Australian Competition & Consumer Commission v Narnia Investments Pty Ltd

Background Facts 3 In August 2004, Narnia conducted business in Hobart as the franchisee of Advanced Hair Studios (Franchising) Pty Ltd. Its business included the supply to customers of hair replacement products. Mr Clarke was and is the sole director of Narnia, which for practical purposes, is his alter ego. 4 During August 2004, Mr Andrew Hack entered into an agreement with Narnia to acquire a hairpiece for $15,500. He did so shortly after being discharged from a psychiatric ward of the Royal Hobart Hospital, where he had been treated for depression. 5 Narnia agreed to Mr Hack providing a deposit of $3,000 and paying the balance in instalments. It was agreed that once the $3,000 deposit had been paid, Narnia would order the hairpiece to be made up. Importantly, cl 3 of the agreement permitted Mr Hack to terminate the agreement, without penalty and with the return of his deposit, if the order had not been placed. It provided: This contract may be terminated by the customer for any reason before or at the time of fitting the program [sic]. If this contract is terminated after manufacturing has commenced, an amount equal to the amount expended by AHS in order to supply the custom designed hair replacement shall be deducted from the amount paid by the customer, and the remainder of any deposit and balance paid shall be refunded to the customer.

6 Mr Hack paid $1,800, in instalments, towards the deposit. When his mother discovered that he had done so, she questioned him about the agreement, given that his only source of income was a disability pension. Mr Hack asked his mother to terminate the agreement and get his $1,800 back. 7 Mrs Hack contacted Mr Clarke, who asked her to set out in writing why Mr Hack should be released from his agreement and have his $1800 returned. At this time no order had been placed for Mr Hack's hairpiece and cl 3 entitled Mr Hack to terminate the agreement without reason and without penalty. 8 Mrs Hack wrote to Mr Clarke who did not respond to her. Mrs Hack engaged a solicitor to act on behalf of Mr Hack. The solicitor was informed by Mr Clarke that he had advanced the deposit to the franchisor on Mr Hack's behalf. Mr Clarke said he was $1,950 out of pocket which he demanded to be paid within 30 days. 9 Mrs Hack then complained to ACCC about Advanced Hair Studios and Mr Clarke. ACCC commenced an investigation as to whether Narnia had induced Mr Hack to enter the agreement due to unconscionable and/or misleading and deceptive conduct and whether there had been false and misleading representations made to Mr Hack about his rights under cl 3. 10 On or about 5 April 2007, ACCC issued a notice to Narnia under sub­‑ss 155(1)(a) and (b) of the Act. The notice, amongst other things, stated that the Chairman of ACCC believed that Narnia was capable of furnishing information and producing documents relating to the matters that may constitute contravention of ss 51AB, 52 and 53 of the Act. 11 Amongst the information that ACCC required Narnia to furnish were the details of its customer complaint handling procedures, including details of how the complaint by Mrs Hack, on behalf of her son, concerning Advanced Hair Studios and/or Mr Clarke was dealt with by Narnia. ACCC suspected that Narnia and Mr Clarke had not followed Narnia's franchisee obligations in dealing with the complaint because the franchisor had informed ACCC that had those procedures been followed it would have directed Narnia to release Mr Hack from the agreement and refunded his deposit. 12 ACCC suspected that Narnia and Mr Clarke did not follow the complaints handling procedure so that they could mislead Mr Hack into believing that he was not entitled to get his $1,800 back and that he should pay a further $1,950 before he would be released from the agreement. 13 In response to ACCC's request to furnish the details of the complaint procedures and details of how the Hacks' complaint was dealt with, Mr Clarke responded: The complaint was notified to Mr Scott Walsh. Mr Walsh notified Mr Clarke. Mr Clarke contacted Mrs Hack (Mr Hack's mother) and discussed the complaint with her. Mr Clarke invoked clause 3 of the contract between Mr Hack and Advanced Hair Studios. That is that he notified Mr Hack that the monies paid by him to date would be sufficient to cover administrative costs and expenses by the Franchisee and that Mr Hack was discharged from the contract and had no further obligation to the Franchisee. 14 That response was false in that Mr Clarke never invoked cl 3 of the agreement and never notified Mr Hack that the $1,800 payment would be sufficient to cover the administrative costs and expenses of ordering and procuring the hairpiece. Also, Mr Clarke did not tell Mr Hack that he would be discharged from the agreement without further obligation to the franchisee. 15 During Mr Clarke's examination pursuant to s 155(1)(c) of the Act, he admitted that his answer set out at [13] above was false. The answer also conflicted with the text of demands made by him by facsimile transmission to Mr Hack's lawyer. 16 The parties acknowledge that ACCC has been put to additional time and expense as a result of the false information which went to the heart of its investigation. The false information, which conflicted with other information from Mr Hack, his mother and their lawyer, led ACCC to engage in a costly and time consuming examination process under s 155(1)(c), in which Mr Clarke was examined on 23 and 24 July 2007 for in excess of a day and a half.

Maximum penalties 17 The maximum penalty for a contravention of s 155(5)(b) of the Act is $2,200 (20 penalty units) or 12 month's imprisonment for an individual and $11,000 for a company; see s 155(6A) of the Act and Crimes Act 1914 (Cth) s 4B(3). The maximum penalty for breach of s 11.2 of the Criminal Code by Mr Clarke is the same as that for breach of s 155(5)(b) of the Act. Section 11.2(1) provides: A person who aids, abets, counsels or procures the commission of an offence by another person is taken to have committed that offence and is punishable accordingly. Therefore, Mr Clarke is to be assessed as if he had breached s 155(5)(b) of the Act in addition to the breach by Narnia. 18 The maximum penalty of 12 months' imprisonment reflects Parliament's view that "the provision of false information in response to a s 155 notice is a serious offence"; see Australian Competition and Consumer Commission v GIA Pty Ltd [2002] FCA 1298 at [19] per Heerey J, see also Australian Competition and Consumer Commission v Rana [2008] FCA 374 at [50] per North J.

Considerations relevant to penalty 19 Under s 16A(1) of the Crimes Act, the Court must impose sentences in the current proceeding "of a severity appropriate in all the circumstances". Pursuant to s 17A of the Crimes Act the Court is not to pass a sentence of imprisonment unless, "after having considered all other available sentences", it considers that "no other sentence is appropriate in all the circumstances". 20 In GIA, Heerey J considered that a mid-range penalty was appropriate because the relevant conduct was "more a matter of minimisation and evasion than denial or the laying of a false trail"; at [19]. In the current case, the conduct was in the nature of denial and the laying of a false trail. The nature and circumstances of each offence make it a serious transgression for Narnia and Mr Clarke respectively; see s 16A(2)(a) of the Crimes Act which requires the Court to take into account the "nature and circumstances of the offence". 21 On the face of the conduct, the offence by each defendant should attract a high range monetary penalty. I accept that it would not be appropriate in all the circumstances to imprison Mr Clarke, especially given that he has pleaded guilty and has no prior convictions.

22 The applicable considerations in amelioration of penalty in the current circumstances include the following: · the guilty pleas of the defendants, albeit made late in the proceeding; · the co-operation by the defendants with ACCC in the compilation of an agreed statement of facts, despite having failed to co-operate during the investigation; · the contrition of Mr Clarke, evidence by his payment of $5,000 compensation to Mr Hack on 31 July 2007; and · the defendants' lack of prior convictions. 23 The factors referred to in the preceding paragraph weigh in favour of a reduction in penalty from the high range to a range in excess of a mid-range penalty but below that of a high range penalty. However, as Lindgren J said in Australian Competition and Consumer Commission v Neville [2007] FCA 1583 at [43]: an important purpose of the penalty to be imposed in the present case is that of general deterrence. It is most important that persons furnishing information or giving evidence in response to a notice issued by the ACCC under s 155 of the TP Act do so frankly and honestly. It serves the public interest that the ACCC be enabled to carry out its investigations efficiently and effectively. Section 155 of the TP Act is directed to that end. If a person who is required to give evidence under s 155(1)(c) of the TP Act gives false or misleading evidence, not only does this have the immediate effect of obstructing and delaying the particular investigation: it also has the potential to direct the ACCC away from other sources of information and to draw human and financial resources away from its other work. The general public should know that conduct of that kind will be treated seriously by the Court. 24 Specific deterrence is not a central consideration as I am confident that Mr Clarke will not re-offend. 25 Having regard to the importance of general deterrence, as stressed by Lindgren J in Neville, and the ameliorating factors referred to at [22] above, I consider that a monetary penalty between mid-range and high range should be imposed. The charge is too serious to warrant the imposition of a conditional discharge under s 19B(1) of the Crimes Act in respect of Mr Clarke. To do so would be inconsistent with the approach adopted by this Court in Neville, GIA and Rana. The disqualification of Mr Clarke from managing another corporation under s 206B of the Corporations Act 2001 (Cth) is a matter which Mr Clarke should have had regard to before committing the offence. 26 Accordingly, a fine of $5,600 will be imposed on Narnia and fine of $1,400 will be imposed on Mr Clarke. I would have ordinarily imposed a penalty of $7,000 on Narnia but have reduced that amount by $1,400 to reflect the penalty imposed on Mr Clarke. I have done so given that Narnia was, in practical terms, Mr Clarke's alter ego. One must be careful to avoid what is, in effect, double punishment of a sole director of a company; see Australian Competition and Consumer Commission v Commercial and General Publications Pty Ltd (No 2) [2002] FCA 1349 at [27]-[29] per Heerey J. 27 The penalties are to be paid into the Consolidated Revenue Fund on or before 20 May 2009. It is agreed that the defendants should pay the prosecutor's costs of the proceeding. I certify that the preceding twenty-seven (27) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Marshall.

Counsel for the Prosecutor: Mr I Faulkner SC with Mr I Arendt