On 11 May 2016, the Federal Court imposed a total penalty of $3.55M against SensaSlim Australia Pty Ltd (in liquidation) (SensaSlim) for engaging in misleading and deceptive conduct and making false representations (with 3 of the 4 penalties imposed at the $1.1M maximum). The Court also imposed a total penalty of $660,000 against Peter Foster, representing the maximum penalty for each of the 3 contraventions found by the Court.
Mr Foster was permanently disqualified from managing corporations and restrained from being involved in businesses promoting or supplying weight loss products, or being involved in franchise businesses where his identity and nature of involvement have not been disclosed in writing to prospective franchisees.
The Court also made orders against Sensaslim officers Michael Boyle and Peter O’Brien, imposing respective penalties of $75,000 and $55,000 and disqualifying each from managing a corporation for 3 and 10 years respectively.
These proceedings are significant as it has been very rare for the Court to impose the maximum penalty for contraventions of the ACL. This is yet another example of the ACCC following through on its stated enforcement priorities – in this instance its commitment to continue to give consumer law a strong emphasis, as previously blogged about here.
In 2011, the ACCC instituted proceedings against SensaSlim and its directors in relation to an oral spray weight loss product which SensaSlim had distributed through franchisees to be on-sold to consumers through retail outlets.
In April 2014, the Court found that SensaSlim engaged in misleading or deceptive conduct by failing to disclose Peter Foster’s involvement as an officer in the SensaSlim franchise system in its disclosure document. Mr Foster had assumed the identity of Peter O’Brien in telephone and email communications, as Mr Foster himself was subject to a court order banning him from any involvement in the weight-loss business following findings in 2005 that he had engaged in misleading and deceptive conduct in connection with the marketing of TRIMit – a ‘purported weight loss aid’. By engaging in the SensaSlim conduct, Mr Foster had breached the court’s banning order and, in other proceedings, was found to have been in contempt of court by doing so. See here for our blog post.
The Court also found that SensaSlim had made false representations about the ‘worldwide clinical trial’ of the SensaSlim Solution and the earning potential of SensaSlim franchises.
In his judgment, Yates J noted that the penalties imposed were ‘significant’, but were appropriate given ‘the seriousness of the conduct involved and the need to deter others from engaging in conduct of that kind.’
In particular, His Honour noted that Mr Foster’s involvement as the ‘controlling mind’ of the SensaSlim business, as well as his repeated contravention of the ACL (and formerly the TPA), demonstrated a lack of remorse and a high degree of culpability which warrant the imposition of the maximum penalty with no mitigating factors in Mr Foster’s favour.
His Honour further noted the purpose of disqualification orders in protecting the public from inappropriate use of the corporate structure. This was a ‘paramount’ factor in the Court imposing a permanent disqualification order against Mr Foster instead of accepting the ACCC’s submission that Foster be disqualified from managing corporations for a period of 20 years. The Court considered Mr Foster to be ‘beyond redemption’ and unfit to be an officer of a corporation or to manage the affairs of a corporation and that a permanent disqualification would reflect this.
The decision highlights that Courts are prepared to impose high penalties – at the maximum – for breaches of the ACL and that protection of consumers continues to be a high enforcement priority for the ACCC.