FEDERAL COURT OF AUSTRALIA

Australian Competition and Consumer Commission v ACN 135 183 372

(in liquidation) (formerly known as Energy Watch Pty Ltd) [2012] FCA 749

THE COURT DECLARES THAT:

Energy Watch – the Comparison Representation

1.    The first respondent has, in trade or commerce:

(a)    engaged in conduct that was misleading and deceptive, and likely to mislead and deceive, in contravention of s 18(1) of the Australian Consumer Law (“the ACL”) consisting of Schedule 2 to the Competition and Consumer Act 2010 (“the CCA”);

(b)    in connection with the supply and possible supply of electricity and/or gas (energy) brokering and advisory services (“the services”), made false and misleading representations that the services have uses and benefits in contravention of s 29(1)(g) of the ACL; and

(c)    in connection with the supply and possible supply of the services, engaged in conduct that is liable to mislead the public as to the characteristics of the services, in contravention of s 34 of the ACL,

by statements:

(d)    in five types of television advertisements broadcast on numerous occasions in Melbourne and Brisbane from at least 9 March 2011 to 2 August 2011;

(e)    in nine types of radio advertisements broadcast on numerous occasions in Queensland from at least 22 June 2011 to 3 August 2011;

(f)    in print advertisements published in Victoria in The Age newspaper on 5 July 2011 and 26 August 2011;

(g)    on its website, located at the Uniform Resource Locator (“URL”) http://www.energywatch.com.au (“the Energy Watch Website”) from at least 2 June 2011 to 7 September 2011; and

(h)    on websites located at the following URLs:

    (i)    from at least 26 June 2011 to on or about 14 July 2011,

        (A) http://www.electricityrates.com.au;

        (B) http://www.gasconnection.com.au;

        (C) http://www.connectmypower.com.au;

        (D) http://www.electricitygas.com.au;

        (E) http://electricitycompanies.com.au;

        (F) http://www.victoriaenergy.com.au;

        (G) http://electricitycompany.com.au;

        (H) http://electricitysupply.com.au;

        (I) http://energy-companies.com.au;

        (J) http://businessenergywatch.com.au; and

(ii)    from at least 2 June 2011 to on or about 14 July 2011, http://www.connectpower.com.au

    and, thereby, the first respondent falsely represented that it compares for:

(i)    a person with an existing energy connection, the person’s existing energy rates with the rates of all or many of the other energy retailers available in the person’s area; and

(j)    a person who needs a new energy connection, the rates of all or many of the energy retailers available in the person’s area,

when in fact the first respondent only compared the rates available with the small number of energy retailers in the person’s area with whom the first respondent had a marketing, brokerage, agency or other agreement.

Mr Polis – the Comparison Representation

2.    The second respondent has, in trade or commerce:

(a)    engaged in conduct that was misleading and deceptive, or likely to mislead and deceive, in contravention of s 18(1) of the ACL;

(b)    in connection with the supply and possible supply of the services, made false and misleading representations that the services have uses and benefits in contravention of s 29(1)(g) of the ACL; and

(c)    in connection with the supply and possible supply of the services, engaged in conduct that is liable to mislead the public as to the characteristics of the services, in contravention of s 34 of the ACL,

by statements said by the second respondent in nine types of radio advertisements broadcast on numerous occasions in Queensland from at least 22 June 2011 to 3 August 2011 and, thereby, the second respondent falsely represented that the first respondent compares for:

(d)    a person with an existing energy connection, the person’s existing energy rates with the rates of all or many of the other energy retailers available in the person’s area; and

(e)    a person who needs a new energy connection, the rates of all or many of the energy retailers available in the person’s area,

when in fact the first respondent only compared the rates available with the small number of energy retailers in the person’s area with whom the first respondent had a marketing, brokerage, agency or other agreement.

Energy Watch – Past and Future Residential Savings Representations

3.    The first respondent has, in trade or commerce:

(a)    engaged in conduct that was misleading and deceptive, and likely to mislead and deceive, in contravention of s 18(1) of the ACL;

(b)    in connection with the supply and possible supply of the services, made false and misleading representations that the services have uses and benefits in contravention of s 29(1)(g) of the ACL; and

(c)    in connection with the supply and possible supply of the services, engaged in conduct that is liable to mislead the public as to the characteristics of the services, in contravention of s 34 of the ACL,

by statements:

(d)    in five types of television advertisements broadcast on numerous occasions in Melbourne and Brisbane from at least 27 June 2011 to 7 September 2011;

(e)    in nine types of radio advertisements broadcast on numerous occasions in Queensland from at least 22 June 2011 to 3 August 2011;

(f)    in at least 29 print advertisements comprising 28 newspaper advertisements published in Victoria in The Age, The Saturday Age and Sunday Herald Sun from at least 2 July to 30 August 2011 and an advertisement in the AFL Record from 26-28 August 2011;

(g)    on the Energy Watch Website from at least 22 June 2011 to 7 September 2011; and

(h)    on five billboards in Melbourne, Victoria from at least 27 July 2011 to, with respect to three of the billboards, at least 5 September 2011,

and thereby, the first respondent falsely represented that:

(i)    the first respondent had an adequate basis to say that it has saved residential customers or average residential customers, who changed to an energy retailer to whom they were introduced by the first respondent, $386 or an average of $386, from their energy supply bills in the 12 months following the change of energy retailer; and

(j)    the first respondent will save a residential customer or an average residential customer, who changes to an energy retailer to whom they are introduced by the first respondent, $386 or an average of $386, from their energy supply bills in the 12 months following the change of energy retailer.

Mr Polis – Past and Future Residential Savings Representations

4.    The second respondent has, in trade or commerce:

(a)    engaged in conduct that was misleading and deceptive, and likely to mislead and deceive, in contravention of s 18(1) of the ACL; and

(b)    in connection with the supply and possible supply of the services, made false and misleading representations that the services have uses and benefits in contravention of s 29(1)(g) of the ACL; and

(c)    in connection with the supply and possible supply of the services, engaged in conduct that is liable to mislead the public as to the characteristics of the services, in contravention of s 34 of the ACL,

by statements said by the second respondent in nine types of radio advertisements broadcast on numerous occasions in Queensland from at least 22 June 2011 to 3 August 2011 and, thereby, the second respondent falsely represented that:

(d)    the first respondent had an adequate basis to say that it has saved residential customers or average residential customers, who changed to an energy retailer to whom they were introduced by the first respondent, $386 or an average of $386, from their energy supply bills in the 12 months following the change of energy retailer; and

(e)    the first respondent will save a residential customer or an average residential customer, who changes to an energy retailer to whom they are introduced by the first respondent, $386 or an average of $386, from their energy supply bills in the 12 months following the change of energy retailer.

Energy Watch – Past and Future Business Savings Representations

5.    The first respondent has, in trade or commerce:

(a)    engaged in conduct that was misleading and deceptive, and likely to mislead and deceive, in contravention of s 18(1) of the ACL;

(b)    in connection with the supply and possible supply of the services, made false and misleading representations that the services have uses and benefits in contravention of s 29(1)(g) of the ACL; and

(c)    in connection with the supply and possible supply of the services, engaged in conduct that is liable to mislead the public as to the characteristics of the services, in contravention of s 34 of the ACL,

by statements:

(d)    in five types of television advertisements broadcast on numerous occasions in Melbourne and/or Brisbane from at least 27 June 2011 to 7 September 2011;

(e)    in nine types of radio advertisements broadcast on numerous occasions in Queensland from at least 22 June 2011 to 3 August 2011;

(f)    in at least 29 print advertisements comprising 28 newspaper advertisements published in Victoria in The Age, The Saturday Age and Sunday Herald Sun from at least 2 July to 30 August 2011 and an advertisement in the AFL Record from 26 to 28 August 2011;

(g)    on the Energy Watch Website from at least 22 June 2011 to 7 September 2011; and

(h)    on five billboards in Melbourne, Victoria from at least 27 July 2011, with respect to three of the billboards, to at least 5 September 2011,

and thereby, the first respondent falsely represented that:

(i)    the first respondent had an adequate basis to say that it has saved business customers or average business customers, who changed to an energy retailer to whom they were introduced by the first respondent, $1,878 or an average of $1,878 from their energy supply bills in the 12 months following the change of energy retailer; and

(j)    the first respondent will save a business customer or an average business customer, who changes to an energy retailer to whom they are introduced by the first respondent, $1,878 or an average of $1,878, from their energy supply bills in the 12 months following the change of energy retailer.

Mr Polis – Past and Future Business Savings Representations

6.    The second respondent has, in trade or commerce:

(a)    engaged in conduct that was misleading and deceptive, and likely to mislead and deceive, in contravention of s 18(1) of the ACL;

(b)    in connection with the supply and possible supply of the services, made false and misleading representations that the services have uses and benefits in contravention of s 29(1)(g) of the ACL; and

(c)    in connection with the supply and possible supply of the services, engaged in conduct that is liable to mislead the public as to the characteristics of the services, in contravention of s 34 of the ACL.

by statements said by the second respondent in nine types of radio advertisements broadcast on numerous occasions in Queensland from at least 22 June 2011 to 3 August 2011 and, thereby, the second respondent falsely represented that:

(d)    the first respondent had an adequate basis to say that it has saved business customers or average business customers, who changed to an energy retailer to whom they were introduced by the first respondent , $1,878 or an average of $1,878, from their energy supply bills in the 12 months following the change of energy retailer; and

(e)    the first respondent will save a business customer or an average business customer, who changes to an energy retailer to whom they are introduced by the first respondent, $1,878 or an average of $1,878, from their energy supply bills in the 12 months following the change of energy retailer.

Energy Watch – Future $386 Savings Representations

7.    The first respondent, has, in trade or commerce:

(a)    engaged in conduct that was misleading and deceptive, and likely to mislead and deceive, in contravention of s 18(1) of the ACL;

(b)    in connection with the supply and possible supply of the services, made false and misleading representations that the services have uses and benefits in contravention of s 29(1)(g) of the ACL; and

(c)    in connection with the supply and possible supply of the services, engaged in conduct that is liable to mislead the public as to the characteristics of the services, in contravention of s 34 of the ACL,

by statements:

(d)    in two types of television advertisements broadcast on numerous occasions in Melbourne and/or Brisbane from at least 31 January 2011 to 25 August 2011;

(e)    in nine types of radio advertisements broadcast on numerous occasions in Queensland from at least 22 June 2011 to 3 August 2011;

(f)    on the Energy Watch Website from at least 2 June 2011 to at least 22 June 2011;

(g)     on six billboards in Melbourne, Victoria from at least 27 July 2011, to at least 5 September 2011;

(h)    on a scoreboard at the Melbourne Cricket Ground on 6 August 2011 during an Australian Football League (AFL) match between Carlton and Melbourne, on 20 August 2011 during an AFL match between Collingwood and Brisbane Lions and on 21 August 2011 during an AFL match between Melbourne and Richmond; and

(i)    in three print advertisements published in Victoria in The Saturday Age, the Herald Sun and Sunday Herald Sun newspapers between 26 to 28 August 2011,

and, thereby, the first respondent falsely represented that it will save a person who changes to an energy retailer to whom they are introduced by the first respondent:

    (i)    $386 from their electricity bills; and

    (ii)    on average, $386 from their electricity bills; and

    (iii)    $386 by their energy broker services,

in the 12 months following the change of energy retailer.

THE COURT ORDERS THAT:

1.    The first respondent pay to the Commonwealth of Australia a pecuniary penalty in the sum of $1.95 million in respect of its contraventions of ss 29(1)(g) and 34 of the ACL referred to in paragraphs 1, 3, 5 and 7 of the declarations above.

2.    The second respondent pay to the Commonwealth of Australia a pecuniary penalty in the sum of $65,000 in respect of his contraventions of ss 29(1)(g) and 34 of the ACL referred to in paragraphs 2, 4 and 6 of the declarations above.

3.    Subject to order 4 below, the first respondent pay 90 per cent of, and the second respondent pay 10 per cent of, the Applicant’s costs of and incidental to this proceeding, including any reserved costs, to be taxed in default of agreement.

4.    There be no costs order in relation to the applicant’s application for leave under s 440D of the Corporations Act 2001 (Cth) including the costs reserved on 1 June 2012.

5.    Order 2 above is stayed until 4.00pm on 31 August 2012 pending the parties discussing a programme of payments by instalments.

6.    The proceeding is adjourned to a Mention at 9.30am on Friday, 31 August 2012.

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

REASONS FOR JUDGMENT

INTRODUCTION

1    On 30 April 2012, the Court found the first respondent (“Energy Watch”) had contravened ss 18(1), 29(1)(g) and 34 of the Australian Consumer Law (“the ACL”). The Court also found Mr Polis contravened the ACL in nine radio advertisements; see Australian Competition and Consumer Commission v Energy Watch Pty Ltd [2012] FCA 425 (“the liability judgment”). These reasons for judgment must be read in conjunction with the liability judgment. They deal with the appropriate orders to be made by way of declaratory relief, pecuniary penalties and costs as a consequence of the liability judgment.

2    On 1 June 2012, the Court granted the applicant (“the ACCC”) leave pursuant to s 440D of the Corporations Act 2001 (Cth) (“the Corporations Act”) to continue this proceeding against Energy Watch, notwithstanding that it had appointed administrators under the Corporations Act on 17 May 2012; see Australian Competition and Consumer Commission v ACN 135 183 372 (Administrators Appointed) (formerly known as Energy Watch Pty Ltd) [2012] FCA 586.

3    When the matter came back on for hearing in respect of penalties, declarations and costs, counsel informed the Court that Energy Watch had gone into liquidation on 22 June 2012. The Court ordered, pursuant to s 471B of the Corporations Act, that the ACCC have leave to continue the proceeding against Energy Watch, notwithstanding that it is now in liquidation.

declarations

4    Each of the proposed declarations sought by the ACCC was not opposed by counsel for Mr Polis. The administrators of Energy Watch, who are now the liquidators, chose not to be represented at this aspect of the hearing. The proposed declarations are reflected in the declaratory relief set out in the order page accompanying these reasons for judgment. It is appropriate to make those declarations under s 21 of the Federal Court of Australia Act 1976 (Cth). The public interest will be served by the making of the declarations. They record the conduct which constituted the relevant contraventions referred to in the liability judgment and reflect the Court’s strong disapproval of the conduct of Energy Watch and Mr Polis. They also underpin the pecuniary penalties which the Court will order.

PECUNIARY PENALTIES

5    It is pertinent to pause at this stage and reflect on the conduct of Energy Watch and Mr Polis. They have contravened three very important provisions of the ACL, two of which have penal consequences. In a mass-marketed campaign (which, according to Mr Polis’s evidence, cost millions of dollars) Energy Watch made six types of false and misleading representations in 80 advertisements across various forms of media. The campaign was aimed at saturating the public with its business product. The representations were that Energy Watch’s services had uses and benefits that its services did not have; see s 29(1)(g) of the ACL. Energy Watch deceived the Australian public in a very serious way. Mr Polis did likewise in radio broadcasts in Brisbane. He did so as the figurehead of Energy Watch, thereby giving greater gravitas to the false and misleading conduct than if the radio advertisements had been spoken by a voiceover actor. The Australian people have been misled and deceived by the sharp business practices engaged in by Energy Watch and Mr Polis and they would rightly expect that such conduct not be treated lightly by this Court.

6    The conduct can also be described as liable to mislead the public as to the nature, characteristics and suitability for their purpose of the services of Energy Watch; see s 34 of the ACL.

7    Each of ss 29 and 34 of the ACL (unlike s 18) is a penalty provision. Under s 224 of the ACL, the relevant maximum penalty for breaches of those provisions is $1.1 million for a body corporate and $220,000 for an individual. Whilst Energy Watch and Mr Polis breached ss 29(1)(g) and 34, the same underlying courses of conduct were involved in the contraventions of each provision. A single penalty for the breach of both provisions is mandated by s 224(4)(b) of the ACL which provides that a person is not liable to more than one pecuniary penalty under s 224 in respect of the same conduct.

8    Under  s 224(2), the Court is required, in setting penalties, to have regard to all relevant matters, including the nature and extent of the act and any loss or damage suffered, the circumstances in which the act occurred and any previous relevant transgressing conduct.

9    The other relevant matters envisaged by s 224 are not in contest. They include:

    the size of the contravening company;

    the deliberateness of the contraventions and the period over which they extended;

    whether the contraventions arose out of the conduct of senior management;

    whether the company has a corporate culture conducive to compliance with the ACL;

    whether the company has cooperated with the ACCC; and

    the financial position of the company.

10    However, the most significant factor is the question of general deterrence. Specific deterrence will also have a role to play with Mr Polis. As the Full Court said in Singtel Optus v Australian Competition and Consumer Commission (2012) 287 ALR 249 at [62]:

…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.

11    Mr Star, counsel for the ACCC, submits, and the Court accepts, that there are 12 relevant courses of conduct pertinent to the assessment of penalty. They are:

1.    The Big Screen television advertisements;

2.    Door Knocker television advertisements;

3.    The You Could Be Getting Ripped Off television advertisements;

4.    The Jack Watts television advertisements;

5.    The nine radio advertisements in Brisbane featuring Mr Polis;

6.    The thirty advertisements published in Melbourne daily newspapers over the period 2 July 2011 to 30 August 2011, other than The Age foldout of 26 August 2011;

7.    The three page foldout advertisement published in The Age on 26 August 2011;

8.    The AFL Record for the round played on 26-28 August 2011;

9.    The Energy Watch website advertisements;

10.    The associated website advertisements;

11.    The eleven billboard advertisements; and

12.    The MCG scoreboard advertisements during three AFL games.

12    Mr Star submits that the appropriate penalty for those courses of conduct is as follows:

1.    $250,000;

2.    $250,000;

3.    $250,000;

4.    $250,000;

5.    $250,000;

6.    $250,000;

7.    $50,000;

8.    $50,000;

9.    $150,000;

10.    $50,000;

11.    $100,000;

12.    $50,000.

13    For the reasons set out below, the Court is satisfied that any lesser penalties on Energy Watch than those proposed by the ACCC would be insufficient to provide adequate general deterrence. The corporate world should know that it is wrong to engage in such deceptive business practices and that doing so will incur the risk of large penalties; see judgment of the Full Court in NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 294-295. Mr Star pointed out that the ACCC’s proposal for penalties includes a consideration of the totality principle. Even if that had not been the case, I would not have reduced the penalty on Energy Watch any further, having regard to the totality principle. Any lesser penalty would fail to give adequate recognition to the principle of general deterrence, given the seriousness of the contravening conduct. In assessing the appropriate penalty at $1.95 million, I have considered the matters referred to below.

14    The relevant circumstances concern the retail energy industry. Retail energy prices are a matter of public interest. For many people, energy bills represent a large part of day-to-day living expenses. Energy prices are also significant for businesses. In this context, it is likely that consumers, both household and business, would have been attracted by representations that lower retail energy prices may be achieved through Energy Watch. Indeed, the Energy Watch advertising campaign referred to helping “over 150,000 people every year”. To that figure should be added the people whom Energy Watch could not help but who were, nonetheless, drawn into its marketing web.

15    The advertising campaign lasted from late January 2011 until early September 2011. The television advertisements were virtually inescapable for Melbourne viewers, involving high frequency broadcasts across commercial metropolitan stations. The radio advertisements in which Mr Polis featured as the voice of Energy Watch ran from at least 22 June 2011 to 3 August 2011 in Brisbane. The radio stations concerned had a significant combined share of the Brisbane radio audience market at the time.

16    The newspaper advertisements were prominent and difficult not to notice. They were usually large in size and brightly coloured. The foldout which appeared in The Age newspaper on 26 August 2011 was particularly prominent. The other advertisements constituting the various other courses of conduct (referred to above) were also prominent, especially the billboards. It was extremely difficult to be a Melbournian and not be aware of Energy Watch and its advertising claims in the period from February to August 2011. Brisbane residents were exposed to the message via the airwaves for a shorter period. The newspaper advertisements travelled to wherever Melbourne daily newspapers were available and the internet advertising took the Energy Watch messages into cyber space.

17    There is no evidence before the Court of actual loss or damage to any consumers but it would be fanciful to suggest that many consumers were not drawn into the marketing web of Energy Watch by its contravening conduct. I accept the submissions of the ACCC that the contraventions recorded in the declarations were serious in nature and that they were likely and liable to mislead consumers about specific monetary savings and the extent of the comparisons engaged in by Energy Watch.

18    The Court observes that Energy Watch and Mr Polis have no record of previous relevant contravening conduct and, but for that factor, each of them would have been punished more severely than they have been in this matter.

19    The Court observes that Energy Watch was a medium sized company which earned large cash flows during the currency of its advertising campaign. In the year ending 30 June 2011, Energy Watch made close to $12 million in income before expenses. In the year ending 30 June 2012, its income before expenses exceeded $14 million. Why it is now in liquidation with debts of about $8 million is not explained by any evidence before the Court. It is important to stress that Energy Watch should not be punished as if it had been a small business. Its sponsorship agreements, for example, attest to its former size. These included a $6 million sponsorship with the Melbourne Football Club, the Melbourne Victory sponsorship of $500,000 and the Melbourne Rebels sponsorship of $300,000. Further, the Court should not be deterred from imposing the appropriate penalty by the fact of Energy Watch’s liquidation. Otherwise, insufficient attention will be paid to the very important consideration of general deterrence.

20    As the Full Court said in Australian Competition and Consumer Commission v Dataline.Net.Au Pty Ltd (2007) 161 FCR 513 at [21]:

…there will be cases where other factors make it clearly desirable to impose a penalty on a company even though it is in liquidation.

This is such a case. It does not matter that the $1.95 million penalty which the Court will impose on Energy Watch will never be paid. The penalty will serve as a warning to all business people who engage in energy brokering services, not to replicate the conduct recorded in the declarations.

21    In assessing the appropriate penalty, the Court has had regard to the deliberateness of the conduct and the fact that it occurred without Energy Watch obtaining legal advice about compliance with relevant consumer laws. Although Energy Watch cooperated with the ACCC in the efficient conduct of the trial, and is given credit for that, it should be noted that the ACCC first warned it about compliance issues concerning its advertising content in mid June 2011.

22    The assessment of an appropriate penalty on Mr Polis is a more difficult task. The ACCC submits that a penalty of $100,000 is appropriate. His counsel, Mr Strong, submits that $20,000 is sufficient, given his current lack of means and the public disgrace that he has recently incurred. Mr Strong also refers to the lesser public reach of the radio advertising engaged in by Mr Polis in comparison to the other forms of advertising.

23    Mr Polis was the public face of Energy Watch. His personal endorsement in the radio advertisements, which in many broadcasts may fairly be described as high pressure salesmanship, was significant. He presented the advertisements in an authoritative and convincing manner. Although the extent of competition in the electricity market in Brisbane was much smaller than in Victoria, his contravening conduct is not to be downplayed.

24    However, any penalty imposed on Mr Polis should not be crushing. It should be a penalty which pays sufficient attention to general and specific deterrence, but one which is realistic and capable of being paid over a reasonable period of time. Although Mr Polis is currently suffering financial hardship, I have no doubt that he will recover from that situation. He is young, intelligent and energetic. He has already recovered from two previous failed business ventures. Taking all relevant matters into account, but especially the need for specific and general deterrence, it would not be a sufficient acknowledgement of the gravity of the offending to impose a penalty of any less than $65,000 on Mr Polis, even when one takes into account the totality principle, which the Court does.

CONCLUSION ON PENALTY

25    The Court will impose a penalty of $1.95 million on Energy Watch and $65,000 on Mr Polis. The Court will hear counsel on a program for payment in instalments of the penalty by Mr Polis.

costs

26    Mr Star and Mr Strong concurred in the view that 90 per cent of the costs should be ordered to be paid by Energy Watch and 10 per cent by Mr Polis. The Court considers that to be a reasonable approach and will order accordingly. It will make no order as to the costs of the application by the ACCC to have leave to continue the proceeding against Energy Watch under s 440D of the Corporations Act.

Associate:

Dated:    13 July 2012