The Optus penalty: A $5 million lesson for all

Monday, 11 July 2011


The Federal Court last Thursday imposed a penalty of $5.26 million on Optus for misleading advertising.  The penalty is, by far, the highest ever for a contravention of Australia’s consumer protection laws.
 
The decision is regarded by some as a ‘coming of age’ for consumer protection law enforcement in Australia as it shows that Australian courts are now prepared to impose penalties for contraventions of consumer protection laws at a level previously reserved for price fixing and other cartel conduct.
 
The case is also a reminder of the strictness with which the courts will hold advertisers to the standards set out in the Australian Consumer Law.  The Optus advertisements in question resulted in just three consumer complaints from a national campaign, and there was no evidence of significant consumer detriment.  Nevertheless, the Court imposed a penalty that will have a ‘significant and adverse effect’ on the profits generated by Optus for the relevant broadband products.
 
Factual background
The case concerned a substantial advertising campaign for Optus broadband internet services.  The headline advertising on posters, billboards and other advertising referred to separate ‘peak’ and ‘off-peak’ usage allowances.  However, exhausting the monthly ‘peak’ allowance would result in a customer having their internet access restricted for both ‘peak’ and ‘off peak’ times.  As a result, what customers actually received had the potential to be far less than the total advertised download allowance.
 
The Court found 11 separate contraventions of the law (ie, because each different media and version of the advertising was a separate offence), each attracting a maximum penalty of $1.1 million.  The total penalty of $5.26 million is therefore approximately half the maximum that could have been imposed.
 
What can we learn?
This case provides guidance in two areas: (1) when advertisements will be misleading or deceptive; and (2) the factors the courts will consider when setting penalties.
 
Misleading and deceptive advertising
The Court reaffirmed three important principles which, whilst not new, should be kept in mind by all businesses when drafting consumer advertising:

  • Fine print cannot ‘fix’ a misleading headline.  The ‘fine print’ on the Optus advertising disclosed the true position regarding peak and off-peak usage.  However, this was found to be insufficient to overcome the misleading impression created by the headline advertising.
     
  • Providing ‘correct’ information before a customer buys cannot cure misleading advertising. Optus argued that customers would be informed of the true position prior to purchasing the broadband product so no consumers would purchase based on misleading advertising.  The Court reiterated that the fact that consumers may subsequently be given corrective information does not ‘undo’ the initial misleading nature of an advertisement.
     
  • The ACCC need not prove consumer detriment.  There were only three consumer complaints regarding this advertising and no evidence of significant consumer detriment.  This had little impact on the Court’s determination of whether the advertising was misleading, although it was taken into account in assessing penalties.

Penalties
Civil pecuniary penalties for consumer protection breaches have been in place since April 2010.  Whilst there has been a growing body of judicial authority that indicated significant penalties would be imposed for consumer protection breaches, this decision is the first to show that courts will impose penalties of a magnitude level that was previously only imposed for conduct such as price fixing.  The focus on deterring others was made clear by Perram J, who stated:
 
“the purpose of a penalty is deterrence; deterrence of the contravener, no doubt, but deterrence also of those on-lookers who might, but for the penalty inflicted on the contravener, be tempted to engage in the same behaviour themselves.”
 
His Honour also made it clear that the revenue derived from misleading advertising is an important consideration in setting penalties.  In a warning to other potential contraveners, His Honour stated:
 
“Such a penalty will operate as an appropriate deterrent not only to Optus but also to other traders who might be tempted by the thought that misleading advertising is a profitable strategy.  The penalties will demonstrate that it is not.”
  
Now, more than ever before, businesses must be aware of their obligations under consumer protection laws and ensure they have procedures in place to minimise the risk of contravention.  Compliance processes cost money, but not as much as a contravention of the law.

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