July 2004
Misleading And Deceptive Conduct
Trade Practices Act 1974 (Cth)
Section 52 of the Trade Practices Act 1974 (Cth) prohibits a company in trade or commerce engaging in conduct that is misleading or deceptive or likely to mislead or deceive. Companies or individuals involved in a contravention of s 52 face legal action for injunctive relief and/or damages. Two recent cases illustrate the application of this section and the consequences of non-compliance.
Unisys Case -
Misleading and deceptive conduct in pre-contractual negotiations
On 14 May 2004 the Victorian Supreme Court of Appeal found that Unysis Australia, an IT system provider, had contravened s 52 of the Trade Practices Act 1974 (Cth), having made misrepresentations in the course of pre-contractual negotiations with RACV Insurance for the supply of an electronic document retrieval system, and ordered damages in excess of $4 million. (1)
Optus Case -
Misleading and deceptive conduct in print advertising
On 6 July 2004, the Federal Court of Australia rejected a claim brought by Optus, finding that a recent Telstra advertising campaign, which used large print and pictures accompanied by fine print terms and conditions, was not misleading and deceptive within the meaning of s 52 of the Trade practices Act 1974 (Cth). (2)
(1)
Unisys Australia Ltd v. RACV Insurance Pty Ltd and RACV Group Services Pty Ltd (formerly RACV Data Processing Pty Ltd) [2004] VSCA 81
In 1993 RACVI called for tenders from vendors of electronic document retrieval systems. In its written requests RACVI stipulated that its business required fast document retrieval, including that current claims be retrieved within 2-4 seconds.
During the competitive tender Unisys made written, presentational and oral representations that its system could meet RACVI's stipulated requirements. For example, Unisys stated that its system could "comfortably handle the committal and retrieval rates expected" [1] and gave impressive demonstrations to RACVI.
RACVI entered into a contract with Unisys in reliance on these representations, but the system delivered failed to meet RACVI's stipulated requirements. In June 1996 RACVI terminated the contract and subsequently initiated proceedings. Unisys denied it had made representations or, if it had, sought to rely on alleged qualifications. For example, in a pre-contractual letter it stated "Unisys is not … able to commit to any response time or availability levels as set out in this request for response" [2]
The Victorian Supreme Court of Appeal [3] upheld the Supreme Court decision [4] , finding that Unisys had indeed made representations regarding the storage capacity and image access speed that were relied upon by RACVI when it entered into the contract. Those representations were misleading because they were false and RACVI relied on them. His Honour was not persuaded by Unisys' apparent "qualifications", noting that they were vague and imprecise.
The court awarded RACVI damages in the order of about $4.3 million for breach of s 52 to account for RACVI's wasted expenditure on the contract, and awarded costs over and above the usual party/party basis.
Risk Management Strategies
Complex IT projects involve a wide range of legal issues and present risks for both developers and customers. IT system suppliers can facilitate project success and minimise failure or adverse outcomes, as in the Unisys case, by ensuring that:
- System proposals and demonstrations accurately represent a system's technical functionality and capabilities, and where appropriate include intelligible qualifications and specific disclaimers
- Employees involved in the presentation of proposals and demonstrations of IT systems and contractual negotiations have a good understanding of the application of the Trade Practices Act and other relevant laws
- Contracts accurately reflect pre-contractual negotiations and include specific qualifications and disclaimers. G eneral disclaimers in a contract will not exclude the operation of s 52 of the Trade Practices Act if the party seeking to rely on them had made misrepresentations relating to system functionality and capabilities.
- Effective project risk management strategies are implemented
(2)
Singtel Optus Pty Ltd v Telstra Corporation Ltd [2004] FCA 859
Telstra's "Rewards Options" scheme offered various benefits for customers who bundled their home phone bills with eligible Telstra services: mobile phone plan, internet account or pay TV subscription. Telstra advertised its scheme through newspapers, brochures, the internet and TV, using large print and diagrams that conveyed the general idea of the scheme, accompanied by detailed fine print that explained its terms and conditions.
Optus alleged that Telstra's campaign conveyed a simplistic and deceptively favourable impression of their scheme, in that it inadequately or incorrectly stated the terms of customer eligibility for and choice of benefits of the scheme. The focus of Optus' claim was the campaign's representation that customers had freedom to choose between rewards, when in fact such freedom was limited.
In the Federal Court, Justice Jacobson noted that the large print and diagrams in Telstra's campaign conveyed no misrepresentation to reasonable readers, and the fine print clearly provided reasonable readers with further information regarding conditions on the benefits available and requirements for eligibility.
Section 52 and Advertising
The general approach taken by the courts in this area of law is one of latitude: it is recognised that advertising reflects vendors' legitimate desire to zealously promote their products and therefore actions attacking mere puffery in advertising will not be entertained. The courts consider that the majority of consumers are armed with a certain degree of awareness, if not cynicism. But advertising that is patently deceitful and/or false will contravene s 52 of the Trade Practices Act. The following comparison illustrates this point:
- Bread packaging that bears the statement "now twice the fibre" with a prominent asterisk and within 2 cm of a relevant clear qualification, which in turn is repeated elsewhere on the packaging, is legitimate [5]
- An advertisement offering newspaper readers a "free*" ("*conditions apply") mobile phone, when in fact it is necessary to sign up to a call plan to get the "free" phone breaches s 52 [6]
Factors taken into account by the court in determining whether advertising contravenes s 52 of the Trade Practices Act include:
- The potential of the "large print" to mislead or deceive
- The size, boldness, intelligibility and location of fine print
- The adequacy of qualifications in all the circumstances
- The presence of "half-truths", where relevant information is omitted (eg misleading unfair or implied comparisons, ambiguous qualifications)
Each case is determined on its merits having regard to the facts, the target audience and the general impression of the advertisement.
The use of fine print in advertising is not illegal provided that it is not misleading or deceptive or likely to mislead or deceive. In fact fine print may be necessary to reasonably and clearly explain and/or qualify large print and diagrammatical representations.
© Stephens Lawyers & Consultants, July 2004
[1] Unisys' "July response" to RACVI's request for proposal, submitted during the 1993 tendering process
[2] Page 10-1 of the July response
[3] Ormiston, Phillips and Batt, JJ.A. Justices Ormiston and Batt agreed with Justice Phillips' leading judgement
[4] Delivered by Justice Hansen
[5]George Weston Foods Ltd v Goodman Fielder Ltd [2001] FCA 1632
[6]ACCC v Nationwide News Pty Ltd (1996) 36 IPR 75