FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v 1Cellnet LLC

[2004] FCA 1210


PROCEDURE – service outside jurisdiction – alleged pyramid selling scheme over the Internet – website – payments to entity in Australia – promotion – whether prima facie case established




Trade Practices Act 1974 (Cth) ss 65AAC, 65AAD

RV Miller, Miller’s Annotated Trade Practices Act 1974, 25th edn, LBC, 2004

Federal Court Rules O 8 r 1, O 8 r 2, O 8 r 13


Dow Jones & Company Inc v Gutnick (2002) 210 CLR 575 cited







AUSTRALIAN COMPETITION & CONSUMER COMMISSION v 1CELLNET LLC, UNIFIED INTERACTIVE PTY LTD, BRUCE JAMES PALLISTER and SHAUN MELLET
W196 of 2004

RD NICHOLSON J
16 SEPTEMBER 2004
PERTH
IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
W196 OF 2004

BETWEEN:
AUSTRALIAN COMPETITION & CONSUMER COMMISSION
APPLICANT
AND:
1CELLNET LLC
FIRST RESPONDENT

UNIFIED INTERACTIVE PTY LTD
(ACN 079 956 531)
SECOND RESPONDENT

BRUCE JAMES PALLISTER
THIRD RESPONDENT

SHAUN MELLET
FOURTH RESPONDENT
JUDGE:
RD NICHOLSON J
DATE OF ORDER:
16 SEPTEMBER 2004
WHERE MADE:
PERTH

THE COURT ORDERS THAT:

  1. The applicant have leave to serve:
  • the application dated 16 August 2004;
  • the statement of claim dated 16 August 2004;
  • the notice of motion dated 1 September 2004;
  • the affidavit of Peter William Cromwell dated 31 August 2004 in support of the motion; and
  • any orders made by the Court on hearing the motion,
outside the Commonwealth upon the first respondent at 1220 N. Market Street, Suite 606, Wilmington, Delaware, 19801, United States of America or, if informed otherwise by the first respondent, at a place designated by the first respondent.
  1. The first respondent file an appearance 3 weeks after being served with the documents referred to in paragraph 1 above.
  2. A directions hearing be held at the next available date after the first respondent has filed an appearance.







Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

IN THE FEDERAL COURT OF AUSTRALIA
WESTERN AUSTRALIA DISTRICT REGISTRY
W196 OF 2004

BETWEEN:
AUSTRALIAN COMPETITION & CONSUMER COMMISSION
APPLICANT
AND:
1CELLNET LLC
FIRST RESPONDENT

UNIFIED INTERACTIVE PTY LTD
(ACN 079 956 531)
SECOND RESPONDENT

BRUCE JAMES PALLISTER
THIRD RESPONDENT

SHAUN MELLET
FOURTH RESPONDENT

JUDGE:
RD NICHOLSON J
DATE:
16 SEPTEMBER 2004
PLACE:
PERTH

REASONS FOR JUDGMENT
  1. On 3 September 2004 the applicant filed an ex parte notice of motion (dated 1 September 2004) seeking leave to serve outside the Commonwealth an application dated 16 August 2004, a statement of claim bearing the same date, a copy of the notice of motion, an affidavit by the senior investigations officer of the applicant in support of the motion and any orders made by the Court on the hearing of the motion. Service is sought upon the first respondent in Delaware, United States of America or at a place designated by the first respondent. The orders are sought in accordance with O 8 r 2 of the Federal Court Rules (‘FCR’).
  2. Order 8 r 2(2) of the FCR specifies the requirements for the grant of such leave in the following terms:
‘2(2) The Court may, by order, give leave to serve originating process outside the Commonwealth in accordance with Division 2 or 3 of this Order or, subject to subrule (2B), on such terms and conditions as it considers appropriate, if the Court is satisfied that:

  • the Court has jurisdiction in the proceeding; and
  • rule 1 applies to the proceeding; and
  • the party seeking leave has a prima facie case for the relief sought by the party in the proceeding.’

  1. The notice of motion was supported by the affidavit of the senior investigations officer of the applicant. From examination of portions of that affidavit, I find that the first respondent is not an organisation which is registered in Australia or has an address for service in Australia. From the same evidence I also find that the United States of America is a
    non-convention country for the purpose of the FCR. The relevant division of the FCR is therefore Div 3 of Order 8 which applies to service of judicial documents in a non-convention country: FCR O 8 r 13.
  2. In its application the applicant seeks declarations that the first respondent, between about October 2003 and about August 2004, participated in Australia in a pyramid selling scheme within the meaning of s 65AAD of the Trade Practices Act 1974 (Cth) (‘the Act’) in contravention of s 65AAC(1) of the Act. Additionally the applicant seeks a declaration that the first respondent induced or attempted to induce persons to participate in such a scheme in contravention of s 65AAC(2) of the Act. Further remedies are sought in relation to the first respondent, namely, an injunction and orders requiring an advertisement, website notice and certain notifications, provision of information and participation in a trade practices compliance program.
  3. The conduct said to contravene s 65AAC of the Act is alleged to arise from the actions of the first respondent in establishing the 1Cellnet scheme by acquiring the Global Bonus Program (‘GBP’) from the second respondent; by promoting the GBP and the 1Cellnet scheme; by taking part in the 1Cellnet scheme; and by the conduct of its agent (the second respondent) who, by its director and agent (the third respondent), is said to have acted on behalf of the first respondent.
  4. Pyramid selling involves a scheme in which those who join the scheme make a payment for joining. They are induced to do so by the prospect that, by introducing others to join, they will earn a payment. Under the definition in s 65AAD, a scheme will be a pyramid selling scheme whether or not it involves the marketing of goods or services, if the substantial inducement for joining is the payment receivable as a consequence of introducing others. It does not matter whether the entitlement to payment is legally enforceable or not. Nor does it matter if making the payment is not the only requirement for participation. (RV Miller, Miller’s Annotated Trade Practices Act 1974, 25th edn, LBC, 2004 at [1.65AAD.10])
  5. On the question arising under FCR O 8 r 2(2)(a) of whether this Court has jurisdiction in the proceeding, it is apparent that the Court has jurisdiction in relation to the second, third and fourth respondents and the issues raised against them arising under the Act.
  6. In relation to the requirement of FCR O 8 r 2(2)(b), it is apparent that FCR O 8 r 1 is applicable. There are three subparagraphs of FCR O 8 r 1 which make it prima facie applicable, namely:
‘...
  • where the proceeding is founded on a breach of an Act, where the breach is committed in the Commonwealth;
...
  • where the proceeding is properly brought against a person served or to be served in the Commonwealth and the person to be served outside the Commonwealth is properly joined as a party to the proceeding;
...
  • where the proceeding is for an injunction as to anything to be done in the Commonwealth or against the doing of any act in the Commonwealth, whether damages are also sought or not;
...’
  1. As to the requirement in FCR O 8 r 2(2)(c), I am satisfied that the party seeking leave has a prima facie case for the relief sought by it in the proceeding. I am assisted in reaching this view by the written submissions filed on behalf of the applicant and oral submissions made in court ex parte. These include the submissions filed on 10 September 2004 addressing in some detail the meaning of ‘participate in’ in s 65AAC of the Act, the meaning of ‘entirely or substantially induced’ in s 65AAD(1)(b) of the Act, the issue of recruitment payments and the issue of promotional material. Following oral submissions I have also received an additional written submission being a schedule of evidence relating to the pleaded assertions.
  2. So far as the case against the first respondent is dependent upon the use by it of a website from which information may be downloaded in Australia, there is an authority that the destination of downloading can be the situs at which an offence is committed: Dow Jones & Company Inc v Gutnick (2002) 210 CLR 575 at 607, at [44].
  3. I accept, as counsel for the applicant submitted, that the central issue in this proceeding may be whether the scheme was one in which income was derivative from activities other than the joining up of members. However, on the evidence as presently available, there is a prima facie case that the latter is the primary source of income under the 1Cellnet scheme.
  4. In relation to each of the pleaded actions of the first respondent, there is evidence showing a prima facie case. There is evidence that the first respondent acquired the facility to use the GBP from the second respondent, promoted the GBP and the 1Cellnet scheme, and made payments connected with the scheme, which payments were received in Australia.
  5. For these reasons I am satisfied that the requirements of FCR O 8 r 2(2) are met and grant the motion.


I certify that the preceding thirteen (13) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice RD Nicholson.


Associate:

Dated: 16 September 2004


Counsel for the Applicant:
SR Adams


Solicitor for the Applicant:
Corrs Chambers Westgarth


Counsel for the First, Second, Third and Fourth Respondents:
No appearance for the First, Second, Third and Fourth Respondents


Date of Hearing:
13 September 2004


Date of Judgment:
16 September 2004