SensaSlim Australia has been found guilty of misleading and deceptive conduct by failing to disclose conman Peter Foster’s involvement in the business in its franchise disclosure document.
Foster was found to be the “puppeteer” of the scheme and SensaSlim’s failure to disclose his involvement was deliberate.
“The evidence presents a convincing picture of Mr Foster as the puppeteer who pulled all the strings [in SensaSlim],” Justice Yates said in his judgment.
“Mr Foster controlled and directed, in an executive capacity, the way in which the SensaSlim business was carried on.”
The Federal Court also found the business made false and misleading representations about the role of SensaSlim officers Peter O’Brien and Michael Boyle, the company’s ‘worldwide clinical trial’ and the earning potential of the franchises.
Justice Yates found the clinical study was a “fabrication, intended to lead prospective franchisees into false belief that the efficacy of the SensaSlim product”.
Foster was found to have gone to “great lengths” to conceal his involvement in the scheme.
“The disclosure of Mr Foster as an officer of SensaSlim would have been particularly important to any potential franchisee, given the court orders which prevented Mr Foster from being knowingly concerned in the promotion or conduct of any business relating to weight loss, cosmetic or health industry products or services,” Australian Competition and Consumer Commission deputy chair Michael Schaper says.
“Misleading representations about important aspects of a business opportunity such as the efficacy of the products and earning potential can cause significant harm to both small business investors and consumers.”
Foster was sentenced in October to three years’ jail for contempt of court after defying court orders which prevented him from being involved in the weight loss industry.
He is currently on-the-run and Interpol have issued a red notice calling for his arrest. Earlier this year it was reported Foster was hiding out in Fiji, but his precise location was unknown.
Foster is said to have attempted to conceal his participation in the business by pretending to be Peter O’Brien. O’Brien was found to be no more than a front man in the scheme for Foster.
Foster would pretend to be O’Brien in phone conversations with employees, as he was aware no one would want to be involved in the company if they knew of his involvement.
Hall and Wilcox partner Ben Hamilton told SmartCompany businesses have an obligation to disclose any information which could be misleading to consumers, including businesses.
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“The lack of disclosure was deemed to be quite intentional,” he says.
“In trade or commerce businesses just can’t engage in misleading or deceptive conduct, this is a broad principle. As for the Franchising Code of Conduct, any franchise is also governed by this code and there are a number of specific obligations regarding the disclosure of information under this code.”
Hamilton says a useful starting point for businesses is to put themselves in the shoes of the consumer.
“In all the circumstances it’s about the possibility the consumer could be misled by the conduct. The answer can’t always be straightforward, but that’s the principle.”