Federal Court of Australia

Australian Securities and Investments Commission v Latitude Finance Australia [2023] FCA 655

ORDERS

THE COURT ORDERS THAT:

1.    The parties bring in agreed draft orders giving effect to these reasons.

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

REASONS FOR JUDGMENT

YATES J:

Introduction

1    By an interlocutory process dated 1 June 2023, the plaintiff, the Australian Securities and Investments Commission (ASIC), seeks leave to file an amended originating process, an amended concise statement, and an amended concise reply. It also seeks non-standard discovery from the defendants under r 20.15 of the Federal Court Rules 2011 (Cth) (the Rules).

2    There is no opposition to leave being granted to permit ASIC to file the amended originating process, amended concise statement, and amended concise reply. Nothing more need be said on that score beyond noting that the amendments are minor and clarificatory in nature.

3    ASIC seeks discovery by reference to 10 categories of documents that are not confined by the criteria of rr 20.14(1)(a) and (2) of the Rules. ASIC acknowledges that a party cannot apply for an order for discovery unless the making of the order that is sought will facilitate the just resolution of the proceeding as quickly, inexpensively, and efficiently as possible: r 20.11.

4    The first defendant, Latitude Finance Australia, and the second defendant, Harvey Norman Holdings Ltd, do not object to discovery being given of documents in Categories 4 and 5. Discovery by reference to Category 9 is directed only to the first defendant, who has agreed to give that discovery. Discovery by reference to the remaining categories is disputed. In that connection, Category 10 is directed only to the second defendant.

5    Before considering the categories that are in dispute, it is appropriate that I say something briefly about the general nature of the allegations made by ASIC in this proceeding.

The general nature of the allegations made by ASIC

6    ASIC’s case is that, in the relevant period (1 January 2020 to 11 August 2021), the defendants pursued a national advertising campaign whereby consumers could purchase goods in-store and online from Harvey Norman franchisees using a payment method comprising periodic repayments over a 60 month period on no deposit and interest free terms (the Payment Method). The proposed amended concise statement describes the general features of the newspaper, radio, and television advertising that was undertaken in the course of that campaign.

7    ASIC alleges that the dominant message of the advertisements conveyed to reasonable consumers the impression that the material terms of such purchases were only those to which I have referred. ASIC alleges that this message was misleading because an essential precondition for acquiring goods pursuant to the Payment Method was that a consumer must have an eligible credit card (a GO Mastercard) issued by the first defendant, or apply for and be approved for such a card, and then purchase the goods using the credit card or the account linked to it.

8    ASIC alleges that this was an important qualifying fact that was not disclosed, or at least not sufficiently disclosed, to consumers. By using the Payment Method, consumers would be required to pay at least the establishment fee and/or the monthly account service fees for the credit card account, in addition to the 60 equal monthly payments covering the retail purchase price for the goods.

9    ASIC alleges that, in the circumstances, the defendants’ conduct was misleading or deceptive, or likely to mislead or deceive, in contravention of s 12DA(1) of the Australian Securities and Investments Commission Act 2001 (Cth) (the ASIC Act), and liable to mislead the public as to the nature and/or the characteristics of financial services, in contravention of s 12DF(1) of the ASIC Act.

10    ASIC alleges, further, that, by their conduct, the defendants made false or misleading representations that services were of a particular standard, quality, value or grade and/or false or misleading representations concerning the existence, exclusion or effect of any condition, warranty, guarantee, right or remedy, in contravention of s 12DB(1)(a) and/or s 12DB(1)(i) of the ASIC Act.

11    ASIC alleges that the defendants’ misleading conduct and representations tended to lure consumers into taking the GO Mastercard without having made an informed choice to do so. ASIC alleges that the defendants misrepresented to consumers the true cost of using the Payment Method, and exposed them to the risks of incurring further debts and charges, including risks that might have ramifications for their credit ratings.

12    These matters are in dispute. Moreover, the second defendant denies that it pursued, or was involved in, the national advertising campaign in question.

The disputed categories

Categories 1, 2, 3, and 8

13    In its written submissions, ASIC submits that Categories 1, 2, 3, and 8 capture documents that would elucidate the characteristics of the audience of the defendants’ national advertising campaign promoting the Payment Method, and the knowledge to be imputed to that audience.

14    In the course of oral submissions, and after some remarks made by me, ASIC indicated its preparedness to limit Category 1 to the quarterly customer insights reports referred to in that category. These are reports provided pursuant to a Data Share Agreement dated 12 April 2016, one of the objectives of which is to “develop customer insights and profiles that increase targeting effectiveness for both above and below the line marketing promotions and offers”. Clause 3(a)(ii) of the Data Share Agreement describes the customer insights reports as “customer insights for key product categories using SKU level data”.

15    Category 2 is dependent on Category 1. If Category 1 is limited as ASIC proposes, Category 2 would comprise documents analysing or commenting on the information contained in the quarterly customer insights reports.

16    Category 3 concerns documents which record, analyse, or compare the profile of consumers (as to demographics or other attributes) who are likely to take up, or did take up, a payment method comprising periodic equal payments on no deposit and interest free terms for the purchase of home and electrical products from Harvey Norman and certain other stores. I note that this category is not confined to the national advertising campaign promoting the Payment Method identified in the proposed amended concise statement.

17    Category 8 concerns documents relating to the viewership or ratings of television or radio programs on which the defendants published the advertisements promoting “the 60-months payment method” during the relevant period.

18    On their face, each of these categories is directed to obtaining information about the characteristics of persons who have been or may become customers of Harvey Norman and related stores (Joyce Mayne and Domayne).

19    It is trite that the scope of discovery is determined by the pleadings. A concise statement, which is an alternative accompanying document referred to in r 8.05 of the Rules, is a “pleading” within the meaning of that term as defined in Sch 1 to the Rules.

20    The proposed amended concise statement does not limit the audience of the national advertising campaign to a particular section of the public or to consumers having particular characteristics. In other words, the impugned conduct, and the representations that are alleged to have been made, are directed, indiscriminately, to the public at large. As the proposed amended concise statement itself makes clear, the impugned conduct, and the representations allegedly made, were directed to “reasonable consumers”. No other limitation is expressed.

21    I am not persuaded that these categories relate to an issue that is raised on the pleadings, insofar as the categories are sought to be supported on the basis that the documents would elucidate the characteristics of the audience of the defendants’ national advertising campaign promoting the Payment Method. On the face of the proposed amended concise statement, the impugned conduct is directed to, and is to be assessed by reference to, consumers in general—an undifferentiated class of persons who were the recipients of the unsolicited advertising in question.

22    If the documents for which discovery is sought do not relate to an issue raised on the pleadings, they cannot be adjectivally relevant and, therefore, discoverable.

23    In oral submissions, ASIC put the adjectival relevance of the documents somewhat differently. The focus of the submission was squarely on these categories being relevant to the “understanding” of the advertising campaign that was to be imputed to the reasonable consumer. In other words, how the reasonable consumer would understand (interpret) the facility being offered by the advertisements in question.

24    I accept that there is an issue raised between the parties as to what was conveyed by the advertisements. ASIC contends, as I have noted, that the reasonable consumer would be under the impression that the material terms of a purchase under the Payment Plan were simply that the purchase could be made on the basis of no deposit, with the purchase price paid by monthly instalments over the period of 60 months at no interest. ASIC alleges that this was the “dominant message” of the advertisements.

25    The first defendant and the second defendant do not accept that this was the “dominant message” of the advertisements. They contend, further, that, when considering the advertisements in their context, the reasonable consumer would understand that other material terms and conditions would be involved in taking up the opportunity that was offered. In advancing that position, they rely on objective circumstances.

26    What the advertisements convey is a question of fact to be determined objectively against the background of all the relevant circumstances: Campomar Sociedad Limitada v Nike International Ltd [2000] HCA 12; 202 CLR 45 (Campomar) at [100] citing Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 202. The Court is readily able to interpret the language used in the advertisements in the context in which that language was presented. Further, whilst the relevant inquiry requires the Court to have in mind the “ordinary” or “reasonable” members of the class to whom the conducted is directed, here (as I have already remarked) the relevant class is the public at large, not some special class having particular characteristics. As the High Court explained in Campomar at [102] – [105], where such a class is involved, there is an objective attribution of certain characteristics.

27    Therefore, although the focus of ASIC’s oral submissions was on the “understanding” of the advertising campaign that was to be imputed to the reasonable consumer, I am not persuaded that the resolution of that issue, in the particular circumstances of this case, would be advanced by requiring the defendants to discover the documents sought in Categories 1, 2, 3, and 8. I am certainly not satisfied that such discovery would facilitate the just resolution of the proceedings as quickly, inexpensively, and efficiently as possible.

28    In reaching this view, I also take into account the fact that the defendants have already compulsorily produced a substantial number of documents to ASIC pursuant to a notice given under s 33 of the ASIC Act, which are likely to fall within the call of Categories 1, 2, 3, and 8 in any event. I refer, in this regard, to Items 6 and 9 of the notice issued to the first defendant on 11 August 2021 and Items 11 and 29 of the notice issued to the second defendant, also on 11 August 2021.

29    I accept that the burden imposed on the defendants in giving discovery in these categories would be disproportionate to the assistance that such documents could provide in determining the issues of liability to be decided at the hearing listed to commence on 15 April 2024. Although ASIC says that it does not require the defendants to produce on discovery documents that were produced to it during its investigation before the commencement of the proceeding, the defendants will not be relieved of the obligation to search for, ascertain, and consider for production, all the documents that answer the call of these categories.

Category 6

30    Category 6 concerns complaints or feedback received by the defendants, after the relevant period, from consumers (or persons acting on their behalf) who “signed up” for the Payment Method. ASIC submits that this category is directed to documents that are self-evidently relevant to a reasonable consumer’s understanding of the Payment Method, and therefore whether the defendants’ conduct contravened the ASIC Act.

31    I note that ASIC has already obtained, through the investigative process, copies of consumer complaints or feedback in relation to the GO Mastercard. The first defendant’s evidence is that, on 11 August 2021, ASIC issued a notice under s 19 of the ASIC Act requiring it to produce: “All complaints relating to the GO Mastercard extracted into an Excel spreadsheet from Latitude’s Accord database”. The first defendant answered this notice by producing an Excel spreadsheet containing all complaints made from 1 January 2020 to 11 August 2021.

32    On 15 November 2021, ASIC issued a further notice under s 33 of the ASIC Act requiring the first defendant to produce the consumer files of 17 identified consumers, some of whom had lodged complaints with the first defendant in respect of their GO Mastercard. The first defendant answered this notice and produced approximately 370 documents.

33    Subject to one qualification, I am persuaded that the documents in this category are adjectivally relevant. The fact that an individual consumer’s understanding of the Payment Method is not of itself determinative does not mean that the documents, which are evidence of particular understandings, are not adjectivally relevant. Further, the fact that the category is confined to complaints after 11 August 2021, and therefore after the relevant period, does not mean that they are not adjectivally relevant to the issues raised by the proposed amended concise statement.

34    The qualification is that Category 6 should be limited to complaints or feedback which relate to the particular allegations of misleading or deceptive conduct, or the making of the false or misleading representations, identified in the proposed amended concise statement.

35    The fact that the documents are adjectivally relevant does not mean that discovery by reference to Category 6 should be ordered. The overarching question is whether such discovery will facilitate the just resolution of the proceeding as quickly, inexpensively, and efficiently as possible.

36    The defendants have not identified any particular burden that would be imposed on them by giving discovery in respect of these documents. The first defendant has previously undertaken the task of identifying complaints that have been made and has raised no practical obstacle to identifying complaints that have been made since 11 August 2021. The second defendant has raised no particular difficulty in giving discovery by reference to this category. Its response has simply been to note ASIC’s acceptance that it had obtained documents in relation to earlier complaints.

37    In all the circumstances, I am persuaded that discovery by reference to this category (qualified as I have stated) should be ordered.

Category 7

38    This category is directed to documents analysing “consumer sentiment” towards the Payment Method or credit cards issued with the Payment Method. Once again, ASIC submits that documents in this category are relevant to a reasonable consumer’s understanding of the Payment Method and, therefore, to whether the defendants’ conduct contravened the ASIC Act as alleged.

39    This category is akin to Categories 1, 2, 3, and 8 but further removed from them in terms of adjectival relevance. The defendants’ respective musings on consumer sentiment towards the Payment Method or credit cards issued with the Payment Method will not inform the objective question of what was conveyed by the advertisements or the equally objective question of whether the defendants contravened the ASIC Act as alleged.

40    Further, “sentiment” is a nebulous notion. Determining whether a document is, in fact, an analysis of “consumer sentiment” of the kind described is not an appropriate touchstone by which to define a category of documents for which discovery should be ordered. In oral submissions, ASIC suggested that, if “sentiment” was imprecise, it could be replaced with “attitude”. I am not persuaded that adopting “attitude” as a substitute for “sentiment” cures the problem to which I have referred.

41    I am not satisfied that discovery by reference to Category 7 would facilitate the just resolution of the proceeding as quickly, inexpensively, and expeditiously as possible.

Category 10

42    As I have noted, Category 10 is directed only to the second defendant. It seeks the “Manual” or other document setting out the “System” in force in respect of Harvey Norman franchise agreements.

43    The terms “Manual” and “System”, as used in this category, appear to derive their meaning from the definitions of those terms in a sample Harvey Norman franchise agreement in evidence before me. I have made an order under s 37AF of the Federal Court of Australia Act 1976 (Cth) in relation to that document respecting its confidentiality. However, it is a disclosed fact that the second defendant is not a party to the Harvey Norman franchise agreements. These agreements are entered into between franchisors (entities that are related to the second defendant) and franchisees (entities that are not related to the second defendant).

44    ASIC submits that the versions of the “Manual”, or other documents setting out the “System”, are relevant to the second defendant’s responsibilities in relation to advertising for or on behalf of Harvey Norman franchisees and, hence, relevant to whether the second defendant was responsible for the national advertising program promoting the Payment Method referred to in the proposed amended concise statement—an issue that is in dispute.

45    Having regard to the definitions of “Manual” and “System”, and the other terms of the sample franchise agreement, I am not persuaded that the second defendant should be ordered to give discovery by reference to this category. I have not been referred to anything in the franchise agreement that would indicate a real possibility that the Category 10 documents would say anything about the national advertising program promoting the Payment Method referred to in the proposed amended concise statement or, more generally, the second defendant’s involvement in advertising undertaken by Harvey Norman stores. The principal matter in the franchise agreement to which I was taken to support discovery by reference to Category 10 was a clause dealing with intellectual property, including the ownership of intellectual property. ASIC’s reliance on that clause to support discovery illustrates the speculative nature of this request for discovery.

46    Furthermore, the second defendant has already produced documents in response to notices served by ASIC seeking documents in relation to the second defendant’s communications and other involvement with franchisees in various promotions. I refer to Items 22 and 23 of the notice issued to the first defendant under s 33 of the ASIC Act on 11 August 2021, and Items 3 and 4 of the notice issued on 11 February 2022.

47    I am not satisfied that discovery by reference to Category 10 would facilitate the just resolution of the proceeding as quickly, inexpensively, and expeditiously as possible.

Conclusion

48    Given the defendants’ acceptance of the appropriateness of discovery by reference to Categories 4 and 5, and the first defendant’s acceptance of the appropriateness of discovery by reference to Category 9, and given ASIC’s explanation for that discovery, I am prepared to make an order for discovery in that regard. As explained above, I am also prepared to make an order for discovery in respect of Category 6, provided it is qualified as I have indicated.

49    Given that ASIC has achieved very limited success in respect of the disputed questions raised by its interlocutory process, it is appropriate that it pay the defendants’ costs.

50    The parties are to bring in draft orders giving effect to these reasons.

Associate:

Dated:    19 June 2023