Introduction

On 13 July 2012 Energy Watch was ordered to pay $1.95 million in penalties for making misleading comparisons in breach of the Australian Consumer Law1. The former CEO of the company was also fined $65,000 for his role in misleading radio advertisements. In imposing the penalties, the Federal Court found that Energy Watch had “deceived the Australian public in a very serious way.” Energy Watch is now in liquidation.

This very recent case reminds us that ensuring the accuracy of the “overall impression” conveyed by advertisements is paramount. In particular, it is essential to:

  • be clear about what products or services are being compared and the limitations of those comparisons; and
  • avoid making false or misleading headline claims: disclaimers at the foot of an advertisement probably will not negative their false or misleading impact.

Facts

Energy Watch provided a brokering service for the retail purchase of electricity and natural gas. It had agreements with five “preferred retailers” of electricity and natural gas. It would introduce customers to those preferred retailers in return for a commission.

During 2011, Energy Watch launched an extensive advertising campaign using an array of media including television, print, billboards, radio and even a football scoreboard at the Melbourne Cricket Ground. The advertisements included references to Energy Watch being the “electricity umpire” which “compares energy providers” for consumers.

Findings

The Court found that the advertisements represented that Energy Watch comprehensively examined rates available to get the best available deal for the consumer. In fact, the only energy providers compared by Energy Watch were its five preferred retailers. The advertisements were also found to have misled consumers by overstating the savings they would make by switching retailers using Energy Watch. Energy Watch attempted to negative the misleading impression conveyed by its advertisements by including “disclaimers” in some advertisements. With the exception of one advertisement2, the Court found that the disclaimers did not have their desired effect. The Court’s finding reinforces the message that only in some circumstances can reliance be placed on disclaimers, and rarely in television advertisements. The Court described the television disclaimers, which contained the all-important phrase “we do not compare all energy providers” as “fleeting and microscopic” and “only capable of being read by pausing the advertisement and using a magnifying glass.” In this case, print disclaimers read only “refer to website” or similar, in tiny print at the bottom of the page. The Court found that these disclaimers were powerless to counteract the misleading representations contained in the body of the advertisements.  

Observations

Encouraging comparison between energy retailers (and indeed in any sector) is important in order to encourage switching and maintain a high level of contestability, which potentially benefits consumers. The facility offered by Energy Watch had the potential to do this if it truly did allow customers to make fully informed decisions about who to buy their energy from. This was held not to be the case and customers were led to make decisions based on incorrect and incomplete information. Price comparator services must be clear about the extent of the products or services they compare, especially in a market where purchasing decisions are based almost solely on price. Otherwise, what could be a competition-enhancing device may unlawfully manipulate market outcomes.

Although short term benefits of higher sales may accrue to those who do not tell their customers the whole story, the penalties imposed on Energy Watch remind us that the Courts will harshly penalise such “sharp business practices”. 

Read the full judgements at the following links:

http://www.austlii.edu.au/au/cases/cth/FCA/2012/749.html (penalty decision)

http://www.austlii.edu.au/au/cases/cth/FCA/2012/425.html (liability decision)