Full Federal Court upholds finding Gold Coast company part of international pyramid selling scheme

Gold Coast company Worldplay Services Pty Ltd breached the Trade Practices Act 1974 by participating in an international online pyramid selling scheme, the Full Federal Court upheld today.

The decision also upheld that the company's director, Mr Greg Kennedy, was found to be knowingly concerned in the contravention.

The Australian Competition and Consumer Commission began proceedings in December 2003 alleging that World Games Inc, which operated internationally using a website, was an illegal pyramid scheme. The ACCC alleged that people became members in the hope that they would receive rewards when they signed up others to the scheme.

Worldplay Services provided administrative, IT support and member support services, among other services, to the scheme.

The scheme is fragmented, with a company in the British Virgin Islands having overall control, and service companies contributing to the scheme operating from Britain, Gibraltar, the Netherlands Antilles and Australia. Consumers recruited into the scheme came from a number of countries, including Canada, the United Kingdom and Norway.

On 2 September 2004 Justice Paul Finn of the Federal Court found that World Games Inc scheme was a pyramid scheme and declared that Worldplay Services Pty Ltd had breached section 65AAC of the Act and that Mr Kennedy was knowingly concerned, and a party to, the contravention.

In their unanimous decision, Justices Ryan, Tamberlin and Kiefel of the Full Federal Court dismissed the appeal by Worldplay Services and Mr Kennedy and ordered them to pay the ACCC's costs of the appeal.

"This finding by the court upholds the ACCCs view that the new pyramid selling provisions of the Act will have effect no matter how fragmented the scheme to avoid jurisdiction", ACCC Chairman, Mr Graeme Samuel, said today. "If you are an Australian company taking part in a pyramid scheme you will be caught by the Act.

"The ACCC was concerned that in the WGI scheme an Australian company was being used to affect foreign consumers. The clear message from this is that you are caught by the Act, and the ACCC will pursue you, if you try to operate an illegal pyramid scheme from Australia that affects foreign consumers. Australia will not be a haven for the operation of these schemes".

Commenting on the conduct in their judgment, Justices Ryan and Kiefel of the Full Federal Court said: "mechanisms have been put in place for international co-operation to protect consumers generally. It is well known that the internet has facilitated conduct adversely affecting consumers in any number of countries. The appellant's approach would allow an Australian corporation taking part in a pyramid scheme to avoid the imposition of a penalty or injunctions by ensuring that the scheme is put into effect elsewhere".

Justice Tamberlin, in his separate concurring judgment said: "the protection of consumers outside Australia from the acts of corporations participating in pyramid selling schemes within Australia can be perceived to promote the welfare of Australians by enhancing foreign confidence in Australia's ability to promote competition and fair trading outside Australia. It would detract from Australia's reputation and standing in the international business community if Australia were to be seen as a safe haven for the organisation and administration of such schemes."

Mr Samuel said the matter also involved the cooperation of a number of overseas regulatory bodies, and proceedings continue in other jurisdictions regarding this scheme. The Royal Canadian Mounted Police has taken successful criminal proceedings against Canadian participants.

Release # MR 108/05
Issued: 6th May 2005

Background
The ACCC successfully obtained ex parte injunctions in the Federal Court in Brisbane against Worldplay Services Pty Ltd and Mr Greg Kennedy on 1 December 2003. Those injunctions were subsequently lifted by the Court.

On 2 September 2004 Justice Paul Finn declared that Worldplay Services Pty Ltd has contravened the pyramid selling provisions and that Mr Kennedy was knowingly concerned, and a party to, the contravention.

Justice Finn also made orders at that time restraining Worldplay Services Pty Ltd from taking part in the World Games scheme or other similar schemes and restraining Greg Kennedy from being knowingly concerned in the participation of Worldplay Services Pty Ltd in the World Games scheme or other similar schemes. The respondents were ordered to pay the ACCC's costs.

The pyramid selling provisions of the Act were amended on 11 December 2002 with the creation of the new Division 1AAA. It is now illegal to take part in a pyramid scheme by either establishing or promoting such a scheme, or taking part in it in any capacity.