FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v Telstra Corporation Limited [2004] FCA 987

TRADE PRACTICES – consumer protection – telephone handsets promoted at advertised prices of ‘$0’ and ‘$0 upfront’ – handsets available at advertised prices only on conditions – whether promotions misleading or deceptive – whether promotions made false or misleading representations with respect to price of handsets – effect of bundling of goods and services

Trade Practices Act 1974, ss 52, 53(e), 53(g)

Australian Competition and Consumer Commission v Commonwealth Bank of Australia [2003] FCA 1129 cited

Australian Competition and Consumer Commission v Target Australia Pty Limited (2001) ATPR 41-840, [2001] FCA 1326 cited

Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45 applied

Medical Benefits Fund of Australia Ltd v Cassidy (2003) 205 ALR 402, [2003] FCAFC 289 followed

Nationwide News Pty Limited v Australian Competition and Consumer Commission (1996) 71 FCR 215 considered

Singtel Optus Pty Limited v Telstra Corporation Limited [2004] FCA 859 cited

Trade Practices Commission v Optus Communications Pty Ltd (1996) 64 FCR 326 followed

AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v TELSTRA CORPORATION LIMITED (ACN 051 775 556)

N 1039 OF 2003

GYLES J

30 JULY 2004

SYDNEY

THE COURT ORDERS THAT:

The matter stand over to a date to be fixed.

Note:    Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

REASONS FOR JUDGMENT

Introduction

1                     The applicant in these proceedings, the Australian Competition and Consumer Commission (‘ACCC’) alleges that the respondent Telstra Corporation Ltd (‘Telstra’) has engaged in misleading advertising so as to contravene certain consumer protection provisions in Part V of the Trade Practices Act 1974 (‘the Act’).  It seeks declarations accordingly, orders for corrective advertising, and injunctions to restrain the publication of similar advertisements in the future.  The dispute arises from Telstra’s use of the expressions ‘$0*’ and ‘$0 upfront’ to promote its mobile telephone services. The specific uses of those expressions that are challenged in these proceedings were, first, in a colour advertising brochure that Telstra caused to be distributed to consumers in June 2003 (‘the brochure’), and secondly in a colour display advertisement that was published in the Daily Telegraph newspaper on 4 July 2003 (‘the advertisement’).  The central issue to be determined is whether Telstra’s uses of the disputed expressions constituted false, or at least misleading, representations as to the price, or other conditions, on which it was offering to supply mobile telephone handsets to the public.

Background – Telstra Mobile Plans

2                     In order to assess the accuracy of any representations concerning the terms and conditions on which Telstra in fact supplied or offered to supply products or services to consumers, it is first necessary to establish what those terms and conditions were.  That task is assisted by s 479(2)(b) of the Telecommunications Act 1997 (Cth), which deems that, except to the extent that a subscriber and a telecommunications carrier otherwise agree, the terms and conditions are those set out in a standard form of agreement (‘SFOA’) which the relevant carrier is required to formulate for the purpose. 

3                     Copies of the relevant provisions of Telstra’s SFOA as in force at the relevant times are in evidence.  Other documents in evidence include a standard application form on which subscribers applied in writing for a mobile telephone service, and a brochure that was described in evidence as the ‘Telstra Mobile Offers Booklet’, copies of which were, at all relevant times, routinely provided to subscribers at the time of entering into an agreement to subscribe to Telstra’s mobile network.  The express terms that subscribers accepted by signing the application form included an acknowledgment of the terms in the Telstra Mobile Offers Booklet, which in turn referred expressly to relevant terms of the SFOA.

MOBILE PLANS

4                     Under the terms of the SFOA the call tariff and other charges payable in respect of mobile telephone services provided by Telstra were dependent upon the subscriber’s selection of a particular pricing schedule, generically designated as a ‘Mobile Plan’.  There were 10 such generic Mobile Plans that are relevant to the present proceedings.  A feature common to all of them was the subscriber’s agreement to pay a minimum monthly sum for access to the network (the ‘monthly spend’).  The Mobile Plans were in fact designated by reference to the dollar amount of the agreed monthly spend, eg ‘Plan 10’ indicated a monthly spend of $10, ‘Plan 20’ a monthly spend of $20 and so forth through the amounts of $30, $40, $60, $80, $100, $150, $250 and $350. 

5                     Another feature common to all of the Mobile Plans was the subscriber’s entitlement to set off at least a substantial part, and for all but Plan 10 and Plan 20 the entirety, of the monthly spend against the cost of telephone calls made on the network (‘included calls’) at the relevant call tariff.  The monthly spend, included calls and call tariff may accordingly be regarded as variable elements in a general pricing formula underpinning all of the generic Mobile Plans.  Under that formula, as the agreed monthly spend increased the call tariff fell, and the included calls also increased if they did not already match the monthly spend.  Under such a formula, the consumer’s incentive to agree to a higher rather than a lower monthly spend included a decrease both in the unit price of calls (including the price charged for calls that exceeded those that could be set off against the monthly spend) and also a decrease in the proportion of the monthly spend paid as an unrecoverable fixed charge for connection to the network.  The latter cost fell to nil at the relatively low monthly spend of $30. 

6                     This did not, however, exhaust the considerations to be assessed by consumers in selecting a Mobile Plan.  While connection and call prices were determined by the choice of monthly spend, other important conditions of the agreement depended on whether the consumer agreed to the relevant monthly spend under the terms of a ‘Casual Plan’ or a ‘Member Plan’.  A subscriber to a Casual Plan could terminate the agreement at any time from month to month.  A subscriber to a Member Plan agreed to continue the relevant monthly spend for the duration of a fixed term of 12, 18 or 24 months.  At all relevant times, Telstra offered consumers two alternative inducements to commit to Member Plans.  In the SFOA these were designated as ‘Member Benefits’ and they were true alternatives, ie a Member Plan subscriber was required to opt for one or the other, but could not have both. 

7                     The first of the two alternative additional Member Benefits was an entitlement to make additional calls at the agreed tariff to the value of a specified monthly sum at no additional charge (‘Monthly Credit’).  The Monthly Credit option was available with either the 12 month or 24 month plan. The minimum net benefit of choosing it was either to increase the amount that could be set off against the monthly spend (thereby effectively discounting the minimum monthly cost of the plan) or, when applied to those plans that already allowed call costs to be set off against the entirety of the monthly spend (ie Member Plan 30 and above), to increase the number of calls that could be made at the agreed tariff before the subscriber incurred charges in addition to the monthly spend.  The monthly monetary value of this benefit varied with, though not in uniform proportion to, the monthly spend, from $2 on Member Plan 10 to $35 on Member Plan 350.

8                     The second of the two alternative additional Member Benefits was a mobile phone handset (‘Phone Option’) supplied by Telstra.  Since the central question in this case is whether certain promotions have misrepresented the true conditions on which this Member Benefit was supplied, it will be necessary to consider the relevant provision of the SFOA with some care.  The key relevant provision was drafted in the following terms:

‘If the Customer selects the Phone Option Member Benefit, they will be eligible to purchase a handset from Telstra at a subsidised price when they connect to the Telstra Mobile Plan for 18 or 24 months.  Customers who select the Phone Option member benefit are not eligible to receive a Monthly Credit or to apply for a Mobile Repayment Option.  The contract term for a Customer who selects a Telstra Mobile Member Plan with a Phone Option will be determined by the Customer’s Telstra Mobile Plan Monthly Spend:

(i)      24 month contract term for a Customer with a monthly spend of $20, $30, $40, $60, $80 or $100; and

(ii)     18 month contract term for a Customer with a monthly spend of $150, $250 or $350.’

9                     The reference in the above term of the SFOA to a ‘Mobile Repayment Option’ designates a further plan condition that was available at the option, relevantly, of Mobile Plan subscribers who had opted for the Monthly Credit.  Such subscribers could additionally opt to purchase a telephone handset by paying monthly instalments over and above the monthly spend.  At all relevant times prior to 3 July 2003, the key conditions governing this option were set out in the SFOA in the following terms:

‘9G.19   From 7 May 2003 until 30 June 2003 (or such other time as Telstra determines), Telstra will offer eligible Telstra Mobile Plan Member and Casual Customers credit to contribute towards the purchase price of a handset and allow Customers to repay that credit by monthly instalments over a 12 or 24 month period (“Mobile Repayment Option Term”).  The Mobile Repayment Option is not available to Telstra Mobile Plan Member Customers who select the Phone Option Member Benefit.

9G.20     The credit will be the Mobile Repayment Amount selected by the Customer at the time the Customer purchases a handset.  The Mobile Repayment Amounts available under the Mobile Repayment Option are set out in Table 2.127A.  Telstra reserves the right to vary the Mobile Repayment Amounts at any time.

9G.21     Customers must ensure that the Mobile Repayment Amount selected is equal to or less than the Handset Price (incl. GST).

9G.22     Telstra will provide the Mobile Repayment Amount towards the upfront cost of the handset by paying that amount on the Customer’s behalf directly to the relevant Telstra Shop or participating Telstra dealer.

9G.23     If the Handset Price (incl. GST) exceeds the value of the Mobile Repayment Amount, Customers must pay the difference between the Handset Price (incl. GST) and the Mobile Repayment Amount directly to the Telstra Shop or the participating Telstra dealer from whom the handset is purchased.

9G.24     The Customer must repay the Mobile Repayment Amount provided by Telstra, by monthly instalments over the Mobile Repayment Option Term.  The final monthly instalment may be higher to cover the total Mobile Repayment Amount.

9G.25     If Telstra or the Customer cancels the Telstra Mobile Plan attached to the Mobile Repayment Option prior to the expiry of the Mobile Repayment Option Term, the Customer must repay to Telstra thebalance of the Mobile Repayment Amount outstanding, in addition to any amounts payable to Telstra (if any) or otherwise, as and when required to do so by Telstra.

9G.26     If the Customer fails to repay the Mobile Repayment Amount provided by Telstra to the Customer under a Mobile Repayment Option, Telstra reserves the right to suspend or terminate the Customer’s Telstra Mobile Service or Account.

9G.27     Only one Mobile Repayment Option may be entered into under each Telstra Mobile Plan.  Applications for four or more Mobile Repayment Options must be approved under Telstra’s Multiple Purchase Policy.’

Amendments to the SFOA that took effect from 3 July 2003 altered, inter alia, the provisions governing the Mobile Repayment Option.  None of those changes is, however, material to the questions to be determined on this application. 

early Termination charge

10                  As previously noted, a subscriber to a Casual Plan could terminate the agreement at any time from month to month.  There was no financial penalty for doing this.  In the event of early termination of a Member Plan, however, a subscriber was liable to pay an early termination charge (ETC).  The formula for calculating an ETC was published in the terms and conditions that accompanied the standard application form, and apparently nowhere else.  It was not included in the SFOA.  Under this formula the ETC payable upon early termination was calculated by first multiplying a figure described as the ‘Base ETC’ by the number of months (or part thereof) remaining under the original contract term, and then dividing the result by the total duration (in months) of the contract term.  For example, a customer who terminated a 24 month plan nine months early would pay an ETC corresponding to the Base ETC multiplied by 9/24.

11                  The Base ETC was in all cases an increasing function of both the monthly spend and the duration of the Plan.  It was also in all cases higher for the Member Plan with Phone Option than for the corresponding Member Plan with Monthly Credits.  In the case of Member Plan 20, for example, the two Base ETCs were $300 and $120.  The ETC payable on early termination of such a plan by a customer who had opted for Monthly Credits would, in all cases, be 40% of the ETC payable on termination at the corresponding early time under the corresponding Member Plan with Phone Option.  The ratio between the two Base ETCs was not 40% for all plans but the Base ETC for the Phone Option was in every instance substantially the higher of the two. 

The disputed promotions

12                  The brochure was a document of 16 pages.  The first three of the 16 pages are reproduced as Annexure ‘A’ to this judgment.  The evidence is that the brochure was distributed nationally in about June 2003 to Telstra shops, and also as an insert to a number of daily newspapers.  There is some doubt as to whether it was also distributed via letterbox drops.  The advertisement was published in the Daily Telegraph of 4 July 2003.  It is reproduced as Annexure ‘B’ to this judgment.  The advertisement, though not the brochures, promoted a competition for what was described as a ‘$100,000 giveaway’ which subscribers or purchasers were eligible to enter.  The evidence of Telstra’s Director of Relationship Marketing, Mr Willsher, was that the target demographic of these promotions was very broad, covering at least the age groups from 16 to 54, and all levels of wealth and education in the community. 

13                  The brochure promoted, amongst other products and services, mobile telephone handsets that Telstra was offering to supply to subscribers to Member Plans.  The value, or at least the recommended retail price (‘RRP’), of the handsets promoted tended to be higher as the monthly spend increased.  Particular handsets that a subscriber might acquire under the Phone Option were promoted in the brochure with the expression ‘$0*’ displayed prominently alongside a picture of each.  Each such combination of the picture and name of a handset with the prominent symbols ‘$0*’ displayed alongside is defined by the ACCC in its pleading as a ‘$0* statement’.  Thirteen such statements appeared on a total six pages of the Brochure.  Five of them are reproduced on pages 1 and 3 of Annexure ‘A’.  Two such statements appeared in the advertisement (see Annexure ‘B’).

14                  Each $0 statement so defined was adjacent to additional words (albeit those additional words were less prominently displayed) and the asterisk (*) symbol referred to additional information displayed in fine print in a footnote at the bottom of each relevant page.  As between each promotion, and more particularly as between the promotions in the brochure and those in the advertisement, the precise content and graphic form of the adjacent words was not identical.  The generic form of the words adjacent to each $0* statement in the brochure can be conveniently summarised as ‘on a [specified plan] for 24 months or RRP [a specified amount]’.  A specific example is the promotion of a Nokia 6610 handset on the first page of Brochure, where the $0* statement is preceded by the words ‘RRP $619 or’, and is followed by the words ‘on a $40 Telstra Mobile Member Plan with Phone Option for 24 months’ (see Annexure ‘A’).  In the advertisement references to the RRP were absent.  The asterisk symbol that appeared in every $0* statement referred the reader to a footnote that was in all cases displayed on the same page, and which informed the reader, inter alia, that the minimum cost to be paid by the consumer under the plan was a sum corresponding to the monthly spend multiplied by 24, and that charges were payable in the event of early termination.  The contents of the footnote are not part of the ‘$0* statement’ as pleaded by the ACCC.

15                  Handsets that were specifically offered under the mobile repayment option were promoted with the expression ‘$0 upfront^{^1’}.  These promotions appeared only in the brochure.  They were not featured in the advertisement.  The expression ‘$0 upfront^{^1’} was, like the expression ‘$0*’, displayed prominently alongside pictures of the relevant handsets, and adjacent to less prominent additional words indicating, in these instances, that the handset was offered ‘on a Telstra Mobile Plan or for’ an indicated RRP.  Each such combination of elements is defined by the ACCC in its pleadings as a ‘$0 upfront statement’.  There were three such statements, each on a different page of the brochure.  One instance is reproduced on the third page of Annexure ‘A’.  In all three cases, the ‘^’ symbol referred to a footnote that indicated that customers would pay the RRP under the mobile repayment option over the duration of the relevant plan, that they would be liable to pay any sum outstanding under the plan in the event of early termination, and that the final monthly payment might be larger than the others to cover the total cost.  The symbol ‘¹’ in all three cases referred to a footnote that stated, inter alia, that a subscriber who paid ‘$0 upfront’ would ‘Then repay’ a specified monthly sum or the RRP of the relevant handset. 

OUTLINE OF THE ISSUES

16                  The ACCC contends that the $0* statements and $0 upfront statements Telstra made were false, or at least misleading, representations as to the price at which or other conditions under which, a subscriber to a Member Plan would be supplied with a mobile handset.  It says that the misrepresentations alleged constitute breaches of one or more of ss 52, 53(e) or 53(g) of the Act.  That is to say, the ACCC contends that each of the disputed statements:

·        made false or misleading representations with respect to the price of the relevant handset in connexion with the supply or possible supply of goods or services in breach of s 53(e) of the Act; and/or

·        made false or misleading representations as to a condition in connexion with the supply or possible supply of goods or services in breach of s 53(g) of the Act; and/or

·        constituted conduct that was misleading or deceptive, or likely to mislead or deceive, in breach of s 52 of the Act.

17                  It seeks declarations accordingly, and an order that Telstra publish corrective advertising.  Because it claims that Telstra will persist in this misleading conduct unless restrained, the ACCC also seeks injunctions, the effect of which would be to restrain Telstra, for a period of five years, from making the same or similar representations, or at least to require it to increase the prominence with which what might be called the ‘fine print’ conditions applicable to its Member Plans are displayed in promotions for them.

18                  Telstra admits that the publication and dissemination of the brochure and advertisement occurred ‘in trade or commerce’, which is a requirement for the applicability of both s 52 and s 53.  A further requirement for a breach of s 53 to be established is that the alleged representations be made ‘in connexion with the supply or possible supply of goods and services or in connexion with the promotion by any means of the supply or use of goods and services’.  Telstra’s pleading does not admit the ACCC’s claim to that effect.  In written submissions counsel for Telstra did admit that claim, but not the additional claim that accompanied it in the relevant paragraph of the statement of claim, and which is the central question for determination in this case, i.e. the claim that any of the representations alleged by the ACCC is in fact conveyed by either the brochure or the advertisement. 

19                  It is convenient to summarise in tabular form the various representations that Telstra is alleged by the ACCC to have made, together with the basis on which each representation is alleged to be false or misleading.  I summarise first the several misrepresentations that are said to arise from the $0* statements:

20                  The following is a summary of the two misrepresentations that are said to arise from each ‘$0 upfront’ statement:

ACCC’s contentions

$0 REPRESENTATION

FREE AND NO COST REPRESENTATIONS

21                  Each $0* statement as pleaded by the ACCC consists solely of a picture of a handset with the symbols ‘$0*’ prominently displayed alongside.  The statement as pleaded consists of nothing more than that, and in particular, it does not include what the ACCC in its pleadings describes as ‘the words adjacent’.  These are the words that inform the reader that the offer of the handset for a price of $0 is ‘on a’ specified Mobile Plan or, in some instances, that the handset is alternatively offered for the RRP.  Having defined the $0* statement the ACCC contends that the statement so defined conveys the $0 representation and the free and no cost representations. 

22                  The case in respect of the $0 representation and the free and no cost representations is thus a very simple one.  The ACCC contends that, at least in the circumstances of this case, each statement that the handsets are available for $0 is virtually indistinguishable from a description of those handsets as free and that the principles established by judicial decision in relation to the description of products as ‘free’ are accordingly applicable to cases concerning ‘$0’ promotions generally and to this case in particular.  On this basis it alleges that each $0* statement conveyed, to adapt the words of Lindgren J in Nationwide News v Australian Competition and Consumer Commission (1996) 71 FCR 215 (Nationwide News)at 228:

‘an offer to cause the reader to become the owner of [the relevant handset] without his or her having to outlay money or undertake to do so.’

As no such free offer was being made, those representations, it is said, were false and misleading.

SAME PRICE REPRESENTATION

NO COST REPRESENTATION

23                  As to the representations which it is convenient to designate as the ‘bundle representations’ the ACCC case is more complex.  The nub of it is the general contention that where particular goods or services are offered as an integer in a larger bundle of goods and services, a statement that the integer is offered for ‘$0’, for ‘free’ or at ‘no cost’ will in all cases be false or misleading unless:

(a)                the supplier supplies the products without the $0 item in its usual course of business (so that it is possible for a comparison to be made between the cost of the products with and without the $0 item); and

(b)               the usual price, taking into account credits, discounts and similar price adjustments, for the products without the $0 item is the same as the advertised price for those products with the $0 item.

24                  For guidance as to the meaning of the expression ‘usual price’ in (b) above, the ACCC referred to the ‘ordinary and regular price’ as expounded in a decision of the US Federal Trade Commission (Re Samuel Stores (1938) 27 FTC 882 at 887–888) that was cited with approval in the decision of the Full Court in Nationwide News. 

25                  The ACCC’s submission is that in respect of every Member Plan with Phone Option that was promoted by one of the disputed statements in this case, a Member Plan with Monthly Credits meets condition (a).  Assuming the submission to be correct, the ACCC contends that the evidence establishes that a customer who chose the Member Plan with Monthly Credits would, for any given level of service usage, in every case pay less than would be payable for the same level of service usage under the corresponding Member Plan with Phone Option.  It illustrates the point by a tabular comparison of the minimum total payments required to be made under each corresponding Member Plan up to and including Member Plan 100.  That comparison is reproduced below:

26                  It also relies upon the fact that the ETC payable under the Member Plan with Phone Option is in all cases higher than the ETC that would be payable to terminate at the equivalent early time in the course of the corresponding Member Plan with Monthly Credits.  The evidence thus establishes, on the ACCC’s contention, that condition (b) is not satisfied because every relevant corresponding bundle of goods and services without a handset is available for a lower price than would be payable for an otherwise identical bundle with the handset.  From that it is said to follow that, to the extent that the $0* statements make the bundle representations, those statements are false and misleading. 

27                  If, contrary to the ACCC’s submission, the Member Plan with Monthly Credits does not meet condition (a), then, its alternative submission is that unless some other bundle provides the necessary objective benchmark against which to measure the accuracy of a statement that the handsets were available for $0, there was no rational basis at all for such a statement, and the $0* statements are misleading for that reason.  In such circumstances, so it is said, the consumer is not being offered two items, one of which may be purchased for $0.  What is being offered is in every case a bundle, which must be purchased as a bundle for a total cost of more than $0 and from which the purchaser is not able to disaggregate the handset as a discrete item for purchase at the price of $0.  Put simply, the contention is that in the case of bundled goods, if the truth of a $0* statement cannot be proved comparatively, then it cannot be proved at all.

$0* effect of conditions representation

28                  The ACCC contends that the inclusion of the asterisk symbol in each $0* statement represents to the reader that the offer is made on conditions, and that the conditions in question are not inconsistent with any or all of the $0 representation, the free representation and the no cost representation.  Since in fact the conditions areinconsistent with those representations, the $0* statement is said to be false and misleading.  The ACCC relies upon the authority of Nationwide News  (at 228–229) for the proposition that an offer of goods for free, even in cases where the offer is expressed to be subject to conditions, is misleading if the conditions are of such a nature as to contradict the assumption that no outlay of money, or undertaking to outlay money, is required in order to become the owner of the goods. 

29                  Regardless of whether the accompanying footnotes and additional information at page 2 of the brochure in which some, at least, of the relevant conditions are specified (see Annexure ‘A’) would have been read by the ordinary and reasonable reader, the ACCC submits that the $0* statements constituted ‘first contact deception’ whereby, it has been said, a customer ‘is enticed into the marketing web’:  Trade Practices Commission v Optus Communications Pty Ltd (1996) 64 FCR 326 (Optus Communications) at 340 and which contravenes of s 52 of the Act regardless of whether subsequent correction of the initially misleading impression would ordinarily occur prior to any purchase of goods

30                  Furthermore, the ACCC does not concede that the relevant footnotes and second page of the Brochure would in fact have been read by the ordinary and reasonable reader.  Nor does it concede that the information disclosed by these sources was, in either content or form, adequate to correct the allegedly misleading first impression. 

31                  As to the footnotes, counsel for the ACCC submitted that, given their size and position, these were unlikely to be read by the majority of readers of either document and that, in any event, they did not convey any specific information about the nature of the Monthly Credits, the difference they made to the price of a Member Plan if taken instead of a handset, or the fact that early termination charges were substantially lower if Monthly Credits were taken instead of a handset.

32                  As to page 2 of the Brochure, which discloses some, at least, of those matters, counsel for the ACCC pointed out that none of the footnotes in the Brochure refers the reader specifically to that information which, in any event, is inadequate.  Further, none of that information is included in the advertisement, which simply displays, inter alia, two $0* statements that are the equivalent of extracts of particular promotions displayed in the brochure, with immaterial differences of graphic form.  Whether or not the footnotes were likely to be read by the majority of readers of the Brochure it may reasonably be assumed that many people who read the advertisement would never see the brochure, or know of its existence.

$0 upfront on a plan representation

33                  The ACCC contends that Telstra’s statement that handsets were available for $0 upfront ‘on a’ relevant Telstra Member Plan represented to the reader that the cost of acquiring the handset thereby promoted was incorporated into the costs of the specified plan.  It characterises this inference as the one that a reasonable reader would draw from the ordinary and natural meaning of the words ‘on a’, and submits that it was an inference rendered all the more probable by the similarities of font and layout between, and close physical proximity within the Brochure of, the thirteen $0* statements (in respect of which such a representation would have been true) and the three $0 upfront statements (in respect of which it was false).  Since, in fact, under the terms of the Mobile Repayment Option, a customer was required to make payments for the handset that were additional to the plan charges, the ACCC submits that the $0 upfront on a plan representation was false and misleading or likely to mislead. 

$0 UPFRONT EFFECT OF CONDITIONS REPRESENTATION

34                  The ACCC contends that the inclusion of the symbols ‘^¹’ in each $0 upfront statement represents to the reader that the conditions to the existence of which he or she is thereby alerted are not inconsistent with the primary representation that they are said to qualify – in this case the $0 upfront on a plan representation.  Since that is not the true position, that implied representation is said to be false and misleading on the basis of what is, mutatis mutandis, the same reasoning as is applied to the $0* effect of conditions representation.

MULTIPLE REPRESENTATIONS

35                  The ACCC’s submissions emphasised the width and diversity of the target audience for the disputed promotions, and particularly the fact that that audience would include some of the least intelligent and astute, as well as the most intelligent and astute members of the community.  It cites an earlier judicial statement of Tamberlin J in Optus Communications (at 336) to the effect that many members of the target audience would be first time users of mobile phones, and submits that that statement remains valid at the present time.  It contends that the disputed promotions convey more than one message, and cites authority that it is entitled to rely on any meaning reasonably open to a significant number of a newspaper’s readership:  Talmax Pty Limited v Telstra Corporation Limited (1996) ATPR 41-535 at 42,825.  On this submission, even if a careful reading of all of the text and accompanying fine print in the disputed documents might convey to some, or perhaps even to most, of the target audience an accurate representation as to the price at which, and conditions under which, Telstra was offering the handsets (and that was not conceded), such a finding would not answer the claim that the same promotions would convey, at least initially and at least to some of the target readership (including, perhaps, many who have not read the fine print at all), representations that are false or misleading. 

Telstra’s Contentions

READING IN CONTEXT

36                  Telstra contends that none of the representations pleaded in the ACCC’s statement of claim arises from the statements made in the brochure or the advertisement, or at least that they do not arise if those statements, and the documents in which they appear, are read in the way it contends they ought to be read, and which it characterises as a commonsense and reasonable way. 

DOCUMENTARY CONTEXT

37                  Telstra contends that, the relevant context in which the disputed statements are properly to be understood includes, in the first instance, the words adjacent that accompany the expressions ‘$0*’ and ‘$0 upfront’ in every disputed promotion.  The $0* statements and the $0 upfront statements never appear alone in either of the disputed documents, and Telstra contends that there is no justification for reading them as though they did.

38                  Telstra points out that in all thirteen of the $0* statements in the brochure the symbols ‘$0*’ are immediately followed by the word ‘on’, which is entirely in lower case, thereby indicating that it forms part of a single sentence that includes the preceding symbols.  It is useful to refer again to the specific promotion of a Nokia 6610 handset on the first page of brochure.  There the symbols ‘$0*’ are preceded by the words ‘RRP $619 or’ and are followed by the words ‘on a $40 Telstra Mobile Member Plan with Phone Option for 24 months’.  In this context, Telstra submits, the reader is immediately presented with sufficient information to calculate the minimum cost of the relevant Plan.  In the brochure, though not in the advertisement, the reader is also informed of the cost of acquiring the phone at the RRP if the plan is not entered into.

39                  Telstra further contends that relevant context includes the entirety of each page on which each $0* statement and $0 upfront statement appears.  It contends that in each $0* statement the asterisk is given equal prominence with the symbols ‘$0’ and that any reader who had not deduced the minimum cost of the Member Plan with Phone Option from the information already disclosed would find that information expressly disclosed in the footnote to which his or her attention is thereby drawn.  The footnote also informed readers that charges were payable in the event of early termination of the Member Plan.  Telstra contends that the candour of these disclosures distinguishes the facts of this case from the facts that led to the decisions in Nationwide News and Optus Communications.

40                  In the case of the statements in the Brochure, Telstra contends that the relevant context in which each $0* statement and $0 upfront statement should be understood includes the entirety of that document, and its second page in particular which informs readers of, inter alia, the choice to be made between the two different Member Plans, only one of which provides for Monthly Credits.

INDUSTRY context – prevailing promotional PRACTICE

41                  Telstra also submits that a further relevant consideration to determining the likely reaction of the target audience to the expression ‘$0’ is the fact of its use in promotions for mobile telephone services by most if not all industry participants over at least two preceding years.  It tendered evidence in support of this submission.  That evidence was admitted provisionally.  It also sought in evidence to counter the submission of the ACCC that the target audience of such promotions would include significant numbers of newcomers to the mobile phone market.  The submissions advanced on behalf of Telstra implicitly accepted that the target audience would include persons who were not of the highest intelligence, but they also laid emphasis on what was said to be the objective character of the test for whether a statement is misleading, and placed reliance upon authorities distinguishing between a person whose false understanding of a representation arises from the character of the representation and one whose false understanding proceeds from an independent misconception of his or her own:  Tobacco Institute of Australia Limited v Australian Federation of Consumer Organisations Inc (1992) 38 FCR 1 per Hill J at 49. 

$0 REPRESENTATION

42                  Telstra contends that, when proper regard is had to context, no statement can be found anywhere in the brochure or the advertisement that anything can be acquired for free or for $0 by itself.  Every $0* statement includes an asterisk that refers to material elaborating the nature of the offer made.  For this reason, Telstra contends, even if ‘$0’ were equated with ‘free’, the additional information spells out clearly what the expression means in the context of the advertisement.  On this basis, Telstra contends that no reasonable reader would be misled into thinking that any handset could be acquired for $0 without entering into a plan, and that the $0 representation accordingly does not arise. 

free and no cost representations 

43                  If no representation was ever made that the handset could be acquired without incurring the costs consequent upon commitment to a particular Member Plan, on Telstra’s submission it follows that no representation was ever made that the consumer who acquired the handset would not have to forgo the benefits of committing to any alternative Mobile Plan that might otherwise have been selected.  It is on this basis, fundamentally, that Telstra denies that the free and/or no cost representations were ever made.  In respect specifically of the $0* statements in the brochure, Telstra relies also upon the disclosures in page 2 thereof that a customer who selects the Mobile Plan with Phone Option cannot have Monthly Credits or a 12 month contract term.  On this submission the brochure represents to a customer that he or she has a choice, with the relevant plan, to take either the $0 handset or the Monthly Credits, which representation is true. 

The ‘bundle representations’

44                  As to the same price representation and the no extra cost representation, Telstra does not in terms admit that its Member Plans with Phone Option are correctly characterised as ‘bundles of goods and services’ and points to the dearth of authority in support of this method of analysis.  Whether or not they were bundles in fact, counsel for Telstra in terms denies that they were offered as such and insists that the natural reading of the relevant promotions is not that Telstra was offering a bundle of goods and services consisting of a Mobile Plan and handset, but rather that it was offering persons who went onto the relevant plan either the Monthly Credits or the handset as a discrete item for zero extra dollars. 

45                  Such a representation, it is said, does not in terms invite any comparison at all, and certainly does not invite comparison between the Member Plan with Phone Option and the corresponding Member Plan with Monthly Credits.  Readers of the brochure (though not of the advertisement) who wished to make that comparison, were, it is said, provided with sufficient information to do so on page 2 thereof.  Telstra contends, however, that, for the purpose of testing the accuracy of the representations that it says were truly made, the ‘most natural’ comparison is between the relevant Member Plan with Phone Option and the corresponding Casual Plan with the same monthly spend.  That comparison would disclose that the handset was offered (as were the Monthly Credits) as an incentive for the customer to make a commitment to a term of contract that was absent from the Casual Plan.

The $0* EFFECT OF CONDITIONS REPRESENTATIONs

46                  Telstra characterises the ACCC’s argument in relation to this representation as a ‘bootstraps’ argument.  Its contention is that the $0* effect of conditions representation is identified by reference to a false premise, namely, that the representation with which the true effect of the conditions is said to be inconsistent (in this case the $0 representation and/or the free or no cost representation) was itself ever made independently of the conditions.  Since Telstra rejects the premise, it rejects the conclusion. 

THE $0 UPFRONT ON A PLAN REPRESENTATION

47                  Telstra meets this alleged representation also with an appeal to context, and seeks to emphasise from that context what is said to be the natural meaning of the word ‘upfront’ in the statement ‘$0 upfront^¹ on a’ plan.  On Telstra’s submission, the use of the word ‘upfront’ plainly indicates that there is a subsequent cost:  the customer pays nothing for the handset now (‘upfront’) but will pay for it later by instalments.

$0 UPFRONT EFFECT OF CONDITIONS REPRESENTATION

48                  Telstra meets the ACCC’s claims in respect of this alleged representation with the same defence that it applies to the $0* effect of conditions representation.  It repeats its contention that the primary representation that the conditions are said to qualify, and with which it is said they are falsely represented not to be inconsistent (in this instance the $0 upfront on a plan representation) was never in fact made.  On that view, the pleading of the effect of conditions representation is merely an attempt by the ACCC to pull itself up by its own bootstraps.

GENERAL CONSIDERATIONS

49                  The question whether an advertisement is misleading or deceptive is a quintessential question of fact.  A common lawyer would call it a jury question.  It is unnecessary to complicate and over-intellectualise the issue.  There is no need to introduce sophisticated distinctions along the lines of the law of defamation into this field.  Nonetheless, it is necessary properly to understand what is actually on offer in order to understand whether it has been misrepresented and it is necessary to form a view as to what message would be given to the target audience. 

50                  I have considered the decisions in other cases, particularly the discussion in the recent cases of Singtel Optus Pty Limited v Telstra Corporation Limited [2004] FCA 859, Australian Competition and Consumer Commission v Commonwealth Bank of Australia [2003] FCA 1129, and Medical Benefits Fund of Australia v Cassidy (2003) 205 ALR402 [2003] FCAFC 289 in which other relevant authorities are reviewed.  However, while resolution of the issue might be assisted by seeing how others had viewed similar situations, it is a mistake to elevate statements in other cases concerning other facts into principles of law to be applied.  Reading the numerous cases in this field makes it perfectly apparent that individual judges vary considerably in their assessments of the effect of advertising.  Some take a robust view and credit consumers with a fair amount of cynicism about advertisements and a fair amount of ability to make their own judgments.  Others are convinced of the power of advertisements and are protective of the consumer.  Neither side is right or wrong – it is a matter of opinion.  General guidance in a case such as the present can be gleaned from the decision of the High Court in Campomar Sociedad, Limitada v Nike International Limited (2000) 202 CLR 45 at [97]–[107]. 

51                  The target audience in the present case is those in the market for a mobile phone.  That is a very wide cross-section of the community, although a mobile phone is still a discretionary item for most.  The audience is not as wide as that for a necessity of life.  The consumer would be taken to know that there is a number of manufacturers and sellers of mobile phones and a number of parties supplying telephony services with competition at all levels.  It would be known that Telstra is primarily a supplier of telephony services.  The very advertisements in question reveal that there was a number of ways in which a mobile phone handset could be acquired.  A consumer would understand that it is possible to shop around and that there would be different consequences according to which method of acquiring the phone were chosen, particularly if coupled with the acquisition of telephony services.

52                  The newspaper advertisement and the brochure are different media and, to an extent, would be read differently.  The newspaper advertisement would have a wider and more random circulation and would tend to be more ephemeral.  It would tend to catch the eye and raise interest rather than lead to a decision as to purchase.  The brochure would be more likely to be picked up and read by those with a closer interest in acquiring a phone and closer to the time of making a decision.  It is more likely to be taken away and read with some care.  I would not regard the audience for either document as being especially gullible or as being particularly sophisticated in matters of business.  I would judge there to be a reasonable level of scepticism as to claims made in advertising generally and about free offers in particular among the relevant audience.  The evidence provisionally admitted confirms that many will have seen free offers of one sort or another advertised, some in relation to telephony.

$0*

53                  I am not satisfied that any of the $0 representation, the free representation or the no cost representation is made in the advertisement.  The argument for the ACCC naturally placed much reliance upon the decision of the Full Court in Nationwide News particularly per Lindgren J at 225–229.  There is no doubt that the offer of something for $0 can be seen as the equivalent of a free offer.  I have no difficulty in accepting that a free offer is a powerful magnet.  I also accept that free offers may involve some ambiguity.  I respect his Honour’s view that readers of the Daily Telegraph in 1994 might have read the advertisements in that case as indicating that they would receive a free mobile phone from the publishers of the Daily Telegraph without incurring any corresponding obligation.  In my opinion, the same is not true of the readers of the Daily Telegraph in 2003 concerning what was obviously a Telstra advertisement.  Some readers may have thought that the price of $0* was related to entry into the competition that was referred to in the advertisement.  If so they were not misled in the manner alleged.  In my opinion, a reasonable reader of the class concerned would understand that the offer was only made in connection with the supply of telephony and would inevitably involve signing up with Telstra for that purpose.  It would be known that Telstra’s primary business is telephony, not providing mobile phones.  The presence of the asterisk and the words adjacent ‘Telstra Mobile $20 (or other amount) Member Plan for 24 months’ would underline that reading.  It is not necessary for that purpose to go to the fine print at the bottom.  In my opinion, the statement by Lindgren J (at 228) that:

‘Any respect in which goods or services offered as “free” may not be free should be prominently and clearly spelled out so that the magnetism of the word “free” is appropriately qualified.’

is a factual opinion which goes too far if it is put forward as a principle of law applicable in all circumstances.  In my opinion, it is even clearer that the three alleged representations are not made in the brochure.  Both the form of the document and the circumstances under which it would be read make it quite unlikely that any reasonable reader would conclude that the handset is being offered completely free and without obligation in relation to telephony services.  However, the above statement by Lindgren J is relevant to consideration of the other alleged representations. 

54                  In my opinion, both of what were called the ‘same price representation’ and the ‘no extra cost representation’ are made in the advertisement.  A reasonable reader would assume that the phone would only be acquired for $0 if Telstra telephony services were also taken – in other words, in that sense, the phone and the services would be ‘bundled’.  Where there is a single price for bundled items and no apportionment of the price between the bundled items, then it can be said theoretically that $0 can be attributed to each item taken in isolation.  That is not how the matter would be regarded by a reasonable reader.  It would be assumed that each part of the bundle has a value and so, in that sense, is part of the price.  To say that one item in those circumstances is free is absurd unless the price for the bundle is equivalent to (and no greater than) the combined ordinary price of all of the remaining items.  In other words, the ordinary reader would reasonably take the view that the telephone was offered free of charge provided that the required Telstra service was entered into.  That would be confirmed by the asterisk and the words ‘on the Telstra Mobile $20 (or other amount) Member Plan for 24 months’.  Those customers who looked at the words adjacent to the $0* statements would not have that impression dispelled.  That material does not spell out in any way at all the difference between the phone option member benefit and any other option.  Even if that part of the fine print indicated by the asterisk were read, the impression to which I have referred would not be dispelled for the same reason.  In my opinion, those representations were misleading and deceptive.  The same services could be obtained without the mobile phone for significantly less ultimate cost than the bundled price.  That plainly falsifies the representations. 

55                  The position is not quite so clear concerning the ETC in relation to the advertisement.  Many readers would assume that, if the telephone is to be provided free upon entering into a commitment to take service, then the commitment would need to be carried out.  Furthermore, the fine print does refer to an ETC applying.  The words adjacent refer to a 24 month plan.  However, the reality is that the so-called ‘ETC’, in effect, is a means of recouping at least part of the cost of the mobile telephone which would have been supplied.  The termination charges are greater in the case of the mobile phone option than for comparable options without the phone.  That should have been, but was not, spelled out.  In this context I would adopt the passage from the judgment of Lindgren J in Nationwide News to which I have referred.  The advertisement is thus misleading and deceptive in two respects.

56                  As I have said, different considerations apply to the brochure.  There is more explanation in it and it would be read in a more thorough fashion.  Upon analysis, however, the substance of what is represented by each $0* statement is the same on the relevant pages of the brochure as it is in the advertisement, leaving aside page 2.  A difference is that more readers of the brochure than readers of the advertisement would read the small print at the bottom of the page.  Even for those who did, the meaning is opaque and would not dispel the natural meaning to which I have referred.  Furthermore, the explanation of the ETC and its true effect in the small print is no more comprehensive in the brochure than in the advertisement.  The material on page 2 of the brochure (see Annexure ‘A’) does have to be taken into account separately.  The material under the heading ‘Need a new handset?’ taken together with the table next to it does enable the initiated to work out that taking the phone option involves the loss of the monthly credit.  That would certainly puzzle those who had been attracted by the $0* statements in the brochure.  The two are inconsistent.  In my opinion, the explanation does not comply with the view of Lindgren J, with which I agree in this context.  In my opinion, the brochure is misleading in the same respects as the advertisement.

57                  I am satisfied that the $0* effect of conditions representation was also made and falsified for similar reasons.  In this connection I agree with and adopt the reasoning of Tamberlin J in Optus Communications at 339–341. 

58                  One aspect of this branch of the law which can be regarded as settled by authority is that advertising which is misleading is caught by the Act even if the effect of it is, or is likely to be, dispelled prior to any transaction being effected.    See Medical Benefits Fund of Australia Ltd v Cassidy (2003) 205 ALR 402, [2003] FCAFC 289 per Stone J at [42]–[44] and the authorities there reviewed and also Australian Competition and Consumer Commission v Target Australia Pty Limited (2001) ATPR 41-840 at [6], [9] and [15]; Australian Competition and Consumer Commission v Commonwealth Bank of Australia at [63].  It is not necessary for me to examine the reasoning for that conclusion.  Breaches of s 52 are established.

59                  It follows from the above reasoning that I am also satisfied that the same price representation was a misleading representation with respect to the price of goods contrary to s 53(e) of the Act.  To say the goods may be obtained for $0 upon a particular basis is to make a representation as to price which, relevantly, means the real consideration to be paid for or the cost of the goods.  For this purpose ‘0’ is obviously a number.

60                  I am not satisfied that the $0* effect of conditions representation was a misleading representation concerning the existence or effect of any condition within the meaning of s 53(g) of the Act as alleged.  In that context ‘condition’ refers to a condition of a contract in the sale of goods sense, not a condition of an advertised invitation to treat.

61                  In conclusion it is worth noting that the mobile phones advertised for $0* are described as available for purchase ‘at a subsidised price’ in the SFOA.  That difference neatly sums up the vice of these advertisements.

$0 upfront

62                  Each of the pleaded representations depends upon the words ‘on a [relevant] Telstra Mobile Plan’.  The description ‘$0 upfront’ in itself is not misleading or deceptive.  In my opinion, the gist of the representation relates to the lack of a significant initial payment rather than representing that entry into the plan would pay off the telephone or any like representation.  In my opinion, the gist of the representation is not misleading or deceptive.

Relief

63                  In summary, the $0* statements in the brochure and the advertisement are misleading in the respects identified and so in breach of s 52 and s 53(e) of the Act.  Properly formulated declaratory and injunctive relief is appropriate.  I will hear the parties as to the form of order.  In my opinion corrective advertising is not required.  The effect of these publications is long spent by now.  The proceeding is otherwise dismissed.  Telstra is to pay the costs of the ACCC.  The matter will stand over to enable formal orders to be made.

Associate:

Dated:              30 July 2004