AustLII

Federal Court of Australia

Australian Competition & Consumer Commission v Worldplay Services Pty Ltd [2004] FCA !!38 (2 September 2004)

Last Updated: 2 September 2004

FEDERAL COURT OF AUSTRALIA

Australian Competition & Consumer Commission v Worldplay Services Pty Ltd [2004] FCA !!38

TRADE PRACTICES – pyramid selling – territorial issue – scheme related to global internet gambling business that operated outside territorial
boundary of Australia – scheme website not accessible using internet connection provided by an Australian internet service provider – whether
pyramid selling provisions operated in these circumstances

TRADE PRACTICES – s 65AAB – definition of "participate"– whether "take part in the scheme" includes persons who provide services to existing
participants in a scheme – purpose of pyramid selling provisions – significance of penal character of provisions – scheme structured in a fragmented
way involving multiple entities in various countries

TRADE PRACTICES – s 65AAD – meaning of "entirely or substantially induced"

TRADE PRACTICES – s 65AAD – meaning of "in relation to" – whether it includes benefits paid as a result of the subsequent activities of the
members introduced by a new member

EVIDENCE – Evidence Act 1995 (Cth) – business records exception

Acts Interpretation Act 1901 (Cth) s 2!(!)(b)

Evidence Act 1995 (Cth) s 69

Trade Practices Act 1974 (Cth) s 2, s 5, s 6(3), s 65AAB, s 65AAC, s 65AAD, s 65AAE, s 75AZO, s 75B

Australian Competition and Consumer Commission v Destiny Telecom International Incorporated (!997) ATPR 4!-588 cited

Australian Competition and Consumer Commission v McCaskey [2000] FCA !037; (2000) !04 FCR 8 cited

Australian Securities and Investment Commission v Young (2003) !73 FLR 44! cited

Australian Softwood Forests Pty Ltd v Attorney-General for New South Wales; Ex rel Corporate Affairs Commission [!98!] HCA 49; (!98!) !48 CLR !2!
applied

Beckwith v R [!976] HCA 55; (!976) !35 CLR 569 cited

Bray v F Hoffman-La Roche Ltd [2002] FCA 243; (2002) !!8 FCR ! cited

Commissioner for Corporate Affairs v Bracht [!989] VicRp 72; [!989] VR 82! cited

Commissioner for Superannuation v Scott (!987) !3 FCR 404 cited

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Harris v Commissioner of Taxation [2002] FCAFC 226; (2002) !25 FCR 46 cited

Hawkins v Price [2004] WASCA 95 cited

Minister for Immigration and Multicultural Affairs v Graovac [!999] FCA !690 cited

Newcastle City Council v GIO General Ltd [!997] HCA 53; (!997) !9! CLR 85 cited

O’Grady v Northern Queensland Company Ltd [!990] HCA !6; (!990) !69 CLR 356 cited

Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd [!982] FCA 206; (!982) 44 ALR 557 cited

Sherman v Australian Competition and Consumer Commission (2003) 47 ACSR 505 cited

The Syndicate Club Pty Ltd v State of Queensland [2003] QSC !04 cited

Tillmans Butcheries Pty Ltd v Australasian Meat Industries Employees’ Union [!979] FCA 85; (!979) 27 ALR 367 cited

Wells v John R Lewis (International) Pty Ltd (!975) 25 FLR !94 cited

Heydon, Trade Practices Law

Myers, Wedding and Maertin, "Non-Egyptian Pyramids – US Style" [!974] Bus Law Rev 84

Shorter Oxford English Dictionary

AUSTRALIAN COMPETITION & CONSUMER COMMISSION v WORLDPLAY SERVICES PTY LTD (ACN !00 7!3 086) & GREG JAMES
KENNEDY

No Q !86 of 2003

FINN J

ADELAIDE (HEARD IN BRISBANE)

2 SEPTEMBER 2004

IN THE FEDERAL COURT OF AUSTRALIA

2
SOUTH AUSTRALIA DISTRICT REGISTRY Q 186 OF 2003

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

APPLICANT

AND: WORLDPLAY SERVICES PTY LTD (ACN 100 713 086)

FIRST RESPONDENT

GREG JAMES KENNEDY

SECOND RESPONDENT
JUDGE: FINN J
DATE OF ORDER: 2 SEPTEMBER 2004
WHERE MADE: ADELAIDE (HEARD IN BRISBANE)

THE COURT DECLARES THAT:

(!) the First Respondent participated in a pyramid selling scheme in contravention of s 65AAC(!) of the Trade Practices Act 1974 (Cth);

(2) the Second Respondent was knowingly concerned in, and a party to, the First Respondent’s contravention of s 65AAC(!) of the
Trade Practices Act 1974 (Cth);

THE COURT ORDERS THAT:

(!) the First Respondent be restrained by itself, its servants or agents or otherwise from participating in the World Games Inc Scheme
or in a scheme similar to the World Games Inc Scheme in which:

(a) to take part in the scheme, some or all new participants must make a payment (a "participation payment") to another
participant or participants in the scheme; and

(b) the participation payments are entirely or substantially induced by the prospect held out to new participants that they
will be entitled to a payment in relation to the introduction to the scheme of further new participants;

(2) the Second Respondent be restrained by himself, his servants or agents or otherwise, from being knowingly concerned in, or a
party to, participation by the First Respondent in the World Games Inc scheme or in a scheme similar to the World Games Inc scheme
in which:

(a) to take part in the scheme, some or all new participants must make a payment (a "participation payment") to another
participant or participants in the scheme; and

(b) the participation payments are entirely or substantially induced by the prospect held out to new participants that they
will be entitled to a payment in relation to the introduction to the scheme of further new participants;

(3) the respondents pay the applicant’s costs of the application.

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

IN THE FEDERAL COURT OF AUSTRALIA

SOUTH AUSTRALIA DISTRICT REGISTRY Q 186 OF 2003

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

APPLICANT
AND: WORLDPLAY SERVICES PTY LTD (ACN 100 713 086)

FIRST RESPONDENT

GREG JAMES KENNEDY

SECOND RESPONDENT

JUDGE: FINN J
DATE: 2 SEPTEMBER 2004
PLACE: ADELAIDE (HEARD IN BRISBANE)

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 REASONS FOR JUDGMENT

! The two questions in this proceeding are, first, whether Worldplay Services Pty Ltd ("WPS") is participating in a pyramid selling scheme in
contravention of s 65AAC(!) of the Trade Practices Act 1974 (Cth) ("TP Act") and, secondly, whether Greg James Kennedy was knowingly concerned
in contraventions of that provision by WPS and by World Games IP Holdings Pty Ltd ("WGIPH"). Mr Kennedy is a sole director of both companies.

2 The scheme that is challenged by the applicant ("the ACCC") relates to a global internet online business providing gaming services in over fifty
countries, though principally in Scandinavia. The business trades under the name "World Games Inc" ("WGI") and appears to be owned by Pacific
Delta Investments Ltd ("PDIL"), a company incorporated in the British Virgin Island. The WGI internet website uses the registered domain name
"worldgamesinc.com". That name is registered to WPS.

3 The evidence by no means fully reveals the nature of the various business and corporate relationships that are utilised in the conduct of the WGI
scheme. There appears to be some number of offshore companies involved. However, the ACCC’s case is that the nature of WPS’s and WGIPH’s
respective involvements in any event are such that they relevantly are participants in the scheme.

4 The scheme itself is said to be one in which a person can only become a participant member in WGI by being introduced by an existing member;
in which a participation payment is required to be made by a new participant to the person who introduced him or her to WGI membership; and in
which the prospect is held out to prospective members that they in turn would be entitled to receive benefits from, and in consequence of, the
introduction of further new members. Described in general terms these benefits take various forms depending upon the membership package
subscribed for by the member being introduced (there are three such packages), upon the introductions in turn made by that person, and by the
form of gaming (e.g. "casino" or "lottery") engaged in by that person and by those subsequently introduced by him or her.

5 It is the ACCC’s contention that the participation payment required to be made is substantially induced by the prospect held out to new
participants that they will be entitled to financial and non-financial benefits in relation to the introduction to the scheme of further new participants.
Hence the scheme is, it is said, a pyramid selling scheme and not merely a multi-level marketing scheme.

6 It will be necessary to outline in some detail the nature of the scheme and the respective involvements of WPS and WGIPH in it. However, I turn
first to the new provisions on pyramid selling in Div !AAA of the Trade Practices Act which came into force in December 2002.

PYRAMID SELLING

7 By way of background, the purpose of the 2002 amendment to the Act was, according to the Explanatory Memorandum, to re-write the pyramid
selling provision "in plain English" as the section to be repealed was "difficult to understand".

8 Participation in a pyramid selling scheme is proscribed by s 65AAC. It provides:

"(1) A corporation must not participate in a pyramid selling scheme.

(2) A corporation must not induce, or attempt to induce, a person to participate in a pyramid selling scheme."

9 The nature of such a scheme (insofar as presently relevant) is described in s 65AAD in the following terms:

"(1) In this Act:

‘pyramid selling scheme’ means a scheme with both the following characteristics:

(a) to take part in the scheme, some or all new participants must make a payment (a ‘participation
payment’) to another participant or participants in the scheme;

(b) the participation payments are entirely or substantially induced by the prospect held out to new
participants that they will be entitled to a payment (a ‘recruitment payment’) in relation to the introduction
to the scheme of further new participants.

(2) A scheme may be a pyramid selling scheme:

(a) no matter who holds out to new participants the prospect of entitlement to recruitment payments;

...

(3) A scheme may be a pyramid selling scheme even if it has any or all of the following characteristics:

...

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 (d) arrangements for the scheme are not recorded in writing (whether entirely or partly);

(e) the scheme involves the marketing of goods or services (or both)."

!0 I note by way of anticipation that there is a controversy between the parties as to the meaning of "in relation to" in subsection (!)(b) above.

!! The general definitional provision is s 65AAB. It provides:

"In this Division:

‘new participant’, in a pyramid selling scheme, includes a person who has applied, or been invited, to participate in the scheme;

‘participant’, in a pyramid selling scheme, means a person who participates in the scheme;

‘participate’, in a pyramid selling scheme, means:

(a) establish or promote the scheme (whether alone or together with another person); or

(b) take part in the scheme in any capacity (whether or not as an employee or agent of a person who
establishes or promotes the scheme, or otherwise takes part in the scheme);

‘participation payment’ has the meaning given by paragraph (a) of the definition of ‘pyramid selling scheme’ in subsection
65AAD(1);

‘payment’, to a person or received by a person, means:

(a) the provision of a financial or non-financial benefit to or for the benefit of the person; or

(b) the provision of a financial or non-financial benefit partly to or for the benefit of the person, and partly to
or for the benefit of someone else;

‘pyramid selling scheme’ has the meaning given by section 65AAD;

‘recruitment payment’ has the meaning given by paragraph (b) of the definition of ‘pyramid selling scheme’ in subsection
65AAD(1)."

!2 I would again note that the parties disagree over the width to be given to the definition of "participate".

!3 Finally, s 65AAE indicates some of the matters to which regard may be had in determining whether a marketing scheme is a pyramid selling
scheme. That section provides:

"(1) To decide whether a scheme that involves the marketing of goods or services (or both) is a pyramid selling scheme, a
court may have regard to the following matters in working out whether participation payments under the scheme are
entirely or substantially induced by the prospect held out to new participants of entitlement to recruitment payments:

(a) the extent to which the participation payments bear a reasonable relationship to the value of the goods
or services that participants are entitled to be supplied under the scheme (as assessed, if appropriate, by
reference to the price of comparable goods or services available elsewhere);

(b) the emphasis given in the promotion of the scheme to the entitlement of participants to the supply of
goods and services by comparison with the emphasis given to their entitlement to recruitment payments.

(2) Subsection (1) does not limit the matters to which the court may have regard in working out whether participation

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 payments are entirely or substantially induced by the prospect held out to new participants of entitlement to recruitment
payments."

THE FACTUAL SETTING

!4 The factual material is complex. For ease in exposition I have taken the course of describing, first, the WGI business which will be done in three
parts:

(i) the WGI intellectual property;

(ii) "worldgamesinc.com" website information; and

(iii) WGI members’ promotional material;

secondly, WPS’s involvement with the WGI business; and thirdly, WGIPH’s involvement with the business.

THE WGI BUSINESS

(i) The WGI intellectual property

!5 The WGI patents and trademarks are owned by WGIPH which, according to Mr Kennedy and WPS’s solicitors, acts as an intellectual property
holding company. The evidence relating to the patents is slender. Information on IP Australia’s database ascribes the following titles to various
patents and patent applications: "a gaming system", "a remote gaming system" and "a hierarchical business system". Such evidence as there is on
patent use (drawn primarily from a "newsflash" on the WGI website of ! December 2003) supports the inference that a WGI patent or patents are

relevant to the games played by WGI members.

!6 Since the beginning of 2004 WGIPH has owned two trademarks being the "World Games Inc" work mark and the "World Games Inc" word and
"Globe, Meridians in Sun, Flames" image mark. These marks are used on the "worldgamesinc.com" website and on some at least of WGI members’
websites.

(ii) The "worldgamesinc.com" website

!7 The evidence from the website falls into three general categories. The first relates to what are called "Policies and Procedures" and consists
predominantly of rules and procedures for members. The second category is of examples of the "World Games Newsletter" which contains
information, personal stories, promotional material etc. The third consists of promotional videos.

(a) Policies and Procedures

!8 The material that has been put in evidence was downloaded from an Internet webpage entitled "World Games Inc Members Lounge" on 7 June
2004. I should note that the respondents place particular reliance on this material which they characterise as "current evidence" as distinct from
"historical evidence".

!9 The "World Game Inc – Rules and Regulations" is the membership agreement between an applicant member, PDIL and Palladium Technologies
Ltd, a company registered in Gibraltar to which a new member’s participation payment is made. Membership is not open to "residents or domiciles"
of what are described as "Blocked Jurisdictions". Australia is such a jurisdiction and, it seems, has been so since mid-2003. There is evidence that
(i) it is not possible to access the WGI website using an internet connection provided by an Australian internet service provider; and (ii) WGI has
taken steps to have Australian memberships terminated or transferred to third parties "who may legally participate in WGI".

20 Of the various matters dealt with in the Rules and Regulations, I need only note the following. The agreement contains the predictable provision
that:

"1.6 You acknowledge that You have already decided to join WGI of your own free will, subject to You entering into this
Agreement and any other WGI policies as required, and that You do not rely upon anything contained in this Agreement
as an inducement to become a Member."

2! It is contemplated that a member may set up what the agreement describes as a "Members Site". This is defined to mean:

"any website which is constructed, owned, operated, produced, created and/or commissioned by a Member (or their agent,
representative, contractor or service provider) for the purpose of Promotion which is governed by clause 9."

Reference will later be made to material on members’ sites.

22 Clause 9, insofar as presently relevant, states in relation to "the promotion of Membership or any Products" by members:

"9.2 All promotion must be legal, inoffensive, professional, honest and truthful. You must not produce, use, distribute, or
advertise any Promotion materials or engage in any Promotion activities that are:

...

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 (b) otherwise not in accordance with the rules regarding promotion of specific products and services
described below.

9.3 Your Promotions must not emphasize or focus on the concept of recruitment of Members as a way to make a profit."

23 Clause 9.4 in turn prescribes that all statements describing "Membership ... must be the official and authorized descriptions obtained from WGI
Official Publications section of the WGI Site". The clause further specifies statements that must not be made by members to any person. These
include that Relationship Marketing Rewards (discussed below) "are calculated with reference to recruitment": cl 9.!!(v).

24 Separate provision is made for a member’s use of WGI intellectual property. Clause 9.!5 imposes a total prohibition on use of WGI Intellectual
Property, subject to the provisions of cl 9.!7 which state:

"9.17 You may, in certain circumstances, seek and receive written permission from WGI (in the manner prescribed in the
Schedule) to have restricted use of the WGI Intellectual Property. Any Member who makes use of WGI Intellectual
Property without the proper written authorization from WGI may have their Membership Terminated."

25 WGI’s "Core Products & Services" are briefly described in the Rules. They are described in greater detail in the "Product Rules" referred to below.

26 One aspect of the agreement to which reference should be made relates to sponsorship and membership. The person who introduces a member
is a sponsor and all persons introduced by that member are "First Generation Members". New members sponsored by First Generation Members
are "Second Generation Members" of the original sponsor and so on. By this process all members have "down lines" of members who they either
sponsored, or who were sponsored by the persons they sponsored and so on. The significance of this becomes apparent when the benefits of
membership are considered.

27 By way of background to the games and services offered by WGI, I should outline the various membership packages as described in the
respondents’ defence.

28 There are three different membership packages offered to members, each of which attracts different fees which are payable ultimately to PDIL.
Those fees and packages are:

(i) 99 Swiss francs for a Standard Package;

(ii) 4!0 Swiss francs for an Advantage Package;

(iii) 995 Swiss franks for a Prestige Package.

29 The packages are described as follows in the Defence:

"(b) the products and services provided to a member who has paid the fee for the Prestige Package are:

(i) full access to all of the on-line gaming products provided by WGI;

(ii) full access to the WGI Website;

(iii) four tickets in the Sweepstakes8 Lottery conducted by WGI (one entry in each of four weeks);

(iv) 200 Swiss francs credit in the member’s SMG Account for use in the Stock Market Game (‘SMG’);

(v) a ‘Prestige’ (Yellow) Pay2 Card;

(vi) full entitlement to participate in the Traditional and Casino RMR programs conducted by WGI;

(c) the products and services provided to a member who has paid the fee for the Advantage Package are:

(i) full access to all of the on-line gaming products provided by WGI;

(ii) full access to the WGI Website;

(iii) four tickets in the Sweepstakes8 Lottery conducted by WGI (one entry in each of four weeks);

(iv) 25 Swiss francs credit in the member’s SMG Account for use in the Stock Market Game (‘SMG’);

(v) an ‘Advantage’ (Red) Pay2 Card;

(vi) full entitlement to participate in the Traditional RMR program conducted by WGI;

(vii) entitlement to participate in the Casino RMR program conducted by WGI, but limited to 50% of the
benefits available to a Prestige Member from that program;

(d) the products and services provided to a member who has paid the fee for the Standard Package are:

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 (i) full access to all of the on-line gaming products provided by WGI;

(ii) full access to the WGI Website;

(iii) one ticket in the Sweepstakes8 Lottery conducted by WGI;

(iv) a ‘Standard’ (Green) Pay2 Card;

(v) entitlement to participate in the Traditional and Casino RMR programs conducted by WGI, but limited to
25% of the benefits available to a Prestige Member from those programs."

30 I would merely note that a "Pay2 Card’ is a "stored value digital cash card" provided by Pay2 Ltd, a company registered in the Isle of Man. The
colour reference merely indicates the type of package taken and, apparently, has no other significance.

3! WGI’s "Product Rules" is another Official Publication. Its opening paragraph indicates WGI’s function in the provision of products to members:

"WGI facilitates the provision of various third party products to its Members via the WGI website. The core products are the Casino,
Virtual Stock Market Game (‘SMG’) and the Lotteries. Complementary products are products that assist Members of WGI in using the
core WGI products, such as the Pay2 Card and Pay2 Accounts."

The document goes on to state the rules of the Casino, the Lotteries, and the Virtual Stock Market Game and to note that none of these products
are owned or operated by WGI.

32 The Casino is, as its name suggests, an internet gambling site at which games can be played. The Lotteries provided are of two types –
"Sweepstakes8" and "Globetrot". The former is described as follows:

"In each Sweepstakes8 draw there will be six hundred and twenty six (626) winning entries in six (6) prize divisions. The winners of the
Sweepstakes8 draw will be selected by the ILLF and prizes calculated in accordance with the rules contained on the Sweepstakes8
Site. The drawing is broadcast each week live via the Sweepstakes8 Site.

In the top five prize divisions, the amount of the prize is calculated as a fixed percentage of the revenue from the ticket sales for that
week. The sixth division prizes are fixed. The prize amounts are distributed to winning Members in accordance with the WGI Rules &
Regulations Schedule."

33 Globetrot is a "suite" of three games of chance.

34 The Virtual Stock Market Game is described to be:

"a game of chance which is based on the operation of a real stock market in so far as players acquire a virtual portfolio of shares in a
fictitious company which they may trade amongst themselves. The SMG facilitates transactions between Members for the purchase
and sale of the ‘virtual stock’ in quantities and in prices determined by the Members participating in the transaction."

35 The most significant official document for the purposes of this proceeding is that describing "WGI’s Relationship Marketing Rewards (RMR)
Program". The document’s "Introduction" indicates that:

"2. As a member You ... have the option to participate in the Relationship Marketing Rewards program (‘RMR’). This is a
compensation structure intended to reward Members for the sale of WGI Products, such as the Product Packages, and
the continued use of the WGI Products by Members themselves and those Members introduced (directly or indirectly) to
WGI by other Members.

3. You do NOT need to participate in the RMR to remain a Member. You may play the games and are entitled to use the
products and services provided via the WGI website. It is not necessary to introduce any new Members. However, if You
do, You may be eligible to receive these rewards.

4. There are two kinds of RMR: Product RMR and Points RMR."

A Product RMR is described as follows:

"1. Members who participate in the Product RMR receive a percentage of the revenue generated for WGI by their own

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 use of a the product [sic], together with use by Members they introduce, and Members in their downline. In other words,
they are rewarded for their and their team’s use of a Relevant Product (such as the Casino)."

At the time of this proceeding the only available product rewards were Casino Rewards.

36 To be eligible for these rewards in any given week, a member is required to purchase a Sweepstakes8 ticket in that week. If a member has
sponsored a new member or otherwise has members in his or her down line the member can earn these rewards without playing in the Casino if a
sponsored or down line member has played in the Casino in the relevant week.

37 Casino rewards are paid out of the Casino Rewards Pool which is calculated as a percentage of the overall gross profit (40 per cent at the time of
hearing) in the Casino for that week. Every member who gambles in a given week generates funds that contribute to the Pool, that contribution
being the pro rata amount contributed by the member to the overall turnover. When the amount of that member’s contribution is calculated – and
the Rules give a detailed example of how this is performed – the euro sum resulting is distributed in accordance with the following:

"13. Each Member’s contribution to the Casino Rewards Pool is then paid to Members as follows:-

a. To the player: 25% of the Member’s contribution to the Casino Rewards Pool goes to the Member who
spent the funds in the Relevant Product (ie who gambled their credits in the Casino). These rewards will
apply regardless of a Members’ Membership level.

b. To the Sponsor: The Member’s sponsor receives a percentage of the Member’s contribution to the
Casino Rewards Pool calculated as follows:

i. If the Sponsor is a Prestige level Member: 25%;

ii. If the Sponsor is an Advantage level Member: 12.5%;
iii. If the Sponsor is a Standard level Member: nil.

c. To the Upline: 50% to that Member’s Upline (which will include the sponsor) according to a fixed
formula that ensures distribution of commissions to the Upline decreases, the further away the recipient of
the Rewards payment is located in the Membership Database from the Member who actually generated
the Rewards (‘Casino Upline Rewards’). Your Casino Upline Rewards calculated in accordance with this
sub-paragraph (c) will be adjusted according to Your Membership level as follows:

i. Prestige level Members will receive the full entitlement of the

Casino Upline Rewards;
ii. Advantage level Members will receive 25% of the entitlement of
Prestige level Members;
iii. Standard level Members will receive no Casino Upline Rewards."

38 The Points RMR provides rewards for the sale and use of Product Packages, Sweepstakes8 and the Virtual Stock Market Game ("SMG").
Members accumulate points in this RMR which are converted to credits in a member’s own account.

39 As the Rules indicate:

"3. The points assigned to each Product for the Points RMR are:

a. Sale of a Prestige Package – 75 points;

b. Sale of an Advantage Package – 50 points;

c. Sale of a Standard Package – 5 points;

d. Sale of a Sweepstakes8 ticket – 1 point; and

e. Each €65 credit amount in respect of brokerage fees on virtual share transfers in the SMG – 12.5 points
(Prestige level Members only)."

Importantly, the Rules go on to provide:

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 "4. Each time a Member engages in any of the above activities, the points are assigned to each person in that Member’s
Upline who has qualified to participate in the Points RMR that week."

As with the Products RMR a member is only eligible to receive points in the weeks in which a Sweepstakes8 ticket has been purchased.
Additionally, to participate the member must have introduced members to WGI and satisfied several other stipulated conditions. There is a
prescribed formula for converting points into credits. The credits are adjusted according to the Package taken by the member as follows:

"a. Prestige Level Members: Receive full Points RMR Rewards;

b. Advantage Level Members: Receive full Points RMR Rewards; and

c. Standard Level Members: Receive 25% of the Points RMR Rewards."

40 Prestige and Advantage level membership qualifies a member to participate in a Matching Bonus Program. It need only be noted that depending
upon the number of product packages that member has sold to his or her "First Generation", the member is entitled additionally to a percentage
(varying between !0 and 20 per cent) of the points RMR payments to his or her First Generation Members and possibly Second Generation
Members.

4! The Rules prescribe a payment ceiling per week:

"28. The maximum credit amount Members may receive pursuant to the Points RMR is €50,000 in any given week. In

addition Members may receive credits of up to €50,000 in Matching Bonuses.

29. If You receive the maximum Points RMR payment for four (4) consecutive weeks, You are permitted another
Membership and assigned a new Username and UserID. The new Membership is placed directly above Your original
Membership in Your Upline in accordance with clause 6.37 of the WGI Rules & Regulations.

30. If this new Membership generates the maximum Points RMR payment for four (4) consecutive weeks, You will be
given another new Membership (and corresponding Business Centre) via the same process. There is no limit to the
number of Business Centres You may receive via this process."

42 The Rules conclude by addressing the subject of "Promotion of the RMR Program":

"1. Whether, and how to promote the RMR Program is generally up to You. However, You should be aware that there are
laws in many countries that restrict Your ability to promote the RMR Program and You must at all times comply with the
WGI Rules & Regulations. It is Your responsibility to ensure that You comply with these laws and WGI makes no
representations regarding the legality or otherwise of its RMR Program in Your jurisdiction. Please note in particular the
provisions of sections 9 and 16 of the WGI Rules & Regulations in this regard.

2. New Members should be aware that they do NOT need to participate in the RMR Program and do NOT need to
introduce other New Members to remain a Member or to earn commissions. For example the Casino Rewards program
rewards Members for their OWN use of the Casino (in addition to that of the Members team).

3. This document may only be used by Members in accordance with section 9 of the WGI Rules & Regulations. That
section restricts a Members ability to reproduce, summarise or explain how the RMR Program works in their own
Promotional materials. Members are expected to familiarise themselves with those rules before introducing WGI to any
New Member. In particular please note the disclaimer that is required to be included in any promotional material in
accordance with clause 9.21 of the Rules & Regulations:

‘It is illegal for a promoter or participant in a trading scheme to persuade anyone to make a payment by
promising benefits from getting other people to join a trading scheme. Do not be mislead by claims that
high earnings can be easily achieved.’"

43 Finally, mention should be made of certain mandatory rules contained in one or other of the Rules referred to above. These are that (i) 30 per cent
of all a member’s winnings from the Sweepstakes8 lottery can only be used to purchase virtual stock in the virtual SMG; (ii) a like percentage of any
earnings of a member from RMRs be similarly used; and (iii) where a member sells stock, a !0 per cent brokerage fee is charged and half of this is

11
credited to members’ rewards.

(b) Archived Newsletters etc

44 I would note at the outset that the archived documentary material derived from the WGI website which includes the Newsletter, was obtained by
ACCC official, Mr Fleming, on 29 November 2003. The respondents have accepted that this material when coupled with a video that was viewed by
another ACCC officer, Mr Starkoff, on 30 November 2003 and downloaded on 3 December 2003 "might permit a finding that at some stage in the
past the World Games scheme had the characteristic referred to in s 65AAD(!)(b)" of the Trade Practices Act.

45 I do not consider it necessary to refer further to this archived material given the apparent concession made by the respondents and the greater
emphasis placed by the ACCC on the downloaded video.

(c) The Promotional Videos

46 There are two videos in evidence. The first, downloaded by Mr Starkoff on 3 December 2003, is designedly promotional in character. The second
is a video of the launch of the WGI casino which was downloaded by Mr Starkoff on the same day.

47 The first video features two persons one of whom is Mr Kennedy. The following are excerpts from the transcript of it which runs to just over two
A4 pages:

"Greg Kennedy: Would you like the financial independence to be able to do what you want to do, when you want to do it? –
but it is just a dream, right? No, it’s not. You can start living your dream today.

Voiceover: Thousands of people like yourself from around the world have decided to make their dreams come true with
World Games Inc, a powerful international wealth building system that can help you establish financial
security for yourself and your family ...

Through patented programs, you can play the virtual stock market, join the sweepstakes, become one of the
high rollers of the casino and earn more money as you introduce your friends to the earning power of the
World Games Inc system ...

Furthermore World Games Inc is a more lucrative way to play and really rewards your efforts. The more you
put in the more you will get out. ...

Celinda Edmonds: The core of World Games Inc is a private members stock exchange in which participants buy and sell virtual
stock. Members make their own success because it is driven by members own supply and demand. There
are no external influences.

Four revenue streams feed the stock through a patented process providing a constant upward momentum in
the stock’s value.

...

World Games Inc offers the ultimate in on line casinos where members can play Keno, Blackjack, Poker,
Roulette and Bingo plus full sports book wagering. Whenever your team members participate you profit from
all of their activities.

... When you join, you purchase a new members product package for as little as twenty five Swiss francs.
Every time you bring a new member into your team and they purchase a product package you can receive
relationship marketing rewards. Your own World Games Inc website makes sharing this exciting opportunity
with your friends and family quick and easy and as they make money too, they’ll help you build even further
on your own wealth.

12
 See what happens when you introduce two members to your team and help them to do the same – as more
of your friends and their friends join, you receive relationship marketing rewards on their activities and there’s
no limit to the number of members you can introduce from all around the world.

...

Voiceover: ... World Games Inc was developed in Australia’s silicon valley on Queensland’s Gold Coast. It is an area
renowned as a playground for the rich and famous and has long attracted the kind of people who make
things happen. People just like you.

The secret of your success is the earning power of the World Games Inc system. No traditional business can
give you an income like this.

... World Games Inc lets you in on the secret of the truly wealthy – residual income.

Millionaires generate streams of income from licences, patents, royalties or investments. You too can create
a constant income stream that grows even while you’re sleeping.

Greg Kennedy: Why hesitate? You can start living your dreams right now. Security, wealth, happiness and fun can be yours
by joining World Games Inc today."

48 The Casino launch occurred in Norway. I will refer to it later in these reasons as it bears more directly on WPS’s involvement in the WGI Business.

(iii) WGI members’ promotional websites

49 Material derived from these websites looms large in the case advanced by the ACCC. Put shortly it is that they bring to life what is implicit or
dryly put in the WGI website material.

50 I earlier noted that the "World Games Inc – Rules and Regulations" envisaged that members would engage in promotional activities on their own
websites for WGI membership and products. The RMR Rules in turn deal explicitly with member promotion of the RMR Program.

5! The three members’ websites put in evidence are http://www.wgidreamteam.com ("Dreamteam"), http://spillmaster.com ("Spillmaster") and
http://www.wgivirtualstockmarket.com ("Stockmarket"). They represent the members variously to be, an "Independent Distributor", an "Independent
Member", and a "normal member" of World Games Inc. Dreamteam and Stockmarket make prominent use of WGI trademarks (a matter I return to
below) and both Spillmaster and Stockmarket have hypertext links to the WGI website.

52 There are many pages from these sites in evidence. The material is overwhelmingly promotional in character and conforms in the substance of
the messages they convey to that of the various rules and regulations to which I have referred. The significance of the material lies in emphases
given to the component parts of the WGI business and to the nature of the appeal they seek to make to a reader/potential member.

53 The following extract from Spillmaster describing WGI’s "products" illustrates the emphases to be found in the material tendered. I have
highlighted what I consider to be a recurrent theme in that material – a theme which is evidenced in WGI’s own promotional video:

"Lottery

Each week you may participate in our worldwide lottery. You receive a dividend for all the tickets sold in your network. For example –
600 tickets sold will give you an income of $150.

Stock market

Our stocks are not listed in any stock exchange market. They are fictitious and solely a part of a game. But a patented system is
pressing the rates up almost continuously. This makes the WGI stock market the place to make a really good investment.
13
Close to a 400% increase during the past year says it all ...

You must buy shares for 30% of all your earnings in WGI, and then leave it for a month before you can sell it. When you sell, there is a
sales impost of 10%, and half of this money is returned to the members.

This means that every time someone in your network sells shares you receive a dividend.

Casino and sports betting

WGI cooperate with the best in the business when it comes to online casino and sports betting. Every time someone in your down line
gambles, you receive a dividend.

Offshore Credit Card

To make sure you gain easy access to the money you make in WGI, the company offer you three different cards. All from a simple debit
card, to a Gold Master Card.

And every time someone in your down line orders a card, you receive a dividend on that sale too.

New members product package

We all work actively to share WGI with even more people. And when your network is growing, you receive a dividend that recognises
your contribution of endeavour. It does not matter if it’s you or someone else who introduces a new member – as long as it happens
within your network, you earn exactly the same on this sale as the person who is doing the work.

The bonus!

WGI has the best Bonus ever!

If you personally introduce 4 people to WGI, you get 10% bonus on their income ...

Yes, you’ll get 10% of whatever their making, and that without having equal income in your down line ...

That means that if one of your members’ makes $1000 one week, you receive $100.

If you recruit 8 people, we will give you 20% on their income...Pretty unbelievable, but true! We give you 20% of what your members
earn when you have recruited 8 people (ambassadors). That means you will receive $200 every week if one of your members is earning
$1000. And of course – you earn bonuses from all 8!

If you recruit 12 or more members, we’ll give you 20% on your personally recruited members, and 10% on their members again...We
pay you a bonus at two levels and don’t forget, the bonus is something you get on top of your ordinary income.

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 Let’s look at an example: If you’ve got 12 personally introduced members who are making $2000 a month, and each of these 12 has
recruited 5 members – that gives you 60 people who will provide you with 10% additional income. Now let’s say that these 60 are
making $1000 a month...

12x2000x20%=$4800

60x1000x10%=$6000

That’s a total of $10,000 per month – just because your downline members are making money. And this is what you make on top of
your ordinary income!

Let’s not forget that even better, WGI pay you for all the activity in your network. You don’t earn provision on just 5 or 9 levels below
you – even if you have 1000 people in your downline, you receive points from all the people in your network.

But are there no limits?

Yes, there are. The maximum you can earn a week on a centre is 50,000 CHF. If you reach this limit, WGI gives you a new income
centre to build, on top of your old one."

54 The site most extensively represented in evidence is Dreamteam. The site has a considerable number of hyperlinks. The tendered material comes
only from several of these. Material from the "Income Streams" hyperlink describes the WGI products but in more muted language than Spillmaster.
It, nonetheless, does emphasise reward to a member from activity in his or her downline.

55 More significant for present purposes is the material from the "Earnings Example" hyperlink. It relates earnings to continuing introduction of
members into a member’s downline. The following is the example given of the possible income effect of exponential growth:

"EXAMPLE ONLY (For Information)

• Let’s say you introduce TWO members in your first month (one in
your Left Team and one in your Right Team) – You are now
qualified to earn ‘MR Income’.
• Now let’s assume each new member joining your team
introduces a total of only two (2) new Prestige members in their
first month only.
• And that’s all – No more than (2) members each and you could
be earning the following:

Month New Members LEFT New Members RIGHT Approx Income

3 4 4 U$ 120
6 32 32 U$ 900
9 256 256 U$ 6,900
12 2,048 2,048 U$ 55,250

Notes:

• All of this could happen in Weeks, Months or Years depending on

the commitment generated by you, your personal team and spill
from above.
• The Network Marketing Industry Average is that each member or
distributor will introduce only two (2) people and the WGI Reward
Plan is built around this statistic.
• As your team grows so will your income.

15
 Plus

Don’t forget your Matching Bonuses! What are, and how do I earn Matching Bonuses (MB’s)? You can build your 1st & 2nd generations
as big as you like.

...

ALSO

• Don’t forget your profits from the Stock Market Exchange.

• Don’t forget your winnings from the Online Games.

• Don’t forget the additional units earned from the Sweepstakes-8

Lottery, and Stock Brokerage activities.

• Don’t forget the independent income streams from the Online

Casino and Pay2 Visa Electron Cash Silo Reward Plans.

• Don’t forget the additional Cash Silo Reward Plans which will be
released every two to three months into the WGI Product
Package Portfolio."

56 The "Slide Presentation" hyperlink reiterates the themes of making a profit from "your team members" activities (in those slides describing WGI
products) and of the benefits from exponential growth in a downline. As in the Promotional video quoted earlier, emphasis in the slides (of which
there are 28) is placed upon generating a "continuous income stream". I would note in particular the slide entitled "Relationship Marketing Creates
the most Powerful Form of Leverage!" It states:

"John Paul Getty said, ‘I would rather earn 1% of the efforts of 100 men than 100% of my own efforts". By helping others achieve their
dreams through relationship marketing, you receive a small commission on the business they conduct.

(John Paul Getty 1892-1976, made his first million by the age of 23 and became one of the richest men in the world)

Residual Income – previously the exclusive domain of the very talented or wealthy as they generated streams of income from licenses,
patents, royalties or investments. With WGI you can work hard once and unleash a steady flow of continuous income 24 hours
per day 7 days per week, year after year": emphasis added.

57 The Stockmarket material is specific to the SMG. It focuses on the twin effects of membership growth and the investments that the Rules require
be made in the stockmarket (to which I have earlier referred). Unlike the materials from the other two sites it does not emphasise profits derived by
the activities of downline members.

WPS’S INVOLVEMENT WITH WGI

58 In their Defence the respondents have admitted that WPS:

"(c) operates, and at all material times has operated, a telephone call centre in which it receives and responds to queries
by southern hemisphere players of the online casino available at the World Games Website;

(d) carries out, and has at all material times carried out, the computer programming necessary to maintain the World
Games Website;

16
 (e) carries out, and has at all material times carried out, the computer programming necessary to update the World
Games Website;

(f) carries out, and has at all material times carried out, the computer programming necessary to upload those updates to
the servers for the World Games Website;

(g) responds, and has at all material times responded, to Members who make inquiries about the World Games Scheme
via the World Games Website;

(h) uses customer relationship management software in so responding to those enquiries; and

(i) is, and was at all material times, responsible for ensuring the security, by way of encryption of communications,
between Members and the World Games Website."

59 The pleading, though, denies that WPS was the owner of the Internet domain name worldgamesinc.com or that it controlled that website.

60 The evidence of WPS’s connection to the WGI business, apart from the above admissions, comes from various sources.

6! First, for reasons I give below: see Rulings on Evidence; I have admitted a domain name registration search of the name "worldgamesinc.com".
The registrant is WPS. Mr Starkoff who conducted the search accepted in cross-examination that there is no necessary connection between the
person to whom a domain name is registered and ownership of the web site bearing that name.

62 Secondly, both WPS and PDIL have been engaged in proceedings in the Supreme Court of Queensland against Quentin George, a former
employee of WPS who had resigned in October 2003. The claim, it seems, was for injunctive relief to restrain alleged misuse of confidential
information derived during employment. An affidavit filed by Mr Kennedy in that proceeding has been put in evidence. It is necessary to refer at
some length to parts of that affidavit as they are relied upon by the ACCC as constituting an admission by WPS that it is a participant in the WGI
scheme. The company EWC to which reference is made is incorporated in Western Samoa. Mr Kennedy is a director of it.

63 Mr Kennedy’s affidavit said, in part:

"2. I have direct knowledge of all aspects of the business of WPS and the business of PDIL.

...

4. EWC is under contract with PDIL to provide management and administration services to PDIL in respect of PDIL’s
business in which PDIL trades as ‘World Games Inc’ (‘WGI Business’).

...

6. WPS provides administrative services, a telephone call centre and customer service centre in Australia to PDIL in
respect of the WGI Business. WPS also pays any expenses incurred by PDIL in Australia and provides some staff to
PDIL. WPS employs approximately fifty (50) staff to provide those services to PDIL.

7. WPS is paid for the provision of its services for PDIL by EWC pursuant to a contract between WPS and EWC. ...

17
 8. The gross fees for services received by WPS over the 12 months preceding the date of this affidavit totalled
approximately AUD$8,000,000.

9. From on or about 1 November 2002, WPS employed the Defendant in the capacity of a manager responsible for the
promotion of the WGI Business. In that role, the Defendant:

(a) directly managed the strategic direction and operations of the WGI Business;

(b) developed financial models for the WGI Business;

(c) attempted to maintain and improve the profitability of the WGI Business and business of WPS;

(d) briefed and instructed legal counsel for and on behalf of WPS and PDIL both in Australia and overseas;

(e) dealt on a daily basis with strategic business partners to the business and the larger customers of the
business; and

(f) had daily access to all financial, strategic and customer data of the WGI Business.

10. At all times during his employment with WPS, the Defendant was privy to highly sensitive and confidential
information of WPS and/or PDIL, including (but not limited to) the following:

(a) information in relation to WPS’s business activities with other entities (including, for example, PDIL);

(b) contractual and business arrangements made between WPS and third parties, and PDIL and third
parties, such as financial institutions, financial service providers and providers of other professional
services;

(c) details of the financial accounts of WPS and PDIL; and

(d) details of strategies and business plans of WPS and PDIL."

64 After alleging that Mr Georges’ post-employment actions were designed to discredit the business of WPS and PDIL, Mr Kennedy continued:

"28. The profitable continuation of the WGI Business is integral to the continuation of the business of WPS, which in turn
is to provide services and staff for the WGI Business, as I stated earlier in this my affidavit. If the WGI Business was to
shut down or even significantly deteriorate, the business of WPS would deteriorate proportionately.

29. I verily believe that keeping the WPS Data confidential was and is critical to the profitable continuation of the WGI
Business. If any WPS Data is published and/or falls into the hands of competitors to the WGI Business or if some of the
WPS Data comes to the attention of some larger customers of the WGI Business, I verily believe that this will impact very
adversely upon the WGI Business by, for example:

(a) allowing competitors to take advantage of the trade secrets contained within the WPS Data;

(b) allowing customers of the WGI Business to know (and therefore to try to renegotiate lower) profit
margins of the WGI Business; and

18
 (c) providing customers with contact details of various suppliers to the WGI Business, potentially allowing
them to seek to obtain some of the products of the WGI Business from those suppliers directly rather than
via the WGI Business."

65 Discovered WPS documents contained in Annexure DBS 57 to Mr Starkoff’s affidavit confirm that Mr George performed the managerial function
described in the affidavit. They similarly support the inference that at that time the WGI business was operated from WPS’s Gold Coast facility.

66 The launch of the Casino in Norway occurred in July 2003. The video of it was screened during the hearing and a transcript of it was supplied to
me. Mr Kennedy was present at, and formally performed, the launch. His was a figurehead role. The video opens with the compere announcing that
"we have actually organised a satellite link to go live to Australia to our corporate headquarters". The later discussion with staff at the "WGI
headquarters in Australia" (as it was again referred to by the compere) disclosed that they were clearly involved in the development of the design of,
and the IT for, the casino; were involved in the international coordination of the casino project; and were to provide customer support services in
respect of the casino. One of the persons introduced from Australia, for example, was the "operations manager for WGI".

67 Finally, WPS’s Company Tax Return 2003 described its main business activity as "Management of internet gaming company". Its Profit and Loss
Statement for ! July 2003 to 30 April 2004 disclosed an expenditure on travel and entertainment of $2,0!2,!87.02, an almost !00 per cent increase on
the previous year.

WGIPH’S INVOLVEMENT IN THE WGI BUSINESS

68 It is common ground that WGIPH is the owner of WGI’s intellectual property; and that Mr Kennedy is the sole director of the company. Its
trademarks have been used extensively in the WGI business. There is also evidence that its patents relate to WGI’s games.
69 The Stockmarket website contains a diagrammatic representation under a header using the WGI word and image mark of the income streams in
WGI feeding the WGI stock market. The process so represented is attributed to "(IP Australia Patent 726796)". The video launch of WGI Casino
refers to revenue streams feeding the stock market stock "through a patented process".

ADDITIONAL EVIDENTIARY MATTERS

70 As I have noted, two ACCC officers, Mr Fleming and Mr Starkoff swore affidavits and gave oral evidence. Evidence in the ACCC’s case was also
given by Mr Bridge. I have not referred to it in the factual narrative above as it is of no particular assistance in this matter.

7! The respondents adduced no evidence in this matter. I need hardly foreshadow that this was an obvious subject for comment in the ACCC’s
submissions.

RULINGS ON EVIDENCE

72 The respondents objected to the reception of evidence as to the registration of the worldgamesinc.com domain name. The basis of the objection
was that the accredited registrar of that name was Intercosmos Media Group Inc (which trades as "direct NIC"), but the document sought to be
tendered to prove the name of the registrant resulted from a "who is" search of direct NIC’s database through an online facility for conducting such
searches at a website conducted by Verisign (which apparently trades as Network Solutions). Its contents were, in consequence, hearsay. Their
admission, it is said, cannot be otherwise supported as being part of a business record of Network Solutions as it does not satisfy the requirements
of s 69(2) of the Evidence Act 1995 (Cth).

73 I should note that the document downloaded from the Network Solutions website contains (inter alia) the following:

"Registration and WHOIS Service Provided By: directNIC.com

Intercosmos Media Group, Inc. provides the data in the directNIC.com Registrar WHOIS database for informational purposes only. The
information may only be used to assist in obtaining information about a domain name’s registration record.

directNIC makes this information available ‘as is,’ and does not guarantee its accuracy.

Registrant:

World Play Services

1 Main St

Robina, QLD 4226

AU

19
 8520

Domain Name: WORLDGAMESINC.COM

...

The previous information has been obtained either directly from the registrant or a registrar of the domain name other than Network
Solutions. Network Solutions, therefore, does not guarantee its accuracy or completeness."

74 Section 69(!) and (2) provide insofar as presently relevant:

"69 Exception: business records

(1) This section applies to a document that:

(a) either:

(i) is or forms part of the records belonging to or kept by a person,

body or organisation in the course of, or for the purposes of, a
business; or

(ii) at any time was or formed part of such a record; and

(b) contains a previous representation made or recorded in the document in the course of, or for the
purposes of, the business.

(2) The hearsay rule does not apply to the document (so far as it contains the representation) if the representation was
made:

(a) by a person who had or might reasonably be supposed to have had personal knowledge of the asserted
fact; or

(c) on the basis of information directly or indirectly supplied by a person who had or might reasonably be
supposed to have had personal knowledge of the asserted fact."

75 On the evidence before me Network Solutions carries on the business of providing a facility for doing a "who is" search of direct NIC’s database.
The document tendered by the ACCC is, in my view, a computer produced copy of a business record of Network Solutions. That record contains a
representation as to the registrant of the wordgamesinc.com domain name and that representation by Network Solutions was made on the basis of
information supplied by directNIC. I am in consequence satisfied that the tender falls within the provisions of s 69(2)(b) of the Evidence Act. The
disclaimers as to accuracy have no bearing on the admissibility of the document.

CONSIDERATION

76 There is a number of preliminary matters that should be dealt with before turning to the two principal issues in this matter, i.e. whether WPS and
WGIPH participated in a pyramid selling scheme and whether Mr Kennedy was knowingly involved therein.

(i) The Territorial Issue

77 The evidence in this matter is such that, whatever may have been the case prior to December 2003 when the present application was filed, I
cannot now be satisfied that the WGI business as it operates in Australia is accessible to members of the Australian public. The worldgamesinc.com
website cannot be accessed using an internet connection provided by an Australian internet service provider and steps have been taken to prevent
the continued membership of Australian residents in WGI.

78 Because the scheme so operates outside the territorial boundary of Australia, the respondents contend it is beyond the purview of the TP Act

20
properly construed, even if the scheme otherwise satisfies the requirements of s 65AAD.

79 Section 5 of the TP Act insofar as presently relevant extends the provisions of Part V (which include the pyramid selling provisions) "to the
engaging in conduct outside Australia by bodies corporate incorporated or carrying on business within Australia".

80 There is nothing in the language of the pyramid selling provisions which expressly requires that the scheme operate within Australia’s territorial
boundaries or that it otherwise have some nexus with Australia. Nonetheless, the respondents contend that in construing s 65AAC and s 65AAD I
should apply the territorial presumption of construction prescribed by s 2!(!)(b) of the Acts Interpretation Act 1901 (Cth) and rule that the scheme
itself must operate "in ... the Commonwealth". That presumption, I would note, is displaced where "the contrary intention appears". The
respondents contend that, as s 65AAC has "an objective of protecting the public": Sherman v Australian Competition and Consumer Commission
(2003) 47 ACSR 505 at [!4]; and as the object of the Act is to enhance the welfare of Australians through "provision for consumer protection": s 2;
parliament must be taken as having intended in s 65AAC to protect the Australian public and so to be limited in its territorial operation.

8! Interesting though this question might be, it does not require address in this matter. If WPS and WGIPH are, relevantly, participants in a pyramid
selling scheme, the conduct they are engaging in to that end is engaged in within Australia at their Gold Coast offices, albeit the scheme itself
operates outside the territorial boundary of Australia. No question in consequence arises as to the extraterritorial operation of the TP Act or as to
how s 5 and s 65AAC interact: see Bray v F Hoffman-La Roche Ltd [2002] FCA 243; (2002) !!8 FCR ! at [45] ff. The case is one involving the
application of the TP Act to Australian registered companies engaging in conduct within Australia.

82 I should add that I do not consider that the pyramid selling provisions should be read down so as to apply only to the protection of Australian
consumers: cf Wells v John R Lewis (International) Pty Ltd (!975) 25 FLR !94 at 208 ff. Provided the conduct proscribed by s 65AAC is engaged in
within Australia, it is immaterial that the persons who make participation payments to take part in the scheme: cf s 65AAD(!)(a); are not within
Australia. The Commonwealth has an obvious interest in the conduct of corporations that occurs within Australia.

(ii) The Construction Issues

83 The respondents have urged that I construe the pyramid selling provisions of Division !AAA in light of two considerations. The first is that this
Division, when enacted in 2002, was not intended to make substantial changes to the coverage of the provisions which it replaced or otherwise
affected (i.e. s 6! and s 75AZO of the old TP Act). It was essentially a "plain English rewrite" of those provisions. This "intent", it is contended, is
plainly revealed in the relevant Second Reading Speech and Explanatory Memorandum to the 2002 amendment.

84 The second consideration is that the TP Act is a penal statute (for the pyramid selling offences see s 75AZO) and that this is relevant in
determining its true construction. Reliance is placed upon the observations of Gibbs J in Beckwith v R [!976] HCA 55; (!976) !35 CLR 569 at 576:

"The rule formerly accepted, that statutes creating offences are to be strictly construed, has lost much of its importance in modern
times. In determining the meaning of a penal statute the ordinary rules of construction must be applied, but if the language of the
statute remains ambiguous or doubtful the ambiguity or doubt may be resolved in favour of the subject by refusing to extend the
category of criminal offences ... The rule is perhaps one of last resort."

The respondents emphasise that this statement has been applied regularly in decisions involving the TP Act: see e.g. Australian Competition and
Consumer Commission v McCaskey [2000] FCA !037; (2000) !04 FCR 8 at [37].

85 Both of the above considerations are invoked in relation to the construction I should give to the definition of "participate" in s 65AAB and to how I
should construe the words "entirely or substantially induced" and "in relation to" in s 65AAD(!)(b) of the Act.

86 Before considering these matters in turn I should make the following preliminary observations. First, though the Act refers to a pyramid selling
"scheme", unsurprisingly, it does not define the term "scheme" (though it does require such a scheme to have the two characteristics prescribed in
s 65AAD(!)). For present purposes, I am content to give the word "scheme" a like meaning to that given it by Mason J (albeit in a different setting), in
Australian Softwood Forests Pty Ltd v Attorney-General for New South Wales; Ex rel Corporate Affairs Commission [!98!] HCA 49; (!98!) !48 CLR !2!
at !29: "all that the word ‘scheme’ requires is that there should be ‘some programme, or plan of action’". This meaning I would add does no more
than reflect the appropriate dictionary meaning of the word in any event: see Shorter Oxford English Dictionary, "scheme: 4" (5th ed).

87 Secondly, it is well recognised that pyramid schemes can be complex and elusive in nature: Australian Competition and Consumer Commission v
Destiny Telecom International Incorporated (!997) ATPR 4!-588 at 44,!!5. An object of the amendment to the TP Act which introduced Division !AAA
was to eliminate complexity at least in the law itself: see Second Reading Speech, House of Representatives, 26 September 2002, 733!. I mention
these matters for this reason. When one contrasts the comparatively speaking open-textured language of the provisions of Division !AAA with the
more particular language of the old s 6! of the TP Act, it is apparent that the language of the new provisions is more appropriately adapted to deal
with the possible complexity of the schemes the Act seeks to proscribe than were the predecessor provisions.

(a) The definition of "participate"

88 Section 65AAB defines "participate" in a pyramid scheme to mean:

"(a) establish or promote the scheme (whether alone or together with another person); or

(b) take part in the scheme in any capacity (whether or not as an employee or agent of a person who establishes or
promotes the scheme, or otherwise takes part in the scheme)."

21
89 It is unnecessary for present purposes to consider the scope of the term "promote" in subpar (a) of this definition, given the nature of the conduct
engaged in by WPS and WGIPH that is relied upon by the ACCC. I would, though, comment that as the term is used to encompass conduct going
beyond the establishing of a scheme, it is apt to describe conduct in support of, or in furtherance of, a scheme: cf Australian Securities and
Investment Commission v Young (2003) !73 FLR 44! at 453. I would note, for example, that in this matter there clearly were persons who had no part
in the establishment of the scheme, but who, as members of WGI, actively engaged in promotional activities for WGI membership and products and
that this was envisaged by the WGI "Rules and Regulations". I would equally note that the conduct of both WPS and WGIPH, to the extent that it
supported and facilitated the implementation of the WGI business, might with some justice be said to have constituted promotion of the scheme.

90 The significant innovation in the definition of "participate" is to be found in subpar (b). To participate is to "take part in the scheme in any
capacity". The amplitude of the definition is indicated in that part of it which is in parenthesis: "any capacity" includes "whether or not as an
employee or agent of a person who establishes or promotes the scheme, or otherwise takes part in the scheme". Section 65AAD(!)(a) illustrates two
other possible "capacities" in which a person may take part in the scheme. These are as a "new participant" or as "another participant" to whom a
participation payment is made. But these are only illustrations.

9! Because there is no obvious textual reason for reading down the language of the definition, the respondents rely upon context and on principles
of construction to that end. It is said that the terms "establish", "promote" and "take part in" are all ambiguous in nature. That ambiguity should, in
each instance be resolved by reference to contextual and purposive considerations and to the penal character of the Act and that these together
would justify a construction of "take part in" that would exclude persons who merely provide services to existing participants in a scheme.

92 The ACCC in contrast contends that, notwithstanding the penal character of the TP Act, the "take part in" formula should be given a broad
meaning given the beneficial purpose of the pyramid selling provisions. The formula, it is said, encompasses both active or passive cooperation in
any aspect of the scheme.

93 Before expressing my own view on the matter, it is appropriate to note, first, that while natural persons can be participants in pyramid selling
schemes, the structure of the Act is such that only corporations can be held liable directly for contraventions of s 65AAC or for an offence under s
75AZO. The provisions of s 6(3) of the Act (which extends the application of various provisions of the Act to natural persons in specified
circumstances) do not encompass Division !AAA of Part V: see also s 6(4). If natural persons are to be held liable under the Act it will be in
consequence of what, for convenience, I will call the Act’s accessory liability provisions such as s 75B.

94 It has, in my view, rightly been said that the apparent purpose of the pyramid selling provisions of legislation in this country is to "stamp out"
such schemes: Hawkins v Price [2004] WASCA 95 at [!5]. Given the serious losses that have been inflicted both in this country and world-wide by
pyramid schemes: see Heydon, Trade Practices Law [!4.!0] and the notes thereto; and given the declared consumer protection object of the TP Act
(see s 2), it is unsurprising that there should be such a legislative purpose. The legislation is beneficial in character and for this reason should be
construed purposively. The strict construction principle referred to in Beckwith v R (see above) should in consequence clearly be treated as a "rule of
last resort": see Newcastle City Council v GIO General Ltd [!997] HCA 53; (!997) !9! CLR 85 at !09-!!0; The Syndicate Club Pty Ltd v State of
Queensland [2003] QSC !04 at [47] ff.

95 Having regard to both the clear legislative intent to proscribe corporate participation in pyramid selling schemes and the explicit lack of
qualification on the capacity in which a person can be a participant in a scheme by virtue of taking part in it, I can see no basis for construing the s
65AAB definition in a way which would limit what can constitute taking part in a scheme by reference to the role or function performed by a person if
that person could be said in fact to be taking part in the scheme. The sole question raised by the definition is whether a person does take part in a
scheme.

96 Given the lack of qualification on the capacity in which a person might take part in a scheme, it is unlikely that there will be a single and invariable
route to a finding that a person "participates" in a scheme. The illustrations given of participation in s 65AAB and s 65AAD(!)(b) suggest as much. I
will return to this below. For present purposes, though, I confine my comments to that class of case in which the alleged taking part by a party
arises from involvement in the performance of functions which relate or are referable to the organisation, conduct and maintenance of a scheme
where that party is neither an "owner" or the manager of the scheme.

97 I should preface what I have to say with the following observation. While it is necessary for a scheme to have the two characteristics specified in
s 65AAD(!) before it will be regarded as a pyramid selling scheme, the question whether a person takes part in such a scheme is to be determined
by reference to the nature of that person’s involvement (if any) in the actual programme or enterprise that constitutes the scheme. To make that
determination it will ordinarily be necessary to understand the scheme itself: how is it structured? How and by whom are its products and/or
services developed and provided? How is the scheme conducted? How is it promoted? Etc. The obvious reason why such an analysis is necessary
is that the definition is directed at taking part in any capacity "in the scheme": cf the comments of Ormiston J in Commissioner for Corporate Affairs
v Bracht [!989] VicRp 72; [!989] VR 82! at 828 on "take part in the management of a corporation".

98 The fact that a party is in a legal relationship with an entity that conducts a pyramid scheme does not for that reason mean that that party is
thereby taking part in the scheme. Ordinarily, a landlord of such an entity’s business premises, the entity’s external lawyer or accountant when
providing professional services, or an arm’s length service provider to the entity’s business (e.g. of telecommunications) will not as such be a
participant in the entity’s scheme. This will be so notwithstanding (a) that such a party may be aware of the existence of the scheme and (b) that the
service provided is necessary for the operation of the scheme. Parties so circumstanced, while not strangers to the scheme’s "owner", will ordinarily
be strangers to – will not be involved in – the scheme itself. Something more is needed.

99 I earlier indicated a pyramid selling scheme may be complex and elusive in nature. Whether or not the scheme in this matter ought finally be
characterised as a pyramid one – and I consider it should - its structure, the geographic dispersal of the "collaborating" companies, and the manner
of provision of its products and services evidence complexity of the type which Division !AAA seeks to penetrate.

!00 I use the example of the present scheme for this reason. A pyramid selling scheme may be structured in a highly fragmented way with the
functions that are necessary to be discharged to conduct and maintain the particular scheme being dispersed across a range of cooperating entities

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each having its own place and part in the practical realisation of the enterprise which is the scheme. Irrespective of whether the scheme is formally
owned or conducted by one only of such entities while the other cooperating entities formally perform functions for it so that the scheme may be
carried into effect, those other entities (no less so than the employees or agents of the scheme "owner") may properly be said to take part in the
scheme because of the nature and basis of their involvement in its effectuation. As I will later indicate WPS and WGIPH are just such types of entity.

!0! Where, for example, one entity performs services for the scheme "owner" for the purposes of the scheme in circumstances in which it is a
knowing instrument in the conduct of the scheme cooperating with the "owner" in the pursuit of the objectives of the scheme, such an entity
participates in the scheme for the purposes of the s 65AAB definition. It is immaterial in my view that the particular service or function performed
relates only to a part or aspect of the scheme.

!02 I have used the terms "knowing" and "cooperates" in the preceding paragraph. In so doing I do not suggest that knowledge of the nature and
purpose of the scheme and/or cooperation with its "owner(s)" are necessary ingredients in the "take part in" requirement in all cases. An employee
of a promoter who performs services in the promotion of the scheme, or a person who becomes a participant on making a participation payment,
may have little or no knowledge of the actual nature of the scheme in which that person is participating. Nonetheless, both will be participants for
the purposes of Div !AAA though, as I have noted, they are not thereby exposed to any personal liability merely because of that participation.

!03 What I am suggesting is that, in cases of the type with which I am presently concerned, knowledge of the scheme and cooperation in its
prosecution will readily support a finding of participation. Such a conclusion will be reinforced where the entities in question are related (through
common board members or shareholders) or otherwise operate collaboratively.

!04 In consequence of the view I take of the definition, I reject the respondent’s submission that their respective functions as service providers
excluded them from the scope of the s 65AAB definition.

(b) "Entirely or Substantially Induced"

!05 Section 65AAD(!)(b) requires one of the essential characteristics of a pyramid scheme to be that the participation payment made by a new
participant be:

"entirely or substantially induced by the prospect held out to new participants that they will be entitled to a payment (a ‘recruitment
payment’) in relation to the introduction to the scheme of further new participants."

!06 The concern, then, is with what "leads, persuades or influences a person": cf Shorter Oxford English Dictionary, "induce: !" (5th ed); entirely or
substantially to make a payment. Is it, or is it not, the "prospect held out"?

!07 The Act provides some indication of the matters to which regard might be had in making the required judgment. Section 65AAE provides:

"s 65AAE (1) To decide whether a scheme that involves the marketing of goods or services (or both) is a pyramid selling scheme, a court may have
regard to the following matters in working out whether participation payments under the scheme are entirely or substantially induced by the prospect
held out to new participants of entitlement to recruitment payments:

(a) the extent to which the participation payments bear a reasonable relationship to the value of the goods or services that participants are entitled to
be supplied under the scheme (as assessed, if appropriate, by reference to the price of comparable goods or services available elsewhere);

(b) the emphasis given in the promotion of the scheme to the entitlement of participants to the supply of goods and services by comparison with the
emphasis given to their entitlement to recruitment payments."

!08 If there is a difference between the parties as to what is signified by "substantially induced" – and it is the operative formula in this matter – that
difference is one of degree.

!09 It has been recognised in a number of legislative contexts that the word "substantial" is imprecise and ambiguous and that "its meaning must be
taken from its context": Radio 2UE Sydney Pty Ltd v Stereo FM Pty Ltd [!982] FCA 206; (!982) 44 ALR 557 at 563; Tillmans Butcheries Pty Ltd v
Australasian Meat Industries Employees’ Union [!979] FCA 85; (!979) 27 ALR 367. The present setting is no different. It also is well accepted that
where the word "substantially" is used in a composite formula such as "wholly or substantially", it must (a) be construed "alongside the word
‘wholly’ and not by reference to what it does not mean": Commissioner for Superannuation v Scott (!987) !3 FCR 404 at 408; Minister for
Immigration and Multicultural Affairs v Graovac [!999] FCA !690; and (b) be coloured by that proximity.

!!0 The use of the composite formula in s 65AAD recognises that there may be a number of inducements to make a participation payment, and if
such be the case, their relative significance must be considered. A participation payment could, for example, be induced substantially by the s
65AAD "prospect" held out while another and lesser inducement was the use or enjoyment of the goods or services being provided. Where multiple
prospects are held out, if a particular prospect is to be characterised as the substantial inducement, it must be the predominant inducement: cf
Graovac at [!!]. This said, I consider it is unlikely to be helpful to engage in further adjectival elaboration of the word "substantially" in this setting
bearing in mind that what one is characterising is a reason for action.

(c) "In relation to"

!!! The prospect held out must be that new participants will be entitled "to a payment (a ‘recruitment payment’) in relation to the introduction to the
scheme of further new participants": s 65AAD(!)(b).

!!2 The short point raised here is whether the envisaged payment to be received by a new participant must be that relates solely to the introduction
of new members as such, or whether it can encompass as well payments received subsequent to that introduction in consequence of the later ("the
down line") activities of the members introduced.

!!3 Before turning to this, I should note that s 65AAB defines a "payment" to mean (inter alia):

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 "(a) the provision of a financial or non-financial benefit to or for the benefit of the person; or ..."

!!4 In O’Grady v Northern Queensland Company Ltd [!990] HCA !6; (!990) !69 CLR 356 at 376 McHugh J made the observation (since repeated by
the Full Court of this Court in Harris v Commissioner of Taxation [2002] FCAFC 226; (2002) !25 FCR 46 at [68]):

"The prepositional phrase ‘in relation to’ is indefinite. But, subject to any contrary indication derived from its context or drafting history,
it requires no more than a relationship, whether direct or indirect, between two subject matters."

!!5 The present context does not suggest any contrary indication. The Explanatory Memorandum to the 2002 amendment bill contains a schedule
(Schedule !) which provides (inter alia) examples of possible pyramid schemes. Here I would merely note that Example 4 characterises as a
recruitment payment the payment to a member of a scheme of a commission on purchases made by members whom that person recruited.

!!6 I can see no reason for not applying the "in relation to" formula to benefits received in consequence of the introduction of new members whether
or not the benefits are paid for the introduction as such or are paid as a result of the subsequent activities of the members introduced.

FINDINGS

!!7 It is common ground that a person can only become a member of WGI by being introduced by an existing member and that to become a
member requires the payment of a participation fee: see "World Games Inc – Rules and Regulations" r 2. The "WGI scheme" (as I will call it) clearly
satisfies the first of the two requirements of a pyramid selling scheme: s 65AAD(!)(a).

!!8 It is unsurprising in light of the evidence, that the respondents have guardedly conceded in their written submissions that the evidence "might
permit a finding that at some stage in the past the World Games scheme had the characteristics referred to in s 65AAD(!)(b)". Not only would such a
finding have been open, it would in my view have been an inevitable one. The scheme was a pyramid selling one. To anticipate matters, there has
been no presently material alteration to it. It remains such a scheme and both WPS and WGIPH are participants in it.

(i) The WGI scheme is a pyramid selling scheme

!!9 It has been said of pyramid schemes that "recruitment is the income generating event": Myers, Wedding and Maertin, "Non-Egyptian Pyramids –
US Style" [!974] Bus Law Rev 84 at 84. The promotional material that has been put in evidence, be it from the official WGI website or from members’
websites, leaves little doubt that recruitment is held out as the predominant source of income generation and that income generation is the
predominant reason for taking membership. The official promotional video, for example, emphasises how wealth is the product of "residual income"
and that for WGI members such income is available from the benefits earned from the activities of a member’s "downline" members. A like
message, expressed in more explicit and graphic forms, is to be found on the Dreamteam and Spillmaster websites which I have set out at some
length earlier. I would note in passing that there are obvious similarities between the Slides Presentation on the Dreamteam website and WGI’s own
promotional video as, for example, in the references to "residual income" and to a "continuous income stream". Given my reliance on members’
websites, I should foreshadow I reject the challenge made by the respondents to such reliance.

!20 WGI’s "Rules and Regulations" characteristically leaves the manner of a member’s participation in the WGI business as something for the
member to decide – be this, for example, as to product package purchased, participation in the "Relationship Marketing Reward Program" or
playing in the Casino. Nonetheless, the clear emphasis in the material to which I have earlier referred is upon membership as a source of wealth
generation and this in turn is linked both to introducing members and to optimising the advantages from downline membership activity through the
selection in particular of the "Prestige" product package.

!2! It is plain from the evidence that it is held out to members that they:

(i) could participate in the RMR program;

(ii) would be entitled to rewards from their introduction of new members and from downline introduction of members;

(iii) would be entitled to rewards for downline purchases of lottery tickets, downline sales of stock on the virtual stock market,
downline Casino gambling and downline use of the "Pay2 card";

(iv) would obtain "matching bonuses" for introducing specified numbers of new members; and

(v) would be likely to enjoy the benefit of the continuing increase in share price of the virtual stock market generated by membership
growth.

I regard these benefits as being "in relation to" the introduction of new participants for s 65AAD(!)(b) purposes given the construction I have placed
on that phrase.

!22 It is the case that the promotional material emphasises as well that the services offered by WGI are themselves capable of providing enjoyment
as games of chance, etc. However, that emphasis is of a significantly lesser order to that given to the benefits to be derived from recruitment
payments. The order of priority in Mr Kennedy’s closing statement in the promotional video is emblematic of this: "Security, wealth, happiness and
fun can be yours by joining World Games Inc today".

!23 I would have to say this is a reasonably straightforward case of members’ participation payments being substantially induced by the prospect
held out to them that they will be entitled to benefits in consequence of their introduction to the scheme of new participants. I am satisfied the WGI
scheme is a pyramid selling one.

!24 I earlier indicated that the respondents challenged the use of material on members’ websites to assist in characterising the WGI scheme. They

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contend, correctly, that there is no actual evidence that any relevant WGI entity or person knew of, or authorised the information forming the content
of the members’ websites that have been put in evidence. They equally contend that the members’ website promotion is inconsistent with those
provisions in the "Rules and Regulations" prohibiting promotion by way of representing that the main reason for joining is promised benefits
resulting from getting others to join (i.e. from making "a pyramid selling inducement").

!25 These contentions need to be considered against the backdrop of s 65AAD(2)(a) which provides that a scheme may be a pyramid selling
scheme "no matter who holds out to new participants the prospect of entitlement to recruitment payments".

!26 The ACCC’s contention is that these websites simply reflect in large measure what is in the rules etc published on the Worldgames Inc website;
those rules clearly contemplate member promotion even if they purport to impose strictures on how the scheme is promoted; the websites in fact
promote the scheme and in a way that would lead the scheme to be characterised as a pyramid selling scheme; it is this promotion to which s
65AAD(2) attributes significance because it is a characteristic of pyramid selling schemes that it is members who do the recruiting and make the
representations while "the promoters sit safely back at corporate headquarters".

!27 For my own part, the websites can properly be relied upon in ascertaining what are the characteristics of the scheme. Two of the schemes make
prominent use of WGI trademarks, two have hyperlinks to the WGI website and the sites do not materially misrepresent the nature of the benefits to
members held out in the WGI Rules and Regulations. They may make representations which, in form, are prohibited by those rules but they at least
are not colourable or misleading. They reflect what is contained in WGI’s own materials even if they are formally obliged not to say that this is so.

!28 It is quite understandable why Div !AAA should contain a provision such as s 65AAD(2). As the ACCC properly indicates, it helps preclude a
scheme promoter from immunising itself from what its active promoters have to say about a scheme to which the scheme promoter and active
promoters alike are seeking to attract new members. The sophistication of the websites in terms both of content and subject range suggest that
they are probably representative of established member-promoters. The respondents have not sought to suggest otherwise. In my view, they make
bluntly explicit what in any event is being held out clearly enough – if not somewhat coyly – on WGI’s own website in its rules etc and in the
promotional videos.

(ii) WPS’s participation in the scheme

!29 The conclusion at which I arrived on the proper construction to be given to "take part in the scheme in any capacity" is fatal to WPS’s defence of
this proceeding.

!30 WPS’s contentions are that (i) the evidence that WPS is registrant of the WGI website does not support the conclusion that it controls that
website; (ii) the admissions made in its Defence as to the various services it provides to the WGI business goes no further than to show it provides
services and does not show that it engaged in conduct amounting to participation in a pyramid selling scheme; and (iii) distinctly, even if the
evidence was that WPS had participated in a scheme, it does not support a finding that it now does.

!3! The evidence of WPS’s relationship with WGI business companies and of the functions it performs for the WGI business justify the following
findings.

(a) If WPS does not, as registrant of WGI website, own or control that website, it nonetheless facilitates use of that website by the WGI
business. The evidence relating to the Casino launch and the video of it, clearly demonstrates both that WPS’s IT staff "at our
Australian headquarters" were intimately involved in the design of the site and that WPS in fact exercised a significant degree of
control over the site. It is conceded it continues to maintain and update the site.

(b) As its name implies, WPS appears to belong to a federation of corporations whose efforts are combined in the realisation of the
WGI business. The evidence provides no clear picture of the actual legal relationship between these companies, or for that matter,
who they all are or where in the world they are located. What is clear, though, from ASIC records and Mr Kennedy’s affidavit in the
Supreme Court proceedings is that Mr Kennedy provides the thread as director between the companies of present concern including
WPG, WGIPH, PDIL and EWC. It is also apparent from the two videos in evidence that he is a central figure in the WGI business; he is
conversant with the actual character of the scheme; he personally has promoted it; and, implicitly from the Norway Casino opening,
he condoned the representation that WPS’s Gold Coast offices were the headquarters of WGI.

(c) Mr Kennedy’s affidavit constitutes a direct admission that WPS has managed, at least through Mr George, the strategic direction
and operations of the WGI Business. While the respondents have contended that WPS ceased providing such implicating services to
the business on the termination of Mr George’s employment in October 2003, I am satisfied that significant management services
continued to be provided by WPS – the affidavit disingenuously describes these as "administrative" - and that WPS was remunerated
accordingly. While I am not prepared to infer that identical services continued to be provided by a WPS employee to the WGI business
(as formally represented by PDIL or EWC), I am satisfied that Mr Kennedy’s affidavit indicates that WPS retains strategic significance
in the WGI business and that it exists for that business. In indicating the interlocked financial fates of WPS and PDIL, Mr Kennedy
acknowledged PDIL was "the sole source for all income of WPS".

(d) I do not accept that the admissions made in the respondent’s defences as to services WPS provides for the WGI business can be
disregarded in the manner for which the respondents contend. Those services are listed earlier in these reasons.

!32 As to the last of the above, it may well be for reasons I earlier gave, that the provision of one or more of those services by an arms-length
company which carried on a business of providing those particular services might not justify a finding that that company was thereby taking part in
the scheme. The provision of those services by WPS, though, has to be seen in its setting. It was anything but an arms length company carrying of a
business of providing such services.

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!33 WPS is a creature of the WGI business performing an ordained function in the conduct of the WGI business and cooperating with at least some
other companies in the federation in pursuing the objectives of the scheme.

!34 The respondent’s submissions invite a triumph of form over substance. This scheme is a fragmented and geographically dispersed one. The
definition of "participation", as I have indicated, is cast in terms sufficiently general to reach a company involved in a pyramid selling scheme in the
manner in which WPS has been in the WGI scheme. It is unnecessary to prove that it induced anyone to participate in the scheme: cf s 65AAD(2).
What is in question is its own participation in the scheme.

!35 I am satisfied that WPS’s conduct raises no territorial issue for the purposes of the application of Div !AAA. I find that WPS is contravening s
65AAC(!) of the TP Act.

(iii) WGIPH’s participation in the scheme

!36 This company was distinctly more passive and limited in the capacity in which it served the WGI business. Nonetheless its sole director, Mr
Kennedy, authorised its knowing cooperation in that business. It was the legal repository of the businesses’ intellectual property. It relevantly stood
in no different relation to the pyramid selling scheme than did WPS. It was a collaborating company performing an important service for the WGI
business in holding its property rights. I need not determine whether or not it was a bare trustee of those rights. I am, though, satisfied that it was a
creature of, and existed only for the purposes of, the scheme and that the patents and trademarks it held were utilised in the conduct of the WGI
business.

!37 I am satisfied that WGIPH’s conduct raises no territoriality issue for the purposes of the application of Div !AAA. I find that WGPI is participating
in a pyramid selling scheme in contravention of s 65AAC(!).

(iv) Mr Kennedy and WPS’s participation in the scheme

!38 The ACCC seeks injunctive and declaratory relief against Mr Kennedy as a person who is knowingly concerned in and a party to WPS’s
contravention of s 65AAC(!): see s 75B of the TP Act. Mr Kennedy has not given evidence although the ACCC has filed his affidavit sworn in the
Supreme Court proceedings. In light of the findings I have made as to Mr Kennedy’s position as sole director of WPS and as a director DPIL, EWC
and WGIPH, as to his participation in the WGI promotional videos and in light of the conclusions I reached from his affidavit, I am satisfied that he

has been and is knowingly concerned in and a party to WPS’s contravention of s 65AAC(!) of the TP Act.

!39 I will give declaratory and injunctive relief accordingly.

OTHER MATTERS

!40 In consequence of what has emerged in the evidence the ACCC no longer seeks much of the relief sought in its Application. I would note in
particular it does not pursue its claims for contraventions of s 57 of the TP Act nor orders that the respondents remove the website located at
www.worldgamesinc.com or an order under s 86C(2)(d) of the TP Act.

CONCLUSION

!4! Though this proceeding has raised a number of issues of statutory construction, it has raised only one matter of real substance. This is whether
Australia can be used wholly or partially as a haven for operators of internet based pyramid selling schemes in circumstances in which members of
the Australian public are unable to gain internet access to such schemes through Australian internet service providers. My conclusion is that it
cannot.

!42 Unsurprisingly the respondents were prepared to consent to orders which would prohibit them from operating a scheme in which persons
resident in Australia could participate. Equally unsurprisingly – and as I have found justifiably – the ACCC declined to consent to this.

!43 I will make the following declarations and orders:

(!) a declaration that the First Respondent participated in a pyramid selling scheme in contravention of s 65AAC(!) of the Trade
Practices Act 1974 (Cth);

(2) a declaration that the Second Respondent was knowingly concerned in, and a party to, the First Respondent’s contravention of s
65AAC(!) of the Trade Practices Act 1974 (Cth);

(3) an injunction restraining the First Respondent by itself, its servants or agents or otherwise from participating in the World Games
Inc Scheme or in a scheme similar to the World Games Inc Scheme in which:

(a) to take part in the scheme, some or all new participants must make a payment (a "participation payment") to another
participant or participants in the scheme; and

(b) the participation payments are entirely or substantially induced by the prospect held out to new participants that they
will be entitled to a payment in relation to the introduction to the scheme of further new participants;

(4) an injunction restraining the Second Respondent by himself, his servants or agents or otherwise, from being knowingly concerned
in, or a party to, participation by the First Respondent in the World Games Inc scheme or in a scheme similar to the World Games Inc
scheme in which:

(a) to take part in the scheme, some or all new participants must make a payment (a "participation payment") to another
participant or participants in the scheme; and

26
 (b) the participation payments are entirely or substantially induced by the prospect held out to new participants that they
will be entitled to a payment in relation to the introduction to the scheme of further new participants;

(5) an order that the respondents pay the applicant’s costs of the application.

I certify that the preceding one hundred and forty-three (143) numbered paragraphs are a true copy of the Reasons for Judgment herein of the
Honourable Justice Finn.

Associate:

Dated: 2 September 2004

Counsel for the Applicant: Mr P O’Shea SC with Mr A Pomerenke

Solicitor for the Applicant: Corrs Chambers Westgarth

Counsel for the Respondent: Mr S Couper QC

Solicitor for the Respondent: Hopgood Ganim Lawyers

Date of Hearing: 7, 8 and 9 June 2004

Date of Judgment: 2 September 2004

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