Oz Scheme by means of various websites which include www.tviteamoz.com as well as two Facebook group pages. It is alleged that through these (and various other) promotional activities, the respondents have induced members of the public to become members of the TVI Express System and to pay a AU$330 membership fee to one of the respondents or another existing member of the TVI Express System, who would in turn arrange for payment of the membership fee to TVI Express (usually by using credits in the existing members e-Wallet). It is further alleged that new members who became part of TVI Team Oz also became downlines of one of the respondents. It is also alleged that in promoting the TVI Express System, the respondents have participated in a pyramid selling scheme namely, the "TVI Team Oz Scheme". 9 The proposed Further Amended Statement of Claim includes the following allegations which are, except for paragraphs 14A and 15, the same as those appearing in the Amended Statement of Claim (particulars omitted): 2. Since some time in 2009 the website www.tviexpress.com (TVI Website) displayed content relating to a system (TVI System) including: (a) materials relating to the promotion and operation of the TVI System; and (b) a process to enable members of the public to become lifetime members of the TVI System. 3. Since some time in 2009 the TVI Website and TVI System was operated and controlled by one or more of the following: (a) TVI Express Limited a company incorporated in Cyprus; (b) TVI Services Limited a company incorporated in England and Wales; (c) TVI Express Private Limited a company incorporated in India; (d) TVI Holidays Private Limited a company incorporated in India; (e) TVI Vacations Private Limited a company incorporated in India; (f) TVI Express Holidays Private Limited a company incorporated in India; (g) TVI Express Vacations Private Limited a company incorporated in India; (h) an entity the identity of which is unknown to the applicant; (Collectively and individually referred to as TVI Express). 4. At all relevant times in order for a person to join the TVI System a one time membership fee had to be paid to TVI Express. 5. Membership of the TVI System was at all relevant times administered on the TVI Website so that on payment of a membership fee as alleged in paragraph 4 the member was allocated a unique user ID in respect of that membership fee. 6. At all relevant times the TVI Website represented that upon entry to the TVI System a member's user ID was placed at level 1 of a "traveller board". 7. At all relevant times the TVI Website represented that each traveller board within the TVI System was structured with space for: (a) one user ID at level 4; (b) two user IDs at level 3; (c) four user IDs at level 2; (d) eight user IDs at level 1. 8. At all relevant times the TVI Website stated that a member's user ID could not rise above level 1 on a traveller board until all eight level 1 positions were filled by user IDs. 9. At all relevant times the TVI Website stated that a member's user ID could not reach level 4 on a traveller board unless: (a) that member, using that member's user ID had recruited a new member or members to the traveller board; or (b) another member had recruited sufficient new members that under the rules of the TVI System the recruitment of a new member had been attributed to that user ID. 10. At all relevant times the TVI Website represented that each time all eight level 1 positions on a traveller board were filled by user IDs: (a) the member whose user ID was at level 4 on that traveller board: (i) received a credit to a running account recorded within an eWallet on the TVI Website of US$250; (ii) received a credit to a running account recorded on the TVI Website of an eVoucher with a stated value of US$250 available to be used to pay the membership fee of a person recruited to be a member in the TVI System; and (iii) exited the traveller board and entered level 1 of the "express board". (b) subject to paragraph 9 all other user IDs on that traveller board became entitled to move up by one or more levels on a traveller board. 11. At all relevant times the TVI Website represented that each express board was structured with space for: (a) one user ID at level 4; (b) two user IDs at level 3; (c) four user IDs at level 2; and (d) eight user IDs at level 1. 12. At all relevant times the TVI Website represented that a member who entered an express board could not progress to a level of that board higher than level 1 until all eight spaces were filled by user IDs exiting traveller boards as alleged in paragraph 10(a)(iii). 13. At all relevant times the TVI Website represented that each time all eight level 1 positions on an express board were filled by a user ID: (a) the member whose user ID was at level four of the express board: (i) received a credit of $10,000 towards a running account recorded within an eWallet on the TVI Website; (ii) became entitled to earn, by way of credit to that running account, a percentage of group revenue from all membership fees paid in respect of new participants recruited by that member, or by any other member whose membership of the TVI System derives from a recruitment effected by that member; and (iii) exited level 4 of the express board and re-entered an express board at level 1. (b) all other user IDs on that express board became entitled to move up by one or more levels on an express board. 14. At all relevant times the TVI Website represented that except as alleged in paragraphs 10(a) and 13(a) a member in the TVI System was unable to earn, derive or receive any financial benefit by reason of that membership. 14A. At all relevant times the TVI Website held out the prospect to earn, derive or receive the financial benefits as alleged in paragraphs 10(a) and 13(a) as the reason new members would join the TVI System. 15. By reason of the matters alleged in paragraphs 4 to 14A the payments referred to in paragraphs 10(a) and 13(a) were payments in relation to the introduction to the TVI System of new members of the TVI System. 10 Paragraph 14A is new as is the reference to it that now appears in paragraph 15. However, paragraph 14A adds little to paragraph 14. Paragraph 68A is also new. It alleges: 68A By reason of the matters referred to in paragraphs 2 to 15 the TVI System was a pyramid selling scheme within the meaning of section 65AAD of the TPA. 11 Thus, new paragraph 68A pleads, in the alternative to the existing case, that the TVI Express System constitutes the pyramid selling scheme in which the respondents have participated. The acts of participation relied upon by the ACCC in relation to the respondents' alleged participation in the latter scheme are the same as those relied upon by it in support of the existing case which is based upon the TVI Team Oz Scheme. 12 The power to grant leave to amend a pleading is subject to Order 13, rule 2 of the Federal Court Rules, as well as s 37M of the Federal Court of Australia Act 1976 (Cth) (FCA Act). In particular, O 13, r 2(2) provides that: All necessary amendments shall be made for the purpose of determining the real questions raised by or otherwise depending on the proceeding, or of correcting any defect or error in any proceeding, or of avoiding multiplicity of proceedings.

13 Section 37M(1) of the FCA Act provides that the overarching purpose of the civil practice and procedure provisions is to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible. 14 In Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175, the plurality emphasised that while the just resolution of proceedings remains the paramount objective of case management, resolving proceedings with the minimum expense and delay is an essential component of the just resolution of proceedings. In the context of a consideration of Rule 21 of the Court Procedures Rules 2006 (ACT) their Honours said: [98] …Speed and efficiency, in the sense of minimum delay and expense, are seen as essential to a just resolution of proceedings. This should not detract from a proper opportunity being given to the parties to plead their case, but it suggests that limits may be placed upon re-pleading, when delay and cost are taken into account. The Rule's reference to the need to minimise costs implies that an order for costs may not always provide sufficient compensation and therefore achieve a just resolution. It cannot therefore be said that a just resolution requires that a party be permitted to raise any arguable case at any point in the proceedings, on payment of costs. … [102] The objectives stated in r 21 do not require that every application for amendment should be refused because it involves the waste of some costs and some degree of delay, as it inevitably will. Factors such as the nature and importance of the amendment to the party applying cannot be overlooked. Whilst r 21 assumes some ill-effects will flow from the fact of a delay, that will not prevent the parties dealing with its particular effects in their case in more detail. It is the extent of the delay and the costs associated with it, together with the prejudice which might reasonably be assumed to follow and that which is shown, which are to be weighed against the grant of permission to a party to alter its case. Much may depend upon the point the litigation has reached relative to a trial when the application to amend is made. There may be cases where it may properly be concluded that a party has had sufficient opportunity to plead their case and that it is too late for a further amendment, having regard to the other party and other litigants awaiting trial dates. Rule 21 makes it plain that the extent and the effect of delay and costs are to be regarded as important considerations in the exercise of the court's discretion. Invariably the exercise of that discretion will require an explanation to be given where there is delay in applying for amendment. [103] … Generally speaking, where a discretion is sought to be exercised in favour of one party, and to the disadvantage of another, an explanation will be called for. The importance attached by r 21 to the factor of delay will require that, in most cases where it is present, a party should explain it. Not only will they need to show that their application is brought in good faith, but they will also need to bring the circumstances giving rise to the amendment to the court's attention, so that they may be weighed against the effects of any delay and the objectives of the Rules. There can be no doubt that an explanation was required in this case. 15 Of course, the High Court was not concerned in that case with an application to amend made after the evidence had closed. Such an application raises additional considerations. It is necessary for the Court to consider, among other things, whether the party resisting a proposed amendment made at that late stage might not be prejudiced as a consequence of having conducted the trial in a particular manner in reliance upon the existing pleadings. The possibility of such prejudice occurring is an important factor in determining the broader question of whether it is in the interests of justice to allow the amendment to be made at such a late stage in the proceeding. 16 As to the issue of delay, the application to amend appears to have been prompted by some questions asked by me of Mr White SC during his closing submissions for the ACCC. I drew attention to the possibility that the relevant scheme might not be the TVI Team Oz Scheme as defined in the Amended Statement of Claim but the TVI Express System pleaded in paragraphs 2 to 15 of the Amended Statement of Claim. 17 Mr White informed me that the failure to plead that the TVI Express System is a pyramid selling scheme arose out of a reluctance to plead a case to the effect that the TVI Express System is itself a pyramid selling scheme in circumstances where it was unclear which overseas entity was behind that scheme. He said "that it was thought that given the overseas entity was unknown or couldn't be located, it may not be appropriate to plead the case in that way." 18 The fact that the ACCC might not know who is behind the TVI Express System does not prevent it from pleading a case to the effect that the TVI Express System is a pyramid selling scheme. And the fact that there is some uncertainty as to the identity of the persons who are behind the scheme does not prevent the ACCC from pleading a case against those persons who are known to have participated in the scheme. 19 It therefore seems that the failure of the ACCC to plead that the TVI Express System was a pyramid selling scheme was based upon a misapprehension. It is regrettable that it has come to light so late; however, I am satisfied that the application to amend is made in good faith. Even so, I am only prepared to allow the proposed amendments if I am satisfied that there is no risk of prejudice to the respondents if the leave sought is granted. I will return to that question shortly. 20 If the TVI Express System is not a pyramid selling scheme then I do not see how the TVI Team Oz Scheme could be a pyramid selling scheme. Conversely, if the TVI Team Oz Scheme is a pyramid selling scheme, then it seems to me that the TVI Express System must also be a pyramid selling scheme. Thus, a key issue in the case (though not explicitly pleaded) is whether the TVI Express System is a pyramid selling scheme. It is conceivable, I acknowledge, that the TVI Express System could be a pyramid selling scheme even though the TVI Team Oz Scheme is not. But whether that is so really depends on where the boundaries of the relevant scheme are to be found. 21 On the question of prejudice, a matter emphasised by the applicants in support of their opposition to the proposed amendment was that they are not legally represented. It is true that the respondents are appearing for themselves. The circumstances in which the counsel and solicitors who appeared for them until shortly before the commencement of the hearing ceased to act for the respondents are referred to in my earlier judgment (see Australian Competition & Consumer Commission v Jutsen [2010] FCA 961). Any suggestion that the respondents are self-represented because they cannot afford to be legally represented is not supported by any evidence and is contrary to a number of matters that were put to me previously and which are touched upon in the earlier judgment. Still, the fact that the applicants are self-represented is a matter that I have taken into account. But I do not think it is a factor that should receive significant weight when considering whether or not the ACCC's application to amend should be allowed. 22 The respondents also referred to the fact that they have conducted the case up until now on a particular basis which they say was shaped by the existing pleadings. The respondents have called one witness who is a member of the TVI Express System. There is no suggestion that she would not have been called by the respondents if they had known at the time that the ACCC would allege, in the alternative, that the TVI Express System was a pyramid selling scheme. Nor is there any suggestion that her evidence would have been materially different. None of the respondents has given evidence. There is no suggestion that any of them would have done so if the ACCC had brought its proposed amendments forward at some earlier point in time. 23 I invited the respondents to explain to me in what respects they say their case would have been conducted differently if the proposed amendments had been brought forward earlier. They did not have anything specific to say in answer to that question. I have considered how the state of the pleadings might have affected the way in which the respondents have conducted the case. I am not satisfied that the respondents' case would have been conducted any differently if the proposed amendments had been made at some earlier point in time. 24 The respondents told me that they would require an adjournment of four months to enable them to meet the case the subject of the proposed amendments. If there was any reason to believe that an extensive adjournment was necessary to enable the respondents to meet the alternative way in which the ACCC wishes to put its case then I would refuse the amendment. However, the factual underpinnings of the new case are precisely the same as those of the existing case and the relevant facts are already pleaded in the Amended Statement of Claim. Whether the TVI Express System is a pyramid selling scheme is, adopting the language of O13 r 2(2), a "real question raised by the proceeding". There is no need or justification for a lengthy adjournment to enable the respondents to meet the new case. 25 I am satisfied that the respondents will not suffer any prejudice or unfairness if the proposed amendments are allowed. There is also a public interest to be considered in this case. If the scheme is defined to encompass the TVI Express System as a whole (as opposed to some sub-system thereof) and it is indeed a pyramid selling scheme within the meaning of the relevant statutory provisions then it would be in the public interest for me to make a clear finding to that effect. In my opinion the ACCC should be allowed to put as part of its pleaded case that the TVI Express System is a pyramid selling scheme. 26 I propose to grant the ACCC the leave it has sought. The ACCC should pay the respondents' costs of and incidental to the amendment application which are to include the costs of the additional hearing time that has been taken up by the consideration of the proposed amendment. I certify that the preceding twenty-six (26) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Nicholas.