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[2023] FCA 778
Federal Court of Australia
2023-07-11
Mr J, McElwaine J
Original judgment source is linked above.
Division: General Division
Registry: South Australia
National Practice Area: Commercial and Corporations
Sub-area: Regulator and Consumer Protection
Date of hearing: 19 June 2023
Solicitor for the Applicant: Mr B Garnaut of Crown Solicitor's Office
Counsel for the First Respondent: The First Respondent did not appear
Representative for the Second Respondent: Mr J Patel appeared with leave on behalf of the Second Respondent
BETWEEN: COMMISSIONER FOR CONSUMER AFFAIRS Applicant
AND: STAR PLUS GROUP PTY LTD (IN LIQ) ACN 164 748 176 First Respondent
SPG (SA) PTY LTD ACN 628 324 176 Second Respondent
order made by: MCELWAINE J DATE OF ORDER: 11 July 2023
MCELWAINE J: 1 The Commissioner for Consumer Affairs for South Australia (Commissioner) applies for declaratory and injunctive relief together with the imposition of pecuniary penalties for conduct by the first respondent Star Plus Group Pty Ltd (in liq) (Star Plus) and the second respondent SPG (SA) Pty Ltd (SPG) in contravention of ss 18(1), 29(1)(b), 29(1)(e) and 29(1)(f) of the Australian Consumer Law (ACL), which is schedule 2 to the Competition and Consumer Act 2010 (Cth). The conduct concerns fake consumer testimonials and reviews of Star Plus and SPG's business posted on various websites between June 2017 and May 2020. Star Plus and SPG engaged in the business of providing contract electrical, plumbing and gas fitting services to commercial and residential customers in Adelaide under the business name "Star Plus Group". The reviews commented favourably on the services purportedly provided, were in the form of consumer recommendations and caused Star Plus Group to be highly rated by comparator websites. 2 In all, 126 false testimonials were posted to "www.yellowpages.com.au" (Yellow Pages website) and 22 to "www.productreview.com.au" (Product Review website) which then founded false representations that were posted to the Star Plus Group website to the effect that the business had a 4.8 out of 5 star customer rating. The compelling inference is that the fake ratings were posted by one or more of the directors of Star Plus and SPG, or by persons acting at their direction. Star Plus was incorporated on 10 July 2013 and had several directors over time including Mr Jashavantkumar Patel (Mr Patel) from 18 January 2016 to 14 June 2020 and his son, Mr Tejaskumar Patel from 17 February 2015 to 23 March 2018. SPG was incorporated on 22 August 2018 and Mr Patel is the sole director. It should be emphasised that the Commissioner does not seek relief against any of the directors as persons knowingly concerned in the contravening conduct. 3 Star Plus was wound up with effect from 7 April 2021. On 14 December 2022, the Commissioner was granted leave under s 500(2) of the Corporations Act 2001 (Cth) to commence this proceeding. The liquidator filed a submitting notice on 5 April 2023. The Commissioner only seeks declaratory relief against it, despite the utility that pecuniary penalties may serve when imposed upon an insolvent corporation: see the discussion by Katzmann J in Fair Work Ombudsman v Foot & Thai Massage Pty Ltd (in liq) [2019] FCA 1601 at [15], [31]-[37] and [39]-[40]. 4 Despite having been served with the proceeding, SPG defaulted by failing to appear at the first case management hearing of this matter. Mr Patel did however sign a Statement of Agreed Facts and Documents (SOAF) on 31 March 2023 in which the contravening conduct is admitted (Evidence Act 1995 (Cth) s 191). I received submissions as to appropriate relief at a hearing on 19 June 2023 at which I permitted Mr Patel to make submissions, which he did limited to the quantum of the pecuniary penalties. There was also read into evidence his affidavit made on 16 June 2023, which annexes unaudited copies of SPG's tax returns for the financial years 2020 and 2021, as well as financial statements for 2021. In substance, the evidence of Mr Patel is that SPG does not have the financial capacity to pay a pecuniary penalty greater than $25,000. He also gives evidence as to his cooperation with the Commissioner in the course of the investigation and confirms each of the admissions made in the SOAF.
THE FACTS 5 The SOAF provides as follows: A. PRELIMINARY 1. The Statement of Agreed Facts (SOAF) sets out the relevant facts and documents, as agreed between the Applicant and Second Respondent pursuant to s 191 of the Evidence Act 1995 (Cth), for the purposes of enabling the Court to finalise this matter. B. THE PARTIES Applicant - Commissioner for Consumer Affairs South Australia 2. The Commissioner for Consumer Affairs (Commissioner) is a public official whose office is established by virtue of s 5 of the Fair Trading Act 1987 (SA) (FTA). In that capacity: 2.1 the Commissioner, as a "person", may apply for relief under s 232 of the Australian Consumer Law (ACL) as applied as a law of the Commonwealth pursuant to s 131 of the Competition and Consumer Act 2010 (Cth) (CCA) ; and 2.2 the Commissioner is the "regulator" for the purposes of the ACL as applied as a law of the state of South Australia pursuant to s 14 of the FTA. First Respondent- Star Plus Group Pty Ltd (in liq) 3. Star Plus Group Pty Ltd (in liq) (Star Plus): 3.1 was incorporated on 10 July 2013; 3.2 held a plumbing, gas fitting and electrical contractor's licence numbered PGE 256824 granted on 19 Sept 2013 and surrendered 30 June 2020; 3.3 carried on business in South Australia offering electrical, plumbing and gas fitting services for both commercial and residential customers; and 3.4 operated from premises at 51 Orlando Avenue, Hampstead Gardens, SA and promoted its business on its website located at the URL: www.star plusgroup.com.au (Star Plus Group Website). 4. At all relevant times (being between around 21 June 2017 and November 2019), Star Plus had between one to three directors and staff of between 2 and 20 employees. 5. On 7 April 2021, a liquidator was appointed in respect of Star Plus. Second Respondent - SPG (SA) Pty Ltd 6. SPG (SA) Pty Ltd (SPG): 6.1 was incorporated on 22 August 2018: 6.2 has held a plumbing, gas fitting and electrical contractor's licence numbered PGE 291047 since 11 October 2018; 6.3 has carried on business in South Australia offering electrical, plumbing and gas fitting services for both commercial and residential customers; and 6.4 operates from premises at 51 Orlando Avenue, Hampstead Gardens and promoted its business on the Star Plus Group Website. 7. At all relevant times (between November 2019 and May 2020), SPG had a sole director and shareholder and employed between 3 and 6 employees. 8. Both Star Plus and SPG have conducted their businesses under the name "Star Plus Group". C. The Yellow Pages Testimonials 9. Yellow Pages is an online business directory located at the URL: www.yellowpages.com.au (Yellow Pages Website) through which Australian businesses can advertise their services and customers can leave reviews providing their opinions of the services received on the respective business page. Customers must login to write reviews and may leave a rating from 1 to 5 stars indicating their rating of the services received (with 5 stars being the highest rating). 10. During the relevant period (being between around 21 June 2017 and November 2019), Star Plus advertised its electrical, plumbing and gas fitting services on the Yellow Pages website. 11. Between 19 September 2017 and 19 September 2019, Star Plus posted 126 reviews on the Yellow Pages Website under invented names falsely purporting to be real testimonials of customers who had engaged Star Plus for electrical, plumbing or gas fitting services (the Yellow Pages testimonials). In respect of each of the 126 reviews referred to above, the purported customer gave a 5 star rating for the services and provided a positive and detailed review to the effect that the services of Star Plus were highly recommended. All of the details set out in the Yellow Pages testimonials were invented by Star Plus and did not relate to genuine customers. The content of each of the Yellow Pages testimonials is set out in Annexure 1. 12. Notwithstanding the geographical location listed as Nairobi, Kenya, the Netherlands or Los Angeles, United States, for reviews numbered 22 to 16 of Annexure 1, it is accepted that Star Plus caused those reviews to be posted. 13. Examples of the reviews posted on the Yellow Pages website appear as screenshots at Annexure 3. D. The Product Review Testimonials 14. ProductReview.com.au is a website ('Product Review Website') devoted to providing consumer opinions on products, services and businesses in Australia. 15. A review by a "Verified Customer" occurs where the reviewer provides the Product Review Website with proof of purchase, such as an invoice or receipt. The proof of purchase is not accessible to the public. 16. Between 21 June 2017 and 31 July 2019, Star Plus posted 16 reviews on the Product Review Website under invented names falsely purporting to be real testimonials of customers who had engaged Star Plus Group for electrical, plumbing or gas fitting services. All of the details set out in these testimonials posted on the Product Review Website were invented by Star Plus and did not relate to genuine customers. The content of each of these testimonials is set out at Items 1-16 in Annexure 2. 17. Between 13 November 2019 and 15 May 2020, SPG posted 6 reviews on the Product Review Website under invented names falsely purporting to be real testimonials of customers who had engaged Star Plus Group for electrical, plumbing or gas fitting services. All of the details set out in these testimonials posted on the Product Review Website were invented by SPG and did not relate to genuine customers. The content of each of these testimonials is set out at Items 17-22 in Annexure 2. 18. In respect of each of the reviews referred to in paragraphs 16 and 17 above (the Product Review testimonials), the purported customer gave a 5 star rating for the services and provided a positive and detailed review highly recommending the services of Star Plus Group. 19. Example screenshots of the Product Review testimonials appear at Annexure 4. 20. In respect of the reviews listed as Items 7-14, and 16 on Annexure 2, Star Plus submitted purported proofs of purchase to Product Review such that each of these reviews were published as being from a "Verified Customer". 21. In respect of the reviews listed as Item 20 on Annexure 2, SPG submitted a purported proof of purchase to Product Review such that the review were published as being from a "Verified Customer". 22. The proofs of purchase referred to in paragraphs 23 and 24 above appear at Annexure 5. These proofs of purchase did not relate to genuine transactions. E. The Star Rating Representations 23. On the following dates, Star Plus represented on the Star Plus Group Website that it had Yellow Pages ratings as follows: 23.1 15 November 2017 - "4.8 Yellow Pages Rating" 23.2 6 December 2017 - "4.8 Yellow Pages Rating" 23.3 18 June 2018 - "4.8 Yellow Pages Rating" 24. On 26 November 2019, SPG represented on the Star Plus Group Website that it had a "4.8 Yellow Pages Rating." 25. The representations at paragraphs 23 and 24 above (Star Rating Representations) were false because they were based in part on the false Yellow Pages testimonials. Screenshots of the Star Rating Representations appear at Annexure 6. 6 The annexures are bulky, detailed and are not reproduced in these reasons. It is sufficient to note the following by way of example. One Yellow Pages testimonial posted on 28 August 2019 by "Mateo B" under the title "Thanks so much! I absolutely recommend" provides: Jash and Tom did an amazing job with our panel upgrade today. They were done so quickly and even checked other rooms and fixed problems without charging us a dime more than the estimate. Thanks so much! I will absolutely recommend your services to everyone that needs it. 7 On the Yellow Pages website testimonials of this type are usually accompanied by a fake photograph of the reviewer and a number of stars indicating the business score out of a possible 5 stars. A similar pattern is evident for testimonials posted to the Product Review website. An example is the fake post of "Jenny Chapple" of Mount Gambier, SA with the heading "Excellent and Very Helpful" which provides: I recently used Star Plus Group for a minor plumbing job and found them to be very accommodating around the day I would be home. Great service. 8 Relatedly, on the Product Review website the Star Plus Group business is featured with a rating of 3.9 stars from 15 reviews as at 15 November 2017 with each review listed by name and photograph together with a testimonial. A further example is a post by "Bradley" of Adelaide who rated the business 5 stars out of 5 with the fake testimonial: Thank you Star Plus Group for the prompt and professional service. We don't go anywhere else for our electrical and plumbing needs. Would highly recommend your service to others. 9 In order to post a review on the Product Review Website, it was necessary to create and submit a fake tax invoice. The invoice for "Bradley" of Adelaide is dated 31 August 2017 and is addressed to this fictitious person at a fictitious address in South Australia. It is in the form of a tax invoice, with an invoice number and the description "work performed tradesman" at a charge of $482 plus GST. 10 What is apparent from the SOAF and the items that I have set out by way of example, is the degree of planning that was implemented on behalf of Star Plus and SPG in order to deliberately deceive consumers and potential consumers of the services offered by the business. As I explain later in these reasons, those factors are centrally relevant to the question of deterrence when assessing the quantum that is appropriate for the imposition of pecuniary penalties pursuant to s 224 of the ACL.
CONTRAVENTION FINDINGS 11 I make findings of fact in accordance with the SOAF and I find as follows. I am satisfied that within each relevant period, Star Plus and SPG engaged in the following conduct contrary to the ACL: (1) The posting of the 126 false testimonials by Star Plus between 19 September 2017 and 19 September 2019 on the Yellow Pages website was conduct engaged in by it in trade or commerce that was misleading or deceptive or likely to mislead or deceive within the meaning of s 18(1) of the ACL in that the testimonials were false, were from fictitious individuals and the content of each testimonial did not reflect the opinion of a genuine customer; (2) The posting of the 16 false reviews by Star Plus between 21 June 2017 and 31 July 2019 on the Product Review website was conduct engaged in by it in trade or commerce that was misleading or deceptive or likely to mislead or deceive within the meaning of s 18(1) of the ACL in that the reviews were false, were from fictitious individuals and the content of each review did not reflect the opinion of a genuine customer; (3) The submission of 9 false invoices by Star Plus between 6 October 2017 and 31 July 2019 to the Product Review website in order to post the testimonials referred to at (2) was conduct engaged in by it in trade or commerce that was misleading or deceptive or likely to mislead or deceive within the meaning of s 18(1) of the ACL in that the invoices were false, were addressed to fictitious individuals and were prepared and submitted to facilitate the misleading and deceptive conduct referred to at (2); (4) On 15 November 2017, 6 December 2017 and 18 June 2018, Star Plus by posting to its website at "www.starplus.com.au" that it had a "4.8 Yellow Pages Rating" engaged, in trade or commerce, in conduct that was misleading or deceptive or likely to mislead or deceive within the meaning of s 18(1) of the ACL in that the rating was false because it was based on one or more of the false testimonials at (1); (5) Star Plus by engaging in the conduct at (1), (2) and (3) made misleading representations in connection with the supply, possible supply and/or promotion of services contrary to s 29(1)(e) and/or (f) of the ACL; (6) Star Plus by engaging in the conduct at (4) made false or misleading representations in connection with the supply, possible supply and/or promotion of services to the effect that its services were of a particular standard, quality, value or grade contrary to s 29(1)(b) of the ACL; (7) The posting of six reviews by SPG between 13 November 2019 and 15 May 2020 on the Product Review website was conduct engaged in by it in trade or commerce that was misleading or deceptive or likely to mislead or deceive within the meaning of s 18(1) of the ACL in that the reviews were false, were from fictitious individuals and did not reflect the opinion of a genuine customer; (8) On 20 November 2019, SPG by submitting a false proof of purchase to the Product Review website in connection with the purported testimonial of a person referred to at (7) (being item 20 on annexure 2 to the Commissioner's Concise Statement) engaged in conduct in trade or commerce that was misleading or deceptive or likely to mislead or deceive within the meaning of s 18(1) of the ACL in that the invoice was false, was addressed to a fictitious individual and was prepared to facilitate the misleading or deceptive conduct at (7); (9) On 26 November 2019, SPG by posting to the Star Plus Group Website that it had an "4.8 Yellow Pages Rating" engaged in conduct in trade or commerce that was misleading or deceptive or likely to mislead or deceive within the meaning of s 18(1) of the ACL in that the rating was based on one or more of the false testimonials at (1); (10) SPG by engaging in the conduct at (7) and (8) made misleading representations in connection with the supply, possible supply and/or promotion of services that purported to be a testimonial by a person relating to services contrary to s 29(1)(e) and (f) of the ACL; (11) SPG by engaging in the conduct at (9) made a false or misleading representation in connection with the supply, possible supply and/or promotion of services to the effect that its services were of a particular standard, quality, value or grade contrary to s 29(1)(b) of the ACL.
RELIEF SOUGHT BY THE COMMISSIONER 12 Very helpfully, the Commissioner has provided a draft of the orders that are sought and counsel for the Commissioner addressed his submissions accordingly. As I explain the draft is substantially in the form of the orders that I am persuaded to make. In summary, the Commissioner seeks multiple declarations relating to the contravening conduct by Star Plus and SPG, the publication by SPG of a corrective advertisement, injunctive relief restraining SPG from engaging in the contravening conduct and the imposition of pecuniary penalties against SPG. The Commissioner also seeks the usual costs order against SPG. 13 It is convenient to address each category of relief in that order.
Declaratory relief 14 Section 21 of the Federal Court of Australia Act 1976 (Cth) confers discretionary power in a civil proceeding in which the Court has original jurisdiction in relation to a matter, to make binding declarations of right. There is no entitlement to declaratory relief, despite the admitted contraventions of the ACL. The relief is discretionary. Generally there must be a real controversy, a contradictor and utility in the determination of the controversy: Hobart International Airport Pty Ltd v Clarence City Council (2022) 96 ALJR 234; [2022] HCA 5 at [33]-[34], Kiefel CJ, Keane and Gordon JJ. Although the respondents do not oppose the form of declaratory relief, I must be satisfied that it is appropriate in the particular circumstances. Differing views have been expressed as to the utility of granting declaratory relief together with injunctions and the imposition of pecuniary penalties. On one view, a declaration that conduct has been engaged in that contravenes the ACL serves no further purpose: for example, Australian Competition and Consumer Commission v Francis (2004) 142 FCR 1; [2004] FCA 487 at [95]-[113], Gray J. The competing view is that in an appropriate case, a declaration may be made to the effect that specific conduct engaged in by a respondent contravened the ACL is of utility in achieving the primary objective of deterrence: Australian Competition and Consumer Commission v Midland Brick Co Pty Ltd (2004) 207 ALR 329; [2004] FCA 693 at [21]-[22], Lee J, which reasoning Goldberg and Jessup JJ endorsed in Cruse v Multiplex Ltd (2008) 172 FCR 279; [2008] FCAFC 179 (Cruse) at [53]. And as further observed by their Honours in Cruse at [54]-[55], declaratory relief may be granted even in a case where there is no adjudication on the merits. Some degree of caution, however, should be exercised in a case such as the present where the parties have reached agreement as to the facts and the respondents do not oppose the declaratory relief that is sought. 15 Having carefully considered the form of declaratory relief sought by the Commissioner, I am satisfied that it is consistent with the SOAF and the evidence that supports each statement of fact as set out in the principal affidavits read by the Commissioner at the hearing and made by Catherine Ann Clemow on 6 April 2023 and 19 June 2023 and Alan John Carpenter made on 6 April 2023. The declarations are also consistent with my contravention findings. The making of declarations will serve to formally record the outcome of the proceeding, will publicise why the conduct amounts to a contravention of the ACL and is likely to facilitate the primary objective of the proceeding being to deter the respondents, and other persons, from engaging in the same or similar conduct in the future. I am also satisfied that the declarations as proposed by the Commissioner are sufficiently precise and confined: the form does not provide "a bad precedent": Rural Press Ltd v Australian Competition and Consumer Commission (2003) 216 CLR 53; [2003] HCA 75 at [90], Gummow, Hayne and Heydon JJ.
Injunctive relief 16 Injunctive relief may be granted pursuant to s 232 of the ACL on such terms as the Court considers appropriate if the Court is satisfied that a person has, relevantly, contravened a provision of Chapter 2 of the ACL. As is well understood, injunctive relief pursuant to this provision in a suit brought by a regulator for contravention of the misleading or deceptive conduct provisions is granted to protect the public interest: Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (2000) 200 CLR 591; [2000] HCA 11 at [17], Gleeson CJ and McHugh J. It is not, however, relief that goes as of right in a regulatory suit. By way of example, Toohey J refused injunctive relief in addition to the imposition of pecuniary penalties in Trade Practices Commission v Mobil Oil Australia Ltd (1984) 4 FCR 296 because the breach was not flagrant and was no evidence that the conduct was likely to be repeated. 17 Conversely, it may be proper to grant an injunction "to mark the Court's disapproval" of the conduct whether or not it is likely to be repeated: Australian Competition and Consumer Commission v Dimmeys Stores Pty Ltd [2001] FCA 781 at [32], Drummond J. Much depends on the circumstances. Ultimately I must be satisfied that injunctive relief is appropriate in conjunction with pecuniary penalties and declaratory relief. There must be utility in granting the injunctive relief that is sought. The form of expression must not be broader than the contraventions that I have found. Although I consider it unlikely that SPG will engage in the same or similar conduct in the future, because of the declarations, the adverse publicity the publication of these reasons will inevitably lead to and the deterrent effect of pecuniary penalties, of itself that is not a dispositive factor against the exercise of my discretion. The primary consideration in this matter is the need to protect the public against the type of conduct that occurred. It is a notorious fact (common knowledge, Evidence Act s 144) that almost every commercial business in Australia has a website in order to promote the goods and services on offer and to attract customers. It is also notorious that many websites employ a ratings system the same as, or similar to, the ratings that were manipulated by the false testimonials and generated by the third party Product Review website. The obvious inference that is open, and which I draw, is that businesses with higher ratings are likely to attract more customers than businesses with lower ratings. There is a strong public interest in the framing of relief in this case that is designed to protect the public from this type of manipulative misconduct. 18 Save for one matter, the form of the injunction as proposed is precise and concise, it sufficiently identifies the contravening conduct which is consistent with my contravention findings and is likely to promote the protection of the public interest. The problematic aspect of the wording is the reference to "or howsoever otherwise" in proposed order 3 which is: Pursuant to section 232(1) of the ACL, SPG, whether by its agents, servants or howsoever otherwise is restrained, for a period of 3 years from the date of this order, in trade or commerce, in connection with electrical, plumbing and gas fitting services from making a false or misleading representation that purports to be a genuine testimonial from a consumer who had engaged its services. 19 What is meant is unclear and these words in my view impermissibly and unclearly purport to extend the scope of the injunction beyond the contravening conduct. I will not include them, but otherwise I am satisfied that the Commissioner should have the injunctive relief that is sought.
Advertisements 20 I may order that SPG publishes an advertisement in a specified form pursuant to s 246(2)(d) of the ACL. As is well understood, the publication of an advertisement which identifies the contravening conduct and which summarises the orders made by this Court serves the important public purpose of dispelling false impressions that may have been created by the impugned conduct, is of considerable assistance in achieving the general deterrence objective but must not be employed as an additional form of punishment; rather, the purpose is of itself protective of the public interest. 21 There is authority that this power may not be exercised where there has been delay between the conduct and the making of orders. The explanation is that consumers are unlikely to continue to labour under any misapprehension that was caused by the conduct: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (No 2) [2012] FCA 629 at [150]-[153], Murphy J. However, as Murphy J further recognised, a requirement to publish an advertisement in a specified form assists in bringing the outcome of the proceeding to the attention of the public in order to achieve the primary deterrence objective. Despite the delay in this matter, I am persuaded that there is utility in requiring the publication of the advertisements as drafted by the Commissioner.
Pecuniary penalties 22 The Commissioner further seeks pecuniary penalties against SPG, payable to the State of South Australia, pursuant to s 224 of the ACL for each contravention of s 29 of the ACL, noting that the civil penalty provisions do not extend to the s 18 contraventions: s 224(1)(a) (i) and (ii). At the time of the contravening conduct s 224(3) provided for a maximum penalty for a body corporate to be the greater of the amounts mentioned at subsection (3A): For the purposes of items 1, 2, 9, 11 and 13 of the table in subsection (3), the amounts are as follows: (a) $10,000,000; (b) if the court can determine the value of the benefit that the body corporate, and any body corporate related to the body corporate, have obtained directly or indirectly and that is reasonably attributable to the act or omission - 3 times the value of that benefit; (c) if the court cannot determine the value of that benefit - 10% of the annual turnover of the body corporate during the 12 month period ending at the end of the month in which the act or omission occurred or started to occur. 23 There is no evidence of the value of any benefit that SPG obtained directly or indirectly that is attributable to the contravening conduct. There is some evidence as to the annual turnover of SPG for the financial years 2019, 2020 and 2021 in the form of financial statements and tax returns for those years. The Commissioner engaged an independent expert, Mr McPharlin to prepare an analysis of that information. He did, and I have the benefit of his report dated 6 May 2022. The report contains a summary of information from the profit and loss statements. The total income amounts were $12,680 in 2019, $918,457 in 2020 and $759,247 in 2021. Considerable caution is to be exercised in accepting these figures at face value in that Mr McPharlin expresses the overall opinion that there are reasonable grounds not to accept the accuracy or veracity of SPG's financial information. In any event, 10% of SPG's annual turnover in any of those years is substantially less than the $10 million maximum penalty. 24 The function of the Court is to determine the penalty which is appropriate, having regard to the mandatory relevant matters at s 224(2) of the ACL together with each other relevant consideration. The primary purpose of the civil penalty regime is to promote the public interest by ensuring compliance with the statutory provisions in order to deter future contraventions: Australian Building and Construction Commissioner v Pattinson (2022) 96 ALJR 426; [2022] HCA 33 (Pattinson) at [9], [15] and [42], Kiefel CJ, Gageler, Keane, Gordon, Steward and Gleeson JJ. Thus concepts familiar to the criminal law in the sentencing of offenders such as retribution, denunciation, rehabilitation and proportionality are irrelevant: Pattinson at [16] and [38]-[43]. This is not to say, as further explained in Pattinson, that some criminal law concepts may not be useful such as "totality, parity and course of conduct" ([45]), the penalty must strike "a reasonable balance" between deterrence and oppressive severity ([41] and [46]) and remorse and the likelihood of future contravening conduct are also relevant ([47]). As to the maximum penalty, the plurality in Pattinson at [50] said: This Court's reasoning in the Agreed Penalties Case is distinctly inconsistent with the notion that the maximum penalty may only be imposed in respect of contravening conduct of the most serious kind. Considerations of deterrence, and the protection of the public interest, justify the imposition of the maximum penalty where it is apparent that no lesser penalty will be an effective deterrent against further contraventions of a like kind. Where a contravention is an example of adherence to a strategy of choosing to pay a penalty in preference to obeying the law, the court may reasonably fix a penalty at the maximum set by statute with a view to making continued adherence to that strategy in the ongoing conduct of the contravenor's affairs as unattractive as it is open to the court reasonably to do. 25 Ultimately the quantum of the pecuniary penalty must be determined fairly and reasonably to achieve the primary objective of deterrence: Pattinson [48]. In proceeding in that way it is usual to have regard to a number of non-exhaustive factors identified by French J in Trade Practices Commission v CSR Ltd [1991] 13 ATPR 41-076 at 52,152-52,153: The assessment of a penalty of appropriate deterrent value will have regard to a number of factors which have been canvassed in the cases. These include the following: 1. The nature and extent of the contravening conduct. 2. The amount of loss or damage caused. 3. The circumstances in which the conduct took place. 4. The size of the contravening company. 5. The degree of power it has, as evidenced by its market share and ease of entry into the market. 6. The deliberateness of the contravention and the period over which it extended. 7. Whether the contravention arose out of the conduct of senior management or at a lower level. 8. Whether the company has a corporate culture conducive to compliance with the Act, as evidenced by educational programs and disciplinary or other corrective measures in response to an acknowledged contravention. 9. Whether the company has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention. 26 In Pattinson the plurality at [19] observed that this list should not be regarded as exhaustive or "rigid" and emphasised the "task remains to determine what is an 'appropriate' penalty in the circumstances of the particular case." 27 In determining the appropriate quantum of pecuniary penalties in this case, I have had regard to the following matters.
Nature and extent of the conduct 28 The Commissioner's case does not extend to an allegation that SPG was a party to the contraventions of Star Plus, despite that SPG assumed responsibility for the conduct of the business in November 2019, the interrelationship of the directors and the evidence in the report of Mr McPharlin that SPG took over the business in consequence of "illegal phoenix activity". The established contravening conduct is limited to the posting of six reviews between 13 November 2019 and 15 May 2020 to the Product Review website, the submission of the false proof of purchase invoice to that website on 20 November 2019 and the making of a representation on the Star Plus Group website on 26 November 2019 that the business had a genuine "4.8 Yellow Pages Rating". 29 Despite the manner in which the Commissioner pleaded the case and the SOAF, the Commissioner in written submissions contends: SPG have admitted to posting the false testimonials. It also admits to the conduct of Star Plus. The Commissioner notes the current director of SPG was a director of Star Plus at the relevant times and until its liquidation. The conduct engaged in by SPG is a similar pattern of conduct engaged in by Star Plus. Those contraventions involved posting a fake review either on a local ISP or using software such as a VPN to disguise their location. In some instances, the contraventions involved creating fake invoices to post a review. Whilst SPG is only to be penalised for its conduct, it is at least relevant contextual information that there were nearly 150 false reviews posted on Yellow Pages and Product Review by Star Plus and/or SPG. Further, the fake reviews on Yellow Pages posted by Star Plus bolstered their star rating which was subsequently advertised on the Star Plus Group website by SPG. Yellow Pages, Product Review and the Star Plus Group website are readily accessible by the public. The representations made on these webpages could have had a significant impact on consumer choice. 30 What that submission reveals is that it was clearly open to the Commissioner to frame a broader case against SPG by invoking, at least, s 224(1)(e) of the ACL which applies where a person "has been in any way, directly or indirectly, knowingly concerned in, or party to, the contraventions by a person" of any of the provisions mentioned in subparagraph (1)(a). But that was not done and the SOAF does not contain any admission by SPG that it is responsible for the conduct of Star Plus. The inherent vice of the Commissioner's contextual information submission is that it elides the distinction that the case draws between the conduct of each corporation. In my view, the conduct of Star Plus is only of relevance to the website representation made on 26 November 2019 because it must be in part derived from the accumulated rating of Star Plus. 31 The following matters are of greater relevance under this consideration. The conduct was deliberate. Self-evidently it required a degree of planning and implementation and was dishonest. Dishonesty extended to the creation of fictitious customer names and addresses, six false testimonials created to confer competitive advantage in favour of SPG's business in the marketplace, was intended to and likely did mislead consumers or potential consumers of the services offered by SPG and in circumstances where SPG intended to mislead consumers in order to obtain a financial advantage for itself. The conduct was in the circumstances, serious. Section 29 of the ACL establishes a norm of conduct that must be observed by all persons who engage in trade or commerce in connection with the supply or possible supply of goods or services or their promotion. It is concerned with unfair practices. There is a mirror image offence provision at s 151 of the ACL which serves to emphasise the statutory imperative that the making of false or misleading representations is a serious matter. 32 I accept the Commissioner's submission that: "it is important that consumers have access to balanced, genuine reviews so they can make an informed decision about a service or product." Correspondingly, it is in my view likewise important that other businesses should not suffer the unfair commercial disadvantage of not providing goods or services to consumers because a competitor is perceived as having a more favourable consumer rating. It is likely that the effect of SPG's conduct distorted the operation of fair competition in the market, although the Commissioner has not been able to identify the extent of that distortion.
Loss or damage 33 The Commissioner does not identify that any particular consumer suffered direct financial loss in consequence of SPG's conduct. However, I accept the Commissioner's submission that the conduct likely deprived consumers of the opportunity to accurately compare and assess the services offered by SPG with those of business competitors and were thereby likely deprived of the opportunity to make an informed choice. I infer that some consumers must have been misled because the misrepresentations were addressed to consumers, were designed to influence and that was the intent: Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 250 CLR 640; [2013] HCA 54 at [55]. A further consequence of the conduct is that it likely caused unfair disadvantage to competing businesses.
Circumstances in which the conduct took place 34 Beyond the fact of contravention as set out in the SOAF, the Commissioner does not identify evidence which explains SPG's motivation or why decisions were made to engage in the conduct which, on any objective analysis, must have been understood to be misleading. 35 There is, however, evidence as to the degree of sophistication that was undertaken in order to disguise the falsehood. For example, a number of the reviews appeared to have been posted by persons resident in other countries. The expert evidence relied upon by the Commissioner is to the effect that by utilising Virtual Private Network software it is possible to disguise the location of the person responsible for the posted reviews. Whether that conduct was by Star Plus or SPG is inconclusive.
Size of SPG 36 The Commissioner describes SPG as "a relatively small sized business", with a sole director and between three and six employees. As I have explained, the financial documentation produced by Mr Patel is not reliable. His affidavit evidence is to the effect that to 30 June 2021, SPG's total revenue was $844,470, total expenses were $845,147 and the company made a loss of $677. The balance sheet liabilities exceed the assets to the extent of $17,036.70. Mr Patel further states that in that year SPG received JobKeeper payments of $75,000, that his gross wage was $34,580 and that of his son, an employee, was $29,310. On this evidence Mr Patel submits that SPG cannot afford to pay a penalty of more than $25,000, and even in that case requires a payment plan. 37 Whilst the financial capacity of a corporation to pay a pecuniary penalty is a relevant matter to consider, it most certainly is not dispositive. Ultimately, this Court's expression of disapproval of the conduct in order to achieve the objective of deterrence outweighs the risk that a pecuniary penalty may result in insolvency: Australian Competition and Consumer Commission v High Adventure Pty Ltd [2005] FCAFC 247 at [11], Heerey, Finkelstein and Allsop JJ. Also a pecuniary penalty cannot be viewed as a cost of doing business.
Market power 38 There is no evidence that permits a finding relevant to this consideration.
Intentional conduct 39 I have found that the conduct was deliberate, was sophisticated and well-planned. The period of contravention was relatively confined between November 2019 and May 2020, limited to six reviews posted to the Product Review website supported by one false tax invoice and then one false representation of a Yellow Pages rating.
Involvement of senior management 40 The obvious inference is that the conduct was at least authorised by Mr Patel as the sole director of SPG. Beyond that, the evidence does not support the making of more specific findings.
Corporate culture 41 There is some relevant evidence in Mr Patel's affidavit that following the commencement of the Commissioner's investigation, SPG formulated and implemented a "Customer Review Policy" and a "Consumer Law Compliance and Training Policy". Copies of each are attached to the affidavit. Neither document is dated. I do not have any evidence as to how and to what extent each policy has been implemented, is reviewed and enforced. The "Customer Review Policy" appears to be addressed to employees. In clear language it affirms SPG's commitment to ensuring that only genuine customer reviews are provided, whether or not the review is positive or negative. Friends or family members must not provide reviews. Mr Patel's son Tejas is designated as the "Compliance Officer" who is tasked with identifying fake reviews "by undertaking reasonable enquiries". 42 The "Consumer Law Compliance and Training Policy" is a single page document which requires each employee to undertake an annual compliance training program. No detail is provided about the content of the program, beyond a statement that it will extend for two hours. 43 I do not place significant weight on these policies. In my view, the declaratory and injunctive relief is likely to have a far greater impact in reinforcing to Mr Patel and to SPG's employees why the posting of fake reviews is a serious matter with relatively severe consequences. Another reason is the paucity of evidence as to when the policies were created and how each is implemented and enforced. 44 It is also the case that the contraventions demonstrate that SPG did not have a corporate culture which focused upon compliance with its ACL obligations at the time.
Co-operation 45 The Commissioner relies on evidence that, at least initially, SPG did not cooperate with the investigation which commenced with the issue of a Substantiation Notice on 29 September 2018. It was not until June 2020 that SPG commenced to cooperate by engaging in correspondence in order to agree certain facts and which ultimately resulted in the SOAF on 31 March 2023. Some credit is due to SPG for the making of each of the admissions in the SOAF.
Previous contraventions 46 There are none known to the Commissioner.
The statutory maximum 47 The plurality in Pattinson at [53] approved of what the Full Court said of civil penalty maximum amounts in Australian Competition and Consumer Commission v Reckitt Benckiser (Australia) Pty Ltd (2016) 340 ALR 25; [2016] FCAFC 181 at [155]-[156], by reference to Markarian v The Queen (2005) 228 CLR 357; [2005] HCA 25 at [31]: The reasoning in Markarian about the need to have regard to the maximum penalty when considering the quantum of a penalty has been accepted to apply to civil penalties in numerous decisions of this Court both at first instance and on appeal (Director of Consumer Affairs, Victoria v Alpha Flight Services Pty Ltd [2015] FCAFC 118 at [43]; Australian, Competition and Consumer Commission v BAJV Pty Ltd [2014] FCAFC 52; at [50]-[52]; Setka v Gregor (No 2) (2011) 195 FCR 203; [2011] FCAFC 90 at [46]; McDonald v Australian Building and Construction Commissioner (2011) 202 IR 467 [2011] FCAFC 29;at [28]-[29]). As Markarian makes clear, the maximum penalty, while important, is but one yardstick that ordinarily must be applied. Care must be taken to ensure that the maximum penalty is not applied mechanically, instead of it being treated as one of a number of relevant factors, albeit an important one. Put another way, a contravention that is objectively in the mid-range of objective seriousness may not, for that reason alone, transpose into a penalty range somewhere in the middle between zero and the maximum penalty. Similarly, just because a contravention is towards either end of the spectrum of contraventions of its kind does not mean that the penalty must be towards the bottom or top of the range respectively. However, ordinarily there must be some reasonable relationship between the theoretical maximum and the final penalty imposed. 48 In Pattinson and following this reference the plurality at [55] said: The second point is that the maximum penalty does not constrain the exercise of the discretion under s 546 (or its analogues in other Commonwealth legislation), beyond requiring "some reasonable relationship between the theoretical maximum and the final penalty imposed". This relationship of "reasonableness" may be established by reference to the circumstances of the contravenor as well as by the circumstances of the conduct involved in the contravention. That is so because either set of circumstances may have a bearing upon the extent of the need for deterrence in the penalty to be imposed. And these categories of circumstances may overlap. 49 I approach the maximum penalty of $10 million in this case as follows. The Commissioner is unable to establish that any particular consumer or consumers suffered financial damage or loss by reason of SPG's conduct and similarly there is no evidence as to the extent to which SPG obtained a financial advantage by reason of the conduct. The contravening conduct is relatively limited in scope and the period within which it was undertaken is confined. It is important to emphasise a point that I made earlier: SPG is being dealt with for its conduct and not the earlier, somewhat more systematic and extensive, conduct of Star Plus. The statutory maximum is one of a number of the factors that require consideration in order to achieve the deterrence objective. 50 In my view it is perhaps unlikely that SPG will engage in the impugned conduct, or some variant of it, in the future if a sufficiently large deterrent penalty is imposed. Then there is the question of general deterrence which requires the imposition of a penalty which makes it plain to other business operators that the penalty imposed should not be viewed as simply the cost of doing business. The Commissioner has not adduced evidence as to the prevalence of this type of conduct in the marketplace, either for plumbing and electrical services specifically or more generally. There is no history of similar non-compliance by SPG. However, it is notorious that businesses that have websites, and other forms of social media, are subject to client ratings. Google reviews are perhaps the best known example. 51 The conduct was deliberate, planned and required a degree of sophistication. It was dishonest. It was intended to gain for SPG a financial advantage and, correspondingly, cause financial detriment to its competitors. There is no evidence, however, to the effect that the work undertaken by SPG was not of an appropriate standard or that the prices charged were unfair or excessive. SPG is not a large business and doubtless is likely to suffer commercially once these orders are pronounced and become publicly available. 52 This is not therefore a case that requires the imposition of a penalty at or indeed anywhere near, the statutory maximum in order to achieve deterrence when viewed in the context of each of the orders that I am persuaded to make. 53 In fixing the pecuniary penalty amounts, s 224(4) operates to prevent the separate and cumulative imposition of penalties for the same conduct. The Commissioner accepts that some of the contraventions involved the same conduct, being the submission of a false invoice to the Product Review website in conjunction with a 5 star service representation. The other contraventions do not involve the same conduct in that they occurred on separate occasions, the reviews were differently worded and purported to be separate reviews from separate customers. The relationship between separate conduct and the statutory maximum was recently explained by Abraham J in Australian Securities and Investments Commission v Select AFSL Pty Ltd (No 3) [2023] FCA 723 at [21]-[22]: Ordinarily, separate contraventions arising from separate acts should attract separate penalties. However, where separate acts give rise to separate contraventions that are inextricably interrelated, they may be regarded as a "course of conduct" for penalty purposes: Australian Competition and Consumer Commission v Yazaki Corporation [2018] FCAFC 73; (2018) 262 FCR 243 at [234]. This avoids double punishment for those parts of the legally distinct contraventions that involve overlap in wrongdoing: see, for example, Construction, Forestry, Mining and Energy Union v Cahill [2010] FCAFC 39; (2010) 269 ALR 1 at [39] and [41]. Whether the contraventions should be treated as a single course of conduct is fact specific, having regard to all of the circumstances of the case. Characterising a number of contraventions as one course of conduct does not mean that the course of conduct is capped at the maximum penalty for one contravention. The maximum penalty for the course of conduct is not restricted to the prescribed statutory maximum penalty for any single contravening act: Australian Competition and Consumer Commission v Hillside (Australia New Media) Pty Ltd t/a Bet365 (No 2) [2016] FCA 698 at [24]. It does not proceed as if it is only one contravention: Australian Competition and Consumer Commission v Unique International College Pty Ltd (Imposition of Penalty) [2019] FCA 1773 at [52]. The penalties ultimately imposed are of an appropriate deterrent value, having regard to the actual, substantive wrongdoing. 54 I gratefully adopt her Honour's summary and proceed accordingly.
Deterrence 55 I return to the most important consideration. Deterrence operates in two ways in order to ensure compliance. The civil penalty must be in an amount that is appropriate to specifically deter SPG from future contraventions of the same or similar character and, by example, to generally deter others who may be minded to engage in the same or similar conduct. The amount to be effective in achieving those purposes "must be fixed with a view to ensuring that the penalty is not such as to be regarded by [the] offender or others as an acceptable cost of doing business": Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20 at [62] (Keane CJ, Finn and Gilmour JJ) cited with approval in Pattinson at [17]. 56 In an age when most consumers who seek to purchase goods or acquire services will do so by conducting electronic searches on the Internet it is inevitable that they will be directed to the websites of providers that have higher rankings in terms of customer satisfaction, testimonials or approvals than businesses which do not. The importance of genuine customer reviews, testimonials and corresponding star ratings is obvious in a competitive environment where consumers are entitled to expect truth and honesty by business proprietors and which s 29 of the ACL emphatically requires as the standard of business conduct in Australia. Business proprietors must understand that severe consequences are the likely outcome of false product or service testimonials and ratings. This type of conduct is corrosive of fair competition, insidious and likely difficult to detect. That point was lucidly made by Allsop CJ in Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd (2015) 327 ALR 540; [2015] FCA 330 at [95]: The fact that some people may not be misled is not the point. It is important that sellers in the market recognise that consumers are entitled to reliable, truthful and accurate information. Confidence in such is a matter of importance for the Australian community and economy. It is an important factor in market efficiency. General and specific deterrence are important in order to encourage the maintenance of a fair, reliable and efficient market. Consumers play a vital part in that market. They buy the goods and services that commercial entities proffer.
PENALTY AMOUNT 57 Having carefully considered and weighed these factors and mindful of the totality principle as "a final check" on what is an appropriate penalty, I have concluded as follows: (1) $15,000 for each of the five fake reviews (being items 17,18,19,21 and 22 in annexure 2 to the concise statement) posted to the Product Review website between 13 November 2019 and 15 May 2020; (2) $20,000 for the fake review and invoice (being item 20 on annexure 2 to the SOAF) submitted posted to the Product Review website; (3) $30,000 for the false publication on 20 November 2019 that the business had a "4.8 Yellow Pages Rating" on the Star Plus Group website. 58 The total pecuniary penalty to be paid to the State of South Australia is $125,000. In setting these amounts, I consider that $15,000 per review is the starting point for the deliberate dishonest conduct of SPG that was calculated to mislead as an appropriate specific deterrent to it and an appropriate general deterrent to other business that may consider engaging in the same or similar conduct. I regard, for the same reasons, the second and third categories as involving more serious misconduct and I do not impose separate penalties for the same course of conduct, fake invoice and fake review, at (2).
CONCLUSION 59 For these reasons, I make each of the orders set out above, including costs which follow the event and are appropriately determined in a lump sum pursuant to r 40.02(b) of the Federal Court Rules 2011 (Cth). I certify that the preceding fifty-nine (59) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McElwaine.
Commissioner for Consumer Affairs (SA)
Star Plus Group Pty Ltd
[2005] HCA 25
(2022) 96 ALJR 426
(2015) 327 ALR 540
(2004) 142 FCR 1
(2004) 207 ALR 329
(2016) 340 ALR 25
(2013) 250 CLR 640
(2008) 172 FCR 279
(2022) 96 ALJR 234
(2005) 228 CLR 357
(2003) 216 CLR 53
(1984) 4 FCR 296
(2000) 200 CLR 591
(2011) 195 FCR 203
(2011) 202 IR 467
(2018) 262 FCR 243
(2010) 269 ALR 1