Australian Competition & Consumer Commission v Wizard Mortgage Corporation Limited

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

BETWEEN: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

REASONS FOR JUDGMENT 1 During June and July 2001 the respondent ("Wizard") caused a television advertisement, which promoted certain features of its loan products and services, to be broadcast in Victoria and Queensland. The advertisement featured the executive chairman of Wizard, Mr Mark Bouris, who made the following statements: "The question borrowers ask me most: What's the secret to paying off my mortgage faster? The secret's in the flexibility of the loan. Access and features such as direct salary crediting and changing from monthly payments to fortnightly or weekly and in not paying ongoing monthly fees. You can pay that saving into extra loan repayments. Of course flexibility and features should be matched by a great variable rate." 2 Following Mr Bouris's statements, there was a still frame on which the interest rate of "5.64% p.a." appeared in large type in the advertisement. Directly underneath, the words "variable rate" appeared and at the foot of the frame, in small print, the words "To approved applicants. Fees, charges and conditions apply" appeared. 3 The advertisement was false and misleading as Wizard's loan products and services did not include a product or service with all of the features offered in the advertisement. The only type of loan offered by Wizard with the features of: direct salary crediting, changing from monthly to fortnightly or weekly repayments and the absence of ongoing monthly fees carried, at the time of the advertisement, a variable interest rate of 6.47% per annum or a fixed interest rate of up to 7.4% per annum. The only loan product or service available from Wizard that was being offered at an interest rate of 5.64% per annum was Wizard's "Rate Breaker" loan, which was available for owner occupied residential property purchases but which did not provide for direct salary crediting or changing from monthly to fortnightly or weekly repayments. Any borrower who wished to obtain those features in respect of a "Rate Breaker" loan was required to pay an additional $1,000. 4 On 13 July 2001, after several Wizard branches had expressed their concern that the advertisement could be confusing, Wizard withdrew the advertisement. 5 On 2 August 2001 the applicant ("the ACCC"), which had received a number of complaints, sent a letter to Wizard stating that the advertisement may have breached ss 52 and 53 of the Trade Practice Act 1974 (Cth) ("the TPA"). The ACCC requested certain information from Wizard to enable it to make an informed assessment as to the steps the ACCC might take in relation to the advertisement. On 15 August 2001 Wizard provided all of the information sought by the ACCC. On 11 September 2001 the ACCC wrote to Wizard stating that the advertisement would be referred to the attention of the Commissioners and invited Wizard to send any further material it believed might assist the Commissioners in their assessment of the matter. The letter also requested specific information from Wizard, which was provided by it on 2 October 2001. 6 On 5 February 2002 the ACCC commenced a proceeding in the Court seeking a declaration that, in causing the advertisement to be published, Wizard contravened ss 52, 53(aa), 53(c) and 53(e) of the TPA. The ACCC also sought orders pursuant to s 80 of the TPA prohibiting Wizard from engaging in any further contravening conduct and requiring Wizard to publish corrective advertising and to implement a compliance program to prevent a repetition of the contravening conduct. At the relevant time ss 86C and 86D had not yet commenced operation. 7 Initially, Wizard admitted to contravening s 52 but denied that it had contravened s 53. However, shortly prior to the hearing Wizard admitted that the combination of statements made in the advertisement was capable of creating in the minds of consumers the impression that it had available a loan at 5.64% per annum with all of the other features represented in the advertisement. As a consequence Wizard admitted that it had: · in contravention of s 53(aa) of the TPA, falsely represented that certain of its loans were of a particular standard, quality, value or grade; · in contravention of s 53(c) of the TPA, falsely represented that certain of its loans had performance characteristics, accessories, uses or benefits they did not have; · in contravention of s 53(e) of the TPA, falsely or misleadingly represented the price of certain of its loans. 8 At the hearing the parties were in dispute as to the relief that was appropriate. It was common ground that the Court ought to grant the declaratory relief sought by the ACCC, which was that the Court declares that: "1. The Respondent, by causing to be broadcast on the Channel Nine television network during June 2001 and July 2001 an advertisement which represented to consumers in Brisbane, the Gold Coast and Melbourne that the Respondent offered mortgage loans at the interest rate of 5.64% with all the following features, namely: (i) repayments credited direct from salary, (ii) the option of changing from monthly to fortnightly or weekly repayments; and (iii) the absence of ongoing monthly fees when in fact the Respondent did not offer mortgage loans to consumers at the interest rate of 5.64% with all of those features, has in trade or commerce, engaged in conduct that was misleading or deceptive or was likely to mislead or deceive in contravention of section 52 of the Trade Practices Act 1974. 2. The Respondent, by causing to be broadcast on the Channel Nine television network during June 2001 and July 2001 an advertisement which represented to consumers in Brisbane, the Gold Coast and Melbourne that the Respondent offered mortgage loans at the interest rate of 5.64% with all the following features, namely: (i) repayments credited direct from salary, (ii) the option of changing from monthly to fortnightly or weekly repayments; and (iii) the absence of ongoing monthly fees when in fact the respondent did not offer mortgage loans to consumers at the interest rate of 5.64% with all of those features, has in trade or commerce, falsely represented that services were of a particular standard, quality, or value in contravention of section 53(aa) of the Trade Practices Act 1974. 3. The Respondent, by causing to be broadcast on the Channel Nine television network during June 2001 and July 2001 an advertisement which represented to consumers in Brisbane, the Gold Coast and Melbourne that the Respondent offered mortgage loans at the interest rate of 5.64% with all the following features, namely: (i) repayments credited direct from salary, (ii) the option of changing from monthly to fortnightly or weekly repayments; and (iii) the absence of ongoing monthly fees when in fact the Respondent did not offer mortgage loans to consumers at the interest rate of 5.64% with all of those features, has in trade or commerce, represented that services had performance characteristics, uses or benefits they did not have in contravention of section 53(c) of the Trade Practices Act 1974. 4. The Respondent, by causing to be broadcast on the Channel Nine television network during June 2001 until in or about July 2001 an advertisement which represented to consumers in Brisbane, the Gold Coast and Melbourne that the Respondent offered mortgage loans at the interest rate of 5.64% with all the following features, namely: (i) repayments credited direct from salary, (ii) the option of changing from monthly to fortnightly or weekly repayments; and (iii) the absence of ongoing monthly fees when in fact the Respondent did not offer mortgage loans to consumers at the interest rate of 5.64% with all of those features, has in trade or commerce, made a false or misleading representation with respect to the price of a service in contravention of section 53(e) of the Trade Practices Act 1974." 9 However, the parties were in dispute over the further relief sought by the ACCC. The injunctive relief sought by the ACCC pursuant to s 80 of the TPA was as follows: "The Respondent by itself, its employees, agents and servants or otherwise howsoever, be restrained for a period of 3 years from the date of this order, from causing the publishing or broadcasting of advertisements for its housing mortgage loans which represent that the loans have features that they do not have, or that loans at a specified interest rate have features that they do not have." 10 The corrective advertising sought by the ACCC pursuant to s 80 was: "The Respondent cause to be broadcast within 30 days of the date of this order, between the hours of 6pm and 9pm, at its own expense, three advertisements on the Channel 9 television network in each of Melbourne, Brisbane and the Gold Coast, to the following effect: The Australian Competition and Consumer Commission ('the ACCC') recently brought proceedings in the Federal Court of Australia against Wizard Mortgage Corporation Limited ('Wizard'). In June and July 2001 Wizard advertised on television that its 5.64% low interest rate mortgage home loan included direct salary crediting and the option to change from monthly payments to fortnightly or weekly. This was not true. Those features were available only with a higher interest rate. Wizard has admitted that its advertisement was misleading. The Federal Court has granted an injunction against Wizard for 3 years in relation to its advertising and made orders that Wizard implement a trade practices compliance program. The Court has ordered Wizard to publish this advertisement." 11 The compliance program sought by the ACCC pursuant to s 80 was: "The Respondent implement, within 3 calendar months of the date of this order, and maintain for a period of 3 years, a trade practices compliance program having the features set out in Schedule '1' to this Order so as to assist the Respondent in complying with the provisions of Part V of the Trade Practices Act 1974 in relation to advertising of the Respondent's housing loans, such program to be independently audited annually, on the first and second anniversaries of the date of its implementation." 12 Schedule 1 was as follows: "The trade practices compliance program to be implemented and maintained by the Respondent pursuant to this Order ('the program') must have the following features: 1. The program must comply with the Australian Standard on Compliance Programs, AS 3806, except where that Standard is inconsistent with the other provision in this Schedule, in which case the provisions of this Schedule will prevail. 2. The program must provide for the appointment of a Trade Practices Compliance Officer. 3. The program must require the Trade Practices Compliance Officer to review all advertising material to be used by the Respondent, in any medium and including promotional material for in-store display. The review must be carried out prior to the use, publication, broadcast or display of the advertising material to ensure that the use of the advertising material will not contravene sections 52 or 53(aa), 53(c) and 53(e) of the Trade Practices Act ('the Act'). 4. The program must require the Trade Practices Compliance Officer to maintain for at least 3 years a documentary record of the review of all such advertising material. The record must include: (a) a written identification of the advertising material that was reviewed; (b) a copy of the advertising material; (c) a written confirmation that the advertising material was reviewed and approved for use, publication, broadcast or display, stating when and by whom the review was conducted and the approval was given; (d) a written record of any respects in which the use of the advertising material was considered by the Trade Practices Compliance Officer to give rise to possible contraventions of sections 52 and 53 of the Act, and the steps taken to avoid such possible contraventions; and (e) a written record of when the advertising material was used, published, broadcast or displayed. 5. The program must provide for: (a) the conducting of annual training sessions in relation to sections 52 and 53 of the Act for all employees of the Respondent who are involved from time to time in the design, preparation, distribution or use of advertising material; (b) the making and retention for at least 3 years of written records of the person who conducted, and who attended, each such training session; and (c) the retention for at least 3 years of copies of all material that was used or distributed at each such training session. 6. The program must provide for: (a) an independent external auditor with experience in trade practices law to audit annually the implementation of the program; (b) the auditor to provide written reports annually to the Applicant and the Respondent in relation to the audits; (c) the retention by the Respondent for at least 3 years of such audit reports." 13 The ACCC contended that the contraventions were serious and that it was appropriate for the Court to order injunctive relief, corrective advertising and the implementation of a compliance program in order to prevent a repetition of the contravening conduct. The ACCC argued that the evidence adduced by Wizard as to how the misleading advertisement came to be broadcast demonstrated a systemic failure, rather than a one off instance of inadvertence, and that Wizard has not taken adequate steps to guard against the occurrence of further failures of that kind. As a consequence, the ACCC claimed that the Court should make orders that will protect the public against the repetition of contraventions of the kind that had occurred. 14 Wizard did not dispute that the contraventions were serious but claimed that they had resulted from an inadvertent error made by one of its executives and that the steps that it now had in place adequately protected the public against the repetition of any further contraventions of the kind that had occurred. Wizard pointed to its previous unblemished record, its decision to voluntarily withdraw the advertisement prior to any intervention on the part of the ACCC, the delay of the ACCC in bringing this proceeding and to the steps Wizard had taken to implement its own compliance program to prevent a repetition of the contravening conduct as reasons why it would be inappropriate for the Court to grant any injunctive relief. Wizard also criticised the form of the corrective advertising sought, making the point that the purpose of the advertising proposed by the ACCC was not to correct any misapprehension that may have arisen in the minds of consumers as a result of the advertisement. Wizard also criticised numerous aspects of the compliance program sought by the ACCC claiming that the program required Court supervision and was so general and imprecise that it was inappropriate that it be made the subject of an order of the Court. 15 In order to deal with the submissions concerning relief it is necessary to briefly outline the relevant evidence. Wizard is a reputable and substantial company that offers the public a number of different loan products and services. It commenced its current lending business in 1996. Wizard's main business is the provision of loans to secure the purchase of residential property by owner occupiers or investors. At the time of the advertisement Wizard employed approximately 80-100 staff. In the course of carrying on its business Wizard regularly conducts advertising campaigns in respect of its loan products and services. 16 Mr Levitt, the Head of Marketing for Wizard, was responsible for the televising of the contravening advertisement. Although Wizard had in place a policy which required legal clearance for its advertising, the advertisement had already received a legal clearance from Wizard's solicitors, Gilbert & Tobin for its use in an earlier advertising campaign run in late November 2000. However, the advertisement that had been the subject of that clearance did not contain any reference to an interest rate. Mr Levitt's evidence was that he added the reference to the 5.64% rate to the earlier advertisement because he wanted to advertise that rate as the lowest rate offered by Wizard at the time of the June/July 2001 advertising campaign. He claimed he did not turn his mind to whether the addition of the 5.64% rate would convey any messages or representations to viewers that a loan at 5.64% was available with the features referred to in the advertisement. He was also of the belief that the change he made did not require legal clearance because the advertisement was not a new advertisement. 17 The television advertising in June and July 2001 resulted in a significant increase in the number of loan inquiries made to Wizard branches during the relevant period. However, it does not appear that consumers were induced by the advertisement to apply for "Rate Breaker" loans as no applications for those loans were made from the commencement of the television advertising to 15 August 2001. While no consumers may have suffered any direct financial loss by being required to pay $1,000 to upgrade a "Rate Breaker" loan to obtain the benefit of the advertised features, it does not follow that no harm was caused by the misleading advertisement. In substance, Wizard was advertising to the public a loan product or service that had attractive features at an attractive interest rate that was not available. Thus, the advertisement was likely to induce consumers to apply for loans from Wizard, rather than from its competitors, on a false basis. Sections 52 and 53, inter alia, are intended to protect the public against such advertising. In the circumstances it is an over-simplification for Wizard to contend that there is no evidence that any loss was suffered as a result of its misleading advertising. 18 The main area of contention between the parties related to the steps that Wizard had taken to ensure that there would not be a repetition of its contravening conduct. Wizard relied on its correspondence with the ACCC and on the evidence of Mr Levitt and its Chief Executive Officer, Mr Malizis. In its correspondence with the ACCC, Wizard stated that it has in place a number of processes relating to the approval of its advertising, which included extensive induction training for all business writers, accreditation programs concerning Wizard's legal obligations, ongoing sales training programs and the recent appointment of a dedicated compliance officer to ensure that Wizard's compliance processes are effective. Wizard also stated that it recognised that the previous procedures had not been followed and therefore it has put in place additional procedures to ensure that that sequence of events would not be repeated. The additional procedures were said to include a requirement to have a "legal sign off" for all future advertisements of the kind in question. 19 Mr Levitt, in his affidavit, stated that Wizard had taken certain steps to improve its "trade practices compliance program". The steps were said to include the appointment of a full time compliance officer, instructing Gilbert & Tobin to review and make recommendations regarding improvements to the existing program and formalising Wizard's policy regarding advertising clearance before finalising any new television advertising. Mr Malizis' evidence primarily related to the appointment and role of the compliance officer; he also provided further information concerning the procedures that had been established to prevent a repetition of the contravening conduct. 20 Mr Levitt and Mr Malizis were cross examined by senior counsel for the ACCC. Evidence was given as to the manner in which existing procedures had been strengthened, how policy regarding advertising clearance had been formalised and as to the role of Gilbert & Tobin in reviewing and making recommendations regarding improvements to Wizard's compliance programs. Wizard did not produce any internal documents concerning any of the above matters. Prior to cross-examination the impression created from Wizard's correspondence and the evidence given by Messrs Levitt and Malizis was that Wizard had implemented and formalised its own trade practices compliance program in accordance with Gilbert & Tobin's recommendations and that it had a full time compliance officer who was engaged in supervising that program. 21 After the cross-examination of Messrs Levitt and Malizis I was left with the impression that the so-called changes in Wizard's trade practices compliance program lacked specificity and detail. There was said to be a new mandatory legal "sign off" for all television advertising but that was, in substance, meant to be the situation prior to the contravening advertisement. Compliance was said to be a part, albeit a significant part, of the role of the "Head of Risk Management" which encompassed the Privacy Act and the Uniform Commercial Code in addition to the Trade Practices Act. The Head of Risk Management was without legal qualifications. Evidence as to the content of the recommendations made by Gilbert & Tobin was vague and while there was evidence that Wizard's compliance program was embodied in a written document, that document was not produced to the Court. 22 Prior to the hearing Wizard had been put on notice by the ACCC that it regarded Wizard's response to the contravening advertisement as inadequate. I regard Wizard's reliance on generalities, rather than specifics, and its failure to provide any internal documentation concerning its "trade practices compliance" program as evidence of an unsatisfactory and inadequate response to the ACCC's legitimate concern to prevent a repetition of the contravening conduct. In particular, I have concluded that Wizard had not taken adequate steps to prevent a repetition of the contravening conduct. Had Wizard proffered satisfactory evidence that it had taken adequate steps to prevent a repetition of its contravening conduct there would have been substantial grounds to support its contention that, in all the circumstances, declaratory relief was sufficient and that there was no need for any injunctive orders or orders for corrective advertising or for the implementation of a trade practices compliance program. 23 The inadequacy of Wizard's response to its contravening conduct raises the question of the injunctive relief that is, in all the circumstances, appropriate. The nature of the power conferred by s 80 of the TPA to grant an injunction was considered by a Full Court in ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248 ("ICI"). In particular, each of the members of the Court drew attention to the public interest nature of an injunction that may be granted under s 80 and to the provisions of s 80(4) which provides: "The power of the Court to grant an injunction restraining a person from engaging in conduct may be exercised: (a) whether or not it appears to the Court that the person intends to engage again, or to continue to engage, in conduct of that kind; (b) whether or not the person has previously engaged in conduct of that kind; and (c) whether or not there is an imminent danger of substantial damage to any person if the first-mentioned person engages in conduct of that kind." 24 As was observed by French J (at 268): "There is room within the statutory framework and the policy that underlies it for an injunction which is intended not to restrain an apprehended repetition of contravening conduct but to deter an offender from repeating the offence. That deterrence is effected by attaching to the repetition of the contravention the range of sanctions available for contempt of court. The possibility remains open, by virtue of s 80(3), that after a suitable period unmarked by further contravention the party restrained may apply to the court to rescind the order. The remedy is flexible and may be applied in service of a variety of functions to support the policy of the Act." 25 I am satisfied that Wizard does not intend to repeat its contravening conduct and has set in place procedures which it regards as sufficient to prevent a repetition of that conduct. In my view the contravening advertisement resulted from a systemic failure within Wizard to set in place procedures that ensured that all advertising received legal approval. However, I am not satisfied that the procedures that Wizard has set in place since the advertisement are adequate to prevent a repetition of contravening conduct of the kind that has occurred. Thus, the present case is one where it is appropriate to grant an injunction to deter a repetition of the contravening conduct and to mould the grant of relief accordingly. One aspect of that deterrence is an expectation that, as a result of the injunction, Wizard will set in place a formal process, based on the recommendations of its legal advisers, that will ensure that there will not be a repetition of the contravening conduct. 26 The injunction sought by the ACCC complies with the principles enunciated in ICI. I am satisfied that the purpose of the injunction will be achieved by having it operate for a limited period, rather than indefinitely. As was pointed out by French J in ICI (at 268) the remedy under s 80 is flexible. In the circumstances, I am satisfied that it is appropriate that the period in which the injunction is to operate be 18 months, rather than 3 years. I have selected that period as I expect that within that time Wizard will establish and maintain appropriate and adequate procedures to ensure that there is not a repetition of contravening conduct. 27 I am also satisfied that the injunctive relief I propose to grant is sufficient to satisfy the public interest purposes of s 80 and that it is not appropriate or necessary for the Court to grant the further injunctive relief sought by the ACCC in relation to corrective advertising and the implementation of a compliance program. The primary purpose of corrective advertising is to protect the public interest by dispelling incorrect or false impressions that may have been created as a result of misleading or deceptive conduct: see ACCC v Purple Harmony Plates Pty Ltd [2001] FCA 1062 at [33] and the cases there referred to. It has also been suggested in some of the cases that another purpose of corrective advertising may be to bring the outcome of the proceedings to the attention of the public as consumers, not merely to announce a win for the ACCC, but rather as an aid in the enforcement of the primary orders and to prevent repetition of the conduct in question: see Cassidy v Medical Benefits Fund of Australia [2002] FCA 1097 ("Cassidy") at [87]. In the present case it is not suggested by the ACCC that the "corrective" advertising it seeks is to protect the public interest by dispelling incorrect or false impressions which may have been created as a result of the misleading conduct. In that regard, the ACCC accepts that it is now too late for corrective advertising to be meaningful or appropriate but it claims that the advertising it seeks is sought on the basis that it will bring the outcome of the proceedings to the attention of the public as consumers as an aid to the enforcement of the injunctive order and it will assist in preventing repetition of the conduct in question. As explained above, I am of the view that the injunctive order is adequate to prevent repetition of the contravening conduct and is likely to result in adequate procedures being set in place to prevent such a repetition. Accordingly, the advertising sought by the ACCC is neither appropriate or necessary in order to supplement the injunctive relief. In the circumstances it is unnecessary to consider Wizard's further contention that the educative role of corrective advertising discussed in Cassidy is not a proper exercise of the power conferred by s 80 of the TPA. 28 The above conclusions are also sufficient to dispose of the ACCC's application for the implementation of a compliance program. The injunctive orders that I propose to grant are a sufficient inducement to Wizard to establish an appropriate compliance program based on the legal advice it receives. In such circumstances I do not regard it is as appropriate or necessary for the Court to exercise its injunctive power to impose such a program on Wizard. Accordingly, it is also unnecessary to consider Wizard's further submissions as to why a Court should not impose a program of the kind requested by the ACCC: cf ACCC v Real Estate Institute (1999) 95 FCR 114 at 134 and ACCC v Z-Tek Computer Pty Ltd (1997) 78 FCR 197 at 205-207. 29 For the above reasons I have concluded that, in addition to the declarations sought by the ACCC, it is appropriate to grant the injunctive relief in the form sought by the ACCC but to refuse to grant the additional injunctive relief sought by the ACCC in relation to corrective advertising and the implementation of a trade practices compliance program. Although the ACCC has not obtained all the relief it has sought, it has obtained declaratory and injunctive relief and, in the usual course of events, costs should follow the event. However, as the respondent has requested the opportunity to file written submissions as to costs I will make directions for those submissions and the response of the applicant to them. I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Merkel.

Counsel for the Applicant: Mr C Scerri QC with Ms K Anderson