Commissioner for Fair Trading v Digital Marketing and Solutions Pty Ltd

Solicitors: NSW Department of Finance, Services and Innovation (Plaintiff) No appearance for defendants File Number(s): 2018/243845

Judgment

1. By Amended Statement of Claim filed 27 November 2018 the plaintiff seeks the following relief: 1. Declarations that, during the period 16 January 2017 to 17 July 2018: 1. The first defendant, in trade or commerce, engaged in misleading or deceptive conduct, or conduct likely to mislead and deceive, in contravention of s 18 of the Australian Consumer Law (Cth) (the ACL). 2. Further, or in the alternative to paragraph 1(a) above, the first defendant, in trade or commerce, in connection with the supply or possible supply of goods, made false or misleading representations concerning the standard and/or quality of the goods in contravention of s 29(1)(a) of the ACL. 3. The first defendant, in trade or commerce, engaged in conduct that was liable to mislead the public as to the characteristics and suitability for their purpose in contravention of s 33 of the ACL. 4. The first defendant, in trade or commerce, accepted payment for goods when, at the time of acceptance, the first defendant was aware or ought reasonably have been aware that it would not be able to supply those goods within the period specified or within a reasonable time in contravention of s 36(3) of the ACL. 5. Further, or in the alternative to paragraph 1(d) above, the first defendant, in trade or commerce, accepted payment for goods and failed to supply those goods within the period specified, within a reasonable time, or at all, in contravention of s 36(4) of the ACL. 6. The second defendant was involved in the conduct of the first defendant that constituted a contravention of s 18, s 19(1), s 33, s 36(3) and/or s 36(4) of the ACL. 1. Injunctions pursuant to s 232 of the ACL: 1. Restraining the defendants from continuing to advertise in trade or commerce, on websites operated and controlled by either of them, or by any entity controlled by the second defendant, that: 1. Goods that are not in stock are in stock and/or available; and 2. Goods that cannot be supplied within a specified time frame or within a reasonable time frame can be supplied within such a time frame, 1. Restraining the defendants from supplying, in trade or commerce, goods that are not approved as required under the Electricity (Consumer Safety) Act 2004 (NSW) and/or electrical articles that are prohibited from sale under the Gas and Electricity (Consumer Safety) Act 2017 (NSW). 2. Restraining the defendants from supplying in trade or commerce, goods to customers that are not of acceptable quality and fit for purpose; 3. Restraining the defendants in trade or commerce from making false and misleading representations to consumers in relation to goods sold through websites operated and controlled by either of them, or by an entity controlled by the second defendant, concerning the status of customer orders and/or the processing of repairs or refunds over email, telephone, and in online chat conversations. 1. Pecuniary penalties pursuant to s 224 of the ACL for breaches of ss 29(m), 33, 36(3) and 36(4) of the ACL against both defendants. 2. An order pursuant to s 248 of the ACL disqualifying the second defendant from managing corporations for a period the Court considers appropriate; 3. An order for compensation against the defendants for breaches of the enforceable undertaking entered between the defendants and the Executive Director, Compliance and Enforcement, NSW Fair Trading; 4. Costs and interest on costs.
2. In the Statement of Claim the plaintiff also sought relief under s 239 of the ACL for consumer redress. In circumstances where it had come to light that the first defendant had made some refunds to affected customers, that relief was not pressed at the hearing.
3. The Statement of Claim was served on the first defendant, a corporation, in accordance with s 109X of the Corporations Act 2001 (Cth), and on the second defendant, a natural person who at the time of service was resident in Hong Kong, in accordance with r 11.4 of the Uniform Civil Procedure Rules 2005 (NSW) (UCPR).
4. Following service, the second defendant, by WhatsApp message to Mark Nicoletti (the managing lawyer employed in the legal branch of the Department of Finance, Services and Innovation), advised that he did not wish to engage with the legal process. The text of that message is as follows: Hi Mark, unfortunately we are not in the financial situation to travel nor defend. Thanks a lot on this thought. Cheers.
5. The Court received correspondence dated 20 September 2018, ostensibly from the second defendant, to the following effect: Dear Sir/Madam, I, Yuen Ho Wong, the named second defendant in the above mentioned case, wish to acknowledged the claims are valid except the reference "Dennis O'Neill", which should have been refunded by Wirecard, the credit card processor. Please kindly refer to the appendix. As a result, I acknowledge the total claimed amount to be 2875.45AUD. I would like to apply to the Court that a 3 month period to be granted for the settlement of this, as business is undergoing financial stress and will be wounded up. We had displayed on the site that we have stopped operation. Regards, [Signature] Yuen Ho Wong.
6. On 4 October 2018, the defendants consented to orders under ss 233 and 234 of the ACL for interim injunctions which, in summary, restrained both defendants from: 1. advertising on websites owned, operated or controlled by them that: (i) goods, that are not in stock, are in stock and/or available and (ii) goods, that cannot be supplied within a specified time frame or within a reasonable time frame, can be supplied within such a time frame; 2. supplying, in trade or commerce, goods in Australia that are not approved as required under the Electricity (Consumer Safety) Act 2004 (NSW) (the ECS Act) and electrical articles that are not approved as required under the ECS Act; 3. supplying goods to customers in Australia that are not of acceptable quality and fit for purpose; 4. making false and misleading representations to consumers in relation to goods sold through websites operated and controlled by each of them, or by any entity controlled by the Second Defendant, concerning the status of customer orders and/or the processing of repairs or refunds over email, telephone, and in online chat conversations.
7. Noting that neither an appearance, nor a submitting appearance, has been filed by either defendant, r 11.8AA of the UCPR requires that I grant leave to the plaintiff to proceed against the second defendant because he is not resident within Australia. The plaintiff submits that the Court has jurisdiction to grant relief against the second defendant having regard to the following matters: 1. The plaintiff seeks injunctions to restrain the performance of certain acts within Australia; 2. The proceedings involve a claim for a breach of an enforceable undertaking entered into in accordance with the terms of s 218 of the ACL; 3. The proceedings involve claims arising under an Australian enactment (namely the Australian Consumer Law and Fair Trading Act 1987 (NSW); 4. The proceedings involve conduct that occurred in Australia; and 5. The proceedings concern the construction, effect and/or enforcement of an Australian enactment.
8. I am well satisfied that the Court has jurisdiction to provide relief adverse to the second defendant's interests. That being so, and in circumstances where the second defendant has been properly served, and having regard to the second defendant's awareness of the proceedings evidenced by his correspondence with Mr Nicoletti and the Court, I am satisfied that leave should be granted.

Background

1. The first defendant operated businesses engaged in the supply of electronics and electrical goods to Australian consumers, including mobile phones, cameras and camera accessories. The second defendant is the director and secretary of the first defendant. The goods sold by the first defendant were purchased from websites accessible at the following URLs: (1) www.android-enjoyed.com; and (2) www.camerasky.com.au ("the Websites").
2. The first defendant has conducted business as an e-commerce retailer through the business names "Android Enjoyed" and "CameraSky" through the Websites since taking over those business names from Digital Skies Group Pty Ltd (ACN 166 898 684) (Digital Skies). Prior to the takeover the second defendant was the sole director of Digital Skies, whose conduct had been brought to the attention of the plaintiff through receipt of 280 complaints alleging matters which, if proven, would have amounted to breaches of the ACL.
3. Those complaints were investigated by the plaintiff and culminated in the plaintiff accepting, in January 2017, an enforceable undertaking pursuant to s 218 of the ACL from the first and second defendants. That undertaking included an acknowledgement that Digital Skies had contravened the ACL. The first defendant also undertook to comply with orders made by the NSW Civil and Administrative Tribunal requiring the refund of monies to consumers, payment of a pecuniary penalty of $28,000 and an undertaking not to supply, in trade or commerce, any consumer goods consisting of electrical articles as defined in s 3 of the Electricity (Consumer Safety) Act 2004 (NSW) in contravention of s 16(1) of that Act.
4. Notwithstanding that undertaking, the plaintiff alleges that the first defendant continued to engage in conduct in breach of the ACL resulting in the receipt by the plaintiff of a further 637 complaints. Those complaints concerned the first defendant's failure to supply products within the time stipulated, or at all; the first defendant's failure to provide refunds or repair faulty goods; and for misleading and deceptive claims on the Websites concerning the availability of products and the time within which they would be provided.

The Evidence

1. On the hearing of the plaintiff's claim the evidence before me comprised a significant body of affidavit material, including: 1. Affidavit of Richard Englert dated 3 December 2018; 2. Affidavit of Miljenko Mileusnic dated 28 November 2018; 3. Affidavit of Yongxiong (Colin) He dated 27 November 2018; 4. Affidavit of Matthew Bernard Kelly dated 25 September 2018; 5. Affidavit of Grahame Alderton dated 1 October 2018; 6. Affidavit of Grahame Alderton dated 3 October 2018; 7. Further affidavit of Grahame Alderton dated 3 October 2018; 8. Affidavit of Mark Gabriel Nicoletti dated 25 September 2018; 9. Affidavit of Katja Stebih Rom dated 21 August 2018; 10. Affidavit of Michael Trotter dated 19 August 2018; 11. Affidavit of Sandy Zieba dated 22 August 2018; 12. Affidavit of Alec Cutler dated 23 August 2018; 13. Affidavit of Naomie Smith dated 2 August 2018; 14. Affidavit of Dennis O'Neill dated 21 August 2018; 15. Affidavit of Angela Vidaicu dated 25 September 2018; 16. Affidavit of Vanessa Kelly dated 14 September 2018; 17. Affidavit of Jacqueline Pilar Lobos dated 31 August 2018; 18. Affidavit of Laura Frances Gardner dated 12 September 2018; 19. Affidavit of Paulo Penteado Santos dated 2 August 2018; 20. Affidavit of Curtis David De La Harpe dated 26 July 2018; 21. Affidavit of David Jewell dated 2 August 2018; 22. Affidavit of Mohammad Faaez Dorani dated 31 July 2018; 23. Affidavit of Rod Chapman dated 13 September 2018; 24. Affidavit of Sachin Kapoor dated 25 September 2018; 25. Affidavit of Christopher James McKenzie dated 5 September 2018; 26. Affidavit of Hilbert Suntke Wienekamp dated 5 September 2018; 27. Affidavit of Sha-May Ongkili dated 15 September 2018; 28. Affidavit of Aidan Prescott dated 13 September 2018; 29. Affidavit of Oksana Nesterenko dated 10 September 2018; 30. Affidavit of Duy Tran dated 2 August 2018; 31. Affidavit of Steven Fernandez dated 24 August 2018; 32. Affidavit of Thomas Poole dated 12 September 2018; 33. Affidavit of Jody Louise Wakefield dated 6 September 2018; 34. Affidavit of Caitlin Maree Ellson dated 31 August 2018; 35. Affidavit of Sanja Lakic dated 11 September 2018; 36. Affidavit of Kylie Fay dated 21 September 2018; 37. Affidavit of Carly Tanner dated 21 March 2019
2. I do not propose to refer to the content of each of those affidavits with particularity, save as to make the following general observations.
3. The background factual matters are addressed in the affidavits of Grahame Alderton dated 1 August 2018 and 3 October 2018. The affidavits dealing with non-complying travel adapters and chargers sent to consumers include the affidavit of Jacqueline Lobos sworn 31 July 2018 and the affidavit of Curtis De La Harpe affirmed 26 July 2018.

The plaintiff's submissions

1. The plaintiff contends that during the Relevant Period (as identified in [13] above), the first defendant engaged in conduct in contravention of s 18 of the ACL by making misleading or deceptive representations on the Websites. That section provides as follows: 18 Misleading or deceptive conduct: (1) A person must not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive. (2) Nothing in Part 3‑1 (which is about unfair practices) limits by implication subsection (1).
2. The plaintiff submitted that determining whether conduct is misleading or deceptive requires a two-step analysis (Australian Competition and Consumer Commission v Telstra Corporation Ltd [2007] FCA 1904; (2007) 244 ALR 470 at [14]). The first step is to ask whether each or any of the pleaded representations is conveyed by the particular events complained of. The second step is to ask whether the representations conveyed are false, misleading or deceptive, or likely to mislead or deceive.
3. Conduct is misleading or deceptive, or likely to mislead or deceive, if it has a tendency to lead into error. Accordingly, there must be a sufficient causal link between the conduct and error on the part of persons exposed to it: Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at [39] (French CJ, Crennan, Bell and Keane JJ).
4. Whether conduct is to be characterised as misleading or deceptive (or likely to mislead or deceive) is a question of fact, to be determined by reference to the entirety of the course of conduct and having regard to the surrounding circumstances: Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [102] (McHugh J). It requires an objective analysis of whether the conduct was misleading or deceptive, or likely to mislead or deceive. An intention to mislead or deceive is unnecessary (Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd [1982] HCA 44; (1982) 149 CLR 191).
5. The plaintiff contends that, during the Relevant Period, the first defendant engaged in conduct in contravention of s 18 of the ACL by making misleading and deceptive representation in respect of: 1. goods advertised as having been in stock in circumstances where they were not; 2. the Websites having falsely advertised goods as available for delivery within a stipulated period where such period was not achieved; 3. the Websites having falsely advertised that the time frame stipulated for delivery could be abridged by purchasing "express shipping".

Consideration

1. Firstly, turning to the plaintiff's allegation as I have identified it in [25] above, I identify the following evidence as bearing upon the issue: 1. In the affidavit of David Jewell dated 2 August 2018 at paragraphs 3, 11 and 13 he deposes to the purchase of a digital light meter from CameraSky which was advertised as "in stock" and available to be shipped within 3-7 days, but in fact was not in stock and was no longer being manufactured. 2. In the affidavit of Paulo Santos at paragraphs 4, 6, 8 and 11 he deposes to the purchase of a mobile phone from Android Enjoyed which was never supplied. 3. In the affidavit of Dennis O'Neill dated 21 August 2018 at paragraphs 5-11 he deposes to the purchase of two cameras from CameraSky that were advertised as in stock and available to be shipped within 2-4 days but were not provided within 12 days whereupon the order was cancelled by Mr O'Neill. 4. In the affidavit of Duy Tran dated 2 August 2018, he deposes to the purchase of a mobile phone from Android Enjoyed which was not supplied for over three weeks, at which point the order was cancelled by the consumer. 5. In the affidavit of Naomie Smith dated 2 August 2018, Ms Smith deposes to the purchase of a mobile phone from Android Enjoyed that was advertised as in stock and as a product that would "usually" ship within 5-10 days with delivery to metro areas to take another 2-5 business days or 4-7 business days for deliveries to regional and remote areas. The phone has not been supplied and no refund has been provided. 6. In the affidavit of Sandy Zieba, the deponent deposes to the purchase of a camera lens from CameraSky together with "express shipping" so that the lens could be shipped within 2-5 working days. Approximately two weeks later, the purchase was cancelled for non-delivery; 7. In the affidavit of Michael Trotter dated 19 August 2019 at paragraphs 2-3 and 14, Mr Trotter deposes to the purchase of a camera from CameraSky which, as it eventuated, was never in stock. Mr Trotter deposes to having received a refund following Fair Trading's intervention. 8. In the affidavit of Katja Stebih Rom dated 21 August 2018, Ms Rom deposes, at paragraphs 3-7, to the purchase of a mobile phone from Android Enjoyed that was advertised for sale but was not in stock.
2. Secondly, turning to the plaintiff's allegation as I have identified it in [26] above, I identify the following evidence as relevantly bearing upon that issue: 1. In the affidavit of Rod Chapman dated 13 September 2018, he deposes to the purchase of a digital camera through CameraSky which stopped working during its warranty period and was not repaired, nor was a refund provided. 2. In the affidavit of Steven Fernandez dated 24 August 2018, Mr Fernandez deposes to the purchase of a mobile phone through Android Enjoyed which was supplied with a charger with an overseas pin configuration and a white plastic travel adapter, and had a screen that was faulty in that certain letters and numerals could not be used; 3. In the affidavit of Matthew Kelly dated 25 September 2018, Mr Kelly deposes to the purchase of a mobile phone through Android Enjoyed which stopped working during its warranty period but was not repaired and, after extensive delays and representations that the phone would be repaired, a partial refund was provided; 4. In the affidavit of Vanessa Kelly dated 14 September 2018, Mr Kelly deposes to the purchase of a mobile phone through Android Enjoyed which ceased to function during its warranty period, and was apparently repaired and returned, but remained faulty after the repairs. No refund was provided. 5. In the affidavit of Miljenko Mileusnic dated 28 November 2018, Mr Mileusnic deposes to the purchase of a Galaxy Tablet through Android Enjoyed which stopped working during its warranty period and was not repaired. 6. In the affidavit of Oksana Nesterenko dated 10 September 2018, the deponent deposes to the purchase of a mobile phone through Android Enjoyed which stopped working during its warranty period and was not repaired. 7. In the affidavit of Grahame Alderton of 1 August 2018, Mr Alderton deposes at paragraphs 22-30 to the supply by the first defendant of electrical articles, such as chargers, which do not meet the requisite standards under the ECS Act, in breach of s 16(1) of that Act. 8. Annexed to the affidavit of Yongxiong (Colin) He of 27 November 2018 is a report he prepared (in his capacity as an investigator employed by the plaintiff, and having regard to his qualifications as an electrical and electronic engineer) wherein he explains why chargers and adaptors supplied by the first defendant do not meet the requisite standards under the ECS Act, in breach of s 16(1) of that Act.

Plaintiff's submissions

1. The plaintiff submits that during the Relevant Period the first defendant engaged in conduct in contravention of s 29(1)(a) of the ACL. Section 29 provides as follows: 29 False or misleading representations about goods or services. (1) A person must not, in trade or commerce, in connection with the supply or possible supply of goods or services or in connection with the promotion by any means of the supply or use of goods or services: (a) make a false or misleading representation that goods are of a particular standard, quality, value, grade, composition, style or model or have had a particular history or particular previous use; or …
2. The plaintiff submits that there is no material difference between the terms "false or misleading", or "misleading or deceptive", identifying Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2014] FCA 634; (2014) 317 ALR 73 at [40] as authority for that proposition. There, Allsop CJ said: There is no meaningful difference between the words and phrases "misleading or deceptive" and "mislead or deceive" (s 18), "false or misleading" (s 29(1)(a)) and "mislead" (s 33): Australian Competition and Consumer Commission v Dukemaster Pty Ltd [2009] FCA 682 at [14].
3. In respect of the meaning of "quality" where it appears in s 29(1)(a), the plaintiff submitted that word extends to include a product's attribute, property, features and virtues (Ducret v Chaudhary's Oriental Carpet Palace Pty Ltd (1987) 16 FCR 562).
4. In Parkdale Custom Built Furniture Pty Ltd v Puxu Pty Ltd, the High Court observed that whether conduct is false or misleading, or likely to be false or misleading, is objectively determined by reference to the class of the public likely to be affected by the conduct.

Consideration

1. Having regard to the evidence I identified at [29] and accepting the plaintiff's submissions as I do, I am well satisfied that the first defendant made representations which were false and misleading that goods were of a particular standard, quality, value, grade, composition, style or model.

The plaintiff's submissions

1. The plaintiff further submits that during the Relevant Period, the first defendant engaged in conduct in contravention of s 33 of the ACL. Section 33 reads as follows: 33 Misleading conduct as to the nature etc. of goods A person must not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the manufacturing process, the characteristics, the suitability for their purpose or the quantity of any goods. Note: A pecuniary penalty may be imposed for a contravention of this section.
2. The plaintiff submits, correctly, that s 33 only applies if the relevant conduct is "liable" to mislead or deceive, which has been held to apply to a narrower range of conduct than that which is "likely to mislead or deceive" as comprehended by s 18 (Westpac Banking Corporation v Northern Metals Pty Ltd (1989) 14 IPR 499 at 502). Breach of section 33 requires that there be an actual probability that the public would be misled: Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Limited [2014] FCA 634; (2014) 317 ALR 73 at [44].
3. The ACL does not define the words "nature" and "characteristics. In Australian Competition and Consumer Commission v Turi Foods Pty Ltd (No 4) [2013] FCA 665 Tracey J, dealing with those words where they appear in s 55 of the ACL, said: … the nature and characteristics of goods are to be identified by reference to their internal constitution or utility rather than the manner of their creation. Section 55 will thus be contravened, for example, if it is represented that 35% of liquid in a container is fruit juice when the truth is that juice comprised only 17% of the contents: cf Trade Practices Commission v Glo Juice Company Pty Ltd (1987) 73 ALR 407. Similarly, a contravention will occur if a manufacturer advertises that children's car seats conform in their structure with a particular Australian standard: cf Temperley v Playground Supplies Pty Ltd (1980) 3 TPR 506. A contravention will also occur if a false representation is made about the operational capacity of goods. Thus, in Australian Competition and Consumer Commission v Apple Pty Ltd [2012] FCA 646, it was conceded that s 33 of the ACL had been contravened when the manufacturer of an iPad advertised that its product could be connected to the 4G network in Australia when the contrary was true.
4. The plaintiff submits that the first defendant breached s 33 by advertising mobile phones as "unlocked" and thus available to be used with the purchaser's own SIM card on any mobile network. The plaintiff also submits that s 33 was breached by the sale of electrical goods and components which did not meet minimum standards under the ECS Act.

Consideration

1. In respect of the plaintiff's allegation that phones were advertised and sold as "unlocked" in circumstances where they were not, I identify the affidavits of Sha-May Ongkili dated 15 September 2018 and Sachin Kapoor dated 25 September 2018 as relevantly bearing upon that issue.
2. As to the plaintiff's allegation that goods were sold which did not meet minimum requires under the ECS Act, I note the contents of paragraphs 22-30 of the affidavit of Grahame Alderton dated 1 August 2018 and the report annexed to the affidavit of Yongxiong (Colin) He of 27 November 2018 wherein Mr He identifies, by reference to electrical articles actually supplied by the first defendant to consumers, breaches of standards under the ECS Act. I also observe paragraph 20 of the affidavit of Curtis David De La Harpe dated 26 July 2018 where he deposes to the supply of wall chargers and travel adapters by the first defendant which did not carry any approval markings and could not, therefore, be supplied in the Australia markets, as well as deposing to the supply of counterfeit products through the Websites.
3. This evidence reveals that the first defendant's conduct in trade or commerce was liable to mislead the public as to the characteristics of goods and their suitability for their purpose. I am accordingly well satisfied that the first defendant's conduct was in breach of s 33 of the ACL.

The plaintiff's submissions

1. The plaintiff further submits that the first defendant engaged in conduct in contravention of ss 36(3) and 36(4) of the ACL. That section relevantly provides as follows: 36 Wrongly accepting payment ... (3) A person must not, in trade or commerce, accept payment or other consideration for goods or services if, at the time of the acceptance: (a) there are reasonable grounds for believing that the person will not be able to supply the goods or services: (i) within the period specified by or on behalf of the person at or before the time the payment or other consideration was accepted; or (ii) if no period is specified at or before that time--within a reasonable time; and (b) the person is aware or ought reasonably to be aware of those grounds. Note: A pecuniary penalty may be imposed for a contravention of this subsection. (4) A person who, in trade or commerce, accepts payment or other consideration for goods or services must supply all the goods or services: (a) within the period specified by or on behalf of the person at or before the time the payment or other consideration was accepted; or (b) if no period is specified at or before that time--within a reasonable time. Note: A pecuniary penalty may be imposed for a contravention of this subsection. …
2. The plaintiff submits that s 36(3) is contravened if, at the time that payment is accepted, there were reasonable grounds, of which the first defendant ought to have been aware, for believing that the goods or services could not be supplied within the time specified. Section 36(4) is contravened if goods or services are not supplied within the time specified when payment was accepted, or if no time was specified, within a reasonable time.
3. The plaintiff submits, and I accept, that an objective standard of reasonableness applies to ss 36(3) and (4), such that the first defendant's actual belief is not relevant. Rather, one must establish that at the time that payment was accepted, facts and circumstances which constitute reasonable grounds for believing that the defendant will not supply the goods, either within the time frame stipulated or at all, existed. I accept that it is sufficient that the defendant ought reasonably be aware of circumstances constituting reasonable grounds (Australian Competition and Consumer Commission v Commercial and General Publications Pty Ltd [2002] FCA 900).

Consideration

1. The evidence reveals that the first defendant accepted payment for goods purchased through the Websites by consumers without supplying those goods within the time frame stipulated on the Websites, or otherwise within a reasonable time. I am satisfied that the first defendant was aware or ought to have been aware of reasonable grounds for believing that it would not be able to supply the goods within the time period stipulated, and in this respect I note the evidence I have earlier identified at [28] above.
2. For the purposes of s 36(3), the first defendant's awareness that it would not be able to supply goods advertised through the Websites within time periods stipulated or within a reasonable time is evidenced by the affidavit of Curtis David De La Harpe dated 26 July 2018 at paragraphs 15-16. Mr De La Harpe's evidence is that the second defendant, the sole director of the first defendant, was informed that the Websites advertised items as "in stock" when they were not, and that the Websites represented that items would be dispatched within a specific time period despite the period not being realistic. Despite his awareness of these matters, the evidence reveals that Mr De Le Harpe took no action in respect of those representations.
3. As I am satisfied that the conduct occurred in trade and commerce, and having regard to the evidence I have identified, I am accordingly satisfied that the first defendant breached ss 36(3) and (4).

Supply of electrical articles in breach of s 16 of the ECS Act

1. I have earlier identified evidence establishing a breach of s 16(1) of the ECS Act, and the undertaking to which I referred in [11] above. That evidence, relevantly comprising the affidavit of Grahame Alderton dated 1 August 2018 and the report annexed to the affidavit of Yongxiong (Colin) He of 27 November 2018, satisfied me that the first defendant supplied electrical articles including chargers and adaptors which do not meet the requisite standards under the ECS Act.

The second defendant's involvement in the contravening conduct

1. A person is involved in a contravention of the ACL if a person: (a) has aided, abetted, counselled or procured the contravention; or (b) has induced, whether by threats or promises or otherwise, the contravention; or (c) has been in any way, directly or indirectly, knowingly concerned in, or party to, the contravention; or (d) has conspired with others to effect the contravention.
2. I am satisfied that the second defendant was "involved" in the contravening conduct of the second defendant, as that term is defined in s 2 of the ACL. The affidavit of Curtis David De La Harpe reveals that the second defendant: 1. was responsible for the Android Enjoyed and CameraSky businesses, and managed and directed the first defendant's affairs; 2. was aware of consumer complaints which had been made against the business; a finding which is reinforced by the Undertaking he entered into and executed; 3. was aware that the first defendant could not supply goods within the time frame stipulated or within a reasonable time, but condoned the advertising of such timeframes anyway; 4. was aware of delays in processing refunds and maintained procedures which led to further delays in the provision of refunds or in the carrying out of repairs; 5. was aware that the first defendant was supplying travel adapters and chargers which were not approved for supply in Australia, effecting their procurement and condoning their supply.
3. The affidavit of Curtis David De La Harpe reveals that the second defendant was an intentional participant in the second defendant's conduct and had actual knowledge of the essential matters that led to the contraventions by it (Medical Benefits Fund of Australia Ltd v Cassidy; John Bevins Pty Ltd v Cassidy (2003) 135 FCR 1).

Declarations

1. Matters bearing upon whether the Court will make the declarations sought include whether the declaration has any utility, whether the proceeding involves a matter of public interest and whether the circumstances call for the marking of the Court's disapproval of the contravening conduct. The plaintiff contends that these matters are establishing and the declarations sought ought be made.
2. I am satisfied that the declarations should be made. They will not be without utility, and I am satisfied that it is in the public interest that they be made. The declarations which I will make will serve to clearly identify the contravening conduct and will serve as a warning to others which consider or contemplate such conduct.

Injunctive Relief

1. Section 232 of the ACL empowers the Court to make injunctions where the Court considers that a person has engaged in conduct in contravention of a provision of Chapter 2, 3 or 4 of the ACL, and extends to permit the Court to restrain any person who has aided, abetted, counselled or procured another person's contravention of the ACL, and any person who, directly or indirectly, was knowingly concerned in, or party to, such a contravention.
2. I am satisfied that the injunctive relief sought by the plaintiff should be granted. The relief sought is appropriately limited by reference to the contravening conduct, has a demonstrable nexus to the contravention, and is designed to prevent further contravening conduct (ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 at 268). That the injunctive relief sought may assist to prevent further contravening conduct appears all the more likely in circumstances where the affidavit of Richard Englert dated 3 December 2018 and the affidavit of Mohammad Faaez Dorani dated 31 July 2018 reveal that the second defendant is associated with other websites offering similar products to those that were offered by the Websites.

Pecuniary penalties

1. Having established that the first defendant has contravened ss 29(1)(a), 33, 36(3) and 36(4) of the ACL, the plaintiff asks the Court to impose a pecuniary penalty on the first and second defendant pursuant to s 224 of the ACL.
2. At the time of the contravening conduct, the maximum penalty available for each contravention of those provisions was $1,100,000 in the case of a body corporate, and $220,000 in the case of an individual. I have had regard to those maximum penalties in my nomination of the penalty to be imposed.
3. I note that the plaintiff does not ask the Court to impose a penalty in respect of each contravention, but rather, having regard to totality principles, to impose a penalty which comprehends the entire course of the contravening conduct. In Australian Competition and Consumer Commission v Coles Supermarkets Australia Pty Ltd [2015] FCA 330 at [6], Allsop CJ likened the process of nominating a penalty as similar in nature to the process involved in determining a sentence for criminal offending, requiring the instinctive synthesis of all relevant factors. I observe that s 224(4)(b) of the ACL provides that, where conduct constitutes a contravention of two or more provisions of the ACL, a person is not liable to more than one pecuniary penalty in respect of the same conduct. I am alert also to avoid double counting in the imposition of penalty.
4. The plaintiff submits, and I accept, that the principal object of a pecuniary penalty is deterrence, both general and specific. In Commonwealth of Australia v Director, Fair Work Building Industry Inspectorate [2015] HCA 46; (2015) 258 CLR 482, the plurality acknowledged at [55] that the purpose of a civil penalty is "primarily if not wholly protective in promoting the public interest in compliance". In Australian Competition and Consumer Commission v TPG Internet Pty Ltd [2013] HCA 54; (2013) 250 CLR 640 at [65], the Court observed that in cases of calculated contravention where commercial profit is the driver of the contravening conduct, significant penalties are appropriate.
5. In Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20; (2012) 287 ALR 249 at 265, the Full Court of the Federal Court observed that in nominating an appropriate penalty under s 76E of the Trade Practices Act 1974 (Cth) (the precursor to s 224 of the ACL), the penalty must not be so low as to be regarded as an acceptable cost of doing business.

The plaintiff's submissions on penalty

1. The plaintiff advances the following submissions on penalty: 1. The first and second defendant's contravention of the ACL occurred over a "relatively long" period. They were egregious, systemic and widespread, affecting hundreds of consumers in NSW and others in other jurisdictions, many of whom have not been compensated. 2. The contravening conduct was deliberate. 3. The contravening conduct was condoned by the second defendant as the controlling mind of the first defendant. 4. There was a culture of non-compliance which "stemmed from the top". 5. The second defendant was associated with Digital Skies, a company which had engaged in repeated contravening conduct over a significant period, and such contraventions were similar to those committed by the first defendant. 6. Although there was some degree of co-operation provided by the second defendant at the time that he entered into the undertaking, the first defendant's contravening conduct continued thereafter and appears to have increased in frequency. 7. The first defendant has generated considerable revenue from trade in Australia. By reference to the affidavit of Carly Tanner dated 21 March 2019, I observe that the first defendant's revenue from sales in Australia totalled $16,196,109.08. Ms Tanner identified transactions which appeared to be refunds during the Relevant Period totalling $1,620,002.38 (though I observe her reservations as to the accuracy of the method adopted for identifying refunds).
2. Having regard to all of those matters, the plaintiff submits that an appropriate penalty for the first defendant is a penalty in the range of $1,500,000 to $2,500,000 for the first defendant, and $500,000 to $1,000,000 for the second defendant.

Consideration

1. I accept, without reservation, the plaintiff's submissions as I have enumerated them above. The conduct of the defendants is properly described as egregious, systemic and widespread. It was deliberate conduct which occurred in the broader context of a culture of contravention, fostered by the second defendant as the controlling mind of the first defendant. That the contraventions occurred in the context of the second defendant having engaged in similar conduct in the past and having entered into an enforceable undertaking not to engage in such conduct in the future serves to underscore the seriousness of the contravening conduct.
2. I am satisfied that the first and second defendants were driven to engage in the contravening conduct by the prospect of increased profit, and I note in that connection the considerable revenue derived by the first defendant from sales to persons resident in Australia. This finding considerably increases the objective seriousness of the offending.
3. I also note the considerable financial loss caused to hundreds of consumers by the conduct of the defendants. While some of those consumers have received refunds (albeit following extended dialogue with the defendants), others have not.
4. The supply of electrical articles which did not meet minimum standards under the ECS Act is also of considerable concern, not least for the risk to health and safety the supply of such articles presents. Fortunately, there is no evidence before me as to that risk materialising.
5. Given the plaintiff's comprehensive submissions, and the matters I have referred to above, I am of the view that a significant pecuniary penalty should be imposed. Specific deterrence, in light of the second defendant's repeated contravening conduct, carries considerable weight, as does general deterrence more generally. A penalty of $2.25 million in the case of the first defendant, and $900,000 in the case of the second defendant, will be imposed.

Disqualification of the second defendant from managing corporations

Consideration

1. The plaintiff seeks an order under s 248 of the ACL disqualifying the second defendant from managing corporations for a period considered appropriate by the Court. Section 248 of the ACL provides as follows: 248 Order disqualifying a person from managing corporations (1) A court may, on application of the regulator, make an order disqualifying a person from managing corporations for a period that the court considers appropriate if: (a) the court is satisfied that the person has contravened, has attempted to contravene or has been involved in a contravention of any of the following provisions: (i) a provision of Part 2-2 (which is about unconscionable conduct); (ii) a provision of Part 3-1 (which is about unfair practices); (iii) a provision (other than section 85) of Division 2 of Part 3-2 (which is about unsolicited consumer agreements); (iv) section 106(1), (2), (3) or (5), 107(1) or (2), 118(1), (2), (3) or (5), 119(1) or (2), 125(4), 127(1) or (2), 128(2) or (6), 131(1) or 132(1) (which are about safety of consumer goods and product related services); (v) section 136(1), (2) or (3) or 137(1) or (2) (which are about information standards); (vi) a provision of Chapter 4 (which is about offences); and (b) the court is satisfied that the disqualification is justified. Note: Section 206EA of the Corporations Act 2001 provides that a person is disqualified from managing corporations if a court order is in force under this section. That Act contains various consequences for persons so disqualified. (2) In determining under subsection (1) whether the disqualification is justified, the court may have regard to: (a) the person's conduct in relation to the management, business or property of any corporation; and (b) any other matters that the court considers appropriate. …
2. The predecessor to the power available to the Court under s 248 of the ACL - s 86E of the Trade Practices Act - was discussed in Australian Competition and Consumer Commission v Halkalia Pty Ltd (No 2) [2012] FCA 535 at, [110]-[112]. There, the Court said: The ACCC advised the Court that, so far as it is aware, the Court has not previously been asked to make an order of this kind under s 86E. It helpfully drew attention to the principles which had been developed in relation to the banning of officers under ss 206C and 206E of the [Corporations Act 2001 (Cth)]. Section 86E has been modelled on s 206C. They are in identical terms. The principles which have been developed under the Corporations Act were distilled by Santow J in ASIC v Adler [2002] NSWSC 483; (2002) 42 ACSR 80. One of those principles, namely that banning orders were purely protective in nature and not punitive, was later rejected by the High Court in Rich v ASIC [2004] HCA 42; (2004) 220 CLR 129. Otherwise, there is no reason to doubt that these principles will provide useful assistance when the Court is considering opposed applications under s 86E of the Act. The ACCC's present application for an order under s 86E is, as has been noted, not opposed by Mr Hann. It is, therefore, sufficient that I record that, having regard to the principles which Santow J identified in Adler, I am satisfied that a 15 year banning order is warranted in the circumstances of the present case. Such an order will be made.

Order for compensation

1. Finally, the plaintiff seeks an order for compensation pursuant to s 218(4)(d) of the ACL. That section provides as follows: 218 Regulator may accept undertakings (1) The regulator may accept a written undertaking given by a person for the purposes of this section in connection with a matter in relation to which the regulator has a power or function under this Schedule. (2) The person may, with the consent of the regulator, withdraw or vary the undertaking at any time. (3) If the regulator considers that the person who gave the undertaking has breached any of its terms, the regulator may apply to a court for an order under subsection (4). (4) If the court is satisfied that the person has breached a term of the undertaking, the court may make all or any of the following orders: (a) an order directing the person to comply with that term of the undertaking; (b) an order directing the person to pay to the Commonwealth, or to a State or Territory, an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach; (c) any order that the court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach; (d) any other order that the court considers appropriate.
2. The plaintiff submits that an order for compensation against the defendants for breaches of the enforceable undertaking should be made in the following amounts: 1. In respect of the first defendant, an order for compensation in the sum of $100,000. 2. In respect of the second defendant, an order for compensation in the sum of $50,000.
3. The submission is advanced, referable to the affidavits of Grahame Alderton dated 1 August 2018, Kylie Fay dated 21 September 2018, Mohammad Faaez Dorani dated 31 July 2018 and Jacqueline Pilar Lobos dated 31 August 2018, that the plaintiff expended considerable resources receiving complaints from consumers, recording such complaints, and following up such complaints with consumers and the first defendant in circumstances where such resources would not have been expended had the defendant not engaged in contravening conduct identical to that which is comprehended by paragraph 12 of the Undertaking.
4. The evidence before me does not assess or detail the financial costs incurred by the plaintiff in its investigation of the defendants. In those circumstances, I am not prepared to make any order for compensation since the award of compensation would be entirely speculative. I also express considerable reservation as to whether s 218(4)(d) of the ACL ought be utilised as a means of compensating the plaintiff for the resources it has expended in the investigation of the plaintiff. While I accept the expending of resources might well be considerable, the investigation of complaints is the plaintiff's statutory function. Additionally, the plaintiff has not referred me to any authority which contemplates the utilisation of s 218(4)(d) as a means by which a statutory body might be "compensated" for the discharge of its statutory duties, or for the recovery of its costs associated with investigating a defendant for breach of an undertaking.

Declarations

1. I make the following declarations: 1. On at least nineteen different occasions during the period 16 January 2017 and 17 July 2018, the first defendant, in trade or commerce, engaged in misleading or deceptive conduct, or conduct likely to mislead and deceive, in contravention of s 18 of the ACL by: 1. making representations that particular goods purchased through the Websites were in stock and would be provided in the time frame stipulated on the Websites, when such goods were not in stock and could not be delivered within the time frame stipulated; and 2. making representations that particular goods purchased through the Websites were of an acceptable quality, namely that they were fit for purpose and genuine products from the stipulated manufacturer, when in fact they were not; and 3. making representations that customers' refunds were being processed and/or escalated, when in fact they were not; and 4. making representations that customers' refunds would be issued within a specified period, when in fact they were not; and 5. making representations that customers needed to contact their banks to reverse particular transactions when in fact they did not. 1. On at least eighteen different occasions during the Relevant Period, the first defendant, in trade or commerce, in connection with the supply or possible supply of goods, made false or misleading representations concerning the standard and/or quality of the goods, in contravention of s 29(1)(a) of the ACL. 2. On at least nine different occasions during the Relevant Period, the first defendant, in trade or commerce, engaged in conduct that was liable to mislead the public as to the characteristics and suitability for their purpose of the goods, in contravention of s 33 of the ACL. 3. On at least ten different occasions during the Relevant Period, the first defendant, in trade or commerce, accepted payment for goods when, at the time of acceptance, the first defendant was aware or ought reasonably to have been aware that it would not be able to supply those goods within the period specified or within a reasonable time in contravention of s 36(3) of the ACL. 4. On at least ten different occasions during the Relevant Period, the first defendant, in trade or commerce, accepted payment for goods and failed to supply those goods within the period specified, within a reasonable time, or at all, in contravention of s 36(4) of the ACL. 5. The second defendant was involved in the conduct of the first defendant that gave rise to the contraventions of s 18, s 29(1)(a), s 33, s 36(3) and/or s 36(4) of the ACL. 6. During the Relevant Period, the defendants breached paragraph 25 of the enforceable undertaking given by both of them to the Executive Director of Compliance and Enforcement, NSW Fair Trading, pursuant to s 218 of the ACL on 17 January 2017 by supplying electrical articles as defined in s 3 of the Electricity (Consumer Safety) Act 2004 (NSW) that did not comply with the requirements of s 16 of that Act.

Orders

1. I make the following orders: 1. Pursuant to r 11.8AA of the Uniform Civil Procedure Rules, leave is granted to the plaintiff to proceed against the second defendant. 2. Pursuant to ss 232(1)(c) and 232(1)(e) of the Australian Consumer Law, until further order of the Court, the: 1. The defendants are restrained from continuing to advertise, in trade or commerce, on websites operated and controlled by either of them or on websites operated and controlled by any other entity controlled by the second defendant: 1. goods, which are not in stock, as being in stock and/or available; 2. goods, which cannot be supplied within a specified time frame or within a reasonable time frame, as being capable of being supplied within such a time frame; 1. The defendants are restrained from supplying, in trade or commerce, goods to customers that are not of acceptable quality or fit for purpose within the meaning of ss 54 and 55 of the Australian Consumer Law respectively; 2. The defendants are restrained from making false and misleading representations, in trade or commerce, to consumers in relation to goods sold through websites operated and controlled by each of them or by any other entity controlled by the second defendant, concerning the state of customer orders and/or the processing of repairs or refunds, over email, telephone and in online chat conversations. 3. The defendants are restrained from supplying, in trade or commerce, goods that are prohibited from sale under the Electricity (Consumer Safety) Act 2004 (NSW) and electrical articles that are prohibited from sale under the Gas and Electricity (Consumer Safety) Act 2017 (NSW). 1. Pursuant to s 224(1)(a) of the Australian Consumer Law, the first defendant is to pay to the State a pecuniary penalty in the amount of $2,250,000 within 28 days of 4 April 2019. 2. Pursuant to s 224(1)(e) of the Australian Consumer Law, the second defendant is to pay to the State a pecuniary penalty in the amount of $900,000 within 28 days of 4 April 2019. 3. Pursuant to s 248(1) of the Australian Consumer Law, the second defendant is disqualified from managing corporations for a period of two years from 4 April 2019. 4. The defendants are to pay the plaintiff's costs of these proceedings, including any costs reserved. 5. Vacate the orders made by the Court on 4 October 2018.

Amendments 05 April 2019 - [53] and [54] - Addition of "Curtis" to name DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 05 April 2019