introduction
the proposed introduction of populace warning faculties and powers to the trade exercises act 1974 (tpa) has raised substantial concern among business groups. The main concern which has been indicated is that the accc can use the place and power to “name and shame” reputable companies, instead of fly by night operators. A lot of groups have similarly complained that the introduction of this place and power is opposite to the proper of persons to be considered innocent until proven guilty.
in this article i will profile and outline the modern populace warning faculties and powers and then discuss how these faculties and powers could be imposed by the accc specially causes and circumstances to improve consumer shelter outcomes. To illustrate the gains of a populace warning place and power to the accc, i will be referring to two peculiar accc investigations in which such a place and power would have provided substantial benefit had it been available at the applicable time. I conclude that much of the concern about the introduction of the populace warning place and power is misplaced, as the accc is likely to utilize this place and power only in the most blatant cases of untrue and spurious and misleading manner and behavior.
background
in the australian consumer law discussion paper the populace warning place and power was described as a “name and shame power”. The paper stated that populace warnings would typically be issued to inform the populace of potentially abnormal and harmful manner and behavior taking place in the very short term. Such warnings would normally be directed to ‘fly by night’ operators, itinerant traders and financial, investment and property spruikers and consultants who oftentimes move throughout state and territory borders.
implicit in the above discussion of the populace warning place and power was a view that the accc requires in-depth and efficient faculties and powers to respond rapidly and without delay to blatant contraventions of the consumer shelter laws. In other words, there is a must warn consumers about the manner and behavior of dishonest traders at an earlier stage and well before the commencement of litigation versus that merchant.
the discussion paper similarly identifies that a small amount of existing state and territory fair merchandising laws incorporate populace warning faculties and powers. Therefore, the discussion paper argues that, in the interests of symmetry and consistency, such a place and power had better be introduced into the tpa.
proposed legislation
the following is the text of proposed populace warning place and power:
86da commission can issue a populace warning notice
(1) the commission can issue to the populace a written notice containing a warning about the manner and behavior of a corporation if:
(a) the commission has fair grounds to suspect that the manner and behavior can constitute a contravention of a provision of part iva, v or vc; and
(b) the commission is satisfied that one or more persons has suffered, or is likely to suffer, detriment as a result of the manner and behavior; and
(c) the commission is satisfied that it’s in the populace intentness and interest to issue the notice.
(2) subsection (1) does not employ to the supply or possible supply, or the advertizing by any way of the supply or use, of services that are financial services.
(3) without limiting subsection (1), if
(a) a person refuses to respond to a substantiation notice given to the person, or fails to respond to the notice before the end of the substantiation notice compliance period for the notice; and
(b) the commission is satisfied that it’s in the populace intentness and interest to issue a notice underneath this subsection;
the commission can issue to the populace a written notice containing a warning that the person has denied or failed to respond to the substantiation notice within that period, and specifying the matter to which the substantiation notice associated.
the parts of the suggested populace warning place and power are -
1. The accc have to have fair grounds to suspect that manner and behavior being engaged in can constitute a breach of the tpa and
2. One or more persons are probable to suffer detriment as a result of the manner and behavior and
3. The accc is satisfied that it’s in the populace intentness and interest to issue the notice.
the basic element of the modern populace warning place and power is that the accc have to have fair grounds to suspect that manner and behavior is in breach of the tpa. It would appear that the test of whether the accc has “reasonable grounds to suspect” a breach of the tpa is an goal to be attained test. In exercise, it wouldn’t be very difficult for the accc to satisfy this basic element because of the use of the word “suspect” instead of “believe” in the legislation.
the second element is that one or more persons are probable to suffer detriment as a result of the manner and behavior. The draft legislation does not specify that the consumer will have to genuinely suffer detriment, but quite that it be likely that the consumer will suffer detriment. This approach is fitting and appropriate given that the whole rationale for the modern place and power is to prevent consumers from suffering detriment.
the third element of the legislation is the most onerous aspect in terms the accc utilising the populace warning place and power. This element requires that the accc be satisfied that it’s in the populace intentness and interest to issue a populace warning. This will need that the accc remainder up the work and utility of issuing a populace warning notice with other litigation schemes such as commencing rapid court activity or seeking ex parte injunctions.
in applying the populace intentness and interest test, it can similarly be incumbent on the accc to consider the negative impact which issuing a populace warning notice can have on a trader’s capacity and capacity to continue merchandising. In a lot of causes and circumstances, a populace warning notice can deter such a large number of prospective consumers from dealing with a merchant that it can no longer continue to trade. While such a growth and development can “protect” new clients from dealing with the merchant, it could similarly disfavor existing clients who’ve bought a good or service from that merchant.
finally, the legislation provides that the accc can issue a notice where a merchant has failed to respond to a substantiation notice. In these causes and circumstances, the accc will have to similarly believe it’s in the populace intentness and interest to issue a notice.
case study 1 – phoenix firms
the basic detailed analysis relates to a person, daniel albert. Mr albert configured number of companies which sold franchises in the period among 2002 and 2004. Unluckily, after merchandising the franchises and obtaining large amounts of money from the franchisees, mr albert would move the money off shore and liquidate the companies.
the basic company he configured was photo safe which was touted as a drastically and revolutionary new way of duplicating and storing photographs and negatives on massive and compact disc and/or the net. The second company was the data vault which allegedly provided a service to facilitate the secure storage of data from a person’s computer. The final business was ie networks which allowed for internet access terminals and mobile download terminals by which consumers could access the net, their email account, send text messages and download mobile phone roar and ring tones.
mr albert promoted each of these franchisees in rapid succession and received among $60,000 and $160,000 from each unsuspecting franchisee. He made complex and respective representations to these franchisees, including that:
1. There was a high level of demand in the market for the franchisee’s services;
2. The franchisees were likely to be very profitable;
3. A high level of support would be provided by the albert companies to the franchisees, including expenditure on national advertizing campaigns; and
4. The albert companies had entered into agreements with major national merchants who sells goods at retail to place franchisee equipment in their stores.
unfortunately, all of the above representations (and many more representations) proved to be completely untrue.
the difficulty the accc faced in this matter was that as soon as it had gathered evidence about one albert company, the organization would be closed down by albert. Shortly after, the accc would listen reports that albert had configured a new company, which was engaging in quite alike manner and behavior to the earlier company. The accc would then get started an scrutiny and investigation into the modern manner and behavior until that company was successively closed down and a new company started up.
this was very frustrating circumstance for the accc as no sooner had it received evidence about one company, it would be closed down. The accc would then have to get started a new scrutiny and investigation into the modern company to obtain evidence to prosecute the albert’s most recent manner and behavior.
the accc at long last commenced legal activity versus albert in april 2005. Notwithstanding, by this time, albert had received approximately $3 million in franchise fees from complex and respective franchisees.
as soon as the accc commenced legal proceedings, albert and greg zimbulis, a sales manager indicated their willingness to consent to all of the accc’s orders which including spacious declarations and injunctions. The main function and intent of the accc in commencing legal proceedings had been to obtain spacious injunctions, which would prevent albert from engaging in alike manner and behavior in the future. Unluckily, the federal court denied to concede any injunctions at all – as a result, the accc received over 100 declarations versus albert of sedate and serious contraventions of the tpa but not even one injunction.
this would have been an idealistic case for the accc to utilize a populace warning place and power (had such a place and power been available). The accc would have been capable to issue a populace waxing and waning place and power when albert liquidated his basic company and configured his second company. At this peculiar time, the accc retained a lot of evidence demonstrating that albert was making blatant misrepresentations about his business operations. Therefore, the accc would have been quite convinced to issue a populace warning notice at this time as it without doubt or question would have met the populace intentness and interest test in the legislation.
in addition, had the accc been capable to issue a populace warning at an early stage, it could have prevented a lot of franchisees from subsequently signing up with albert and losing their money. This is because the populace warning notice could have been issued up to 12 months before the date on which the accc did at last issue a type of “public warning” – namely a media release announcing that the accc had get started legal activity versus albert.
this case demonstrates the fact that the accc oftentimes has a substantial quantity of evidence in relation to a trader’s illegal manner and behavior well before it’s in a position to get started legal proceedings. In a lot of cases, the accc is faced with a dilemma of whether it will have to get started legal proceedings versus historical manner and behavior by a merchant about which it has received evidence, or quite, whether it will have to focus its efforts investigating new manner and behavior by the same merchant with a view to preventing that manner and behavior.
access to a populace warning place and power would concede the accc to take both approaches – that is, to issue a populace warning concerning a merchant that is engaging in a new scam, while at the same time, focusing its efforts and resources on commencing legal proceedings versus that same merchant for their past dishonest manner and behavior.
case study 2 – the artificial and elaborated hoax
the second detailed analysis relates to a company called l& l supply pty ltd which operated in australia among 2003 and 2005. L& l supply was a small company based in newcastle about which the accc had a handful of complaints. The organization had never come to the accc’s attention until a previous disgruntled employee called the accc to explain the manner and behavior which l& l supply was engaging in.
this whistleblower explained to the accc that the newcastle business was simply a front for a much more prominent scam – ie it was responsible for despatched packing tape to clients and processing payments. Notwithstanding, the heart of the operation was based in florida in the us where an artificial and elaborated hoax was being perpetrated versus australian businesses.
the l& l supply scam operated as follows. A person from the l& l supply call centre would call a procurement manager of an australian business and claim to be the daughter of the lately deceased proprietor of l& l supply. She would claim that her father had lately passed from physical life and that she had been forced to take over the business of l& l supply. She would then explain that as she was not fascinated in continuing her father’s business (ostensibly because she was a qualified medical doctor), she was suggesting to liquidate the stock at negotiate and bargain basement prices.
the l& l supply caller similarly claimed to the procurement manager that her father had been a truly good friend of ceo/md/chairman of the organization she was calling. She would then claim that she had spoken to the ceo/md/chairman of the organization who had put her through to the procurement manager with a promise that the organization would “help her out” by placing an order.
in a lot of cases, the procurement officer would receive the story of the person from l& l supply and place an order. The procurement officer would not check if the story was genuine as they were ungracious and reluctant to call the ceo/md/chairman of the organization and question them about the alleged conversation.
the truth of the matter was quite different:
* the proprietor of l& l supply was not deceased;
* the person calling the australian business was not the daughter of the deceased proprietor;
* the deceased proprietor had no idea the ceo/md/chairman of the applicable company;
* the daughter of the deceased proprietor had not spoken to the ceo/md/chairman of the organization;
* the ceo/md/chairman of the organization had not agreed to support l& l supply out by placing an order; and
* the packing tape was not being sold at negotiate and bargain basement prices.
the whistleblower advised the accc that l& l supply were banking among $30,000 and $40,000 a week in tape sales. At $2000 a sale, that meant that among 15 and 20 companies were falling for the l& l supply hoax each week. In addition, over the course of l& l supply’s operations had grossed sales of over $1 million, almost all of which had been transposed overseas.
the accc commenced legal activity versus l& l supply in march 2005. It sought ex-parte orders freezing l& l supply’s bank account and other urgent interlocutory orders. L& l supply didn’t competition the accc’s case.
this case demonstrates that admission to a populace warning place and power would have made a substantial divergence in reducing consumer detriment from this scam.
even altho the evidence from the whistleblower was very strong, the accc was not capable to get started legal proceedings immediately. The accc basic necessitated witness affirmations from both the procurement officers whom the l& l supply person had spoken to in addition as the complex and respective ceo/md/chairman who had allegedly authorised the order. Obtaining these affirmations took a lot of time, specially as the accc had to obtain affirmations from approximately 15 different companies to demonstrate that l& l supply was engaging in a pattern of dishonest manner and behavior.
during the time that the accc was obtaining this evidence, l& l supply were continuing their designs and activities and regularly transferring funds to overseas bank accounts from its australian bank account.
in this case, the period from the basic evidence from the whistleblower to commencing legal proceedings was approximately three months. Had the accc had a populace warning place and power, it could have warned the populace about l& l supply’s manner and behavior at a much earlier stage than when it issued a media release announcing the commencement of legal proceedings. This would have prevented a a lot of australian businesses from falling foul of l& l supply’s scam.
conclusions
public warning faculties and powers are required by the accc to combat both phoenix operations and blatant scams. In the cases described above, the accc had very strong evidence at an early stage to prove that the merchant was engaging in illegal manner and behavior. Notwithstanding, the period among obtaining this basic evidence and being in a position to get started legal proceedings was among 3 and 12 months. During this period, each of the traders was capable to mislead a lot of consumers, obtain substantial sums of money from these consumers and move almost all of this money overseas.
the concern indicated by a lot of businesses that the populace warning faculties and powers can be utilized versus “reputable firms” is not a valid concern. The accc will have to consider the manner and behavior of the organization in deciding to utilize its populace warning place and power and not the identity of the organization. The accc will have to use its populace warning faculties and powers versus any company which is engaging in blatant untrue and spurious and misleading manner and behavior, whether it’s a top 100 company or a fly by night operator. In reality, “reputable” companies are very improbable to engage in the type of blatant untrue and spurious and misleading manner and behavior versus which the accc will be seeking to utilize its populace warning faculties and powers.
i believe that there is an argument for establishing a mechanism to concede companies which have been inappropriately “named and shamed” through a populace warning notice to seek redress. Such redress will have to only employ where it can be demonstrated that the accc issued a populace warning for an improper intent and intent or in bad faith or alternatively in causes and circumstances where the populace intentness and interest didn’t support the supply of the populace warning notice.
the accc should not be retained liable for issuing a populace warning which proved in hindsight not to have been justified, when all the goal to be attained factors on which the accc relied when it issued the populace warning pointed the other way. Redress will have to take the form of an apology and/or financial damages. Such a regime would ensure that the accc uses its new place and power to issue populace warnings wisely.
the populace warning place and power is a invaluable addition to the accc’s investigatory faculties and powers. It will concede the accc to be more proactive in warning consumers not to cope with peculiar traders. As a result, the level of consumer detriment caused by disreputable traders will be significantly scaled down. Notwithstanding, this will only happen if the accc takes a robust and consumer focused approach to using its new place and power.
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