ACCC v SensaSlim Australia Pty Ltd (in liq): The Slimming Spray Scam

Wednesday 9 April 2014 @ 12.19 p.m. | Corporate & Regulatory | Trade & Commerce

In Australian Competition and Consumer Commission v SensaSlim Australia Pty Ltd (in liq) (No 5) [2014] FCA 340 (8 April 2014) His Honour Justice Yates of the Federal Court has found that alleged conman, Peter Foster, was behind the now well publicised slimming scam known as "SensaSlim". Justice Yates is reported in the SMH as saying that Foster was "responsible for a series of deceptions involved in running the scam, including creating a fake Swiss research institute that vouched for the product and posing as SensaSlim's operations director, Peter O'Brien".

Background to the Case

The Federal Court case concerned allegations of contravention of the Trade Practices Act 1974 (Cth) (which after 1 January 2011, was renamed the Competition and Consumer Act 2010 (Cth)) (the CCA) and the Australian Consumer Law (which is Schedule 2 to the CCA). The claimed contraventions related to the establishment of franchises for the sale and distribution of a claimed weight loss product in the form of an "intra-oral spray" which was marketed under the brand name “SensaSlim” and was also referred to as “SensaSlim Solution” (or the SensaSlim product). The contraventions were alleged to involve various instances of conduct said to have been "misleading or deceptive" or "to be constituted by false or misleading representations". 

SensaSlim Australia Pty Ltd (in liq) (SensaSlim or the company) (the 1st respondent) carried on the SensaSlim business and claimed the right to do so from an agreement it purportedly entered into with a company called SensaSlim (Suisse) Limited.

SensaSlim granted franchises to persons described as "Area Managers". Each Area Manager was granted an exclusive right to distribute the SensaSlim product in a particular geographic area. For $60,000 approximately, or sum paid corresponding with the purchase price of stock of the SensaSlim product, the franchise Area managers got point-of-sale materials that were to be sold, distributed and used by that Area Manager.

Establishment of the franchises with the various Area Managers followed a common pattern of conduct, namely,  an advertisement placed in a newspaper circulating in a particular local area, revealing the availability of a business opportunity from which participants could earn supposedly, over $4,000 weekly. The advertisement would have a buyback guarantee and the identity of the business and product to be sold were not stated.

Usually persons interested in the opportunity (prospective franchisees) were invited to call a particular telephone number for more information. Follow up contact was by way of an answering service and was generally more of a "vetting procedure" for prospective franchisees. At subsequent meetings with a Sales Manager, prospective franchisee were shown a DVD relating to, among other things, the development of the SensaSlim product (characteristics, advantages and its proven efficacy as a weight loss product) (the SensaSlim DVD). The SensaSlim DVD was a persuasive statement of why prospective franchisees should become involved and more importantly reported that the SensaSlim product had been “trialled, tested and proven” in “the world’s largest weight loss trial”. At further meetings, a Sales Manager would provide a prospective franchisee with a further list of business documents including a copy of the Franchising Code.

Shortly after these meetings, a prospective franchisee would be contacted by a person identifying himself as Peter O’Brien, "said to be the Operations Director of SensaSlim" whom Justice Yates was satisfied was actually Peter Foster (the second respondent).

"A central issue in the proceeding is whether the second respondent, Peter Foster, assumed various identities including, on these occasions and other occasions, the identity of the third respondent, Peter O’Brien. I am satisfied that he did. Indeed . . . I am satisfied, on the balance of probabilities, that each time a prospective franchisee or an Area Manager dealt with 'Peter O’Brien' in relation to the SensaSlim business, whether on the telephone or by correspondence, he or she was dealing with Mr Foster, who kept his true identity hidden from all but those intimately involved in establishing the SensaSlim business".

Prospective franchisee considered to be suitable (generally speaking, all other than those considered potential “troublemakers”) were invited to enter into a Franchise Area Manager Agreement with SensaSlim.

The ACCC's (the applicant's) case was that, in the course of establishing the franchises with the various Area Managers, each respondent contravened the CCA and the Australian Consumer Law, by:

"engaging in certain conduct or making certain representations, or by being culpably involved in the contraventions of the Act or the Australian Consumer Law by others".

Key Issues

The key issues in the case were whether:

  • the conduct of the respondents was "misleading or deceptive conduct";
  • representations were made that are "false" or that are "false or misleading in a material particular";
  • invitations were made to engage in a business activity requiring the performance of work and/or the investment of moneys;
  • personal respondents were liable as principals or accessories; and
  • any relevant obligation of disclosure arises independently of the requirements of the Franchising Code.

The Result

The judge found most of the allegations of misleading and deceptive conduct brought against the second respondent (Foster) by the applicant (ACCC) to be proved and penalties in the case are to be decided at a later date. The second respondent it is reported could be ordered to pay up to $220,000 for each contravention found to be proved in the case.

In a lengthy judgment of some 800 paragraphs (190 pages), Justice Yates also dealt with the involvement of various other alleged persons in the business including: "Melbourne gangland figure Mick Gatto".

The second respondent (Foster) is the subject of an Interpol notice calling for his arrest and was in October 2013 sentenced to three years' jail for contempt of court for breaking a court order barring him from operating in the weight loss industry. 

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