Australian Competition and Consumer Commission v Star Promotions Club Pty Ltd

Federal Court of Australia|2010-03-04|Before: Rares J

Background 5 The conduct complained of involved Star Promotions using two forms of scratch cards to induce persons who saw them to believe that they had won a prize. As a content service provider, Star Promotions offered users of mobile telephones the ability to access its services using, among other things, what are commonly called text messages or SMSs (short message services), and MMSs (multimedia message services). 6 Star Promotions offered a variety of other content services by the use of a mobile phone and its screen functions. Subscribers could acquire particular products such as, for example, a ring tone or a subscription service, like the regular provision of a horoscope. Those services typically are provided at premium rates payable by the subscriber. Those rates are higher than rates levied in respect of basic telecommunication services including ordinary text messaging. 7 In order to attract customers, content service providers typically advertise their services through television, print and internet advertisements. And, they typically establish and maintain consumer relationships through mobile telephone, SMS or MMS messages. The subscriber incurs charges for the content services including mobile telephone premium services at the time the content services are delivered to his or her mobile telephone. Subsequently, the subscriber's telephony provider includes the cost of the content services on its regular mobile telephone account or bill.

The Second Scratch Card 17 In December 2008 and February 2009 Star Promotions published another scratch card (Figure 2): Figure 2 18 The second scratch card was distributed by letter box drops and insertion into the popular magazines, New Weekly, TV Week, Woman's Day and Picture in Western Australia from December 2008 and also by letter box drops in the Northern Territory in February 2009. It also comprised three panels that could be separated at perforated edges and operated in a similar fashion to the first. The instruction box on the panel of the second scratch card that had three matching symbols stated: "CONGRATULATIONS YOU HAVE 3 MATCHING SYMBOLS & HAVE WON A PRIZE! CODE [provided] To subscribe and find out what you have won instantly, SMS your code to [phone number] SMS entry costs 25 cents. For Terms & Conditions see reverse." The reverse side of the second scratch card included the following instructions: "How to Play: 1. Scratch 3 identical prize symbols. 2. Winners: Must SMS the code to the PSMS number listed on the front (at a cost of $0.25 to you).This also subscribes you to the Star Promotions Club. 3. You will receive a FREE return SMS with your "prize claim code". 4. Fill out your details below with your prize claim code and send to Star Promotions Club. All details must be filled out to be valid. To claim your prize: Mail to Star Promotions Club, Suite 154, Toorak Road, South Yarra VIC 3141. Mobile Content Club, subscription costs $6.60 per week. Name … Address ….(etc)" The back of the second scratch card had the following terms and conditions: "TERMS & CONDITIONS: This promotion is open to NSW, QLD and WA residents aged 18 years and over who receive a promotional scratch card during the promotional period and who agree to join the Star Promotions Club mobile content services subscription service. There is a $6.60 sign up fee and a weekly cost of $6.60. Entry must be made via SMS using SMS & WAP enabled mobile phones. Promotion starts 12.01am (AEDT) on 10/11/08 and ends at 11.59pm (AEST) on 23/08/09. All winners will be notified by SMS and winners of prizes valued at over $500 will be published in The Australian on 2/9/2009. Full terms and conditions online at www.starpromotionsclub.com.au. To opt out send 'STOP' to PSMS number on front. Authorised under NSW Permit number LTPS/08/10763." 19 There was a pool of 20,015 prizes from which instant win prizes could be drawn for the second scratch card promotion, namely: "1 x Holden Astra CD Hatch car valued at up to $25,490; 1 x Dreamworld White-water World QLD Holiday valued at up to $9,999; 8 x 42 inch Sony plasma televisions valued at up to $999; 1 x $10,000 cheque; 4 x $1,000 cheques; and 20,000 x 'Leapfrog Lifestyle' vouchers valued at up to $80." 20 Unlike the first scratch card, the second one invited the reader to: "Join for your chance to win [the particular prize] or a lifestyle voucher instantly". As with the first scratch card there was no element of chance that the consumer would not uncover three matching symbols in the set of three cards received by him or her. Once that occurred the consumer followed the same process and became liable for the same costs as I have described above to see if he or she had won. Star Promotions also had the terms and conditions for the two scratch card promotions on its website.

The Leapfrog Lifestyle Vouchers 21 The Leapfrog Lifestyle vouchers were provided to Star Promotions by a third party, the Leapfrog Group. Its expertise was stated on its website as being directed to increasing its client's sales and addressing its business and marketing objectives. The group had suggestions for its clients to obtain customers, maintain their loyalty and increase their average spending on the client's goods or services. 22 If a consumer wanted to use the Leapfrog Lifestyle vouchers prizes, he or she had to spend money at a designated hotel, restaurant or other "lifestyle" venue. Only after the consumer had committed himself or herself to such expenditure did the lifestyle voucher provide some additional service or benefit. Significantly, the voucher itself was not simply redeemable for value without the consumer actually paying money out of his or her own pocket for services in addition to those offered by the lifestyle voucher. And the second scratch card's offer of the chance to win a lifestyle voucher instantly did not disclose the nature of this "prize".

The Contraventions 23 Both forms of the scratch cards were calculated to induce consumers to believe they were eligible to win, apparently, valuable prizes, and to incur expenditure in order to pursue that prize, and to then subscribe to Star Promotion's content services. In effect, the consumer was required to send an SMS message, and incur a flat fee totalling $6.85 payable to their telephony provider immediately upon subscribing to Star Promotions content services. If a prize were won, the consumer had to pay for the postage of the prize claim. In addition, the consumer was likely to remain a subscriber, at least in the short term, and thus become liable to pay the weekly fee of $6.60 from the first Friday after the date of subscription. 24 The Commission alleged that, by causing each of the scratch cards to be published, Star Promotions engaged in conduct in trade or commerce that was misleading or deceptive, or likely to mislead or deceive in contravention of s 52 of the Trade Practices Act 1974. 25 It also alleged that, by causing each of the two scratch cards to be published, Star Promotions contravened ss 53(e) and (g) of that Act. First, it alleged that, in connection with the supply and promotion of content services Star Promotions, made false or misleading representations with respect to the price of its content services being promoted, in contravention of s53(e). And, secondly, the Commission alleged that in connection with the supply and promotion of content services, Star Promotions made false or misleading representations concerning the existence of a condition in contravention of s 53(g). 26 First, the conduct complained of was misleading or deceptive, in contravention of s 52 of the Act, because the cards represented that the consumer would be lucky if he or she scratched one of the three sets of cards and found matching symbols, when the true position was that every set of three cards, available to every consumer, contained a set of three matching symbols. No luck was involved. Secondly, the misleading and deceptive nature of the cards arose because they were calculated to induce the consumer to act on the supposition that they could send a text message with the code in the instructions box of the "winning" scratch card to a nominated telephone number at a cost of only 25¢, and they would become eligible to win a valuable prize. The vice of this representation was that, in order to see if the prize had been won and to receive details as to how to claim it, the consumer not only had to send the text message, but had to subscribe to Star Promotions' content service paying a flat fee of $6.60 immediately upon that subscription, and becoming liable (unless he or she cancelled) to pay, on an ongoing basis, a further fee of $6.60 from the first Friday after the date of the subscription. 27 Thus, only after the consumer had subscribed to the Star Promotions' content service, would he or she be sent details as to whether or not they had won a prize, and, if so, how they could claim it. This involved sending further correspondence to Star Promotions by post at further cost. 28 Thirdly, the opportunity to win a lifestyle voucher instantly was offered on the face of each of the three component sub-cards on the second scratch card as an alternative to the two nominated, apparently more major, prizes. The face of the first scratch card was different in that the identified major and alternative prizes did not include any reference to a lifestyle voucher. Thus, the second scratch card represented that the lifestyle voucher, in itself, constituted a valuable prize of the same nature as a car, plasma television, an amount of cash, or a holiday. However, because of the characteristics of the lifestyle voucher that I have described, it only had a value if the consumer who won it were willing to spend his or her own money for the goods or services associated with the lifestyle voucher. And, if the consumer were not so willing, the voucher was worthless. 29 The contravention of s 53(e) consisted in Star Promotions making a misrepresentation about the real nature of the cost to the consumer to ascertain whether or not he or she had won a prize. It appeared to be the 25¢ cost of an SMS. But, in order to pursue the answer to that question he or she, in fact, would need to spend substantively more than the price of a single SMS or text message. Thus, the representation was misleading, notwithstanding the presence on the reverse side of each scratch card of terms and conditions in fine print that set out a more detailed description of the costs that were likely to be involved. 30 The gravamen of the contravention of s 53(g) lay in the representation that a condition of winning of the prize was that the consumer had to have an SMS/WAP enabled mobile telephone. An SMS or text message could be sent by mobile telephones that was not wireless access protocol enabled. However, the real reason for the condition was that a consumer who did not have a mobile phone with WAP or wireless access protocol functionality could not access Star Promotions' content services.

Utility of consent declaration 31 The parties agreed the wording of declarations that describe and identify the characteristics of the contraventions that occurred. The wording of the declarations is very complex. I raised a concern with counsel for the parties at the commencement of the hearing as to the complexity and form of the proposed declarations. In one sense, the verbiage in the proposed agreed declarations does not readily communicate to the consuming public and to ordinary reasonable people who might look at them, anything that is particularly meaningful. However, counsel for the parties pointed out, the different purpose and the real function of such forms of declaration, in a proceeding like the present. That is to enable the Commission, or other regulatory authority, to demonstrate that particular conduct identified in the declarations, has been found by the Court to contravene a statutory provision. This can be used to inform and persuade persons that they have, or may have, engaged in contravening conduct themselves. 32 These declarations provide a ready means of ensuring that, when different, but similar, conduct by other persons has been discovered, they can be informed and perhaps persuaded, that their conduct may also be in contravention of the statutory provision because of the factual similarities discernible in the detailed wording of the declarations. This has a useful and beneficial purpose in the enforcement of the law, particularly consumer protection provisions such as are found in Pt V of the Trade Practices Act. In addition, the identification of a contravention of the law in a declaration can quell a controversy even when by consent, by marking out and declaiming the conduct of the contravener. 33 The Commission will also able to educate the public and use the making of the orders as a means of vindicating and enforcing the application of the Act. I am satisfied that in these proceedings it is appropriate to make declarations in exercise of the Court's power under s 21 of the Federal Court of Australia Act 1976 (Cth) and the Court's inherent power: Ainsworth v Criminal Justice Commission (1992) 175 CLR 564 at 581-582 per Mason CJ, Dawson, Toohey and Gaudron JJ. There is utility in making declarations of the kind sought by the parties. I suggested that it was necessary for them to clarify some aspects, and that is reflected in the final form of orders that I make.

Injunctive Relief 34 The Commission is entitled to apply for an injunction under s 80(1) of the Trade Practices Act 1974 to restrain a person who has engaged in conduct that contravenes Pt V of the Act (in which ss 52 and 53 are found). If the Court is satisfied that the person has engaged in conduct that would constitute a contravention of Pt V of the Act it can grant an injunction on such terms as it considers appropriate. In addition, s 80(1AA) provides that the Court may grant an injunction by consent of all the parties to the proceedings, whether or not it is satisfied that the person had engaged or proposes to engage in the conduct of the kind mentioned in the s 80(1). 35 I am satisfied that Star Promotions did engage in the conduct complained of for the reasons I have given. It did so on a number of occasions. It has now shown recognition of, and contrition for, its unlawful conduct by agreeing to the orders that the parties jointly seek. Star Promotions has also accepted that it is appropriate that it be restrained from engaging in such conduct in the future. The contraventions occurred by use of promotions that were widely circulated in popular magazines or letter boxes. I infer that a large number of persons could potentially have been affected by that conduct. Additionally, the parties have agreed that it is appropriate that Star Promotions undertake corrective advertising by sending a text message to its subscribers who took up the subscriptions while investigating whether they had won prizes or not. 36 Ordinary reasonable members of the community understand that when a court grants an injunction or makes an order prohibiting a person from acting in a particular way, that the person's conduct has been such as to warrant the invocation of this substantial power, limiting an individual's or corporation's freedom of action. The grant of an injunction is readily understood by members of the community as sending the simple message that the person enjoined has engaged or proposes to engage in an activity that the law prohibits. The promotions complained of here are activities of this kind. There is a manifest public interest in identifying the misrepresentations and contraventions that I have found and making orders against the contravener that prevent the conduct being repeated. 37 I am satisfied that it is appropriate to enjoin Star Promotions for a period of five years from engaging in similar conduct to that which I have found. This will be achieved by orders preventing the use of such promotional activities as those complained of in offers calculated to induce consumers to believe they have been lucky in becoming eligible to win prizes and to spend but a small sum of money in investigating whether they have "won". Star Promotions will be required prominently and clearly to communicate to the consumer the whole costs he or she will have to incur in order to investigate whether or not they have won a prize, before they embark on such an investigation, should they choose to go on. Star Promotions should also be required to identify prominently the terms and conditions, including those concerning price, pursuant to which it will offer content, content services and offer prizes. Additionally, Star Promotions should be required, if it wishes to engage in similar activity, to identify clearly the true nature of the prizes that the consumer will have the opportunity to win by participating in a lottery style game. Thus, the true nature of the Leapfrog Lifestyle vouchers would need to be disclosed clearly as including their requirement that the consumer spend further money before the voucher could be said to have any value.

Corrective advertising 38 The parties have agreed that within three months of the making of orders, each of the current subscribers to Star Promotions' contents service who subscribed to that service in response to either of the two scratch card promotions, should receive a message that conveys to them that the Court has found the contraventions to which I have referred. The practical means of conveying that information is in the form of an SMS message containing 155 characters. That message must be attenuated but clear. I am satisfied that it is appropriate to make such an order. 39 The parties have also agreed that Star Promotions should cause each of the media publications that conveyed the first or second scratch cards to publish prominently an advertisement in a form that has been agreed. Star Promotions must provide the Commission with evidence of each corrective publication within seven days of it being made. Once again, the purpose of such an order is, self-evidently, to inform the readership of the magazines or newspapers concerned, of the earlier contraventions and to seek to prevent persons in the future being similarly misled. In addition, others who might engage in such contravening conduct in the future may be deterred from doing so by seeing prominent displays of advertisements ordered by the Court, to overcome the effects of conduct that has been found to contravene the Trade Practices Act. I am satisfied it is appropriate to make such an order.

Costs 40 Last, I am satisfied that it is appropriate to make the consent order that Star Promotions pay the sum of $20,000 in costs. 41 I consider that Star Promotions, by agreeing to the relief to which it has subjected itself, has demonstrated a degree of contrition and an appropriate degree of self-realisation in respect of the errors in its earlier conduct. The scope and form of relief that may be granted in cases may vary depending on the attitude of the contravening party to the grant of appropriate relief. Persons who have engaged in significant contravening conduct may become liable to more extensive and, to them, harsher remedies to correct or ameliorate the effects of their behaviour after a contested hearing than in proceedings dealt with by consent. This is because of the Court's recognition of the public interest that is served by settlements of such litigation. Having regard to all of the circumstances, I am satisfied that the orders that the parties have joined in asking the court to make are appropriate. I certify that the preceding forty-one (41) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares.

Trade Practices Act 1974(Cth)

Joint Submissions on Relief 2 The regulatory functions of the Commission include the enforcement of consumer protection legislation such as the Trade Practices Act. For many years the Courts have recognised that a significant public interest is served by allowing parties jointly to make submissions in proceedings such as these on the appropriate relief to be granted. This recognises that the Court retains the ultimate responsibility for deciding what orders it will grant on the evidence. However, the Court is assisted, usually very considerably as I have been here, by the careful exposition of an agreed factual matrix and the considerations of fact and law that underpin the relief that the parties propose be ordered. 3 Ordinarily, the Court will approach the hearing of such a joint application on the premise that there is no single set of orders that necessarily would be made. Rather, the usual position is that the Court will have a broad discretion to formulate the relief that it considers would be appropriate. But, the Court will give effect to a settlement if it is satisfied that the result the parties have proposed is within the discretionary range of orders that the Court could have made and that it is appropriate to act on the agreed basis. And, the views of the regulator are also of assistance in such cases. 4 Where, after scrutinising a proposed settlement in a case involving civil contraventions of the law, the Court decides that it is appropriate to grant relief as suggested by the parties, or to substantially that effect, other aspects of the public interest in encouraging the settlement of litigation are served. First, future contraventions of a similar nature by other persons, once identified, may be readily acknowledged by them as a result of seeing the kind of consent orders made by the Court, including the content of declarations specifying the conduct complained of. Secondly, future contraveners will be able to understand that the Court has found similar conduct to be unlawful and has determined a form of appropriate relief. This can encourage early, or ultimate, co-operation with the regulator to agree on a resolution. And, a settlement that is acted on by the Court provides an indication of an appropriate outcome designed in the public interest to provide redress for the contraventions and educates members of the public, including other potential contraveners, about the necessity to conform with the requirements set by law. These principles derive from authorities such as NW Frozen Foods Pty Ltd v Australian Competition and Consumer Commission (1996) 71 FCR 285 at 290G-291C per Burchett and Kiefel JJ; see too ACCC v Econovite [2003] FCA 964 at [11] per French; Australian Communications and Media Authority v Radio 2UE (No 2) (2009) 178 FCR 199 at 213-2151 [48]-[54] per myself.

At a glance

Court

Decision date

Before

Catchwords

Source

Catchwords

Judgment (9 paragraphs)

Parties

Legislation Cited (2)

Cases Cited (4)