NRM Trading Pty Ltd v Australian Competition and Consumer Commission

IN THE FEDERAL COURT OF AUSTRALIA VICTORIA DISTRICT REGISTRY GENERAL DIVISION VID 239 of 2015

AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

JUDGE: MIDDLETON J DATE: 28 May 2015 PLACE: MELBOURNE

INTRODUCTION 1 NRM Trading Pty Ltd and NRM Corporation Pty Ltd (collectively, 'NRM') and Dr Jacov Vaisman, (collectively, the 'Applicants') seek stay orders pending the hearing of an appeal. 2 NRM carries on the business of providing medical services in relation to male and female sexual dysfunction. Dr Vaisman was the chief executive officer of NRM. 3 On 22 April 2015, North J delivered judgment and made orders in in Australian Competition and Consumer Commission v ACN 117 372 915 Pty Limited (in liq) (formerly Advanced Medical Institute Pty Limited) [2015] FCA 368 (the 'Decision') The Applicants filed a notice of appeal in respect of that decision. On 18 May 2015, the applicants filed an interlocutory application for a stay of orders 9 to 13 of the orders made by North J on 22 April 2015. 4 The orders made by North J which are relevant for this application are orders 9(a), 9(c), 9(e), 10(b), 12 and 13. They are set out below: 9 Each of the sixth and seventh respondents be permanently restrained, whether by themselves, their servants or agents or otherwise, in trade or commerce, from: (a) making an agreement with a patient for or in respect of the supply of medications or medical services for the treatment of male sexual dysfunction, unless the patient for whom the medications or medical services are intended has had a consultation with a duly qualified medical practitioner either in person or by video-link; … (c) making any statement or representation to any patient or prospective patient as to: (i) the efficacy of NRM treatments; (ii) the efficacy of any medications or medical services offered by parties other than the sixth and seventh respondents; or (iii) the patient's need for the NRM treatments and any adverse consequences that might result if the patient: (A) does not acquire the NRM treatments, or (B) does not receive NRM treatments for male sexual dysfunction. except if that statement is made directly to a patient or potential patient by a duly qualified medical practitioner during a consultation either in person or by video-link; … (e) accepting in advance any payment or any other consideration from a patient in connection with the supply of NRM treatments for a future period of more than two months. 10 The third respondent be restrained, for a period of seven years from the date of this order (unless otherwise specified below), in trade or commerce, from: … (b) from having a role in connection with training, supervising, counselling or terminating employees, agents or contractors of the sixth and seventh respondents and their related bodies corporate. … 12 The sixth and seventh respondents cause to be published, at their own expense, within 21 days of the date of this order, a notice in the form contained in Annexure A to this order (website notice) on its website located at http://www.amiaustralia.com.au (AMI website) and, if the URL of such website is replaced, changed or redirected to another website, on the corresponding website, for a continuous period of 90 days and use its best endeavours to ensure that: (a) the website notice shall be viewable by clicking a "click-through" icon located on the AMI website; (b) the "click-through" icon referred to in (a) is located at the top of the homepage of the AMI website and any corresponding websites; (c) the "click-through" icon shall appear as follows, with the words printed prominently in bold red text, in a font size no smaller than 14-point, on a white background: Unconscionable Conduct by Advanced Medical Institute (AMI) - Notice Ordered by Federal Court of Australia. Click Here 13 The third, sixth, and seventh respondents pay the applicant's costs of the proceeding, except for the applicant's costs of and incidental to the proceeding against the fourth and fifth respondents.

BACKGROUND 5 The background to the proceeding and the appeal was outlined by the Applicants, which I adopt. 6 On 21 December 2010, the Australian Competition and Consumer Commission ('ACCC') commenced these proceedings against five respondents. On 22 December 2010, the first and second respondents, formerly known as Advanced Medical Institute Pty Ltd and AMI Australia Holdings Pty Ltd (collectively, 'AMI') were placed into voluntary administration. 7 On 17 June 2011, the business of AMI was sold to NRM. On 19 July 2011 the AMI entities were placed into voluntary liquidation. On 2 September 2011, the ACCC was granted leave to join NRM to the proceedings as the sixth and seventh respondents. 8 The hearing commenced on 18 March 2013 and ran for 33 sitting days, concluding on 20 May 2014. In total, 32 witnesses were called to give evidence. 9 The ACCC alleged that in the period from 2008 to mid-2011, AMI engaged in unconscionable conduct in contravention of s 51AB of the Trade Practices Act 1974 (Cth). The ACCC alleged that NRM continued the business of AMI and engaged in unconscionable conduct after the purchase of the business on 17 June 2011 and during 2012, in contravention of section 21 of the Australian Consumer Law ('ACL') contained in Sch 2 to the Competition and Consumer Act 2010 (Cth). 10 The ACCC also alleged that the term of the contract between NRM and its patients concerning termination was unfair within the meaning of ss 24 and 250 of the ACL and consequently void under s 23(1) of the ACL. The ACCC alleged that Dr Vaisman made all the critical decisions in relation to the business and aided, abetted, counselled or procured, or was knowingly concerned in, or party to, the contraventions by AMI and NRM. 11 The ACCC sought declarations against each of AMI, NRM and Dr Vaisman that specified conduct was unconscionable and that the term of the NRM contract regarding termination was unfair. 12 The ACCC sought injunctions against NRM and Dr Vaisman, restraining them from engaging in further such conduct. Against NRM, the ACCC also sought the publication of corrective advertising and the refund to certain patients of monies paid under contracts with NRM. The ACCC also sought orders for costs against NRM and Dr Vaisman. 13 Justice North found for the ACCC in his Honour's decision on 22 April 2015. Justice North made the declarations numbered 1 to 6 and the orders numbered 7 to 14 of the Decision.

THE STAY APPLICATION 14 The chief financial officer of NRM, Mr Dilip Kumar Shrestha, has sworn an affidavit on 18 May 2015 in support of this stay application. The important point of his evidence was that, if a stay was not granted, either in whole or by reference to orders 9(a), 9(c), 9(e), 10(b), 12 and 13, then effectively NRM's business would be unable to operate and would close down. 15 It was pointed out that North J during the course of the trial recognised that if his Honour made the orders as sought by the ACCC it could have the effect of closing down the business. That was an observation made during the course of the hearing and I do not place too much emphasis upon it. On this application, the Court must engage with the current circumstances and the evidence relied upon by the Applicants. 16 Having said that, Mr Shrestha was of a view, as he deposed in his affidavit (at [5]), that: I am gravely concerned, based on my knowledge of the operations of the First and Second Appellants, that if the First and Second Appellants were required to comply with the orders made by North J on 22 April 2015 in their current form, it is likely that the business of the First and Second Appellants would not be able to continue. 17 Mr Shrestha further deposed that failing to the grant the stay orders sought in this application would result in a number of adverse consequences for his business, including in relation to payments to employees and contractors, liabilities, wasted expenses and other matters that may arise if the business effectively came to an end. I have no doubt that if the business did close down, many of the consequences he referred to would occur, and that it would be very difficult to restart the business. 18 The real issue for me, which I will come to, is to assess whether or not the business will be unable to continue if a stay is not granted. 19 There is no doubt that the Court has power to grant a stay as set out in s 29 of the Federal Court of Australia Act 1976 (Cth) and r 36.08 of the Federal Court Rules 2011 (Cth), the latter of which provides: 36.08 Stay of execution or proceedings under judgment appealed from (1) An appeal does not: (a) operate as a stay of execution or a stay of any proceedings under the judgment subject to the appeal; or (b) invalidate any proceedings already taken. (2) However, an appellant or interested person may apply to the Court for an order to stay the execution of the proceeding until the appeal is heard and determined. (3) An application may be made under subrule (2) even though the court from which the appeal is brought has previously refused an application of a similar kind. 20 There was no real dispute between the parties as to the principles which apply in exercising the Court's discretion on a stay application. I do not delay to recite them. However, I do emphasise that if I was satisfied that NRM's business would close down, then I think that there is much to be said for the argument that some relief should be granted in the meantime by way of a stay to prevent the appeal from being rendered nugatory. 21 In Commissioner of Taxation v Donoghue [2015] FCA 337 when considering the significance of whether an appeal would be rendered nugatory, Edmonds J said (at [21]): While the prospect that execution of a judgment appealed from would render any appeal nugatory is usually regarded as a substantial factor in favour of a stay, it is not a necessary condition of the exercise of the jurisdiction to grant a stay. (Citations omitted) 22 I would of course regard as significant any material before me which showed that the appeal would be rendered nugatory. 23 I make a couple of observations before I go to the specific orders that are relevant, and which are itemised in the alternative relief that the Applicants seek in having those particular orders stayed. 24 First, there is no doubt that there has been a significant delay in bringing the proceedings, in the conduct of the proceedings and, as it turns out, in the delivery of the judgment. However, in the context of this application, the Decision has now been made by North J in favour of the ACCC and it is upon the basis of the Decision and the pending appeal, that I should consider the application for a stay. 25 Secondly, I note that various appeal grounds have been identified in the Applicants' notice of appeal and whilst I make no comment about their validity, they are, at the very least, arguable and bona fide. In an application such as this, I need not elaborate.

CONSIDERATION 26 The primary relief sought was that a stay be granted in respect of orders 9 to 13 of North J. However, during the course of discussion with counsel, it emerged that a stay was sought in respect of those orders which were specifically identified as impacting upon NRM's business. Those orders were 9(a), 9(c), 9(e), 10(b), 12 and 13, and are reproduced above. 27 I now turn to consider each order sought to be stayed.

Order 9(a) - Face-to-face medical consultations 28 Order 9(a) deals with the requirement that the Applicants arrange personal or video-link consultations for patients with medical practitioners. I am not satisfied, on the material before me, that order 9(a) is necessarily going to have the impact that is feared by the Applicants in this application. There is existing technology or software which may be used for video-links, and I am not persuaded that prospective or current patients will necessarily have limited access to that technology or software, which will prevent such consultations in the way in which his Honour has ordered. 29 The Applicants submitted that patients may experience embarrassment if required to attend face-to-face consultations, as ordered by North J. However such embarrassment is likely to be commonplace in many medical contexts, and typically sensible patients will endure any such embarrassment (or disregard any risk of embarrassment) if a face-to-face consultation with a medical practitioner is required or beneficial. This embarrassment is often accepted by patients, especially in the knowledge that some form of confidentiality will exist between the patient and medical practitioner. I assume that such confidentiality will also be maintained in relation to patients of NRM. 30 In arriving at this view, I am mindful of the comments made by North J at [994-5] of the Decision: The exercise of discretion should also take into account the impact of the injunctions on NRM. Although negative in form, the injunctions are in substance mandatory injunctions. Caution should be exercised in making orders of that type. The injunctions impose significant changes for the operation of the NRM business. Despite this, NRM did not make any submissions of substance contesting the terms of the injunctions against it. The failure to make such submissions has particular significance because the Court directly raised with Mr Shrestha the potential impact on NRM of injunctions requiring face-to-face consultations. He explained that in 2001 AMI operated 38 clinics, but gradually reduced the number because the number of patients attending clinics declined [TS 2026]. Mr Shrestha said that NRM would not be able to trade if it had to provide face-to-face consultations. This bald assertion was not persuasive. NRM did not seek to make a case that such an order or an order for consultation via video-link would cause undue hardship on it. The evidence demonstrated that a significant proportion of patients in the NRM period attended clinics. Those clinics did not provide doctor consultations on-site but only by phone. NRM did not establish that providing doctors on-site or by video-link would place an unreasonable burden on it. (Emphasis added) 31 Those comments of North J are not dispositive in the context of this application. If there was persuasive evidence before me which adequately substantiated NRM's submission in this regard, I would consider it. However, I am not persuaded that anything has been put before the Court that would change the view as expressed by North J in the above paragraphs. 32 I am also mindful, and I know this is a matter which is under appeal, that his Honour, at [987], indicated that: [t]he requirement of the face-to-face or video-link consultation provides a basic protection against substandard medical treatment, even though it cannot guarantee that doctors will act professionally in those consultations. 33 Therefore, in relation to order 9(a), I see no reason made out on the evidence before me to stay that particular order.

Order 9(c) - Representations as to efficacy 34 Order 9(c) essentially deals with the making of statements or representations as to the efficacy of NRM treatments. I do not see that particular restraint as characterised in the same way as put by the Applicants. While the order limits the content of advertising dealing with the NRM treatments, it does not prohibit advertising per se, nor does it prevent a statement or representation as to the efficacy of NRM treatments where it is made by a qualified medical practitioner during a consultation with a current or prospective patient. 35 There are many other ways in which the Applicants can advertise their products and services. It is not the role, nor is it in the expertise, of the Court to provide marketing advice, but it is clear from the wording of the order that advertising may still refer to many aspects of the NRM business, including the number of customers it has, its experience and knowledge, or even its mere existence and contact details. 36 Some debate arose concerning the scope and effect of order 9(c), but that is not a relevant matter in the application before me. Any ambiguity in an order should properly be dealt with by seeking an amendment to that order. If the ambiguity remains in the order, an issue may arise in relation to its enforcement.

Order 9(e) - Accepting advance payments 37 Order 9(e) deals with the accepting in advance of any payment or other consideration for NRM treatments. That order does not prevent NRM from direct debiting customers, to the extent that the term "direct debit" involves pre-authorisation, and the actual debiting of monies occurs after the relevant provision of goods or services. Hypothetically, a direct debit process could involve indefinite pre-authorisation, as long as no payment is debited in advance of the provision of NRM treatments. The order therefore did not seem to me to be an unfair impediment to NRM's business. Whilst the adoption of such a direct debit system may involve a change of business practice for NRM, that is not a matter which I consider likely to cause NRM to close down, or otherwise adversely affect it to the extent put by the Applicants.

Order 10(b) - Dr Vaisman's role in training, supervising, counselling or terminating 38 Order 10(b), reproduced above, deals with the restraint upon Dr Vaisman from having a role in training, supervising, counselling or terminating certain employees, agents or contractors (amongst others). There was evidence in relation to Dr Vaisman before North J and his Honour made some comments in relation to that Dr Vaisman and his future plans. I have no evidence before me that Dr Vaisman's position differs from the comments made by North J when the matter was before his Honour. 39 I accept that those comments of North J were made in relation to a time in the past. As I mentioned above, for the purposes of this application I need to consider current circumstances. However, there was insufficient evidence before me to justify a departure from the observations of North J in relation to Dr Vaisman's declining involvement in the business. 40 I am not satisfied that the particular restraint on Dr Vaisman in order 10(b) will bring the business to a halt. I make the observation that if Dr Vaisman's current role is mainly research-based, such a role is not inhibited by the orders. I also do not consider the mere passing on of such research by Mr Vaisman to doctors, if that is what occurs, to be within the ambit of "training, supervising, counselling or terminating" employees.

Order 12 - Corrective notice 41 Order 12, which is reproduced above, deals with corrective advertising. The fact is that a court order has been made, which is a public document, and consumers who deal with NRM are entitled to make an informed decision when dealing with NRM. The ACCC indicated that it would be content if the Court were to order that the corrective notice be revised so it acknowledges that the Applicants are currently appealing the Decision of North J. 42 I take the view that there is nothing to prevent the Applicants from putting the required corrective notice into context by referring to the fact that an appeal is currently before the Court and, if it is the true position of the Applicants, that the appeal is based upon proper and strong grounds. 43 There is also nothing in the order to prevent the Applicants from involving themselves in the proper management of their reputation. For example, they can indicate that the Decision only relates to events or conduct in the past, if that is their true position. They can also note that some matters have subsequently changed in favour of customers, such as the changes to NRM's refund policy. How the Applicants chose to manage their reputation in this regard is really a matter over which they have discretion, provided they comply with the law and do not act in a misleading or deceptive way. 44 I add that, as North J noted at [102], patients who responded to advertisements were able to consult by phone or at clinics, and that the majority of consultations were undertaken by phone. There was insufficient evidence in this application of prospective or current patients visiting the website as an important or routine step in engaging with NRM. I am not persuaded that the corrective notice will have the effect as contended by the applicants. 45 I also note that Mr Shrestha deposed in his affidavit that "the bounce rate of 55.38% means that during the relevant period more than half of the people who accessed the NRM website did not view any pages of the website other than the front page". On that basis, it appears probable that current or prospective customers will only see the headline notice and not the corrective notice itself. This may alleviate some of the Applicants' concerns in relation to reputational damage. However, as I mentioned above, the starting proposition is that the Decision is a public document and consumers are entitled to know about it when dealing with NRM.

Order 13 - Costs 46 In relation to order 13, which deals with costs, the ACCC consented to that order being stayed pending the hearing and determination of the appeal, and I am content to make that order. 47 For the above reasons, the application for a stay, other than in relation to order 13, is refused. I certify that the preceding forty-seven (47) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Middleton.