By Dr Jeannie Marie Paterson and Veronica Wong
Section 18 of the Australian Consumer Law (previously s 52 of the Trade Practices Act 1974 (Cth)) contains a broad ranging prohibition on conduct that is misleading or deceptive or likely to mislead or deceive. Misleading conduct in advertisements by traders causes harm by distorting the purchasing choices of consumers. This may reduce competition in the market by leading consumers to favour products that don’t have the features that are promoted. It may also increase costs for consumers, incurred either by entering into contracts that are not in their best interests or by incurring search costs that are wasted when they discover that the product does not exist as represented.
In Australian Competition and Consumer Commission v TPG Internet Pty Ltd  HCA 54, the High Court confirmed importance of s 18 in protecting consumer interests by holding that so-called ‘headline’ advertising may be misleading notwithstanding the existence of a fine print disclaimer qualifying the representations in the headline statement.
The High Court also confirmed that deterrence should play a ‘primary’ role in setting the appropriate penalty to be imposed on a trader for a contravention of s 18. Specifically, the court should consider the need to deter offending conduct and any penalty imposed should be significant enough that it is not merely a cost of doing business. A majority of the High Court (French CJ, Crennan, Bell and Keane JJ; Gageler J dissenting) held that the Full Federal Court erred in setting aside the findings of primary judge and restored the pecuniary penalty of $2 million.
The decision of the High Court in TPG shows that whether an advertisement is misleading contrary to s 18 of the ACL should, as the words of the section suggest, be assessed by reference to the impressions conveyed by the advertisement in the circumstances in which it is delivered, and not merely by reference to the existence of technically correct information available to those consumers who choose to look for it or by reference to the presumed background knowledge of consumers. This approach, combined with the recognition that the penalty for contravention of s 18 is aimed at genuine deterrence of the offending behavior, is entirely consistent with the consumer protection purposes of the legislation.
A misleading advertisement leads to litigation
From 2010 to 2011 TPG engaged in a multi-media ad campaign using TV, radio, newspapers and websites offering ‘Unlimited ADSL2+’, an internet broad band service, to consumers for $29.99/month. In fact the offer was qualified: ADSL2+ was available only when bundled with TPG’s home phone service for an additional $30/month (with a minimum 6 month commitment) and consumers were required to pay a setup fee of $129.95 plus a deposit of $20 for telephone charges. These charges were disclosed in fine print under the headline offer.
The Australian Competition and Consumer Commission (ACCC) notified TPG of its concern that the ads were misleading in 2010 and some changes were made, primarily increasing the size of the text advising consumers of the additional costs.
The amended TV advertisements are reproduced below. They were on screen for approximately 15 seconds, and were accompanied by a voice-over emphasising the $29.99/month cost.
The ACCC was not satisfied with this response and brought proceedings against TPG in the Federal Court alleging the ads were misleading and deceptive due to the disparity between the prominent headline offer of $29.99 and the actual offer terms.
In the Federal Court, the primary judge upheld the ACCC’s claim. The ‘dominant message’ of the advertisements gave the misleading impression that the entire cost of the service was $29.99/month only. His Honour accepted that the corrected advertisements provided sufficiently clear information about the setup fee. The primary judge made orders for injunctions, corrective advertising, the implementation by TPG of a compliance program and costs. The primary judge imposed a pecuniary penalty of $2 million.
On appeal, the Full Court of the Federal Court set aside all but three of the primary judge’s findings of misleading conduct and reduced the pecuniary penalty to $50,000. The Full Court emphasised the principle that in characterising conduct as misleading, attention should be paid to all of the information provided by the trader. In the present case the bundling condition could not be missed except by a mere ‘perfunctory’ viewing or listening by consumers. In addition, the Full Court held that consideration should be given to the knowledge of the target audience, which in this case included the knowledge that ADSL2+ services may be offered as a bundle with fixed line telephony.
The ACCC then appealed to the High Court where the majority restored the findings of the primary judge and the pecuniary penalty.
Why was the advertisement misleading?
The High Court held that the Federal Court had erred in two respects in its approach to assessing whether the advertisements were misleading.
First, the Full Court erred in dismissing the importance that the trial judge had placed on the ‘dominant message’ of the advertisements. The High Court accepted that the entirety of the circumstances should be considered and that recipients of information can be expected to be careful in assessing that information. However, context is important. The High Court noted that TPG’s audience was not ‘potential purchasers focused on the subject matter of their purchase in the calm of the showroom to which they had come with a substantial purchase in mind’. Here, the advertisements were ‘an unbidden intrusion on consciousness’ and, in such circumstances, consumers ‘cannot be expected to pay close attention to the advertisement’. That being so, ‘perfunctory’ attention given to the advertisements by an ordinary and reasonable person should not be equated with a failure to take reasonable care of their own interest so as to preclude those advertisements from being misleading.
The High Court emphasised that the tendency of the advertisements to mislead was to be determined by asking whether ‘they were apt to bring [consumers] into negotiation with TPG rather than … its competitors on the basis of an erroneous belief engendered by the general thrust of TPG’s message’, ‘not … whether they were apt to induce consumers to enter into contracts with TPG.’ The question of whether the conduct had caused consumers to enter into a contract was relevant in assessing whether those consumers had suffered any loss for the purposes of assessing damages (which were not being sought in this case) not the anterior question of whether the conduct was indeed misleading. Accordingly, the ability of consumers to clarify their impression about what was being offered at the point of contracting did not prevent the advertisements from contravening s 18.
Secondly, the High Court held that the Full Court erred in considering that the misleading character of the advertisements might be neutralized by its attribution of knowledge to the target audience. The circumstance that many consumers might know that ADSL2+ services are commonly offered as a ‘bundle’ did not defuse the tendency of the advertisements to mislead, especially where the target audience was left only with the dominant message after the end of the advertisement. Rather, the tendency of TPG’s advertisements to lead consumers into error arose because the advertisements themselves selected some words for emphasis and relegated the balance to relative obscurity. In this regard, the High Court affirmed the proposition that where a representation is made in terms apt to create a particular mental impression in the representee, and is intended to do so, it may properly be inferred that it has had that effect.
What was the penalty and what were the concerns which shaped that penalty?
The High Court held that the $2 million penalty should be restored given the extent and circumstances of TPG’s contraventions and the importance of deterrence.
The primary judge was entitled to assess penalty on the basis that there were nine classes of contravention (four different types of initial ads and five different types of revised ads) by having regard to the deployment of different media for its three different messages.
The primary judge was also entitled to have regard to TPG’s 2009 undertaking and the fact that the undertaking had not been sufficient to secure TPhttp://www.austlii.edu.au/au/cases/cth/HCA/2013/54.htmlG’s adherence to the requirements of the TPA indicated ‘a more severe penalty was necessary’.
Importantly the High Court affirmed that general and specific deterrence must play a primary role in assessing the appropriate penalty in cases of calculated contravention of legislation where commercial profit is the driver of the contravening conduct. The pecuniary penalty imposed by primary judge was not excessive and served as a ‘real deterrent’ to TPG and its competitors, and would not be ‘regarded … as an acceptable cost of doing business’ (citing Singtel Optus v Australian Competition and Consumer Commission  FCAFC 20, ).
The High Court’s decision in this case underlines the consumer protection purposes of the legislation. The Court refused to allow companies to escape liability by relying on fine print disclaimers, and instead focused on the general impressions created by the advertisement and the circumstances in which consumers would be reading it. The Court was also concerned to ensure that potential contraveners were genuinely deterred from such conduct in the future (both specifically and generally).
AGLC3 Citation: Jeannie Marie Paterson and Veronica Wong, ‘Fine Print Disclaimers May Not Protect Advertising from being Misleading: Australian Competition and Consumer Commission v TPG Internet Pty Ltd’ on Opinions on High (6 January 2014) <http://blogs.unimelb.edu.au/opinionsonhigh/2014/01/06/paterson-wong-tpg>.
Dr Jeannie Marie Paterson is a Senior Lecturer at Melbourne Law School.
Veronica Wong is a JD Candidate at Melbourne Law School.