ACCC v SingTel Optus Pty Ltd (No 4) [2011] FCA

Keypoints / learnings

  • Optus penalised $5.26m for using misleading headlines in its broadband advertising campaigns.
  • Traders should be aware that in addition to compliance costs in dealing with breaches of Australian Consumer Law, they might also face high penalties imposed by a Court for a contravention.
  • Traders should periodically revise trade practices compliance programs to take into account changed circumstances.
  • Advertisers should examine the effectiveness of any disclaimers used in their ads.
  • Advertisers may need to apply different standards to different types of media in determining what might be misleading.  For example, internet users may be considered more attentive then television viewers.

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On 7 July 2011, Justice Perram of the Federal Court of Australia ordered Singtel Optus to pay $5.26 million in civil pecuniary penalties for breaches of consumer protection provisions of the Trade Practices Act 1974 (TPA) (equivalent provisions are now found in the Australian Consumer Law which forms a schedule to the Competition and Consumer Act 2010). This is the biggest civil penalty imposed since the Federal Court was granted powers to order civil pecuniary penalties for breaches of consumer protection laws.

The power to order civil penalties for breaches of the Competition and Consumer Act 2010 (CCA) formerly the TPA was predominantly confined to breaches of the restrictive trade practices provisions in Part IV of that Act. For contraventions of many sections of that Part, the Court has from time to time awarded penalties in the tens of millions, as the conduct involved has traditionally been regarded as serious attracting maximum penalties of $10 million per contravention, with an escalation for corporates with large turnovers and in situations where the harm caused by the contravention has massive financial significance.1

Civil penalties were not available for contraventions of the consumer protection provisions until April 2010.  Before that time the ACCC was restricted to bringing criminal proceedings for a fine, which it has done very rarely, and seeking declaratory and injunctive relief (rather than penalties).

The new powers permitted the Australian Competition and Consumer Commission (ACCC) to seek civil penalties for breaches of certain of the consumer protection provisions of the TPA with maximum penalties per contravention for corporations in the sum of $1.1 million. It also permitted the Court to make orders that disqualified a person from managing a corporation and the ACCC was also given powers to issue infringement notices imposing small financial penalties without the need of having to go through a court process. Further information on these changes can be found here.

The Federal Court's decision in the ACCC v SingTel Optus Pty Ltd (No 4) [2011] FCA 761 has demonstrated that the new powers have teeth and as a consequence traders who are found to contravene the Australian Consumer Law face a more significant financial risk.

The misleading conduct

The ACCC complained of Optus' mass market advertising campaigns for broadband internet services, which had the following elements:

  • Each broadband plan was advertised as consisting of a peak usage allowance and an off-peak usage allowance with those two allowances totalling the size of the plan;
  • An example was that "120GB Think Bigger" plan was said to consist of a 50GB peak usage allowance together with a 70GB off-peak usage allowance;
  • However, in fact, Optus did not provide two distinct usage allowances – one peak; one off-peak.  Rather, when a customer exhausted all of his or her peak allowance the service would be throttled back to 64kbps and that speed would apply to both peak and off-peak usage, even if the off peak allowance had not been exhausted.
  • The relevant ads did have disclaimers but the Court found the disclaimers in the television ads were essentially invisible and the disclaimers in the print ads, flyers and online ads were ineffective.  

The proceedings

Proceedings were heard on an expedited basis in October 2010 and the Court found in favour of the ACCC finding Optus had breached s52 and s55 of the TPA and granted injunctive relief and corrective advertising. Section 52 was the provision which prevented companies from engaging in misleading or deceptive conduct and section 55 prohibited companies from misleading the public about the quantity of any services.

Under the changes to the TPA identified above, the Court could order a corporation to pay a civil penalty for a contravention of s55 up to $1.1 million per contravention. This application was heard in December 2010 (as the imposition of a penalty as opposed to injunctive relief and corrective advertising was not urgent) and the Court delivered its judgment on 7 July 2011.

The basis for determining the size of the penalty

The factors to consider in ordering a penalty were found in s76E of the TPA and have now been replicated in s224 of the Australian Consumer Law. This provision mirrors s76 of the CCA which governs imposing civil penalties for breaches of the restrictive trade practices provisions of that Act. Each of these provisions provides for the taking into account of three compulsory factors in setting the penalty:

(a) the nature and extent of the conduct and the loss or damage it caused;

(b) the circumstances in which the conduct occurred; and

(c) whether the person has previously been found by the Court to have engaged in any similar conduct.  

The Court has also developed the following non-mandatory factors (sometimes referred to as the French and Heerey factors in respect of s76 of the CCA) which Justice Perram identified as follows:

1. the size of the contravening company;

2. the deliberateness of the contravention and the period over which it extended; 

3. whether the contravention arose out of the conduct of senior management of the contravener or at some lower level;

4. whether the contravener has a corporate culture conducive to compliance with the Act (or the new Australian Competition and Consumer Law) as evidenced by educational programmes and disciplinary or other corrective measures in response to an acknowledged contravention;

5. whether the contravener has shown a disposition to co-operate with the authorities responsible for the enforcement of the Act in relation to the contravention;

6. whether the contravener has engaged in similar conduct in the past;

7. the financial position of the contravener;

8. whether the contravening conduct was systematic, deliberate or covert.

The Court also noted that there were two further "market" factors which were sometimes considered in assessing penalties under Part IV which may not be as relevant to the consumer protection provisions.

The key factors relied on by the Court in assessing the penalty in this case included the following:

  • the extent of the conduct – one of the campaigns involved television ads aired on 15,405 occasions, print ads published over a week in various metropolitan daily papers, flyers in newspapers and 37 billboards in many parts of the country;
  • the scope of the harm – there was little evidence before the Court of the scope of the harm.  The evidence was that few complaints had been made to the ACCC or the Telecommunications Industry Ombudsman. Further, it seemed that the harm may have been lessened by the granting of the injunctive relief and also the corrective advertising which allowed customers to terminate their broadband contract without penalty; 
  • the so called "hypocrisy" involved in Optus' conduct as a result of previous representations not consistent with its conduct, including its previous s87B undertaking to the ACCC not to engage in headline advertising and also its indication (in that undertaking) that it would set a benchmark for "truth in advertising" in future;
  • Optus' previous contraventions of consumer protection provisions in respect of its advertising practices;
  • Optus' size and status as a market leader;
  • The deliberateness of the conduct – there was little evidence about this except for the fact that the ads received legal clearance.  The Court also paid particular attention to the fact that Optus undertook in its s87B undertaking to update compliance programs to deal with headline advertising.  However, it did not in fact do this.  The ads were the subject of legal review.  The Court indicated that sufficient resources were not put in place to review advertisements and the outcome was an inevitable consequence of a failure to comply with its s87B undertaking.  The Court also inferred that the inhouse/secondee lawyers mustn't have been aware of the s87B undertaking and further stated: "It bespeaks on Optus' part a failure to take compliance seriously. While this does not necessarily show the conduct was deliberate, it discloses an approach to the Act on Optus' part which requires condign sanction."
  • The financial benefit Optus derived from the campaign which was significant.

How many contraventions?

An important factor in assessing a penalty is determining how many contraventions took place. Carving up the conduct in to a number of contraventions is both contentious and significant given that the maximum penalty is partly derived by the number of contraventions.

Optus argued that there was only one contravention as the conduct was constituted by, in essence, one advertising campaign. On the other hand the ACCC argued, and the Court accepted, that there were 11 contraventions one for each advertisement in each format. The Court noted that it would've been manifestly excessive to treat each "instantation" (presumably publication) as a separate contravention.

Setting the penalty

The Court noted that it was not a matter of working back from the maximum penalty (in this case $12.1m) but rather an instinctive synthesis weighing up the various competing factors. The Court applied a penalty to each of the 11 contraventions which totaled $5.26 million and formed the view that this was an appropriate figure overall given the nature of the conduct (applying the totality principle). The Court also had regard to the impact of the penalty on the profits which were made from the particular advertising campaign. Without disclosing the profits for confidentiality reasons, the Court indicated the penalty would have a significant impact on Optus' decision to pursue such a campaign which would therefore have a deterring effect.

Comment on forms of advertising media

Optus' ad campaigns spanned television, print, online and billboard advertising, giving the Court the opportunity to make a number of comments about the nature of the audience in each media. Here are a selection of the comments which may be useful in screening advertisements:

  • Internet users give the monitor their largely undivided attention. The relationship between a computer user and the internet is one of greater engagement and so a commercial is not only more likely to be noticed, but also much more likely to be watched.
  • Television commercials "may be ignored under the weight of conversation between viewers; muted, until the advertisements have passed; disposed of altogether by changing channel; or, with the rise of simultaneous recording technology such as PVRS, at best, fast forwarded through (as with Foxtel's IQ product) or, at worst, simply skipped altogether". 
  • Newsprint commercials "suffer the indignity of having to compete to get the consumer's attention".
  • Billboards tend to be seen by moving consumers (in a car or train) unless viewed stationary on a train platform or bus shelter, and this impacts on how careful billboard ads must be in not misleading consumers.

Screening and compliance

The Court was critical of the practices adopted by Optus in screening ads, particularly in light of the fact that Optus' advertising campaigns had fallen foul of consumer laws in the past. Given in particular the large penalties that may be imposed for this type of conduct, together with the reputational damage and compliance costs, advertisers should ensure that they pay sufficient attention to pre-publication screening and compliance processes.