The Federal Court has ordered a $3.55 million penalty against SensaSlim Australia Pty Ltd (in liquidation) (SensaSlim) for engaging in misleading and deceptive conduct and making false representations. Mr Foster was ordered to pay $660,000, the maximum penalty for each of the contraventions found by the court for being knowingly concerned or a party to some of the conduct.
The Court has banned Mr Foster for life from being involved with businesses promoting or supplying weight loss products or services, or being involved in any franchising business where his identity and involvement has not been disclosed in writing to prospective franchisees.
The Court also permanently disqualified Mr Foster from managing corporations.
On April 9 2014, the Federal Court ruled that SensaSlim engaged in misleading and deceptive conduct by making false representations in its franchise disclosure document about Mr Foster’s involvement in the SensaSlim franchise system.
“Mr Foster went to great lengths to hide his involvement in SensaSlim from franchisees and others – his conduct was unacceptable and extremely deceitful, and the Court imposed penalties reflect this,” ACCC Deputy Chair Dr Michael Schaper said.
“People who decide to buy into a franchise business typically put much of their own savings on the line. They must be able to make informed business decisions on the basis of full and accurate disclosure by the franchisor,” Dr Schaper said.
In his judgment, Justice Yates noted that Mr Foster “preys on the right-mindedness of others to cheat and deceive. In the present case, he lurked behind SensaSlim precisely for that purpose. He is beyond redemption.” Justice Yates further noted that “...the protection of the public is paramount”.
The Court also found that SensaSlim made false representations about the role of SensaSlim’s officers, Michael Boyle and Peter O’Brien, that there was a ‘worldwide clinical trial’ of the SensaSlim Solution and the earning potential of SensaSlim franchises.
Mr Foster, Mr Boyle and Mr O’Brien were found to be knowingly concerned in, or party to, some of SensaSlim’s contraventions.
The Federal Court made orders against Mr Boyle and Mr O’Brien that:
- Mr Boyle pay a penalty of $75,000 and be disqualified from managing a corporation for 3 years.
- Mr O’Brien pay a penalty of $55,000 and be disqualified from managing a corporation for 10 years.
Background
The ACCC instituted proceedings against SensaSlim, Peter Foster, Peter O’Brien, Adam Adams and Michael Boyle on 15 July 2011.
SensaSlim Australia Pty Ltd (in liquidation) supplied an oral spray (the SensaSlim Solution) that was claimed to cause weight loss, and represented that the SensaSlim Solution was the subject of ‘a large worldwide clinical trial’. The SensaSlim Solution was distributed through franchisees to be on-sold to consumers through retail outlets. Around 110 areas were sold to franchisees (area managers) for the cost of $59,950 each. SensaSlim earned approximately $6.4 million from the sale of these franchises.
On 9 April 2014, the Court found that SensaSlim engaged in false and misleading conduct and made false representations by:
- failing to disclose in the Disclosure Document Mr Foster’s involvement as an officer
- falsely representing that Peter O’Brien and Michael Boyle controlled, directed and were actively involved in the business of SensaSlim when that was not the case
- falsely representing that the SensaSlim Solution was the subject of a large worldwide clinical trial when in fact no such trial was conducted
- falsely representing that SensaSlim franchisees were already participating in, and profiting from, the SensaSlim franchise, and that a SensaSlim franchise had a certain earning potential, and
- failing to disclose that Mr Boyle was intending to resign as Director immediately following the launch of SensaSlim.
On 26 September 2014, Justice Yates made declarations against SensaSlim, Mr Foster, Mr Boyle and Mr O’Brien.
No findings were made against Mr Adams and the proceedings against him were dismissed in October 2014.
These proceedings are separate to the ACCC’s proceedings against Mr Foster for contempt of court (see MR241/13 and MR050/14) for breaching earlier court orders, which prevented him from being knowingly concerned in the promotion or conduct of any business relating to weight loss, cosmetic or health industry products or services, by his involvement in SensaSlim.