(a) The definition of "participate"
88 Section 65AAB defines "participate" in a pyramid scheme to mean:
"(a) establish or promote the scheme (whether alone or together with another person); or
(b) take part in the scheme in any capacity (whether or not as an employee or agent of a person who establishes or promotes the scheme, or otherwise takes part in the scheme)."
89 It is unnecessary for present purposes to consider the scope of the term "promote" in subpar (a) of this definition, given the nature of the conduct engaged in by WPS and WGIPH that is relied upon by the ACCC. I would, though, comment that as the term is used to encompass conduct going beyond the establishing of a scheme, it is apt to describe conduct in support of, or in furtherance of, a scheme: cf Australian Securities and Investment Commission v Young (2003) 173 FLR 441 at 453. I would note, for example, that in this matter there clearly were persons who had no part in the establishment of the scheme, but who, as members of WGI, actively engaged in promotional activities for WGI membership and products and that this was envisaged by the WGI "Rules and Regulations". I would equally note that the conduct of both WPS and WGIPH, to the extent that it supported and facilitated the implementation of the WGI business, might with some justice be said to have constituted promotion of the scheme.
90 The significant innovation in the definition of "participate" is to be found in subpar (b). To participate is to "take part in the scheme in any capacity". The amplitude of the definition is indicated in that part of it which is in parenthesis: "any capacity" includes "whether or not as an employee or agent of a person who establishes or promotes the scheme, or otherwise takes part in the scheme". Section 65AAD(1)(a) illustrates two other possible "capacities" in which a person may take part in the scheme. These are as a "new participant" or as "another participant" to whom a participation payment is made. But these are only illustrations.
91 Because there is no obvious textual reason for reading down the language of the definition, the respondents rely upon context and on principles of construction to that end. It is said that the terms "establish", "promote" and "take part in" are all ambiguous in nature. That ambiguity should, in each instance be resolved by reference to contextual and purposive considerations and to the penal character of the Act and that these together would justify a construction of "take part in" that would exclude persons who merely provide services to existing participants in a scheme.
92 The ACCC in contrast contends that, notwithstanding the penal character of the TP Act, the "take part in" formula should be given a broad meaning given the beneficial purpose of the pyramid selling provisions. The formula, it is said, encompasses both active or passive cooperation in any aspect of the scheme.
93 Before expressing my own view on the matter, it is appropriate to note, first, that while natural persons can be participants in pyramid selling schemes, the structure of the Act is such that only corporations can be held liable directly for contraventions of s 65AAC or for an offence under s 75AZO. The provisions of s 6(3) of the Act (which extends the application of various provisions of the Act to natural persons in specified circumstances) do not encompass Division 1AAA of Part V: see also s 6(4). If natural persons are to be held liable under the Act it will be in consequence of what, for convenience, I will call the Act's accessory liability provisions such as s 75B.
94 It has, in my view, rightly been said that the apparent purpose of the pyramid selling provisions of legislation in this country is to "stamp out" such schemes: Hawkins v Price [2004] WASCA 95 at [15]. Given the serious losses that have been inflicted both in this country and world-wide by pyramid schemes: see Heydon, Trade Practices Law [14.10] and the notes thereto; and given the declared consumer protection object of the TP Act (see s 2), it is unsurprising that there should be such a legislative purpose. The legislation is beneficial in character and for this reason should be construed purposively. The strict construction principle referred to in Beckwith v R (see above) should in consequence clearly be treated as a "rule of last resort": see Newcastle City Council v GIO General Ltd (1997) 191 CLR 85 at 109-110; The Syndicate Club Pty Ltd v State of Queensland [2003] QSC 104 at [47] ff.
95 Having regard to both the clear legislative intent to proscribe corporate participation in pyramid selling schemes and the explicit lack of qualification on the capacity in which a person can be a participant in a scheme by virtue of taking part in it, I can see no basis for construing the s 65AAB definition in a way which would limit what can constitute taking part in a scheme by reference to the role or function performed by a person if that person could be said in fact to be taking part in the scheme. The sole question raised by the definition is whether a person does take part in a scheme.
96 Given the lack of qualification on the capacity in which a person might take part in a scheme, it is unlikely that there will be a single and invariable route to a finding that a person "participates" in a scheme. The illustrations given of participation in s 65AAB and s 65AAD(1)(b) suggest as much. I will return to this below. For present purposes, though, I confine my comments to that class of case in which the alleged taking part by a party arises from involvement in the performance of functions which relate or are referable to the organisation, conduct and maintenance of a scheme where that party is neither an "owner" or the manager of the scheme.
97 I should preface what I have to say with the following observation. While it is necessary for a scheme to have the two characteristics specified in s 65AAD(1) before it will be regarded as a pyramid selling scheme, the question whether a person takes part in such a scheme is to be determined by reference to the nature of that person's involvement (if any) in the actual programme or enterprise that constitutes the scheme. To make that determination it will ordinarily be necessary to understand the scheme itself: how is it structured? How and by whom are its products and/or services developed and provided? How is the scheme conducted? How is it promoted? Etc. The obvious reason why such an analysis is necessary is that the definition is directed at taking part in any capacity "in the scheme": cf the comments of Ormiston J in Commissioner for Corporate Affairs v Bracht [1989] VR 821 at 828 on "take part in the management of a corporation".
98 The fact that a party is in a legal relationship with an entity that conducts a pyramid scheme does not for that reason mean that that party is thereby taking part in the scheme. Ordinarily, a landlord of such an entity's business premises, the entity's external lawyer or accountant when providing professional services, or an arm's length service provider to the entity's business (e.g. of telecommunications) will not as such be a participant in the entity's scheme. This will be so notwithstanding (a) that such a party may be aware of the existence of the scheme and (b) that the service provided is necessary for the operation of the scheme. Parties so circumstanced, while not strangers to the scheme's "owner", will ordinarily be strangers to - will not be involved in - the scheme itself. Something more is needed.
99 I earlier indicated a pyramid selling scheme may be complex and elusive in nature. Whether or not the scheme in this matter ought finally be characterised as a pyramid one - and I consider it should - its structure, the geographic dispersal of the "collaborating" companies, and the manner of provision of its products and services evidence complexity of the type which Division 1AAA seeks to penetrate.
100 I use the example of the present scheme for this reason. A pyramid selling scheme may be structured in a highly fragmented way with the functions that are necessary to be discharged to conduct and maintain the particular scheme being dispersed across a range of cooperating entities each having its own place and part in the practical realisation of the enterprise which is the scheme. Irrespective of whether the scheme is formally owned or conducted by one only of such entities while the other cooperating entities formally perform functions for it so that the scheme may be carried into effect, those other entities (no less so than the employees or agents of the scheme "owner") may properly be said to take part in the scheme because of the nature and basis of their involvement in its effectuation. As I will later indicate WPS and WGIPH are just such types of entity.
101 Where, for example, one entity performs services for the scheme "owner" for the purposes of the scheme in circumstances in which it is a knowing instrument in the conduct of the scheme cooperating with the "owner" in the pursuit of the objectives of the scheme, such an entity participates in the scheme for the purposes of the s 65AAB definition. It is immaterial in my view that the particular service or function performed relates only to a part or aspect of the scheme.
102 I have used the terms "knowing" and "cooperates" in the preceding paragraph. In so doing I do not suggest that knowledge of the nature and purpose of the scheme and/or cooperation with its "owner(s)" are necessary ingredients in the "take part in" requirement in all cases. An employee of a promoter who performs services in the promotion of the scheme, or a person who becomes a participant on making a participation payment, may have little or no knowledge of the actual nature of the scheme in which that person is participating. Nonetheless, both will be participants for the purposes of Div 1AAA though, as I have noted, they are not thereby exposed to any personal liability merely because of that participation.
103 What I am suggesting is that, in cases of the type with which I am presently concerned, knowledge of the scheme and cooperation in its prosecution will readily support a finding of participation. Such a conclusion will be reinforced where the entities in question are related (through common board members or shareholders) or otherwise operate collaboratively.
104 In consequence of the view I take of the definition, I reject the respondent's submission that their respective functions as service providers excluded them from the scope of the s 65AAB definition.