Compliance issues: Misleading
and Deceptive Conduct
Paris Petranis
Partner
WHAT’S THE BIG DEAL?
“Cartel conduct in government procurement, truth
in advertising, competition and consumer issues in
the health sector and industry codes are some of
the Australian Competition and Consumer
Commission’s new compliance and enforcement
priorities for 2015”
(ACCC media release 19 February 2015 – emphasis added)
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WHAT’S THE BIG DEAL? (CONT)
“This year we will begin a new program of reviews
of selected industry sectors. The sectors we are
currently reviewing include debt collection and
private health insurance”
“These reviews will assist us to identify risks to
consumers and the competitive process that may
require intervention, and possibly identify and
encourage good industry practice”
(Rod Sims, ACCC Chairman, 19 February 2015)
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WHAT’S THE BIG DEAL? (CONT)
NIB paid a penalty of $10,200 following the issue
of an Infringement Notice by the Australian
Competition and Consumer Commission in relation
to advertising about the waiver of the waiting
period for “Extras” cover.
From December 2012 to November 2014, in
promoting its combined Hospital and Extras cover,
NIB offered to waive the waiting period on its
Extras option which it represented as “usually” or
“normally” requiring a 2 month wait.
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MISLEADING AND DECEPTIVE CONDUCT
 Schedule 2 of the Competition and Consumer
Act 2010 (Cth) (ACL)
 Main source of consumer protection
 We will focus on misleading and deceptive
conduct
 PHI Code of Conduct emphasises the
requirement to comply with the Competition and
Consumer Act 2010 (Cth)
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MISLEADING AND DECEPTIVE
CONDUCT (CONT)
 A person must not, in trade or commerce,
engage in conduct that is misleading or
deceptive or is likely to mislead or deceive
(section 18 ACL)
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MISLEADING AND DECEPTIVE
CONDUCT (CONT)
 We will cover:
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Misleading and deceptive conduct generally
Disclaimers (fine print)
Comparative advertising
Puffery
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MISLEADING AND DECEPTIVE
CONDUCT (CONT)
 Do not make any statements in business which
are:
 Misleading or deceptive; or
 Likely to mislead or deceive – a real or not remote
chance or possibility regardless of whether it is less or
more than 50%
 Every statement you make must be true and
accurate in all material respects
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MISLEADING AND DECEPTIVE
CONDUCT (CONT)
 Prohibition applies to all:
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Product disclosure statements (SIS)
Statements made (whether oral or written)
Advertising, marketing or promotional material
Terms of sale
Discussions with members and potential members
Contract negotiations
Business communications
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MISLEADING AND DECEPTIVE
CONDUCT (CONT)
 Intent is irrelevant - all that is relevant is whether,
tested objectively, the conduct is misleading or
deceptive or likely to be so
 Misleading or deceptive conduct occurs at the
time when the conduct occurs or is published
 Later clarifications do not overcome earlier misleading
or deceptive conduct
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MISLEADING AND DECEPTIVE
CONDUCT (CONT)
 Assessed by reference to the audience
 The astute and the gullible, the intelligent and not so
intelligent, the well educated and the poorly educated
 Tip - someone who has less than average intelligence
but is not “extremely stupid or gullible”
 Tip - Not someone who works for a private health
insurer or has a keen interest in private health
insurance
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MISLEADING AND DECEPTIVE
CONDUCT (CONT)
 Must be in trade or commerce
 Silence itself may be misleading or deceptive:
 Leaving out (or hiding) important information
 Not correcting a misunderstanding
Hypothetical example:
 A PHI employee sells a PHI policy to a pregnant
lady (who makes it clear her main concern is
maternity care) without telling her there is a 12month waiting period for obstetrics
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MISLEADING AND DECEPTIVE
CONDUCT (CONT)
 Overall impression is the key
 Ad will be judged by its first and overall impression
 Overall impression of an ad can be misleading even if
it contains factually correct statements
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DISCLAIMERS
 Disclaimers cannot be used to correct a
misleading claim in the body of an ad or
document
 Fine print must not contradict main message or
overall impression
 Must be specific, clear and highly visible (size
does matter)
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DISCLAIMERS (CONT)
 Should be proximate to the material being
disclaimed and presented at the same time as
the claim
 On same page / webpage (not click through)
 Not at end of TV or radio ad when item
being disclaimed was referenced at start of
ad
 Should only be used to provide additional
information
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DISCLAIMERS (CONT)
 “Conditions apply” may not be good enough
 Unacceptable not to disclose relevant terms because
of lack of space or because “disclaimers are ugly”
 A television advertisement advertising that on
weekends local calls were free was found misleading
notwithstanding a prompt which stated “Some
exclusions apply” (TPC v Optus)
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ACCC QUOTES
 "The inclusion of an asterisk or a fine print disclaimer
does not remove the potential for a headline to be
misleading“
 "Companies must ensure that they do not use
misleading headlines about the price and other key
terms and conditions of the services being offered. It is
not enough for a company to try to correct a misleading
headline using fine print text“
 "The advertising practice of fine-print qualification is one
the ACCC is tired of correcting"
 "The ACCC will take an increasingly aggressive
approach to send the message that this kind of
misleading advertising will not be tolerated"
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RECAP
 Overall impression is critical
 Disclaimers aren’t a “cure all”
 ACCC will look to the message concerned
regardless of the medium in which it is
delivered (ie, you get no grace because there is
limited space on a billboard or limited time on a
TV ad)
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COMPARATIVE ADVERTISING
 Comparisons with competitors inherently risky!
 Not because there is a higher burden to show
accuracy
 But because
 Errors in comparative advertising may have a greater
potential to mislead
 Competitors more likely to notice and/or challenge potentially
misleading claims
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COMPARATIVE ADVERTISING (CONT)
 When comparing products in advertisements,
your product must be compared with your
competitor’s most directly comparable product,
i.e. “like for like” (How can you do this????)
 All main assumptions and factual matters
relating to the comparison must be disclosed
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COMPARATIVE ADVERTISING –
EXAMPLE (CONT)
 Example: Duracell bunny
 Up to “3 times longer”
 But – comparing (expensive) alkaline battery to
(cheaper) zinc carbon battery
 Also not disclosing Eveready alkaline battery
durability similar to Duracell
 Federal court held ad misleading
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COMPARATIVE ADVERTISING (CONT)
 No control over what your competitor does.
They may change offering and render your
advertising incorrect and misleading
 No grace period for changes to competitor
offering
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COMPARATIVE ADVERTISING (CONT)
 Potential for unintentional comparisons
 “only”
 “better/best”
 Can be implicit comparison
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COMPARATIVE ADVERTISING (CONT)
 Tip: Invite the consumer to make the comparison
 “Does your health cover offer all of this?”
 Tip: Remember overall impression
 Tip: Watch for unintentional comparisons and for
inappropriate implications
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COMPARATIVE ADVERTISING (EXAMPLE)
 Telstra v Optus (2014)
 Visual: Map of Australia (with graphics – 98.5% cf
99.3%)
 Voiceover: “When it comes to the percentage of
Australians the Optus mobile network reaches, there
isn’t much difference between us and Telstra. In fact,
it’s less than 1%.”
 Supreme Court of Victoria held the advertisement was
misleading as consumer could have construed the
percentage coverage to reflect geographic coverage
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PUFFERY
 Marketing hype – exaggeration, superlatives
 “great value”
 ACL makes no distinction between
representations and puffery – although this does
not mean courts will regard all puffery as
misleading
 “In the ordinary course of commercial dealings, a
certain degree of ‘puffing’ or exaggeration is to be
expected”
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PUFFERY (CONT)
 The more a statement is capable of being
objectively assessed, the less likely it will be
considered puffery
 “Lowest price”?
 Context is relevant
 Case example:
 “World’s longest lasting battery in high powered
devices” – not puffery
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CASE EXAMPLE: ACCC V TPG
 Federal Court single judge decision:
 Decision – 4 November 2011
 Penalties – 15 June 2012
 Full Federal Court appeal:
 Decision – 20 Dec 2012
 Penalties – 4 Apr 2013
 High Court:
 Decision – 12 Dec 2013
Facts: See following ad
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CASE EXAMPLE: ACCC V TPG (CONT)
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CASE EXAMPLE: ACCC V TPG (CONT)
Trial:
 TPG engaged in conduct that was misleading or
deceptive or likely to mislead or deceive
 TPG made false or misleading representations
in relation to the price of the services
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CASE EXAMPLE: ACCC V TPG (CONT)
Trial:
 Findings made because the advertisement did
not prominently specify that the offer was
conditional on a customer:
 Paying to TPG a total of no less than $59.99 per
month
 Purchasing, or bundling, home telephone line rental
with broadband internet service for an extra $30
 Dominant message was “Unlimited ADSL2+ for
$29.99 per month”
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CASE EXAMPLE: ACCC V TPG (CONT)
Trial:
 Bundling condition “tends to seriously undermine
the integrity of the dominant message,
contradicting rather than fairly qualifying it”
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CASE EXAMPLE: ACCC V TPG (CONT)
Trial – Penalties:
 $1.4M pecuniary penalty for ads similar to the
internet ad ($2M penalty overall)
 TPG at its own expense to:
 Publish corrective ads in state and national
newspapers and on its website
 Mail corrective ads to each person who became a
customer between 25/9/2010 – 2/12/2011
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CASE EXAMPLE: ACCC V TPG (CONT)
Trial – Penalties (cont):
 Injunctions restraining similar conduct for 3
years
 TPG to maintain and administer a trade
practices compliance program for 3 years
 TPG to pay the ACCC’s costs
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CASE EXAMPLE: ACCC V TPG (CONT)
Trial – Penalties (cont):
 In framing the penalties, court took into account
the fact that prior to issuing the ad, TPG
considered and rejected using the following
advertisement which clearly sets out the $59.99
monthly price
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CASE EXAMPLE: ACCC V TPG (CONT)
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CASE EXAMPLE: ACCC V TPG (CONT)
FULL COURT APPEAL
 Allowed TPG’s appeal in part
 Only the initial TV ads which ran for 12 days before
being revised were misleading
 None of the other ads were misleading
 Reduced the trial judge’s penalty orders from $2
million to $50,000 ($125,000 appropriate)
 Orders for injunction, corrective advertising and
compliance program also set aside
 ACCC ordered to pay 75% of TPG's costs
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CASE EXAMPLE: ACCC V TPG (CONT)
FULL COURT APPEAL
 Issue: Was the bundling condition and set up fees
sufficiently prominent to prevent the “Unlimited ADSL2+
for $29.99 per month” statement from being misleading?
 Principle: look at the whole ad in its full context, and not
just the dominant message conveyed
 In this case: full context included consumer knowledge
about "the “bundling” method of sale commonly
employed with this type of service, as well as knowledge
that set up charges are often applied"
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CASE EXAMPLE: ACCC V TPG (CONT)
FULL COURT APPEAL
Other ads were not misleading:
 Bundling requirement and set up charges could be
seen and heard and were sufficiently prominent
 An ordinary or reasonable consumer would have
known of the commercial practices of bundling and
set up charges
 The ACL does not operate for the benefit of
consumers who fail to take care of their own
interests, including those who do not pay attention
to the whole ad
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CASE EXAMPLE: ACCC V TPG (CONT)
HIGH COURT APPEAL
 ACCC appealed to the High Court
 Majority (4 out of 5) overturned FFC's findings and
held that:
 all of TPG's advertisements were misleading
 FFC erred in finding that:
 home telephone bundling requirement and set up charges were
adequately disclosed
 consumers would have known that internet services were commonly
bundled with telephone services
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CASE EXAMPLE: ACCC V TPG (CONT)
HIGH COURT APPEAL
 Reasoning of majority:
 dominant message ("Unlimited ADSL2+ for $29.99
per month“) was of crucial importance and was false
 ads had a tendency to mislead consumers because
they selected some words for emphasis and
relegated the balance to relative obscurity
 tendency to mislead:
 not neutralised by consumer knowledge that internet services
may be bundled
 determined by asking whether ads would cause customers to
engage TPG rather than with competitors based on an
erroneous belief engendered by dominant message
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CASE EXAMPLE: ACCC V TPG (CONT)
HIGH COURT APPEAL
 Penalties:
 Overturned FFC’s order to pay $50,000 penalty
 Reinstated $2 million penalty ordered by trial judge
 Important comments:
 “[T]hose engaged in trade and commerce must be deterred
from the cynical calculation involved in weighing up the risk
of penalty against the profits to be made from contravention.”
 “High Court recognised that penalties must be fixed with a
view to ensuring that the penalty is not such as to be
regarded by businesses as an acceptable cost of doing
business."
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TAKE AWAY
 When drafting any business document
(particularly any promotional material), ask
yourself:
 What type of person will read the document or hear
the claim?
 Will that type of person understand your claim?
 Can you prove that every word is true?
 Is the overall impression accurate?
 Has an important fact(s) been left out?
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QUESTIONS?
Further information
Paris Petranis
03 9205 2014
paris.petranis@klgates.com
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