FEDERAL COURT OF AUSTRALIA

Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20

FEDERAL COURT OF AUSTRALIA

Singtel Optus Pty Ltd v Australian Competition and Consumer Commission [2012] FCAFC 20

CORRIGENDUM

1.    In paragraph 58 of the Reasons for Judgment, in the first sentence, the reference to “s 76E(2)(c)” should read “s 76E(2)(a)”

Associate:

Dated:    7 June 2012

THE COURT ORDERS THAT:

1.     The appeal be allowed and the penalty set aside.

2.    In lieu thereof, that Optus pay to the Commonwealth a penalty of $3,610,000.

Note:    Entry of orders is dealt with in Rule 39.32 of the Federal Court Rules 2011.

REASONS FOR JUDGMENT

1    Singtel Optus Pty Ltd (Optus) is a major supplier of telecommunications services in Australia. For approximately five months from Anzac Day 2010 Optus prosecuted a multi-media advertising campaign promoting its “Think Bigger” and “Supersonic” broadband data service plans to consumers. The campaign deployed advertisements in five different media: television, metropolitan and local newspapers, billboards, online and direct marketing. There were eleven separate advertisements and, although each advertisement in each medium was couched in different terms, each advertisement indicated in “headline” claims that the plans had an overall cap or quota, made up of distinct peak and off-peak quotas of broadband availability. Each headline claim was accompanied by a disclaimer in smaller and less prominent print noting “Speed limited once peak data exceeded”. In fact, once the peak quota was used up, the speed of the service was significantly slowed irrespective of the usage of the off-peak or overall quotas.

2    Optus’ campaign commenced on 25 April 2010. On 18 June 2010 the ACCC wrote to Mr Derber, one of Optus’ in-house legal Counsel, advising that it had concerns in relation to the “Think Bigger” campaign. The ACCC’s concerns were focussed on the deployment of a headline style message with a less prominent disclaimer. Optus’ campaign continued after receipt of this letter.

3    Optus featured animal motifs in its advertising campaigns. There were three different television advertisements. The first two, which featured a moose, were broadcast from 25 April 2010 to 14 June 2010. A commercial featuring an ostrich was telecast from 15 June 2010 to 8 September 2010. Optus had ceased its newspaper advertisements by the time of the letter sent by the ACCC on 18 June. Subsequently, however, advertising flyers were inserted into a number of leading newspapers in different states including Melbourne, Brisbane, Sydney and Adelaide, a national newspaper, The Australian, and a number of regional or metropolitan newspapers. The use of the flyers continued until 19 August 2010. On-line advertisements continued until 30 September 2010. No billboards were used after the end of July 2010.

4    On 6 September 2010 the ACCC instituted proceedings in respect of Optus’ campaign. On 29 October 2010 the primary judge determined that Optus’ advertising campaign contravened s 52 of the Trade Practice Act 1974 (the Act) and s 55A of the Act in Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No. 1) [2010] FCA 1177. His Honour held that the true position in relation to the speed of broadband service available under the plans was not sufficiently disclosed by the disclaimer, and accordingly that the advertisements were misleading.

5    The primary judge then made orders (on 2 November 2010) restraining Optus from advertising broadband internet plans which divide the monthly allowance between peak and off-peak periods where broadband speed slows after peak period amounts have been reached, irrespective of remaining off-peak amounts, unless clear and prominent disclosure of that fact is provided in Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No. 2) [2010] FCA 1200. And on 19 November 2010, his Honour made corrective orders requiring Optus to send letters to all purchasers of the plan from 25 April 2010 until 31 December 2010 and for corrective internet and in-store advertisements to be introduced in the Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No. 3) [2010] FCA 1272 (the corrective orders).

6    In the corrective orders, the primary judge found that this was an extensive national, high volume and substantial campaign comprising eleven advertisements directed towards a “very large proportion of the population”. The fact that Optus intended the campaign to have a substantial impact in the broadband market was evidenced by the amount of money spent on advertising these plans which was “very substantial indeed”. The effect of the campaign was substantial, and that was the intent [15]-[17].

7    In the corrective orders, his Honour said in summary at [18]:

What was involved, therefore, was a large and very expensive advertising campaign spread out over nearly five months and involving multiple media. Further it was very far from unsuccessful. Having regard to the nature of the deceptive conduct … it is likely that a substantial number of people were misled by the campaign.

8    His Honour’s findings in the corrective orders judgment were not challenged by Optus in its appeal to this Court in respect of the penalty imposed by the primary judge.

THE PENALTY JUDGMENT

9    In the judgment as to penalty, Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No. 4) [2011] FCA 761 (the penalty judgment), his Honour observed, in the case of the three television commercials, that the disclaimer as to speed limiting of the broadband internet service was “essentially invisible”. In the case of the print advertisements, the flyers and the billboard, it was ineffective: [18], [21] and [26].

10    Optus had previously been found by the Court to have engaged in similar conduct: Trade Practices Commission v Optus Communications Pty Ltd and Anor (1996) 64 FCR 326 (per Tamberlin J) and ACCC v Singtel Optus Pty Ltd [2011] FCA 87 (per North J). In the latter case, North J determined that the expression “Unlimited broadband” was misleading. References that qualified that headline representations were in “very small print” or worse. The advertisements ran at various dates in April – July 2010. In the penalty judgment, the primary judge held that the contemporaneity of the conduct dealt with in North J’s decision was a “substantial exacerbation”: [52].

11    Section 55A of the Act proscribes conduct which is “liable to mislead the public as to … the quantity of any services”. It is contained in Div 1 Pt V of the Act. As a result, the contravention of the section engaged the Court’s power to order a civil penalty under s 76E of the Act. The ACCC sought the imposition of such a penalty.

12    Under s 76E(3) of the Act, the maximum penalty for each contravention was $1.1 million. The primary judge proceeded on the footing that there had been 11 contraventions, one for each advertisement in each medium. On that footing the maximum total penalty might have been $12.1 million.

13    In assessing the penalty, the primary judge took as his starting point the maximum penalty of $12.1 million, “which it would [only] be appropriate to apply in the worst case” and adopting the “instinctive synthesis” approach discussed in Markarian v The Queen (2005) 228 CLR 357, fixed upon a total penalty of $5.26 million to “capture the total wrong-doing implicit in the contraventions” (at [80]). His Honour broke down the penalties imposed in relation to each advertisement in each medium at [79]:

14    In fixing the penalty the primary judge expressed special concern that Optus was subject to an enforceable undertaking under s 87B of the Act in which Optus agreed to desist from making headline representations in advertisements that contravened the Act. His Honour regarded Optus’ failure to comply with the undertaking as an indication that Optus did not take seriously its obligation to comply with the Act. On that basis, his Honour concluded, condign punishment was warranted.

THE APPEAL

15    Optus appeals to this Court against the penalty judgment, arguing that the primary judge’s discretion miscarried in various ways. First, his Honour is said to have erred in finding as a fact that Optus’ in-house legal Counsel responsible for approving the “Think Bigger” and “Supersonic” plans were unaware of the undertaking, that there was a lack of understanding of the undertaking within Optus’ legal department, and that Optus did not take compliance with its obligations under the undertaking seriously. Optus argues that this factual error infects the process of “instinctive synthesis” by which his Honour arrived at the penalty he ultimately imposed. Secondly, Optus argues that the primary judge erred in regarding each advertisement as a single contravention and failing to group together advertisements which displayed the same vice. Thirdly, Optus argues that his Honour did not give due weight to his finding that little loss or damage had been suffered by consumers due to the contravening conduct. Fourthly, the primary judge is said to have erred in proceeding on the basis that considerations of general and specific deterrence justified stripping Optus of a substantial portion of the profits it could expect to earn from the plans in question.

16    The ACCC resists the arguments advanced by Optus, and, in addition, raises the contention that his Honour erred in giving any weight to the consideration that little loss or damage had been inflicted on consumers by Optus’ contraventions of the Act.

17    In order to appreciate these arguments it is necessary to refer in more detail to the factual findings made by the primary judge in the penalty judgment. Accordingly, we propose to set out the relevant parts of the reasons of the primary judge before proceeding to a consideration of the merits of Optus’ arguments. First of all, however, it is necessary to refer to the applicable legislative provisions.

the legislation

18    At the time the proceedings were commenced the Trade Practices Act 1974 (Cth) was in force. On 1 January 2011 the Act was amended and renamed the Competition and Consumer Act 2010 (Cth). Under the transitional arrangements, the Act in its form prior to 1 January 2011 continues to apply to these proceedings.

19    Section 52 of the Act provided:

52      Misleading or deceptive conduct

(1)     A corporation shall not, in trade or commerce, engage in conduct that is misleading or deceptive or is likely to mislead or deceive.

(2)      Nothing in the succeeding provisions of this Division shall be taken as limiting by implication the generality of subsection (1).

20    Section 55A of the Act, which appeared in Div 1 of Pt V of the Act, made specific provision prohibiting misleading conduct in relation to services:

55A      Certain misleading conduct in relation to services

A corporation shall not, in trade or commerce, engage in conduct that is liable to mislead the public as to the nature, the characteristics, the suitability for their purpose or the quantity of any services.

21    Section 76E of the Act provided relevantly:

76E  Pecuniary penalties—consumer protection etc.

(1)      If the Court is satisfied that a person:

(a)      has contravened

    …

 (ii)      a provision of Division 1 or 1AAA of Part V (other than section 52);

…

(f)      … the Court may order the person to pay to the Commonwealth such pecuniary penalty, in respect of each act or omission by the person to which this section applies, as the Court determines to be appropriate.

(2)      In determining the appropriate pecuniary penalty, the Court must have regard to all relevant matters including:

(a)      the nature and extent of the act or omission and of any loss or damage suffered as a result of the act or omission; and

(b)      the circumstances in which the act or omission took place; and

(c)      whether the person has previously been found by the Court in proceedings under Part VC or this Part to have engaged in any similar conduct.

….

(4)      If conduct constitutes a contravention of 2 or more provisions referred to in paragraph (1)(a):

(a)      a proceeding may be instituted under this Act against a person in relation to the contravention of any one or more of the provisions; but

(b)      a person is not liable to more than one pecuniary penalty under this section in respect of the same conduct.

22    As to the undertaking given by Optus to the ACCC, s 87B of the Act provides:

87B  Enforcement of undertakings

(1)    The Commission may accept a written undertaking given by a person for the purposes of this section in connection with a matter in relation to which the Commission has a power or function under this Act (other than Part X).

(1A)      The Commission may accept a written undertaking given by a person for the purposes of this section in connection with a clearance or an authorisation under Division 3 of Part VII.

(2)      The person may withdraw or vary the undertaking at any time, but only with the consent of the Commission.

(3)      If the Commission considers that the person who gave the undertaking has breached any of its terms, the Commission may apply to the Court for an order under subsection (4).

(4)      If the Court is satisfied that the person has breached a term of the undertaking, the Court may make all or any of the following orders:

(a)      an order directing the person to comply with that term of the undertaking;

(b)      an order directing the person to pay to the Commonwealth an amount up to the amount of any financial benefit that the person has obtained directly or indirectly and that is reasonably attributable to the breach;

(c)      any order that the Court considers appropriate directing the person to compensate any other person who has suffered loss or damage as a result of the breach;

(d)      any other order that the Court considers appropriate.

THE REASONS OF THE PRIMARY JUDGE in the penalty judgment

23    The undertaking to which reference has been made was given jointly by Optus, Telstra Corporation and Vodafone Hutchinson Australia Pty Ltd on 14 September 2009. Prior to that, discussions had occurred between Optus’ representatives, including in-house legal Counsel, and officers of the ACCC. In paragraph [29] of the undertaking, Optus acknowledged that it had previously engaged in headline advertising and advocated improving advertising standards in the telecommunications industry. The undertaking stated at para [30]:

In recognition of their position as market leaders in the telecommunications industry in Australia, and in order to set a new industry benchmark for ‘truth in advertising’ going forward, each of Telstra, Optus and VHA provide this undertaking to the [ACCC].

24    Optus undertook to review its compliance program “to ensure that appropriate procedures and systems are in place to address the specified advertising practices”. The evidence revealed that no system was in place to ensure that all employees and contractors were trained about headline advertising. Advice to employees as to headline advertising was limited to a “Tips and Pitfalls for ad copy” document dated November 2009 which was available on the legal section of Optus’ staff intranet.

25    In relation to headline advertising, Optus undertook at paragraph [31(a)] to “immediately desist from creating new advertising that uses the practice identified at paragraph 33 below”. By paragraph 33(a) of the undertaking, Optus understood that it would not use headline representations in respect of price or offer in circumstances where the overall impression of the price or offer was subsequently qualified by fine print terms and conditions so that it was unlikely for an individual or consumer accurately to appreciate the benefits offered by the headline representation by ordinary use of the service. Paragraph 33(a) was subject to the following rider: “if, in all the circumstances, the advertising is misleading or deceptive or is likely to mislead or deceive or involve the making of false representations in contravention of the Trade Practices Act.” This rider loomed large in the submissions advanced on behalf of Optus. It served, so it was argued, to make clear that the undertaking was to refrain from the use of headline advertising with fine point qualifications only where that conduct would, in truth, contravene the Act. In this way there could be no contravention of the undertaking unless there was also a contravention of the Act.

26    Optus’ compliance program required that all advertising copy receive clearance from its in-house legal team. Evidence was given at trial by one of its legal corporate Counsel, Ms Perez, that once advertising copy was received by the legal department, it would be reviewed within 48 hours. Subject to length and volume, it would then either be signed off or remitted to the relevant business unit for further review. Ms Perez’s evidence was that there were five lawyers engaged by Optus to vet advertising material and that between 450 to 700 different advertisements would be reviewed by the team in a month.

27    Mr Derber, one of Optus’ corporate Counsel, gave evidence that he vetted the eleven advertisements. Ms Booth vetted the on line advertisements. Mr Derber did not explain how he came to “pass” the advertisements. Ms Booth did not give evidence. He was not cross-examined: in particular, he was not cross-examined as to whether he turned his mind to the questions of inconsistency between the advertisements and the undertaking and how he came to pass the advertisements, especially the television advertisements which were the most glaringly misleading of the contravening advertisements.

28    In relation to the television advertisements his Honour found at [15] of the penalty judgment that:

….it is apparent that the commercials were shown on more than 15,405 occasions (the product of 79 and 196). There was also placed in evidence before me, but subject to a confidentiality order, the total cost of the television broadcasting. I do not think that the publication of that figure in these reasons is necessary. The basic point has already been made: this was a high volume and substantial advertising campaign. It will suffice to say that it was also expensive.

29    As to the seriousness of the breach, his Honour concluded:

16    …the disclaimer was, for reasons given in Optus No.1 at [32], essentially invisible. For that reason, I described those advertisements as ‘misleading...seriously so’: Optus No.1 at [33]. Given the breadth of the television campaign it is appropriate to note that it is likely that the advertisements were seen by a very large number of people. This was a significant television commercial directed towards a large target audience concerning a frequently purchased kind of product. In terms of the number of consumers reached the matter must be regarded as being towards the upper end of the spectrum. There are commercials with broader reaches but they are not common. In terms of the seriousness of the misleading conduct (as opposed to its deliberateness) I concluded in Optus No.1 that these commercials were seriously misleading. That is a view to which I continue to adhere.

30    The distribution of the advertisements in print and in flyers was also widespread. His Honour said at [21]:

In terms of width of distribution I propose to proceed on the basis that the flyer campaign was about equal in width of distribution to the print campaign. The advertisements in question are equally misleading: there was a technically correct disclaimer but it was too small and its meaning too subtle to be effective.

31    The online campaign was regarded as having a more serious effect, compared with other media. His Honour said:

22    …It is in the nature of on-line advertising that it is inherently available and, indeed, provided at the very moment a consumer is generally able to receive it for most internet users are giving the monitor their largely undivided attention. That aspect of internet advertising marks it out as being quite different in nature to a television … It is inherent in internet advertising that it is more targeted and more likely to be viewed. Further, because the relationship between a computer user and the internet is one of greater engagement such a commercial is not only more likely to be noticed but also much more likely to be watched. This effect will be particularly prominent where the advertisement is interactive, that is, requiring some input from the user.

23     There is a further effect. Here what was being advertised was the provision of broadband internet plans the principal place of purchase for which was likely to be Optus’ own website. The on-line commercial has to be seen therefore as not just an element in an overall multimedia campaign but as the ultimate conduit for that campaign. The internet commercial is to be seen in such cases, not only in its own right as perhaps an ordinary commercial might be seen, but as a form of communication very likely to be seen by a class of person whose appetites have already been whetted by another commercial. These matters tend, in my mind, to aggravate the seriousness of the Think Bigger internet commercial.

32    It is convenient to note here that a consumer who was sufficiently attracted by the online advertisements to seek to subscribe to a plan online would have proceeded through a series of links from the advertisement that would have brought home more clearly the effect of the disclaimer before a contract was concluded.

33    The deceptive capacity of the billboards was seen to be more limited than other forms of media; consumers will often be moving past them at speed and the reach of the billboards and size of their viewership will be dependent on their location (at [26]).

34    The primary judge turned to consider the economic effect of the contraventions on consumers. His Honour held that only “little loss or damage has been suffered by consumers”. He said:

30    …In Optus No.3 I made orders which required Optus to write to every person who had acquired one of the plans in question between 25 April 2010 and 31 December 2010. The letter which was sent explained the problem and offered every customer the opportunity to terminate his or her plan without penalty. In addition, Optus was ordered to place a pop-up on those parts of its website selling broadband plans which informed consumers of the existence of these proceedings, the difficulty with the advertisements and of the customers’ right to be released from the plans. A similar régime of signs was required to be placed in all Optus stores.

31    The use of the impugned advertisement ended on 30 September 2010 when it was finally removed from the website. There was, therefore, an extended period during which all existing customers, and customers who signed up within three months of 30 September 2010, have had an opportunity to be released from the plans. No evidence was led of the number of customers who took up the offer to be released from their contract; in any event the corrective advertising period did not conclude until after the penalty hearing was conducted.

32    The available inference from that material is that most people who might have suffered loss and damage are likely to have been released from the plans and that loss capped. There remains the possibility of some residual outliers: those who have suffered loss and damage who have not come into contact with any of the corrective measures for one reason or another; those who have been released from the plans but who have not had refunded to them the amount of their loss up to their release; those who do not care. However, I proceed on the basis that these classes are very modest or the amounts involved, from the customer’s perspective, small. Even in relation to the 3 complaints that were received it is appropriate to note that is not clear to me that two of them, in fact, relate to the present issue.

33    I conclude therefore that little loss or damage has been suffered by consumers on this occasion.

35    The circumstance of particular concern in which the contravening acts or omissions took place involved Optus’ failure to comply with the s 87B undertaking was seen by the primary judge as significant. His Honour said at [40] – [41]:

40    The advertisements in question are plainly examples of the very thing the undertaking was directed at and, it might be added, the very thing explained to Optus’ in-house lawyers in person beforehand. These are facts which signal failure to take seriously the problem at hand. I return below to the question of whether that failure is to lie at the feet of the lawyers themselves or at the feet of those responsible for ensuring that the lawyers were properly resourced. For present purposes it suffices to say that, whatever the exact cause, the failure was significant. Nor do I accept that it is impermissible to have regard to the undertaking. Normative constraints on Optus’ conduct may come from a variety of sources both judicial and administrative. The fact that an undertaking is in form voluntary is not to the point.

41    …It seems to me that those matters – including Optus’ publicly professed desire to improve standards in the industry – are relevant matters in the process of assessing an appropriate penalty for departure from those self same standards. What is involved is hypocrisy: the saying of one thing; the doing of another.

36    Turning to s 76E(2)(c) of the Act, his Honour found that Optus had previously engaged in similar behaviour on two occasions. His Honour said at [53]:

…s 76E(2)(c) requires me to take into account Trade Practices Commission v Optus Communications Pty Ltd (1996) 64 FCR 326, the conduct identified in the orders of 26 October 2010 and the conduct identified in Australian Competition and Consumer Commission v Singtel Optus Pty Ltd [2011] FCA 87. Of the first, Optus submitted that it was so old as to be of little relevance. I do not accept, in the context of a corporation which is likely to have a long corporate memory, that it is entirely irrelevant; but its relevance is certainly very much to the lower end. Insofar as the more recent case is concerned its facts point to very similar conduct to that with which we are presently concerned. It is relevant largely to assist in gauging whether what occurred in this case was an isolated aberration or a systemic failure.

37    The primary judge held that, in addition to the considerations referred to in s 76E(2), other relevant considerations were:

    the size of the contravening company: Optus had an annual profit in the year ending 31 March 2010 of $8949 million. Optus is one of the country’s largest telecommunications suppliers and a market leader.

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

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

    whether the contravener has a corporate culture conducive to compliance with the Act or its successor as evidenced by educational programmes and disciplinary or other corrective measures in response to an acknowledged contravention;

    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;

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

    the financial position of the contravener;

    whether the contravening conduct was systematic, deliberate or covert.

38    The absence of internal education concerning headline advertising in Optus’ compliance program was seen by his Honour as significant. This was especially so, given Optus’ undertaking to the Commission. At [57]-[58], he said that:

57    Under [the compliance] programme, all of Optus’ permanent employees and contractors were required between 1 July and 30 June to undertake an on-line training programme dealing with each employee’s obligations under the Act. This programme was administered by the Human Resources Department. It consisted of two modules: one relating to anti-competitive conduct; the other to consumer protection. The modules concluded with a computer administered test. Each employee sitting the module was required to pass the test and, in the event of failure, was required to continue sitting the test until it was passed.

58    …Despite its extensive nature the module did not, however, refer to the difficulties inherent in headline advertising and employees were not required through the means of this programme to be familiar with it or its pitfalls.

39    The “Tips and Pitfalls for ad copy” document was held to be inadequate. His Honour concluded at [61] that :

….an adequate compliance programme in relation to headline advertising was not in place. The ‘Tips and Pitfalls’ document available on the intranet was not a compliance programme. These matters are, of course, ones of substance and are not to be resolved by mere labels. But the highest Optus’ evidence about this rose was that the document was ‘available’ and this, I think, will not do.

40    The primary judge inferred that Optus’ in-house legal team were unaware of the undertaking, and drew the further inference that Optus did not take its obligations thereunder seriously. Because this aspect of his Honour’s reasoning is at the forefront of Optus’ appeal, it is necessary to set out at length this aspect of his Honour’s reasoning. His Honour said at [62] – [68]:

62    There being no fixed programme designed to catch headline advertising it is unsurprising that the present campaign occurred. No education had been required of staff to prevent it occurring. I infer this occurred in contravention of the undertaking to update the compliance programme to deal with headline advertising.

63    That, however, is only half the picture. The compliance programme which did exist very clearly required all advertising copy to be cleared by Optus’ legal department. The evidence suggests, and I accept, that this aspect of the compliance programme was effective in the sense that the advertising in question was sent to the legal department for vetting. Ms Perez, one of Optus’ corporate counsel, explained in evidence what happened once advertising copy arrived in the department. There were two steps:

(a)    a lawyer would review the material within 48 hours, subject to length and volume;

(b)    the material would be signed off or remitted back to the relevant business unit.

64    In the case of this campaign, it was Mr Derber who reviewed the television, print, billboard and flyer advertisements for the Think Bigger plans. The on-line material for both the Think Bigger and Supersonic plans was vetted by a lawyer seconded to Optus, Ms Booth. Mr Derber swore an affidavit but was not cross-examined. I do not know, therefore, how his knowledge of the undertaking or the ‘Tips and Pitfalls’ documents intersected with these commercials. I do not know anything about his reasoning process in vetting the advertisement. Ms Booth was not called at all and similar difficulties arise. The Commission, however, did not submit that I should draw any inferences from the failure of Optus to lead evidence about these matters and I do not.

65    Rather, the Commission pointed to the evidence of Ms Perez as throwing light on the real problem. Her evidence was that Optus had five lawyers whose principal duties were to vet such material. She also gave evidence that this team reviewed 450 to 700 different advertisements each month. To that I would add that vetting was expected to be done within 48 hours. In the year running between October 2009 to September 2010 this team of five reviewed 7,421 advertisements or, on average, 1,484 advertisements per lawyer which is 28 per week (provided that they worked 52 weeks) or just under six per day.

66    Optus submitted…that the rarity of breaches found by the Courts showed the absence of a problem. I do not agree with this last submission. In a short space of time there have been two headline advertising breaches by Optus: those in this case and those in the proceedings before North J; the undertaking prepared in consultation with Optus’ own in-house lawyers appears to have been overlooked by those self same lawyers. Further, it was not just one lawyer who vetted the advertisements in this instance; it was both Mr Derber and Ms Booth. That fact reduces the plausibility of the notion that what occurred was a mere aberration.

67    I draw the inference that the Commission suggests should be drawn: that Optus does not, despite its protestations to the contrary, take this issue sufficiently seriously to put proper resources into its resolution. I do not, therefore, regard this as a case of a ‘wrong call’ as Optus submitted but rather as the inevitable consequence of failing to implement the undertaking.

68    In that regard, nothing was placed before this Court to throw light on the vetting procedure. One obvious question about this arises: how did both of the lawyers responsible for the materials’ vetting overlook the enforceable undertaking given to the Commission? Optus made oral submissions to the effect that there was in this case an error of judgment in vetting the advertisements, about which reasonable minds can and do differ. I do not accept this submission. Because these advertisements are obvious examples of the practice, the only explanation which makes any sense is that Mr Derber and Ms Booth were unaware of the undertaking. This is consistent with what appears to have happened in the proceedings before North J where again one can only ask how lawyers aware of the undertaking could have authorised the ‘unlimited’ advertisements there in suit. This suggests, and I find, that those responsible for the implementation of the enforceable undertaking not only failed to ensure that the compliance programmes were updated but, more significantly, that there was a lack of basic understanding of the undertaking within the legal department. 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.

41    His Honour said at [75] that the purpose of imposing a penalty is to create general and specific deterrence:

… The principal purpose of a financial penalty in this context is, as French J has observed, ‘to put a price on contravention that is sufficiently high to deter repetition by the contravener and by others who might be tempted to contravene the Act’: Trade Practices Commission v CSR Ltd [1991] ATPR 41-076 at 52,152. I regard this as an important matter and take comfort from the Full Court’s explanation in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 that the ‘Court should not leave room for any impression of weakness in its resolve to impose penalties sufficient to ensure the deterrence, not only of the parties actually before it, but also of others who might be tempted to think that contravention would pay, and detection lead merely to a compliance program for the future’ at 294-295 per Burchett and Kiefel JJ.

42    His Honour proceeded to fix the penalty on the footing that there were 11 separate contraventions. He said at [77]:

I do not think the vice in each advertisement was the same. The deceptions were not identical and the breadth of exposure for each advertisement differed. The television commercials were, in terms of deception, much worse than the other elements in the campaign. The flyers and newspaper advertisements were less, although still, serious. The billboard even less so. On the other hand, the Think Bigger internet commercial was by far the most persistent format. Less serious was the Supersonic internet commercial, by reason, in part, of its duration. I conclude therefore that each advertisement represented a distinct item of conduct separate from, and different to, the others. It would not be consistent with the overall seriousness of the matter to treat this as but a single contravention just as it would be manifestly excessive to proceed on the basis that each individual instantiation of the commercials was itself a contravention. Consistently with what I regard as the objective seriousness of the matter I approach the question of penalty on the basis that there were 11 contraventions, one for each advertisement in each media.

CONSIDERATION

43    The penalty under challenge was imposed in the exercise of the discretion vested by the Act in the primary judge. The first question is not whether this Court considers that the penalty is excessive but whether the discretionary judgment of the primary judge is affected by error of fact or principle: see House v The King (1936) 55 CLR 499 at 505, [42].

44    In The Queen v Tait (1979) 46 FLR 386 at 388 Brennan, Deane and Gallop JJ explained that:

[A]n appellate court does not interfere with the sentence imposed merely because it is of the view that that sentence is insufficient or excessive. It interferes only if it be shown that the sentencing judge was in error in acting on a wrong principle or in misunderstanding or in wrongly assessing some salient feature of the evidence. The error may appear in what the sentencing judge said in the proceedings, or the sentence itself may be so excessive or inadequate to manifest such error.

Factual error?

45    Optus contends that the primary judge misunderstood the facts of the case in finding that Optus’ in-house legal personnel Mr Derber and Ms Booth, were not aware of the undertaking. This finding led to the conclusions that there was a “lack of basic understanding of the undertaking within the legal department” and that Optus had “failed to take compliance seriously”. Optus emphasises that it was this conclusion that his Honour spoke of as calling for condign punishment. Optus argues that these findings were not available on the evidence, and, indeed, were not sought by the ACCC at trial.

46    In challenging these findings, Optus tendered an affidavit of Charles Alexander, Optus’ solicitor on the account, as additional evidence on appeal. The ACCC did not object to the reception of this evidence.

47    It is apparent that the findings presently in question were not sought by the ACCC at trial. Indeed, it was not put to Mr Derber that he was unaware of the undertaking or that he or his fellow employees at Optus did not take seriously the need to comply with the Act. Mr Alexander deposes that, had the ACCC made it clear that it was asserting these propositions, Mr Derber would have given evidence denying the propositions. Further, consideration would have been given to calling evidence from Ms Rees, the head of Optus’ in-house legal department.

48    The inference that Optus did not “take compliance seriously” is an inference which could fairly be drawn on the basis that Mr Derber and Ms Booth were unaware of the undertaking only if it had been made clear that this was part of the ACCC’s case. That did not occur.

49    Not only were his Honour’s findings in this regard based on a proposition not squarely raised against Optus or put to Mr Derber for his response, it was contrary to the evidence of correspondence which showed Mr Derber’s involvement in the preparation of the undertaking and, it would seem, his Honour’s own findings at [64] and [66] of his Reasons for the penalty judgment.

50    In our respectful opinion this finding and the conclusion drawn by his Honour from it at [69] of his Reasons cannot stand. The finding and conclusion had a significant bearing on his Honour’s approach to fixing the penalty. The penalty judgment must be set aside, and this Court must determine the penalty afresh.

How many contraventions?

51    Optus submits that the primary judge erred in imposing eleven separate sanctions. It argues that the number of separate sanctions imposed misapplies the “one course of conduct” principle and, alternatively, fails to reflect the similarities between different advertisements within the same media. Optus contends that, on either view, the primary judge punished Optus multiple times for the same conduct. Optus contends that the Court should recognise no more than five contraventions, one for each medium deployed in the campaign. These contentions can be disposed of shortly.

52    While Optus’ campaign may have been informed by a single strategy, that strategy was implemented in different ways. It is simply not the case that the same conduct gave rise to all the contraventions or to all of the 11 categories of contravention identified by his Honour: different conduct was involved in each category of contravention; and Optus engaged in different acts of contravention within each medium. For example, each of the three television advertisements promoted a different product and did so with different advertising content. Of the “moose” advertisements, one advertised a 120 GB broadband service for $49.99 and the other, a 150 GB broadband service for $59.99. The moose commercials were broadcast from 25 April 2010 until 14 June 2010. They were then replaced by the “ostrich” commercial promoting the 120 GB broadband service. It used a voiceover and visual images that were different from the moose commercials. That the underlying objective of each message in each medium was the same does not alter the fact that the content of each message was different. No doubt the difference in content kept the message fresh, this being a feature of such an extensive campaign.

53    It is open in the sound exercise of the discretion under s 76E of the Act, to regard each advertisement in each medium in this extensive campaign as sufficiently distinct to constitute a separate contravention. That approach is supported by authority. In ACCC v Telstra Corporation Ltd (2010) 188 FCR 238 at [231]-[235] Middleton J helpfully collected some authoritative statements of principle in this regard. Middleton J said:

231    [I]t is useful to refer to the Trade Practices Commission v Bata Shoe Company of Australia Pty Ltd [1980] ATPR 40-161 at 42,277 where Lockhart J talked in terms of the "same episode" when considering an appropriate penalty:

"Guidance is given in the field of sentencing for criminal offences by the well-known principle that where several offences are heard together and arise out of the same transaction it is a sound working rule that the sentences imposed for those offences should be made concurrent; it is inappropriate to sentence consecutively when the offences were all really involved in the same episode: see R. v. Duff a decision of the full court of this court, judgment delivered 6 December 1979; R. v. Walsh (1965) 109 Sol. J. Pt. 1 150; R. v. Melville (1956) 73 W.N. (N.S.W.) 579; R. v. Hussain Crim. L.R. 712; R. v. Hally (1965) 58 Q.R. 582 and Re: P.J. Kastercum (1972) 56 Cr. App. R. 298."

232    Justice Lockhart considered at 42,277 that the contraventions arose out of:

"the one course of conduct in that it was directed to Woolworths and reflected the adherence by the respondent to a policy of engaging in resale price maintenance in relation to Woolworths."

233    He then said at 42,277:

"I accept that the contraventions arose out of the one course or pattern of conduct. Although it is necessary to look at each contravention separately, nevertheless consideration must be given to the facts common to each contravention."

234    In this way, Lockhart J regarded the seven contraventions as falling into three categories relating to the conversations giving rise to the contraventions, although from "one course or pattern". From there, consideration was given to the facts common to each contravention. However, Lockhart J did not treat the case as involving only one contravention even though arising from "one course or pattern", namely the adherence to a policy of engaging in resale price maintenance in relation to Woolworths.

235     In the final analysis, in applying the totality principle, the question is one of discretion in coming to the correct, adequate and appropriate penalties. In discussing the totality principle, the majority of the Full Court in Construction, Forestry, Mining and Energy Union v Cahill (2010) 194 IR 461 said at [41]-[42]:

"As noted above (see [15]), the principle recognises that where there is an interrelationship between the legal and factual elements of two or more offences for which an offender has been charged, the Court must ensure that the offender is not punished twice for the same conduct. In other words, where two offences arise as a result of the same or related conduct that is not a disentitling factor to the application of the single course of conduct principle but a reason why a Court may have regard to that principle, as one of the applicable sentencing principles, to guide it in the exercise of the sentencing discretion: Johnson v The Queen (2004) 205 ALR 346 at [3]-[4] and [34] and Attorney-General v Tichy (1982) 30 SASR 84 at 92-93. It is a tool of analysis (Tichy 30 SASR 84 at 93) which a Court is not compelled to utilise: Royer v Western Australia [2009] WASCA 139 at [21]-[34] and [153]-[156].

A Court is not compelled to utilise the principle because, as Owen JA said in Royer [2009] WASCA 139 at [28],"[d]iscretionary judgments require the weighing of elements, not the formulation of adjustable rules or benchmarks". The exercise of the sentencing discretion does not fall to be exercised in a vacuum. It is a matter of judgment to be exercised according to the facts of each case and having regard to conflicting sentencing objectives: see McHugh J in AB v The Queen (1999) 198 CLR 111 at [14]. For the same reasons, and contrary to the appellants' submissions, even if offences are properly characterised as arising from the one transaction or a single course of conduct, a judge is not obliged to apply concurrent terms if the resulting effective term fails to reflect the degree of criminality involved. Or, in the case of fines, a judge is not obliged to start from the premise that if there is a single course of conduct, the maximum fine is, in the present case, $110,000 for the CFMEU and $22,000 in the case of Mr Mates."

54    Middleton J went on to say at [250]-[251]:

250    A number of different approaches in this proceeding could be taken to imposing a penalty. The Court could look to each contravention, consider the appropriate penalty taking into account the totality principle, and then apply any appropriate discount…Alternatively, the Court could treat the admitted contraventions as all following from the same cause, and with the maximum penalty being $10 million, and then consider the appropriate discount. …

251    There is no scientific approach or arithmetic formula to be applied in determining the appropriate penalty. The circumstances of each contravention need to be looked at, taking into account all the circumstances pertaining to the contravention. I have already indicated what I regard as important and significant considerations, but the other matters I have raised are taken into account.

55    We reject Optus’ arguments under this heading. In our respectful opinion, to group Optus’ offending conduct into 11 contraventions is appropriate in order to reflect the extent and variety of Optus’ departure from the standards of commercial conduct required by the Act having regard to the magnitude of Optus’ campaign and the deployment of different media and messages in the prosecution of Optus’ campaign.

Little loss to consumers

56    Optus submits that the primary judge failed to give appropriate weight to his finding that little or no loss was suffered by consumers as a result of the campaign. Optus points to s 76E(2)(a) of the Act which places a mandatory obligation on the Court to have regard to loss or damage flowing from the contravention. Optus contends that his Honour failed to have regard, or sufficient regard, to this provision.

57    Many circumstances of the present case support a substantial penalty even though the campaign did not cause loss to consumers. Further, the absence of evidence of loss to consumers was expressly recognized by his Honour at para [33] of the Reasons. The primary judge weighed this factor against the broad range of considerations relevant to the exercise of the discretion conferred by s 76E(1) of the Act. We reject Optus’ argument that his Honour erred in this regard. It is also pertinent to note that, while “little loss or damage has been suffered by consumers on this occasion”, Optus persisted in the prosecution of its campaign until restrained by orders of the Court.

58    Turning to the ACCC’s contention, the very existence of s 76E(2)(c) suggests that a contravention which has caused substantial loss or damage to consumers should, all other things being equal, attract a more severe penalty than a contravention which has not. The absence of loss or damage to consumers is a circumstance which would usually attract a less severe penalty than if substantial harm had been inflicted on consumers. We would respectfully adopt the conclusion of the primary judge that the absence of such evidence, in a case such as this, constitutes a factor in mitigation of penalty and we do so for the reasons referred to by the primary judge in his earlier decision in ACCC v MSY Technology Pty Ltd (No 2) (2011) 279 ALR 609 at [77]-[80].

59    Accordingly, we reject the ACCC’s contention that the primary judge was generous to Optus in treating the absence of evidence of loss to consumers as a consideration in mitigation of penalty.

60    It is convenient at this point to observe that the Court is not assisted by Optus’ citation of penalties imposed in other cases, where the combination of circumstances were different from the present, as if that citation is apt to establish a “range” of penalties appropriate in this case. As Middleton J rightly said in ACCC v Telstra Corporation Ltd (2010) 188 FCR 238 at [215]:

It is apparent that there are many difficulties in simply referring to penalties previously imposed for contraventions of legislation in widely differing circumstances or in circumstances where some of the factors are similar but others dissimilar to those of the present proceeding. In each case, the Court must take into account the deterrent effect of the penalty and the fact that the penalties "should reflect the will of Parliament that the commercial standards laid down in the Act must be observed but not be so high as to be oppressive": see Trade Practices Commission v Stihl Chain Saws (Aust) Pty Ltd [1978] ATPR 40-091 at 17,896.

Profit stripping?

61    Optus contends that considerations of deterrence do not justify a penalty of the severity imposed in this case. The primary judge found that there was a “non-trivial connection” between the campaign and the overall profits made by Optus from the plans, but the profits made from the contravention were not distinguished from other profits lawfully made. Optus contends that it is excessive to impose a penalty apt to strip Optus of profits not shown to stem directly from the contravention.

62    There may be room for debate as to the proper place of deterrence in the punishment of some kinds of offences, such as crimes of passion; but in relation to offences of calculation by a corporation where the only punishment is a fine, the punishment must be fixed with a view to ensuring that the penalty is not such as to be regarded by that offender or others as an acceptable cost of doing business. The primary judge was right to proceed on the basis that the claims of deterrence in this case were so strong as to warrant a penalty that would upset any calculations of profitability. The purpose of Optus’ conduct was to generate sales, and hence, profits. The advertising deployed by Optus was calculated to win business from its rivals. The same share of business might not have been attracted by a more balanced presentation of the advantages of the plans. There is no reason to doubt that Optus knows its business sufficiently well that it is safe to proceed on the footing that its course of conduct in the campaign reflected informed calculation. While one cannot isolate the profits attributable to the campaign, it is necessary and desirable to impose a penalty which is apt to affect in a substantial way the profitability of Optus’ misconduct.

63    Generally speaking, those 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. The primary judge did not engage in a surgical exercise calculated to deprive Optus of the profits referable to the increase in business generated by the campaign. It cannot seriously be suggested that this Honour was concerned to engage in an exercise in “profit stripping”. To so describe his Honour’s approach is to distract from the legitimate claims of deterrence in a case like the present.

64    In the present case the sheer magnitude of the advertising campaign, and its likely effect in the market, mean that a penalty which did not substantially affect the profitability of Optus’ campaign could not reasonably be countenanced. We would, therefore, reject Optus’ argument under this heading.

Fixing the penalty

65    This Court must exercise afresh the discretion to fix the proper penalty.

66    To conclude that it was not open to his Honour to make a finding that Mr Derber and Ms Booth were not aware of the undertaking or that this lack of awareness was indicative that Optus did not take its obligations under the Act seriously, is not to say that the circumstances of the contraventions were not so serious as to warrant a penalty sufficiently large to deter Optus from a repetition of conduct of this kind and to deter others in the market place from like conduct. In exercising afresh the discretion, this Court should proceed on the footing that Optus’ conduct was very serious. The contraventions were on a grand scale. They were also unexplained. They were certainly not sufficiently explained on the evidence as a failure of diligence on the part of the lawyers in its in-house legal department. We accept Optus’ argument that one cannot measure Optus’ offending by reference to the severe findings of fact discussed above. It remains the case, however, that there is simply no satisfactory explanation for these contraventions.

67    At first instance, Optus advanced the suggestion that whether the advertisements contravened the Act was a case of mere error of judgment on which reasonable minds might differ. The ACCC disputed that suggestion. It is obvious that the primary judge did not view the suggestion as compelling. It is difficult to disagree with that view especially in relation to the television advertisements. The primary judge was entitled to reject the explanation proffered by Optus for the contravention. We too reject that explanation.

68    Optus cannot be regarded as a “first offender”. It failed to observe the requirements of the Act, and not for the first time. The absence of a satisfactory explanation for the contraventions and the evident laxity in its internal compliance program mentioned by the primary judge mean that Optus has given the Court no reason to be confident that, in the absence of a very substantial penalty, it will not regard as acceptable the risk of a fine for contravention. The Court must fashion a penalty which makes it clear to Optus, and to the market, that the cost of courting a risk of contravention of the Act cannot be regarded as acceptable cost of doing business.

69    It is also a circumstance of concern that a misleading advertising campaign is apt to increase the market share of the contravenor at the expense of law-abiding competitors. In this case Optus’ conduct was contrary to the undertaking in which Optus and its competitors had joined with the express intention of improving advertising standards in the telecommunications industry.

70    On the other hand, we do not take quite as severe a view of Optus’ on-line contraventions as the primary judge. A consumer minded to enter into a plan on line would soon appreciate the qualification of Optus’ headline promise in relation to broadband speed.

71    We would impose a total penalty of $3,610,000 in relation to the 11 advertisements, broken down as follows:

Conclusion and orders

72    We would allow Optus’ appeal and set aside the penalty. In lieu thereof, we would order that Optus pay to the Commonwealth a penalty of $3,610,000.00

Associate:

Dated:    7 March 2012