On 7 July 2011, the Federal Court handed down the largest civil penalty in a consumer protection matter. Optus was ordered to pay $5.26 million for having advertised in a way that breached the consumer protection provisions of the Trade Practices Act1.
This is a significant decision for business as it shows the vigour with which the Australian Competition and Consumer Commission (ACCC) will approach proceedings, how seriously the courts will consider such conduct and the risks to business if it is found to have breached the Australian Consumer Law (ACL)2. While these proceedings were commenced before the changes to the legislation came into effect, this decision highlights that vigilance is essential and the importance of ensuring your business has the right systems in place to avoid breaches of the ACL, and (in the event that they do take place) to deal with them properly.
The ACCC commenced proceedings against Optus in relation to its advertising campaign for the "Think Bigger" and "Supersonic" broadband internet plans.
Over a period of five months in 2010, Optus ran advertisements that suggested that the user would get a broadband allowance of either 120GB or 150GB (depending on the plan) with on and off peak usages. In fact the plans would only work in that way if the consumer was careful to use all of the off peak allowance before the peak allowance. There were several sets of related proceedings and in the main proceedings the court found the advertisements to be seriously misleading. Among other things, Optus was ordered to carry out some corrective advertising.
The ACCC then sought orders for a civil penalty to be paid by Optus to the Commonwealth. The maximum penalty payable for each act or omission is $1.1 million. Consistent with the Minister's comments on the second reading of the Trade Practices Amendment (Australian Consumer Law) Bill (No1) 2010, these penalties are serious. Significantly in this case, the highest penalty to date was ordered, even though the court did not find that Optus had been unreasonable in its defence of the actions or that its conduct was not co-operative.
What will the court consider when dealing with penalties?
The three matters that the court must take into account when considering a penalty are:
- the nature and extent of the act or omission and of any loss or damage suffered as a result
- the circumstances in which the act or omission took place
- whether the person (in this case Optus) had previously been found by the court to have engaged in similar conduct.
There are also eight factors that the court may (but does not have to) consider, being:
- the size of the contravening company
- the deliberateness of the contravention and the period over which it extended
- whether the contravention was at a senior management level
- the existence of a culture of compliance
- co-operation with the regulator (in this case the ACCC)
- similar conduct in the past
- the financial position of the contravener
- whether the contravening conduct was systematic, deliberate or covert.
The case law also suggests that the court needs to consider the effect of the contravening conduct on the market and the degree of market power the contravener has evidenced. This was not dealt with in detail in this decision.
How did Optus act?
In its consideration of the three mandatory factors, the court analysed the following:
- The media campaign - the extent of the television, print (including newspapers and flyers) and online advertising, and how each of these would have been "read" by the consumer. The court also looked at the fact that only three complaints had been made about the campaign and ultimately, the court found that in fact consumers suffered little loss or damage.
- The fact that Optus had previously given an enforceable undertaking to the ACCC to stop headline advertising (ie using advertisements where a prominent headline was displaced by a smaller disclaimer). The court found that Optus had said one thing and done another. The court also considered the extent to which Optus had cooperated with the ACCC.
- Proceedings in which Optus had been involved in the past. The court found that in only two of those had Optus' conduct been "similar conduct" for the purpose of the penalty provision.
To the extent that they do not overlap with the mandatory factors, the court found the following in respect of the non mandatory considerations:
- Optus' size and status as a market leader - and the importance of that on general deterrence
- Even though there was no evidence that Optus' conduct was deliberately false, its compliance systems (albeit extensive) were not sufficient and the court said that Optus did not take compliance seriously enough
- Optus derived a substantial revenue from the plans, and the profits from those plans were connected with the campaign.
How big a penalty?
In formulating the penalty, the court looked to the purpose of the penalty – ie deterrence and the need to "put a price on contravention that is sufficiently high to deter repetition by the contravener and by others tempted to contravene".
The court found that each advertisement was a contravention and that therefore the maximum penalty that it could apply was $12.1 million. However, it also found that not all of the advertisements were as deceptive as the others. The court made some interesting observations on internet advertising including that because the relationship between a computer user and the internet is one of greater engagement such a commercial is not only more likely to be noticed but much more likely to be watched.
In total the court ordered Optus to pay $5.26 million – which the court observed was a substantial proportion of the profits that Optus could expect to make from the plans.
Why is this important to you?
This is somewhat of a significant moment in Australian consumer protection law. The ACCC has sought and obtained a significant penalty. Business needs to look carefully at the way it is acting to make sure that it does not put itself at risk. The ACCC is clearly using the powers available to it to try and set a standard of behaviour and deter businesses from breaching the law.
Interestingly, the court made these orders even though it found that there was little loss to consumers and in circumstances where only three complaints had been made. A critical aspect of the decision is the importance of an effective compliance culture and the importance of deterrence.
From a practical point of you, it gives some guidance on how the court will look at the effect of online advertising and importance of considering each of your advertising media separately - and its effect on the consumer. It is not "one size fits all" when it comes to compliance. It is essential to have a compliance culture where staff (existing and new) do not need to go out of their way to seek out information – they must be required to be aware of it as part of an ongoing compliance programme.
1. From 1 January 2011 the Competition and Consumer Act 2010.
2. Schedule 2 to the Competition and Consumer Act 2010.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.