FEDERAL COURT OF AUSTRALIA Australian Competition and Consumer Commission v Boost Tel Pty Limited (No 2) [2010] FCA 829 Citation: Australian Competition and Consumer Commission v Boost Tel Pty Limited (No 2) [2010] FCA 829 Parties: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION v BOOST TEL PTY LIMITED (ACN 092 384 417) and PREPAID SERVICES PTY LIMITED (ACN 094 689 219) File number: WAD 125 of 2009 Judge: SIOPIS J Date of judgment: 19 July 2010 Date of hearing: 19 July 2010 Place: Perth Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 18 Counsel for the Applicant: Mr W Keane Solicitor for the Applicant: Corrs Chambers Westgarth Counsel for the Second Respondent: Ms J Kroll Solicitor for the Second Respondent: Minter Ellison IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 125 of 2009 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: BOOST TEL PTY LIMITED (ACN 092 384 417) First Respondent PREPAID SERVICES PTY LIMITED (ACN 094 689 219) Second Respondent JUDGE: SIOPIS J DATE OF ORDER: 19 JULY 2010 WHERE MADE: PERTH by consent the court declares that: PPS Declarations 1. Pre-paid Services Pty Ltd (PPS), from at least January 2008 until 31 July 2009, in trade or commerce: (a) engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of section 52(1) of the Act; (b) in connection with the supply or possible supply of services or in connection with the promotion of the supply or use of services, falsely represented that the services were of a particular value, in contravention of section 53(aa) of the Act; and (c) in connection with the supply or possible supply of services or in connection with the promotion of the supply or use of services, represented that the services had performance characteristics or benefits that they did not have, in contravention of section 53(c) of the Act, by publishing, in relation to the PPS pre-paid phone cards (PPS Cards), advertising material (copies of which are attached to this Order as Annexures B1, B2, B6, B13, B21, B22, B23 and B47), which contained statements including "Flat rate 24/7 simple per minute pricing. No hidden fees or charges. No ifs. No buts" or "No connection fee", "24 hour flat rates", "Flat rate 24/7" and "Great 24 hour rates" and thereby represented that no fees other than timed call charges applied to the use of the PPS Cards (PPS No Fee Representation), when, in fact, service fees and/or surcharges applied to the PPS Cards and calls made using the PPS Cards. 2. PPS, from at least November 2005 until 31 July 2009, in trade or commerce: (a) engaged in conduct that was misleading or deceptive or likely to mislead or deceive in contravention of section 52(1) of the Act; (b) in connection with the supply or possible supply of services or in connection with the promotion of the supply or use of services, falsely represented that the services were of a particular value, in contravention of section 53(aa) of the Act; (c) in connection with the supply or possible supply of services or in connection with the promotion of the supply or use of services, represented that the services had performance characteristics or benefits that they did not have, in contravention of section 53(c) of the Act; and (d) made a false or misleading representation with respect to the price of services, in contravention of section 53(e) of the Act, by publishing, in relation to the PPS pre-paid phone cards (PPS Cards), advertising material (copies of which are attached to this Order as Annexures B1, B2, B5, B7, B8, B9, B11, B12, B20, B22, B23, B24, B26, B27, B31, B33, B36, B37, B39, B40 and B43), which contained statements to the effect that calls to certain locations were charged at certain rates per minute on those cards and thereby represented that, regardless of the number and length of calls, users will be able to achieve the stipulated call rate for the location and type of connection (landline or mobile) specified (PPS Call Rate Representations) when in fact: (e) the stipulated call rate could, at best, only be achieved if: (i) one continuous call were made; or (ii) calls made precisely matched the length of the charging increments specified in the applicable terms and conditions (up to but not exceeding the time at which any in-call surcharge is applied); and (f) the stipulated call rate is unlikely to be achieved because the actual cost of calls made using the relevant Card is increased by the fact that calls were charged in incremental periods and higher rates, surcharges, service fees and other additional fees and charges may be payable in respect of certain calls; and (g) statements made in fine print in the relevant advertising material did not negate or diminish the falsity or the misleading or deceptive nature of the Representations. 3. PPS, from at least May 2007 until 31 July 2009, in trade or commerce: (a) engaged in conduct that was misleading or deceptive or likely to mislead or deceive, in contravention of section 52(1) of the Act; (b) in connection with the supply or possible supply of services or in connection with the promotion of the supply or use of services, falsely represented that the services were of a particular value, in contravention of section 53(aa) of the Act; and (c) in connection with the supply or possible supply of services or in connection with the promotion of the supply or use of services, represented that the services had performance characteristics or benefits that they did not have, in contravention of section 53(c) of the Act, by publishing, in relation to the PPS pre-paid phone cards (PPS Cards), advertising material (copies of which are attached to this Order as Annexures B3, B4, B5, B6, B9, B10, B13, B14, B15, B16, B17, B18, B19, B21, B22, B23, B25, B28, B29, B30, B32, B34, B35, B38, B39, B41, B42 and B44 to B51), which contained statements to the effect that a stipulated number of minutes of calls was available on the PPS Card and thereby represented that regardless of the number and length of calls, users will be able to achieve the total stipulated call duration for the location and type of connection (landline or mobile) specified (PPS Call Duration Representation), when in fact: (d) the stipulated call duration could, at best, only be achieved if: (i) one continuous call were made; or (ii) calls were made which precisely matched the length of the charging increments specified in the applicable terms and conditions (up to but not exceeding the time at which any in-call surcharge is applied); and (e) the value of the PPS Card and, therefore, the number of available minutes is diminished by the fact that calls were charged in incremental periods and higher rates, surcharges, service fees and other additional fees and charges may be payable in respect of certain calls; and (f) statements made in fine print in the relevant advertising material did not negate or diminish the falsity or the misleading or deceptive nature of the Representations. by consent the court orders that: PPS Injunctions 4. PPS, whether by itself, its servants or agents or otherwise howsoever in connection with the supply or possible supply of telecommunication services by way of of telecommunications products known as "calling cards" or "pre-paid phone cards" (Cards), in trade or commerce, for a period of 2 years from the date of the Court's order be required, when making representations as to features of the telecommunication services available by way of its Cards and the call durations available by way of those cards, to sufficiently disclose the following matters: (a) all fees applicable to the use of the Card; (b) the applicable rates and charges including surcharges; (c) any charging by incremental periods; (d) any qualifications on the stipulated call duration; and (e) any qualifications on the stipulated call rate per minute. 5. PPS, whether by itself, its servants or agents or otherwise howsoever in connection with the supply or possible supply of telecommunication services by way of Cards be restrained for a period of 2 years from the date of the Court's order, in trade or commerce, from: (a) representing that no fees other than the timed call charges apply to the use of Cards when other fees are applicable; (b) representing that a stipulated number of minutes is available for calls using a specified Card when the stipulated call duration can only be achieved by making: (i) one continuous phone call; or (ii) a particular number of calls precisely corresponding to the increments of time in which the cost of a call is charged; (c) representing that a stipulated number of minutes is available for calls using a Card without sufficiently disclosing: (i) any charging by incremental periods; (ii) that call charges are rounded up; and (iii) all applicable fees, including: (A) any surcharges; and (B) any higher rates that are payable in respect of certain calls; (d) representing that a Card can be used for calls at a stipulated call rate per minute for the location and type of connection (landline or mobile) specified without sufficiently disclosing: (i) any charging by incremental periods; (ii) that calls are rounded up; and (iii) all applicable fees, including: (A) any surcharges; and (B) any higher rates that are payable in respect of certain calls; PPS Corrective Advertising 6. PPS, within 45 days of the date of this order, take all reasonable steps to cause the PPS Advertising Material and any of its other promotional material that contains representations with similar purport or effect to the PPS No Fee Representation, the PPS Call Duration Representation and the PPS Call Rate Representation to be removed from display and further publication by retailers or any other person. 7. PPS, within 21 days of the date of this order, cause to be published a notice in the terms and form set out in the attached Schedule 1 (PPS Notice) including the font size and form specified in the PPS Notice and with the business logo on the top of the PPS Notice as appearing on PPS letterhead, and (a) distribute the PPS Notice to its Card retailers and take reasonable steps and use its best endeavours to require the display of the PPS Notice in the form of an A4 poster in the same locations as the PPS Advertising Material was located for a period of 90 days; (b) cause the PPS Notice to be published on the Internet at the home page of all websites which are owned, operated or maintained by or on behalf of PPS, including the website accessible via uniform resource located at the address (URL) www.ppscards.com.au (PPS Website) (or if any such URL is replaced or changed, the Internet home page of the corresponding website) for a period of 90 days and use its best endeavours to ensure that: (i) the PPS Notice shall be viewable by clicking a "click-through" icon located on the PPS Website; (ii) the "click-through" icon referred to in the previous sub-paragraph is located in a central position on the page first accessed when the user opens to the homepage of the PPS Website (or the first page of the calling cards section of the PPS Website if changes are made to the PPS Website); (iii) the "click-through" icon shall contain the words "Misleading Advertising by PPS – Corrective Notice Ordered by Federal Court of Australia" clearly and prominently in red on a contrasting background and the words "click here"; and (iv) the PPS Notice occupies the entire webpage which is accessed via the "click-through" icon referred to above. Other PPS Orders 8. PPS send by mail to its 20 largest competitors copies of: (a) the notice attached in Schedule 2; (b) these orders; and (c) any reasons for decision given with these orders, within 21 days of the date of this order. 9. PPS pay the Applicant's costs of the proceeding, to be taxed if not agreed. the court declares that: 10. From at least February 2007 until at least November 2008, PPS, by approving the first respondent's (Boost) advertising material referred to in the orders published on 12 July 2010, with knowledge of the fees and conditions specified in the Boost advertising material, was knowingly concerned in and a party to the contraventions of Boost described in paragraphs 1, 2 and 3 of the orders published on 12 July 2010. the court orders that: 11. PPS, whether by itself, its servants or agents or otherwise howsoever be restrained for a period of 2 years from the date of the Court's order, from being directly or indirectly knowingly concerned in or a party to the conduct of Boost: (a) representing that no fees other than the timed call charges apply to the use of pre-paid phone cards (Cards) when other fees are applicable; (b) representing that a stipulated number of minutes is available for calls using a Card when the stipulated call duration can only be achieved by making; (i) one continuous phone call; or (ii) a particular number of calls precisely corresponding to the increments of time in which the cost of a call is charged; (c) representing that a stipulated number of minutes is available for calls using a Card without sufficiently disclosing: (i) any charging by incremental periods; (ii) that call charges are rounded up; and (iii) all applicable fees, including: (A) any surcharges; and (B) any higher rates that are payable in respect of certain calls; (d) representing that a Card can be used for calls at a stipulated call rate per minute for the location and type of connection (landline or mobile) specified without sufficiently disclosing: (i) any charging by incremental periods; (ii) that calls are rounded up; and (iii) all applicable fees, including: (A) any surcharges; and (B) any higher rates that are payable in respect of certain calls the court notes that: 1. PPS' parent company, Optus Mobile Pty Limited (Optus), has in place a compliance program which was implemented pursuant to an Undertaking given under section 87B of the Trade Practices Act 1974 (Cth) (TPA) to the ACCC by Optus on 24 June 2004 (Optus Compliance Program). 2. The Undertaking provided to the ACCC expired on 23 June 2007 but the Optus Compliance Program has continued to be maintained and operated other than the requirements to have the Optus Compliance Program audited. 3. The Optus Compliance Program includes: (a) a training manual; (b) a webstream video on Part V of the TPA, including "bait" advertising; (c) TPA Online Part V Training Module; and (d) TPA Online Part V Testing Module. 4. PPS has agreed with ACCC that the Optus Compliance Program will continue to be maintained and operated for PPS employees and that it will apply to PPS and employees of PPS. 5. PPS has agreed with the ACCC to cause an audit of the Optus Compliance Program to be undertaken annually for 2 years in respect of its employees, with a view to identifying any deficiencies and implementing any improvements to the Optus Compliance Program. SCHEDULE 1 Pre Paid Services Pty Limited (PPS) found by Court to have made false representations regarding phone cards The Federal Court declared that PPS engaged in false misleading and deceptive conduct in relation to cards promoted from January 2008 to 31 July 2009 by: representing that no fees other than timed call charges would apply when in fact service fees and surcharges applied representing that, on the cards: a certain number of minutes was available a certain call rate per minute was available when in fact: total number of minutes and stipulated call rate could, at best, be achieved if: one continuous call was made, or calls made precisely matched particular charging increments; number of minutes available and call rate per minute were diminished in value by surcharges and service fees. Consumers are urged to make sure they are aware of all applicable fees and charges when buying phone cards. The Australian Competition and Consumer Commission brought the proceedings in the Federal Court of Australia in relation to breaches of sections 52(1), 53(aa) and 53(c) of the Trade Practices Act 1974 which prohibit false, misleading or deceptive conduct. The Court made orders that restrained PPS from engaging in similar conduct for a period of 2 years, required it to publish this notice and to take part in a Trade Practices compliance program. A copy of the decision and the detailed orders can be found at www.fedcourt.gov.au. _____________________________________________________________________________ SCHEDULE 2 Federal Court declares PPS engaged in false, misleading or deceptive conduct in advertising its pre-paid phone cards Following legal action by the Australian Competition and Consumer Commission (ACCC), the Federal Court of Australia declared Prepaid Services Pty Limited (PPS) made false, misleading or deceptive representations in contravention of sections 52(1), 53(aa), 53(c) and 53(e) of the Trade Practices Act 1974 (Cth)* (Act). PPS engaged in the offending conduct over a sustained period of time in connection with statements it made in advertising for the sale of various pre-paid phone cards. The Court declared that PPS's conduct contravened the Act because it represented, in relation to certain phone cards, that no fees other than timed call charges would apply, when this was not the case. With some cards, service fees were charged at regular intervals from the date of activation, regardless of usage. Also, surcharges were charged for calls beyond certain durations and applied to calls from certain access numbers. The Court also declared PPS contravened the Act because it represented that certain phone cards would have a specific number of minutes call time or a stipulated rate cost per minute when this was not the case. In some instances, the total stipulated call durations and rate per minute could at best be achieved if one continuous call was made. The ACCC alleged it was neither practical nor realistic for users to be able to achieve the advertised call duration as in one case it would require the consumer to make a continuous call of over 66 hours. Further, calls on certain cards were charged in incremental periods, diminishing the total number of minutes available for use of the card for multiple calls. Also surcharges, other additional charges or higher rates were payable in respect of certain calls. Another factor was that service fees and surcharges applied to multiple uses of the card. Each of the surcharges and fees diminished the value of the card and number of minutes available while increasing the call rate per minute. The Court made orders that restrained PPS from engaging in similar conduct for a period of 2 years, required it to publish this notice and to implement a trade practices compliance program and to pay the ACCC's costs of the proceeding. A copy of the decision can be found at www.fedcourt.gov.au. *Section 52(1) of the Act prohibits conduct that is misleading or deceptive or is likely to mislead or deceive, and section 53 of the Act prohibits the making of certain false or misleading representations about goods or services. 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IN THE FEDERAL COURT OF AUSTRALIA WESTERN AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION WAD 125 of 2009 BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION Applicant AND: BOOST TEL PTY LIMITED (ACN 092 384 417) First Respondent PREPAID SERVICES PTY LIMITED (ACN 094 689 219) Second Respondent JUDGE: SIOPIS J DATE: 19 JULY 2010 PLACE: PERTH REASONS FOR JUDGMENT 1 On 5 July 2010, I delivered reasons in relation to the claim made by the applicant (ACCC) against the first respondent, Boost Tel Pty Limited (Boost), and on 12 July 2010, orders were made which reflected those reasons (Australian Competition and Consumer Commission v Boost Tel Pty Limited [2010] FCA 701 (Boost)). Those orders included declarations that Boost had engaged in misleading or deceptive conduct in contravention of the Trade Practices Act 1974 (Cth), in relation to the making of representations in materials advertising phone card services, which were described in the proceeding as the "no fee representation", the "call rate representation" and the "call duration representation". 2 When I delivered the reasons, I adjourned the hearing of the ACCC's claim against the second respondent, Prepaid Services Pty Limited (PPS). This was because one of the ACCC's claims against PPS was that PPS had been knowingly concerned in relation to contraventions of the Trade Practices Act, which were alleged against Boost. Although ACCC and PPS had entered into consent orders in respect of other claims made against PPS, they had not in relation to that claim, preferring to await the outcome of the ACCC's claims against Boost. 3 PPS and the ACCC have entered into an agreed statement of facts which bear upon this claim. First, the parties agreed that pursuant to the terms of the contractual arrangements between PPS and Boost, Boost provided the Boost advertising material to PPS for approval for marketing purposes prior to making it available for distribution to the outlets. The reference to the Boost advertising material is reference to the material which was impugned by the ACCC in its claim against Boost, and which is the subject of the finding of contravening conduct by Boost in the Boost reasons. 4 Secondly, the parties agreed that PPS approved the Boost advertising material for marketing purposes. 5 Thirdly, the parties agreed that PPS knew, at the time of approving the Boost advertising material for marketing purposes, the following matters: (a) the terms and conditions on which Boost was offering the services on the Boost phone cards to the consumer; (b) the service fees and in-call surcharges that were charged for the use of the Boost phone cards; (c) the stipulated call-rate and/or stipulated call duration that could, at best, only be achieved if one continuous call was made, or two calls were made that precisely matched the length of the charging increments specified in the applicable terms and conditions, up to but not exceeding the time at which any in-call surcharge was applied, when it was highly unlikely that purchasers of a phone card would use a card in that manner; (d) that phone calls were charged in incremental blocks and phone call charges for each completed call were rounded up to the next charging increment; and (e) that surcharges, other additional charges and high rates were payable in respect of certain phone calls. 6 I interpose to say that it was on the basis of the facts referred to above, that I have found in Boost that Boost's conduct in making the "no fee representation", the "call rate representation" and the "call duration representation" contravened the Trade Practices Act on the grounds that those representations were false and misleading or deceptive. 7 Fourthly, it was agreed that, having approved the Boost advertising material for marketing purposes, PPS distributed that advertising material to outlets. 8 In light of those facts, I am satisfied that PPS was knowingly concerned in, and a party to, the contraventions by Boost of the Trade Practices Act which were the subject of the 12 July 2010 orders. 9 I will, therefore, make the declaration in the terms sought in para 12 of the amended application. I will also make the order sought in para 13 of the amended application restraining PPS for a period of two years from being directly or indirectly knowingly concerned in, or a party to, the contravening conduct of Boost to which I have already referred. 10 The ACCC has also alleged that PPS has contravened the Trade Practices Act by publishing and distributing advertising material advertising phone card services in relation to PPS phone cards. There are over 50 impugned advertisements, comprising flyers and posters. 11 The ACCC contends that the impugned advertisements each made one or more of the same three impugned representations alleged in the Boost proceeding; and that in publishing and distributing that advertising material, PPS engaged in contraventions of the Trade Practices Act. 12 The ACCC and PPS have agreed facts and signed a minute of consent orders in respect of the orders sought by the ACCC in the amended application in respect of PPS's conduct. The consent orders refer to different kinds of orders. 13 The ACCC seeks declarations that in making each of the three impugned representations, PPS contravened the Trade Practices Act, it also seeks injunctions under s 80 of the Trade Practices Act, corrective advertising orders and orders in relation to a compliance program. 14 I deal first with the proposed declarations. I am satisfied that the declarations sought by the ACCC are appropriate in this case because the making of the declarations will vindicate the ACCC's claim that PPS contravened the Trade Practices Act in the manner alleged; and it will assist the ACCC in performing its statutory duties because it may alert, or be used to alert, relevant individuals and market participants as to the kind of conduct that contravenes the Trade Practices Act. 15 As to the proposed orders seeking injunctions under s 80 of the Trade Practices Act, the ACCC seeks orders for the removal and destruction of the impugned advertising material and also orders restraining PPS from engaging in the contravening conduct for a period of two years. 16 Albeit that PPS did not seek to defend its conduct in the manner in which Boost did, in my view, this is a case in which an order under s 80 of the Trade Practices Act should be made. As I mentioned in Boost, and, as is evident from the large number of impugned advertisements in this case, the publication of highly misleading advertisements in relation to the use of international phone cards appears to be widespread in the industry. This is a case where the public interest warrants the making of the injunctions sought by the ACCC. 17 For the same reasons, in my view, it is appropriate that orders for corrective advertising, and in relation to the compliance program orders, should be made. 18 I will, therefore, make the orders in terms of the minute of consent orders which has been provided to the Court, other than order 9 which, in my view, is unnecessary. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Siopis. Associate: Dated: 6 August 2010