02 Sep 2005

Is publishing a website "doing business in Australia"?

By Simon Turnill

Simply operating a website which passively attracts business from Australia or another State or Territory is not sufficient to amount to "doing business in" Australia or that State or Territory. It is not clear what more may be required if the website is targeted in some way to such customers in Australia or that State or Territory.

The recent case of Gebo Investments (Labuan) Limited & 2 Ors v Signatory Investments Pty Limited & 2 Ors; Application of John Campbell & 3 Ors [2005] NSWSC 544 (9 June 2005) considered the issue of whether publishing a website accessible by Australians was sufficient for a foreign entity to be regarded as "carrying on business in Australia."

The Federal Court has already considered this from a different perspective: whether publishing such a website might result in an infringement of Australian registered trade marks (Ward Group Pty Ltd v Brodie & Stone Plc [2005] FCA 471). This case, by contrast, concerns the provisions of the Corporations Act 2001 (Cth) which deal with foreign entities which "carry on business in Australia." At their most prosaic, the legislation requires such entities to become registered with the Australian Securities and Investments Commission (ASIC) and comply with certain reporting requirements, but this case concerned more exotic provisions.

Pie in the Sky

The case concerned an entity incorporated in Malaysia, LifeWealth 8 Limited, which operated, in conjunction with a number of other companies, a website running an internet share market game. The website invited individuals to sign up and become "members" or "licensees" in order to obtain access to a simulated stock market in which they could trade imaginary shares. During the sign up process, the individuals concerned were relieved of their credit card details and subsequently, we assume, large sums of money. In excess of two thousand Australian residents signed up to the scheme, which was described by ASIC, in a media release of 21 January 2004, as "the most outrageous financial scheme of the past 12 months" and therefore named winner of ASIC's "Pie in the Sky" award.

Some time later, the Malaysian entity became the subject of a winding up order under section 583 of the Corporations Act. The applicants in the present case, who were shareholder, directly or indirectly, in LifeWealth 8 Limited, sought to have the appointment of a liquidator set aside on the grounds that the Malaysian entity was not a "Part 5.7 Body" and therefore not subject to the jurisdiction of section 583. Section 9 of the Corporations Act defines a "Part 5.7 Body" as:

(a) ...

(b) a registrable body that is a foreign company and:

(i) is registered under Division 2 of Part 5B.2; or

(ii) is not registered under that Division but carries on business in Australia

Once a Part 5.7 Body ...

It was established that the Malaysian entity was indeed a registrable body that was a foreign company, and that it was not registered under Division 2 of Part 5B.2. Therefore, whether the Malaysian entity was a Part 5.7 Body hinged on whether it carried on business in Australia. The applicants initially argued that even if the Malaysian entity had carried on business in Australia at some point in the past, it did not do so now. Consequently, they argued, it was no longer a Part 5.7 Body and had slipped from the grasp of section 583.

This argument was dismissed by Justice Barrett, who followed two recent first instance decisions: ASIC v International Unity Insurance (General) Ltd [2004] FCA 1060 and ASIC v Edwards (2004) 22 ACLC 1469, both of which held that once a registrable body that is a foreign company becomes registered under Division 2 of Part 5B.2 (section 9 (b)(i)) or carries on business in Australia (section 9(b)(ii)), it becomes a Part 5.7 Body which is thereafter susceptible to an order for winding up, regardless of whether it subsequently becomes deregistered or ceases to carry on business in Australia.

So the question for the court to answer was whether the Malaysian entity had (at any time) carried on business in Australia, and part of the judgment specifically addressed whether mere setting up in another country of a website capable of being accessed by Australians was sufficient for this purpose.

In Gebo, the Judge assumed that the uploading of documents to this website occurred outside Australia. This raised the question of whether physical acts outside Australia which resulted in business communication with persons in Australia were, by reason of the location of the user receiving the communication, to be regarded as the carrying on of business within Australia. Having reviewed the case law, Justice Barrett considered that they were not:

"It has never been suggested that someone who by, say, letters posted in another country and addressed to recipients in Australia, seeks to interest those persons in business transactions to be entered into in the other country and in fact succeeds in concluding such transactions with some of them thereby carries on business in Australia, even though, depending on precise circumstances, the solicitation may contravene some other Australian law."

The fundamental issue for consideration was stated thus:

"There is a need for some physical activity in Australia through human instrumentalities, being activity that itself forms part of the course of conducting business."

The court went on to hold that the Malaysian entity had, in fact, carried on business in Australia, but for other reasons and not as a result of the existence of its website.

Conclusions

  • An entity which publishes a website abroad and which happens to solicit transactions from within Australia will not be regarded as carrying on business in Australia.
  • Once a entity has carried on business in Australia and falls within the definition of Part 5.7 Body, it remains such a body irrespective of whether it subsequently ceases to carry on business in Australia.

This is entirely consistent with the decision of Ward Group Pty Ltd v Brodie & Stone Plc referred to above, but the Court in that case went further to say that the conclusion may be different if there was some quality about the foreign website which showed that it was actively seeking to do business with Australian within Australia. The Court in Gebo does not go so far.

This issue may arise in other circumstances, within Australia, for example under State and Territory legislation requiring the registration of business names if a person is doing business in the State or Territory under a name other than his or her own name. In New South Wales, a new Business Names Act 2002 came into effect late last year, which includes the curious provision that a person carrying on business in the New South Wales under any unregistered business name need not be registered "so long as all orders for the goods or services provided by the business are received exclusively by means of an on-line service" (section 4(2)(e)). This is a strange and obscure provision – not reflected in any equivalent legislation in other States and Territories. It does not make clear whether this refers only to orders taken in New South Wales, or whether it does applies even to a person who has, say, shopfront premises, but uses a different, unregistered business name for an on-line service offering the same goods or services (a conclusion which would seriously undermine the purposes of the legislation).

Related Knowledge

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Clayton Utz communications are intended to provide commentary and general information. They should not be relied upon as legal advice. Formal legal advice should be sought in particular transactions or on matters of interest arising from this communication. Persons listed may not be admitted in all States and Territories.