The defendant, Advangen International Pty Ltd (Advangen), manufactures and distributes in Australia and elsewhere under the brand name "évolis" a product for the treatment of hair loss for men and women. The product, which is used topically, is said to inhibit the production of the FGF-5 protein and in doing so to promote the growth of hair and reduce hair loss. It is sold in tonic and shampoo forms for both men and women.
In March 2015, Ms Emma Chen, the then general manager of Advangen, invited Mr Gavin Levinsohn, the then chief executive officer of Moon Group, an advertising agency related to the plaintiff, Ikon Communications Pty Ltd (Ikon), to tender for the advertising contract for the product. Moon Group made a presentation to Advangen on 22 April 2015 and was ultimately the successful tenderer, although as a result of a corporate restructure, the final agreement (the Services Agreement) was actually entered into with Ikon.
Under the terms of the Services Agreement, Ikon agreed to develop and to execute an integrated advertising campaign using free to air television (FTV), subscription television (STV), the internet, social media and out of home (OOH) advertising, such as billboards. The total budget for the campaign was $2,000,000. Although by industry standards that is not a large sum of money, Advangen is a small company and the amount represented a substantial proportion of its capital. Advangen had just recently completed a capital raising from its shareholders in part to fund the costs of the campaign.
Ikon arranged for the production of two television commercials (TVCs), which formed a large component of the total costs of the campaign, and developed a detailed plan for the promotion of the évolis product on the internet and through social media. One TVC was directed at women and the other at men; and a number of variants of each was produced. However, the focus of the campaign was women and, during the hearing, the parties concentrated on the 30 second version of the TVC produced for women on the basis that the same issues arose in relation to the one for men and the other versions. This judgment adopts the same approach.
The TVCs went to air commencing on 30 August 2015. It was planned that they would be screened in two "bursts", the first of which commenced on 30 August 2015 and was planned to run until the week commencing 22 November 2015 and the second of which was planned for January 2016. In conjunction with the television campaign, Ikon developed and implemented a number of other activities to promote the products. More will be said about those activities later in this judgment.
Advangen was not happy with the TVCs. Ms Maria Halasz, the managing director of Cellmid Ltd, Advangen's parent company, received a number of complaints from shareholders and she herself advances a number of criticisms of the TVCs in her affidavit evidence.
On 21 October 2015, Advangen instructed Ikon to cease all advertising activity except for television advertising that had already been booked and work on two blogs to the extent that that work had commenced. Advangen also refused to pay a substantial number of invoices for work that Ikon had done, including invoices for the costs of screening the TVCs.
On 22 July 2016, Ikon commenced these proceedings to recover the amount of its invoices totalling $939,055.65, together with interest in accordance with the Services Agreement.
Advangen does not dispute the amounts claimed in the invoices. However, in response to Ikon's claim it filed a cross-claim in which it makes two broad allegations. First, it claims that Ikon, before the contract was entered into or before Advangen signed a media buying authorisation (MBA) giving Ikon authority to buy television time on Advangen's behalf, made a number of representations concerning the services to be provided by it under the contract that were misleading or deceptive in contravention of s 18 of the Australian Consumer Law (ACL). It claims that had those representations not been made, it would not have agreed to pay the amounts it did under the contract and the MBA. To the extent that it has paid those amounts, it claims to be entitled to recover the amounts paid. To the extent that it has not paid those amounts, it claims to be entitled to set-off its claim against the amount claimed from it.
Second, Advangen claims that Ikon breached the Services Agreement. A number of terms are relied on, but the principal term is cl 11.1(b) by which Ikon warrants that "[i]t will provide the Services with the degree of skill, care and diligence expected of persons and suppliers experienced in the provision of similar services" (the Standard).
As the case was finally put, Advangen alleges that the Standard was breached in two main respects. First, it alleges that the TVC itself did not meet the Standard. Second, it alleges that a number of services were provided late with the result that Advangen did not get the benefit of an integrated campaign. It claims the money it threw away on the campaign as reliance damages recoverable in accordance with the principles stated in Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64. Advangen also claims that it has been overcharged for the services that were provided.
[2]
Background
As I have said, Ms Chen, on instructions from Ms Halasz, contacted Mr Levinsohn on 31 March 2015 about tendering for the advertising contract. Ms Chen and Mr Levinsohn met on 1 April 2015, following which Mr Levinsohn gave Ms Chen some additional information on costs and the approach that Moon Group intended to take.
On 8 April 2015, Ms Chen sent Mr Levinsohn an email, apparently in response to queries raised by Mr Levinsohn, stating:
With much discussion with the CEO we have decided to undertake the following direction with the evolis brand.
1. Position the brand in the hair health category therefore not in therapeutic or beauty.
2. Target both men and women
3. Target men and women with hair thinning
We would like to see the creative have an underlying emotional pull and the science to be treated as secondary to the key message. The objective is to drive the 12 weeks treatment program.
On 22 April 2015, Ms Halasz and Ms Chen attended a detailed presentation at Moon Group's offices which included an extensive PowerPoint presentation described as the "Creative Presentation".
There were further discussions and correspondence between the parties during which Advangen was told of the corporate reorganisation that meant that the proposed services would be provided by Ikon.
On 24 April 2015, Mr Levinsohn sent Ms Chen what was described as an "expanded proposal". That proposal set out an outline scope of work, the fees that Moon Group proposed to charge for that work and how those fees were calculated based on a budget of $2,000,000. The work included the creation of the two TVCs. It proposed a fee for "creative deliverables" of $170,325 and included the following table providing a breakdown of that amount:
BRAND/PROJECT COVERS Estimated Development/Management Hours Total Hours
Client Services Director Account Director Account Exec Executive Creative Director Art Director Copy
writer
HOURLY RATE $285/hr $215/hr $105/hr $350/hr $180/hr $180/hr
[3]
ADMIN TOTAL HOURS 12 46 74 132
TOTAL $ $3,420 $9,890 $7,770 $21,080.00
[4]
CAMPAIGN DEV. TOTAL HOURS 20 72 94 56 100 90 212
TOTAL $ $5,700 $15,480 $9,870 $102,920 $18,000 $16,200 $168,170.00
[5]
TOTAL HOURS 32 118 168 56 100 90 344
IN DAYS 4 15 21 7 12.5 11.25
TOTAL FEE (excl. GST) $189,250.00
Less: Discount at 10% $18,925.00
FINAL FEE $170,325.00
[6]
The expanded proposal also included a further copy of the Creative Presentation made on 22 April 2015. That presentation included a description of the proposed TVCs. The "Hers" description was in these terms:
The following film is shot using high-speed cameras in an evocative, high fashion style and set to a cool, edgy sound track. Each scene is focused on incredibly beautiful hair.
SFX Windy soundscape throughout
We open on wild looking coastline during a windstorm. In the distance we can see a woman standing at the cliff's edge. The camera cuts to a close up of the woman's face and hair. Her beautiful, long, thick mane is flying around all over the place in the wind. It looks amazing. And from behind her wild, untamed locks, we see a look of joy and exhilaration across her face.
The woman's inner monologue is heard over the images:
No more being let down by pseudo science serums,
No more magical hair loss lotions and potions,
No more bogus remedies,
No more snake oil cures,
And no more self-esteem disappearing down the drain,
Just beautiful, thick, healthy hair.
We cut to the évolis pack shot.
Super/VO [voice over] Only évolis is proven to inhibit the FGF-5 protein to help stop hair loss.
Super/VO évolis. Long Live Hair.
Super evolisproducts.com.au
There were further negotiations between the parties which led to a revised proposal that was sent by Moon Group to Advangen on 11 June 2015 in anticipation of a meeting the following day.
The revised fee proposal made some amendments to the expanded proposal. Consistently with the earlier version of the proposal, it included the following qualification:
Website design, development and maintenance
This is not included against Moon's fee outlined in section 4.1 for the development of the initial campaign. Moon will supply creative images for the existing 'carousel' of the website but will not, within the fee, make material changes to the website design, architecture, layout.
Any website design or maintenance need to be costed against a specific scope of work at the rates outlined in section 2.3 above.
Relevantly, the revised fee proposal stated that Moon Group's fee for "Creative Deliverables" was $170,325 and it included the same table as was included in the expanded proposal.
The revised fee proposal was accepted by Advangen and, on 16 June 2015, Ikon sent Advangen a draft of the Services Agreement. There were delays in finalising its terms. It was eventually signed by Advangen on 13 July 2015 and Ikon on 15 July 2015, although the commencement date was expressed to be 15 June 2015. It was expressed to be for an initial term of one year. It was divided into a number of "modules", some dealing with remuneration and some dealing with the services to be provided. It also included in Part 2 the terms and conditions. I have already set out the terms of clause 11.1(b), which provides that Ikon warrants that "It will provide the Services with the degree of still, care and diligence expected of persons and suppliers experienced in the provision of similar services". "Services" is defined to mean "the scope of services to be provided by Ikon as set out in each of the applicable Service Modules".
Clause 3.1 states:
Services
During the Term, Further Term and/or any rollover period, Ikon will provide the Services in the Territory as specified in the stated Services Module on the terms and conditions set out in this Agreement.
Clause 4.4 states:
Media and Production Costs
The Client will pay to Ikon any and all Media Costs paid or payable by Ikon in respect of media space and time booked on the Client's behalf in accordance with the applicable Standard Forms Module. Similarly, the Client will pay to Ikon any and all Production Costs paid or payable by Ikon on behalf of the Client in accordance with the Production Estimate. The Production Estimate is to include details of expected production costs such as contractor to be engaged, approximate cost of contractor.
Clause 4.6(c) states:
If the Client continues to default in payment of any invoice, annual compounding interest will accrue on any outstanding amounts at the rate of 2% over the base rate quoted by the Commonwealth Bank in Sydney ($100,000.00 + overdrafts) on and from the date the payment becomes due.
Clause 5.1 states:
Written Approvals
Ikon will provide media plans and production cost estimates to the Client for approval via a Media Buying Authority or production cost estimate as appropriate (see Standard Forms Module). Upon receipt of such written approval from the Client, Ikon has the authority to commence the applicable Services and/or purchase the applicable media from media vendors. Written approval must be received before Ikon proceeds with the Services, media purchases, incurs Third Party Costs.
Clause 13.2 states:
Force Majeure
Ikon will not be liable for any failure or delay in the performance of the Services if that failure or delay is due to a Force Majeure Event and the obligations under this Agreement are suspended to the extent to which they are affected by the relevant event as long as it continues, provided that Ikon will take all reasonable steps to minimise and work around such an event.
"Force Majeure Event" is defined to include "any other circumstances beyond Ikon's reasonable control".
The Retainer Remuneration Module states that "Ikon will invoice the Client a fixed retainer of $132,840.00 per annum" which was to be charged in 12 equal monthly instalments of $11,070 per month. Those invoices were payable 30 days from the date of invoice.
The Additional Remuneration Items Module states that "Ikon will charge a fee of $170,325 as its creative fee to deliver the scope of work as per the document titled "An Revised Proposal for evolis, Thursday 11 June 2015"". The fee was expressed to be payable in six equal monthly instalments of $28,387.50 from July to December 2015. The module included the table that was included in the expanded and revised proposals. After the table, the module states "Any additional hours required will be pre-approved by the Client are [sic] charged as per Ikon's standard hourly rates".
The Additional Remuneration Items Module also contains the following term:
Other Services
Please refer to the document titled "A Revised Proposal for evolis, Thursday 11 June 2015" for other listed services and their respective out of scope fees.
Relevantly, para 2.3 of the Revised Proposal states:
WEBSITE DEVELOPMENT AND MAINTENANCE FEES
Website development and maintenance fees are charged by Fusion, our web design, division by:
- determining a scope of work
- determining the head hours and roles required to deliver the scope
- charging head hours multiplied by the hourly charge outs for the different tasks. The charge out rates are as follows:
Design and Dev support: $180/hr*
User Experience: $200/hr
Digital Strategy: $250/hr
Project Management: $200/hr
*any development work requiring a 2 business days response will be charged at higher 'urgent' rate of $210/hr. further, any work requiring a 2 hour response will be charged at 'critical' rate of $270/hr
The "Implementation Planning & Buying (offline / online) Service Module" states:
The planning, set-up and delivery of offline and online (digital) media campaigns includes:
…
Campaign Management
Ensure campaigns are set up and go live on time. Reporting and optimisation carried out through the campaign with learning's and recommendations presented at the end
Work commenced on production of the TVCs and on a Media Plan shortly after 15 June 2015.
Approval of the TVCs was required from the Australian Self Medication Industry (ASMI) and the Complementary Healthcare Council of Australia (CHC). Approval was sought from both those regulatory authorities. Both took the view that the proposed TVCs breached the Therapeutic Goods Advertising Code 2015 (Cth). It is sufficient to refer to an email dated 1 July 2015 from ASMI to Ms Chen which relevantly said:
• Section 4(2) of the Code states:
An advertisement for therapeutic goods must not:
(a) be likely to arouse unwarranted and unrealistic expectations of product effectiveness
(d) abuse the trust or exploit the lack of knowledge of consumers or contain language which could bring about fear or distress;
(g) contain any claim, statement or implication that it is infallible, unfailing, magical, miraculous, or that it is a certain, guaranteed or sure cure;
The inner monologues that "No more…" breach these sections of the Code. You have not provided evidence that your product can stop significant hair loss of the type inferred in these TVCs. The ads create fear and distress about hair loss, unrealistic expectations and offer promises of a cure from hair loss ("no more") which cannot be substantiated.
• Section 4(5) of the Code says:
Comparative advertisements must be balanced and must not be misleading or likely to be misleading, either about the therapeutic goods advertised or the therapeutic goods, or classes of therapeutic goods, with which it is compared. Points of comparison should be factual and reflect the body of scientific evidence. Comparisons should not imply that the therapeutic goods, or classes of therapeutic goods, with which comparison is made, are harmful or ineffectual.
In the women's TVC, your claim that other hair loss products are "pseudo science", "bogus remedies" and "snake oil" breaches this section of the Code.
• Section 4(4) of the Code saye [sic] with respect to scientific information:
Scientific terminology must be appropriate, clearly communicated and able to be readily understood by the audience to whom it is directed.
The average consumer has no knowledge of what FHF-5 protein is or what in vitro studies are. This section will have to be reworded.
• The advertisements are also missing the mandatory statements: Always read the label. Use only as directed.
Ms Chen forwarded that email to Mr Rob Martin Murphy, the creative director at Ikon, and Ms Alyson Wales, who worked with Mr Martin Murphy on the creative side, saying "Any assistance on rebuttals or strategy would be great".
Mr Martin Murphy replied to that email on 3 July 2018. Relevantly, he said:
We've had a look at the ideas and tried to avoid all comparisons and whatever else we aren't allowed to do.
The best way to approach this is to make this a purely positive spot.
In other words, the only words you really need to say and hear are Long Live Hair.
They are the embodiment of the confidence that is gained by using Évolis and we avoid any negativity.
The film will be even more evocative, beautiful and beguiling. Because we will be even more focussed on the images and great hair shots.
The result was that it was proposed that the "Hers" film copy would be as follows:
The following film is shot in an evocative, high fashion style and set to a cool, edgy sound track. We observe our hero talent in a rugged, natural environment and focus on their incredibly beautiful hair.
MUSIC: Evocative, ethereal track.
SFX: Windswept soundscape throughout
We open on wild looking coastline during a windstorm.
In the distance we can see a woman wandering along the cliff's edge.
The camera cuts to a close up of the woman's face and hair.
Her beautiful, long, thick mane is flying around all over the place in the wind. It looks amazing.
And from behind her wild, untamed locks, we see a look of quiet confidence.
A voice is heard, perhaps the woman's own inner monologue:
VO [voice over]: Long. Live. Hair.
We cut to the évolis pack shot.
VO: évolis actively inhibits the FGF-5 protein, which may help reduce hair loss.
Super: Long Live Hair.
Disclaimer: *In in vitro studies.
Disclaimer: Always read the label. Use only as directed.
It appears that there was further correspondence and discussion in relation to that approach in which some alternatives were considered by Ikon, although the details are not clear from the evidence.
On 8 July 2015, Ms Wales sent Ms Chen an email in which she said:
Rob is working through some alternatives and we hope to get them to you this afternoon.
Could you please given us some further guidance on the legal copy.
We have the full text but we'd like to know the minimum we can get away with. And what we say given the concerns around using in vitro studies as substantiation. This will need to come from your legal team.
On 16 July 2015, Ms Chen wrote to Ms Wales stating:
I have reviewed the ASMI feedback and I think its [sic] best that we don't include 'no more' as we risk of [sic] it being rejected again due to the 'inferred' notion of that statement. We can't prove that no more stands of hair will fall out.
During the same period, Ikon commenced work on the preparation of a Media Plan. It went through a number of drafts and is described in more detail below.
There was a meeting on 15 July 2015 at which the Ikon presented its "Media Amplification" presentation, a PowerPoint presentation which explained Ikon's Media Plan to Advangen and the reasons for the recommendations it made. Relevantly, the presentation stated that the "Target Audience" was "W35+ (75%) M35+ (25%)", meaning that the target audiences were women and men who were 35 years and older and that 75 per cent of the budget would be directed to women and 25 per cent to men. Other slides were directed at the viewing habits of those target audiences.
On 20 July 2015, Ms Elyse Foley, the amplification and trade director of Ikon who was responsible for preparing the Media Plan, sent Ms Chen version 3 of that document together with a document called a "messaging matrix" and an MBA for approval.
The Media Plan and messaging matrix divided the proposed activities into four broad categories. One was television, another was digital, a third was "social & content" and the fourth was "outdoor". Those broad categories were divided into a number of sub-categories to which it will be necessary to return. The Media Plan indicated which activities would be undertaken starting with the week commencing 19 July 2015 and ending in June the following year. So, for example, the plan indicated that the 30 second version of the TVCs would be screened on FTV in Sydney, Melbourne and Brisbane and on STV in the weeks commencing 23 and 30 August 2015. The messaging matrix contained a number of columns describing the relevant activities, to whom they were directed, what was sought to be achieved by those activities and the budget for them. The final column of the messaging matrix contained the following information:
August to November Reach
83.7W% @ 1+
60.9% @ 3+
July to November Sales
$750,000 @ $43.23 W/Sale average
17,349 Products
Number of Conversions
H1 plan will reach 1,872,700 W35+ more than
3 times each
Based on a 1% conversion rate we will convert
18,727 people
(7% higher than the sales goal)
Media will deliver consumers into the sales channels (both
in-store and online), overall conversion to sales is
dependent on many factors beyond media.
It is plain from earlier emails that the expected sales of $750,000 and the average sale price of $43.23 was information supplied by Advangen. The $750,000 was based on sales targets for the period July to November 2015. The price of $43.23 (excluding GST) was the average price of the six évolis products consisting of tonic, shampoo and an "active pack" for men and for women.
Following receipt of those documents, Ms Chen requested some changes. Ms Foley made those changes and emailed version 4 of the plan to Ms Chen the following day.
On the same day (21 July 2015), Mr Martin Murphy sent Ms Chen a final version of the "Hers" and "His" scripts for the TVCs. The final version of the "Hers" script was in the following form:
The following film is shot in an evocative, high fashion style and set to a cool, edgy sound track. We observe our hero talent in a rugged, natural environment and focus on their incredibly beautiful hair.
MUSIC: Evocative, ethereal track.
SFX: Windswept soundscape throughout.
We open on wild looking coastline during a windstorm.
In the distance we can see a woman wandering along the cliff's edge.
The camera cuts to a close up of the woman's face and hair.
Her beautiful, long, thick mane is flying around all over the place in the wind. It looks amazing.
And from behind her wild, untamed locks, we see a look of quiet confidence.
A voice is heard:
VO [voice over]: Confidence.
Some people are born with it.
Others just happen to know the formula.
We cut to the évolis pack shot.
VO: évolis actively inhibits the FGF-5 protein, which may help reduce hair loss.
Super: Available at pharmacies. evolisproducts.com.au.
Disclaimer: *FGF-5 is a protein associated with hair loss. Laboratory studies have shown that évolis ingredients actively inhibit the FGF-5 protein.
Disclaimer: Always read the label. Use only as directed.
Ms Chen replied to that email on 21 July 2015 saying "Yes I agree - love it. ASMI won't have a problem with this either - I hope!!".
The MBA sought approval for the expenditure of a total amount of $1,429,207.65 (excluding media commission and GST), which included $171,000 for outdoor media.
It appears that on 21 July 2015, Ms Chen raised with Ms Foley a number of queries in relation to the Media Plan and the MBA. One of those related to whether OOH could be booked and later cancelled. Ms Foley confirmed her advice that it could not be in an email dated 21 July 2015.
Ms Chen replied to that email later that day. In her reply, she said that she had spoken to Ms Halasz and that they both agreed that the allocated spend of $171,000 warranted further evaluation.
Ms Foley responded to that email at 4.01 pm on the same day stating:
If we remove the OOH panels, our campaign reach decreases as follows:
1+ Reach
With OOH 83.7% @ 1+
Without OOH 71.1% @ 1+
3+ Reach
With OOH 60.9% @ 3+
Without OOH 49.8% @ 3+
Based on a 1% conversion rate on the people we reach 3 times (1,504,300) we will only deliver 15,043 unites which is less than the 17,349 goal between July and November.
Understand that the in store support would deliver some reach (although less) and that there are things to consider beyond this, such as what is going on from a retailer negotiations POV.
We do however want to make sure that we are considering the impact removing OOH will have on the plan.
Ms Chen replied asking Ms Foley to send the MBA without the OOH "as it does warrant further evaluation". Ms Halasz signed the revised MBA on 22 July 2015. The following day, Ms Foley sent version 5 of the Media Plan to Ms Chen, which excluded the OOH component.
On 29 July 2015, ASMI approved the TVC scripts. Ms Chen forwarded that approval to Ms Wales on 30 July 2015 saying "I believe … that this advert will be a smash - creatively!!"
On 30 July 2015, Ms Chen sent an email to Ms Pia Coyle, Ikon's head of Amplification and Trading, Sydney, saying:
Evan is trying to get Chemist Warehouse on board and because the air date is around the corner we would like to defer the air date to 30 August, one week later than planned. Is this possible?
Following that request, Ikon arranged to defer the start date of the television campaign to 30 August. On 6 August 2015, Ms Foley emailed version 6 of the Media Plan to Ms Chen reflecting that change and later that day sent version 7, which reflected another minor change to the plan. Further minor amendments were made to the Media Plan over the following two weeks and a final version of the plan, version 10, was sent to Advangen on 20 August 2015.
As planned, the TVCs went to air on 30 August 2015. At the same time, Ikon continued work on other aspects of the Media Plan. However, Advangen says that the sales results were very disappointing. It attributes those disappointing results to the media campaign. Originally, Ms Halasz complained that the voice over in the TVCs was not sufficiently loud. But over time, Advangen's complaints about the TVCs have become more fundamental. It says that the TVCs fail to convey the basic message to consumers that the évolis product promotes hair growth and reduce hair loss and, as a result, fail to meet the Standard. In her affidavit evidence, Ms Halasz also sets out a large number other of complaints with the services provided by Ikon including a lack of continuity in the Ikon staff who reported to Advangen, a lack of reporting, and a failure to deliver various aspects of the Media Plan on time and in a coordinated way. The details, to the extent that they are still pressed, are dealt with below.
Ms Halasz gives evidence that she raised her concerns with the poor performance of the campaign with Ikon staff on a number of occasions. There are disputes about what was said on each of those occasions. It is apparent that Ms Halasz came under considerable pressure from Cellmid's shareholders concerning the campaign. Eventually, on 16 October 2015, Mr Joseph Haklani, who was the business development manager of Cellmid and who took over some of Ms Chen's responsibilities following her departure from Advangen at the end of September 2015, sent an email to Ms Foley and Ms Lombard, who had taken over Ms Wales' responsibilities, advising them of Ms Halasz's decision to cancel the remaining television campaign spots. Subsequently, on 21 October 2015, Ms Halasz and Mr Haklani met with Ms Natalie Musico, who was part of the senior management team at Ikon and who had had responsibility for coordinating internet and social media services provided to Advangen, and Ms Lombard. At that meeting, Ms Halasz instructed Ikon to cease all work on the campaign, although, as I have said, some limited work continued after that time.
[7]
Misleading and deceptive conduct
As finally put, Advangen's case that Ikon engaged in misleading and deceptive conduct in contravention of s 18 of the ACL depended on three representations.
The first is pleaded as a representation that Ikon "would implement an appropriate media and communications strategy which would increase brand awareness and drive an increase in sales through the évolis® Campaign" and would "co-ordinate the agreed elements of the évolis® Campaign so that they coincided and each element reinforced the other elements of the évolis® Campaign" (defined in the Commercial List Cross-Claim Statement as the "Pre-contract Representations"). The representations are said to have been made principally in the Creative Presentation that was first presented by Moon Group on 22 April 2015. They are said to have been false because sales did not increase and the elements of the campaign were not coordinated. It is said that if they had not been made, Advangen would not have entered into the Services Agreement.
The second is pleaded as a representation that Ikon "would direct the television advertising spend at females over 35 years of age and purchase appropriate television advertising spots accordingly" (defined as the "Television Advertising Representation"). That representation is said to have been made in the Media Amplification presentation which was presented to Advangen on 15 July 2015. In final submissions, the representation was said to have been false because Ikon booked advertising spots for the wrong demographic. It is said that had Advangen known that, it would not have approved the MBA.
The third is pleaded as a representation that the advertising campaign would "generate sales of at least $750,000 between July 2015 and November 2015" and that "60 percent of the target audience would see the television advertisement at least once and 38 percent would see the advertisement at least three times" (defined as the "Ikon Sales and Reach Representation"). That representation is said to have been made in the messaging matrix. The representation is said to have been false because the sales of the product achieved in the period between July and November 2015 had a total value of $177,398.07 excluding GST.
[8]
The Pre-contract Representations
It appears from Advangen's final submissions that its case based on these representations has been subsumed by its case based on the Ikon Sales and Reach Representation. As finally put, Advangen's real complaint was that Ikon represented that the advertising campaign would convert one per cent of the target audience reach, which it failed to do. At the heart of Advangen's case on this aspect is the evidence given by Ms Halasz who says the following in her affidavit sworn on 10 February 2016:
If I had been informed by Ikon that it could not actually convert at least 1 percent (18,727) of the target audience reached (1,872,700) I would not have signed the Services Agreement or Media Buying Authority. It would not have been commercially realistic for Advangen to enter, and implement, a twelve month campaign in circumstance where Advangen could not sell enough products to cover Ikon's fees and third party media costs.
The case based on the Ikon Sales and Reach Representation is dealt with below. However, some additional points may be made about the Pre-contract Representations.
First, it is not clear that representations were made in the terms alleged. The Creative Presentation does not contain specific statements to the effect pleaded and neither in the pleading nor in its submissions does Advangen identify the passages it relies on as conveying the pleaded representations.
Second, it might be said that the representations were conveyed by the presentation as a whole. In a sense that may be correct. The representations are expressed so broadly and correspond so closely to the general approach that Ikon (more accurately, Moon Group) intended to take if it was the successful tenderer that it is hard to believe that it did not make statements to the general effect of those pleaded. But the statements must be understood in context. To the extent that they were made, they were made as part of a pitch for work and must be understood as representations concerning Ikon's ability and the approach that it intended to take if it was the successful tenderer.
Third, understood in that way, the representations were not misleading or deceptive. It is plain that Ikon intended at the time the representations were made to design a coordinated media and communications strategy which would increase brand awareness and sales of the évolis product and that it had the appropriate expertise and experience to do so. The fact, if it is a fact, that it did not achieve that goal does not make the representations misleading or deceptive at the time they were made.
[9]
Television Advertising Representation
The Television Advertising Representation appears to rest on a confusion. There is no doubt that the target market for the advertising campaign was women 35 years and older. The question was how best to reach that target market through the television advertising campaign.
The evidence, which is undisputed, is that it is standard industry practice to purchase television advertising based on OzTAM demographics. OzTAM collects data on the viewing habits of FTV audiences in each state capital (other than Hobart) and of STV audiences nationally and makes that information available in respect of selected demographics. Consequently, it is possible to buy television advertising time by reference to the percentage of viewers falling within a specific OzTAM demographic. However, there is no OzTAM demographic of women 35 years and older (W35+). The closest OzTAM demographics are W40+ and W35-54. It is more expensive to buy advertising time directed specifically at the W35-54 demographic.
Ms Foley discussed the issue of which demographic should be targeted by the TVCs with Ms Chen in a telephone conversation on 19 August 2015. Following that conversation, Mr Foley sent Ms Chen an email which relevantly said:
Looking at our reach curves and understanding the campaign objective is to be in market consistently, we wouldn't recommend going lower than 30% @ 3+ [that is, 30 per cent of the target audience seeing the advertisement at least 3 times].
The closest audience to W35+ on TV is W35-54 however this is 113% more expensive to buy [than] the W40+ demo [ie demographic] which would mean we could achieve a significantly lower number of TARPS [Target Audience Rating Points] and therefore lower reach.
By targeting W40+ we will still reach W35+ as there will be crossover within our programs. For example, 3.6% of W40+ watch Sunrise and 2.77% of W35-54 watch Sunrise, so we would buy that program even if we were targeting the younger demographic. Considering this, we strongly recommend keeping out W40+ audience, as changing this will decrease our activity significantly and will not deliver any additional value in terms of targeting.
Ms Chen replied the same day saying:
I have to say you've been bombarded to say the least this morning with my questions but you're a true professional. You're [sic] promptness and detailed explanation is [sic] very much appreciated.
Yes to answer your question and based on your feedback lets [sic] retain W40+ buy for TV but for everything else like digital please ensure we target 35+.
It might be added that, to the extent that it could be said that by choosing the W40+ demographic, the advertisements would not be focussed on women aged between 35 and 39, it could equally be said that if Ikon had chosen the W35-54 demographic, the advertisements would not have focussed on women aged 55 and over. The evidence is that there are 2,267,500 women in the W35-54 demographic and 3,849,100 in the W40+ demographic.
The pleaded representation is a representation concerning the future. Under s 4(1) of the ACL, a representation with respect to any future matter is taken to be misleading if the person making the representation does not have reasonable grounds for making it. Under s 4(2), a person is taken not to have reasonable grounds unless evidence is adduced to the contrary.
It is difficult to see how it could be said that Ikon did not have reasonable grounds for making the representation when it did precisely what it said it would do. It did what it said it would do by choosing the W40+ demographic; and it did that because that was the best and most cost-effective means of achieving what it said it would do. The fact that it bought advertising time by reference to a demographic that did not correspond precisely to its target demographic does not mean that it was not directing the advertising spend at the target demographic. It simply means that there were no available means of directing television advertising specifically at that demographic. Instead, it chose the most appropriate demographic to achieve its aim.
Advangen submits that had it known the true position, it would not have approved the MBA. However, that submission must be rejected in the light of the email correspondence between Ms Foley and Ms Chen. It is true that that correspondence occurred after the MBA was signed. However, Ms Foley explained the position to Ms Chen and on the basis of that explanation, Ms Chen approved the approach taken by Ikon. It is difficult to believe that the position would have been any different had the issue come up earlier.
It is also noteworthy that Advangen has retained another advertising agency which has bought television advertising time by reference to the same demographic as that chosen by Ikon, apparently without any objection from Advangen.
The result is that the pleaded representation was not misleading. Nor do I accept that Advangen would have acted any differently had it known the true position before it signed the MBA.
[10]
The Ikon Sales and Reach Representation
The Ikon Sales and Reach Representation also appears to be based on a misconception of what happened and what is said in the messaging matrix. Ikon asked Advangen to provide it with sales targets for the months from July to November 2015 as an indication of "what we are working towards", to use the words of Ms Foley in an email dated 20 July 2015 in which she asked for the figures for October and November. It is apparent from the context, and what is said in the messaging matrix, that the calculations contained in it were designed to give Advangen a benchmark by which to test whether its sales targets for the period July to November 2015 were achievable or not. There is an oddity about the calculations because they relate in part to a period before the launch of the advertising campaign. Nothing, however, is said to turn on that, so that point can be put to one side.
The representation has two components. One relates to the sales between July and November 2015. The other relates to the reach of the advertising campaign.
In so far as the representation is concerned with reach, the representation is a representation concerning the future. Ikon plainly had reasonable grounds for making the representation. It undertook extensive calculations to determine the reach of the campaign. There is no suggestion that those calculations were flawed or that the reach would not have been achieved if the campaign had not been brought to an early end.
The second component of the representation is that the advertising campaign would generate sales of at least $750,000 between July and November 2015.
That representation is not contained in the messaging matrix. The sales target referred to was one set by Advangen. Ikon simply provided an analysis of whether that target was reasonable. That analysis had three elements. The first was the calculation of reach. I have already dealt with that. The second was what appears to be an assumption that one per cent of those reached would "convert". The third implicitly was that the number of "conversions" provided a guide to the likely number of sales.
It might be said that the second element (concerning the rate of conversion) carries with it an implied representation that it was reasonable to assume that one per cent of those reached (in the sense that they were exposed to the campaign on three or more occasions) would "convert". However, no such allegation is made. Moreover, such a representation would only be misleading or deceptive if Ikon did not have reasonable grounds for making it. Ms Coyle gave the following explanation in re-examination for the choice of one per cent:
So normally we look at a conversation rate between 1 and 3%, so 1% is definitely on the conservative side, and the reason we did that for this product in particular is for a number of reasons. The first one is that it's unknown - was unknown in the market at the time, so it had no brand awareness, no‑one knew anything about it. It was a fairly high price point for a piece of hair care if that makes sense, so it was a very - it would have been a considered choice and a considered purchase for somebody. It's a very, very cluttered category, so there's lots of competitors like Regaine for example who have been active in the market for over 35 years and have very high market share, so it was going to be a tall order, a very hard ask for us to convert those people over to our brand, so they were the main reasons.
Earlier in her evidence, Ms Coyle described the one to three per cent as an "industry standard". It is apparent from her evidence that she meant by that expression that it was a widely accepted rule of thumb in the industry.
Ms Coyle's evidence was not seriously challenged and I accept it. In the light of that evidence, it seems to me to have been reasonable for Ikon to choose a conversion rate of one per cent.
As to the third element, it is apparent from what is said in the messaging matrix that in making a prediction about conversions, Ikon was not making a prediction about sales. The qualification contained in the messaging matrix makes that clear. As Ms Coyle explained, it is possible to make some predictions about the likelihood that a consumer will take some action based on advertising, such as going online or into a chemist to purchase the product. However, as the qualification makes clear, Ikon was not making any predictions about the outcome of that action. That would depend on a number of matters that could not be affected by the campaign, such as whether the product was in stock and whether the online shopping facility was working satisfactorily. Consequently, no representation - pleaded or otherwise - was conveyed by the statement "Based on a 1% conversion rate we will convert 18,727 people (7% higher than the sales goal)". Rather, that statement gave information to Advangen to enable it to make its own assessment of whether the sales were achievable. Ms Halasz conceded as much when she gave the following evidence in cross-examination:
Q … [M]ay we understand that you read that and understood that Ikon could not possibly tell you whether or not the conversion would actually result in sales?
A. Yes, that's correct
It follows that the case based on the Ikon Sales and Reach Representation must fail.
[11]
The contractual claims
The contractual claims fall into three categories. First, there is the claim that the TVCs failed to meet the Standard. Second, there is the claim that Ikon failed to deliver an integrated campaign. Third, there is the claim that Ikon charged an excessive amount for creative deliverables.
[12]
The claim in relation to the TVCs
As I have said, the focus of the dispute was in relation to the 30 second TVC directed to women.
The claim that the TVC did not meet the Standard was based heavily on expert evidence given by Ms Catherine Caro, who has had extensive experience in the advertising industry on the creative side and who has, since 2006, run her own communications consultancy known as Jara Consulting.
In her original report, Ms Caro expressed the opinion that it was standard practice in the industry to prepare what she called a "Creative Brief", which is generally a one page document the most important part of which contains "the information the client most wants the advertising to communicate to the consumer". Ms Caro accepts that the original advertisement proposed by Ikon was prepared "professionally, competently and with the degree of skill, care and diligence expected of experienced advertising professionals". However, in her opinion, the final version of the TVC lost its clarity because "as the scientific and therapeutic claims in the commercials were dialled down in response to the limitations imposed by the regulator, the emotional attributes of the TVC … were inevitably dialled up and overwhelmed any remaining therapeutic message", with the result that "evolis® began to look like a cosmetic rather than a therapeutic hair product". According to Ms Caro, that appears to have come about because of a failure of Ikon and Advangen to reassess the TVC once the attitude of the regulators was known. In her opinion, "[t]he existence of a Creative Brief may not have entirely stopped any mistakes but it would have helped".
Put like this, Ms Caro's evidence appears to be to the effect that the TVC failed to meet the Standard for two reasons. One concerns process: that is, Ikon failed to prepare a Creative Brief and failed to reassess the TVC once the attitude of the regulators became apparent. The other concerns effectiveness: Ms Caro appears to be saying that Ikon should have appreciated that the TVC would be ineffective because the therapeutic message was lost.
Neither of these propositions can be accepted.
In a joint report prepared by Ms Caro and experts retained on behalf of Ikon, the authors of the report conceded that "it is beyond the scope of the experts to know whether revising the brief would have changed the outcome of the campaign". Ms Caro made the same concession in the witness box. Even though a Creative Brief was not prepared, it is plain from Ms Chen's email to Mr Levinsohn dated 8 April 2015 what emphasis Advangen wanted the TVC to adopt (that it have "an underlying emotional pull and the science to be treated as secondary" and for it to be positioned in "the hair health category therefore not in therapeutic or beauty"). It is apparent that once the attitude of the regulators became known, Ikon did reconsider what should be said in the TVC, although just what alternatives it considered is not clear from the evidence. That is not something on which any of the Ikon witnesses was cross-examined. There is no reason to think that the preparation of a formal document corresponding to a Creative Brief would have made any difference to the outcome. Ikon was plainly aware of the issues and what Advangen wanted to achieve and sought to address those matters in reformulating the TVC. No explanation is given of how a Creative Brief would have produced a different outcome.
As to the criticism that the therapeutic message was lost with the result that the TVC was likely to be ineffective, that criticism simply represents an opinion formed by Ms Caro with the benefit of hindsight. That opinion itself does not establish that the TVC fell short of some industry standard. Ms Caro does not point to any standard or research by which it is possible to measure or determine whether a particular TVC sufficiently communicates a message concerning a product to cause consumers to want to acquire it. In the present case, the TVC through the voice over did communicate the fact that "évolis actively inhibits the FGF-5 protein, which may help reduce hair loss". Ms Caro's opinion is that that message was lost against the striking backdrop of a windswept coastline with a woman with beautiful hair wandering along the cliff's edge. The underlying assumption appears to be that the Standard requires any TVC for a product designed to treat hair loss to identify adequately the problem and the fact that the product is or may be a solution to that problem. But that begs the question of how adequacy is to be measured in this context. It also begs the question of what are the features of hair loss and the products designed to treat it that mean that, for the TVC to be effective, the problem and the product as a potential solution must be given a certain measurable level of prominence. Certainly the TVC in this case gave great prominence to evocative and aspirational aspects of the advertisement and limited prominence to the problem and the benefits the évolis product is said to offer. But what is the relevant industry standard or practice that meant that the TVC fell short of what was required? And why is it that the choice to emphasise the evocative and aspirational aspects to the extent that they were meant that the TVC fell short of that standard or practice? Nothing Ms Caro says assists in answering those questions.
In my opinion, absent any empirical data, the question whether a particular advertisement is likely to work or not is very much a matter of subjective opinion. As Mr Colin Wilson-Brown, one of the experts retained by Ikon, said in his report dated 4 April 2018, "there is no such thing as 'the right answer", when developing an advertising campaign. Ask ten agencies for the best approach, and there will likely be ten different responses, all of which might meet the Standard". No doubt, that fact explains why it is particularly important for the advertising agency to obtain the client's approval to the final TVC, so that it can be satisfied that the TVC meets the client's expectations. Consistently with what is required by the Standard, that is what Ikon did in this case.
[13]
Failure to deliver an integrated campaign
Advangen alleges that Ikon failed to deliver an integrated campaign because it was late in delivering or did not deliver the following elements of the Media Plan:
1. The digital partnerships with Beauty Heaven and RESCU websites;
2. The influencer activity through the Organised Housewife and Hair Romance blogs;
3. Social media content amplification;
4. Services connected to the évolis website and, in particular, the blog ad-on and the Google Shopping Feed.
As pleaded, Advangen's case is that the failure to deliver an integrated campaign was a breach of the Standard or a breach of the provisions of the Services Agreement. In its final submissions, Advangen instead relies on the provision of the Implementation Planning & Buying (offline / online) Service Module which states that "The planning, set-up and delivery of offline and online (digital) media campaigns includes … Ensure campaigns are set up and go live on time". Reliance on that term does not raise any new factual issues and it was not suggested by Ikon that it was unable to deal with a case that relied on that term rather than the Standard. However, that still raises the questions whether Ikon was late, whether, if it was, its lateness was due to circumstances beyond its control and what consequences any breach by it had on the campaign.
[14]
The digital partnerships
Beauty Heaven and RESCU are two web based forums that offer health and beauty advice to readers. They include paid advertisements for products together with articles about the products and consumer reviews and ratings of the products listed on the websites. Ikon had identified both websites as websites on which the évolis product should be promoted. According to version 10 of the Media Plan, the product would be promoted on the Beauty Heaven website during the weeks starting 30 August and ending with the week starting 22 November and on the RESCU website during the weeks starting 30 August and ending with the week starting 11 October.
It is not easy to understand Advangen's complaints in relation to these websites. It is evident from a Digital Partnership plan prepared by Ikon that what was proposed was that, apart from paid advertising, Ikon would engage in a number of other activities on each of the websites, including posting several articles and "advertorials" at different times and, in the case of the Beauty Heaven website, conducting "trial team reviews" in three 6 day periods commencing on 7 September (Round 1), 28 September (Round 2) and 19 October (Round 3). Those trial team reviews involved a panel of independent testers associated with the website testing the évolis product and providing comments on it.
The evidence is that advertising commenced on both websites on 1 September 2015 and articles were published progressively on the two websites. Specifically, articles were published on the Beauty Heaven website on 3 September and 22 September and articles were published on the RESCU website on 1 September and 7 September. Apart from the article published on 22 September 2015, which was a day late, the articles were published ahead of the schedule set out in the Digital Partnership plan. According to a fortnightly report sent to Advangen on 8 October, by that date four articles and two advertorials had been published on the RESCU website and four articles had been published on the Beauty Heaven website.
The first team review was delayed when one of the testers experienced stinging from the tonic. However, it is apparent that Round 1 was completed by the time Ikon provided its fortnightly report to Advangen on 24 September 2015 and that Round 2 was nearly concluded at the time it provided its fortnightly report on 8 October 2015.
Advangen's principal complaint seems to be that all the articles should have been published on both websites on 30 August 2015; and that that is what was contemplated by the Media Plan. It also complains that the first RESCU article did not include the URL to the évolis website and that the wrong article was published, although those errors were corrected within a day and seem to have been the fault of the website.
There is nothing in the Media Plan to suggest that all the articles would be published at once. The Media Plan contemplates activities on both websites over a period of time. It is plain from the Digital Partnership plan that those activities included the publication of articles progressively. That is what happened.
There is no evidence that that approach was inconsistent with the Standard. Any delay in the publication of articles appears to be minor. And the principal delay in the testing appears to have been caused by something beyond Ikon's control - that is, the reaction of one of the testers to the tonic.
What was contemplated by the Media Plan was that activities would commence on the two websites at the same time as the launch of the TVC on FTV and STV and continue over a period of time. That is what Ikon did. There was no breach of the Services Agreement in this respect.
[15]
Influencer activity
As part of the Media Plan, Ikon proposed to arrange to publish sponsored blogs on the websites of a number of "social influencers" - that is, persons whose websites provide advice on lifestyle and related topics and who have a significant following in the community. Ikon identified two appropriate sites targeted at females - The Organised Housewife and Hair Romance. It identified a third site directed at men, but that site was not approved by Advangen and it appears that no alternative sites were identified before the campaign came to an end.
The Media Plan indicated that activities on the two websites identified by Ikon would occur during the weeks starting 30 August and ending 22 November 2015. The Influencer and SEO (Search Engine Optimisation) plan prepared by Ikon, which sets out in detail the relevant activities, contemplated the preparation of three posts on each website. In the case of The Organised Housewife, it was contemplated that the relevant blogger would produce a draft of the first post by 21 September, provide that to Ikon and Advangen for approval and that the post would go live on 28 September. It was contemplated that the last post would go live on 22 October 2015. In the case of Hair Romance, it was proposed that the relevant blogger would produce a draft of the first post by 15 September and that following review that post would go live on 24 September 2015. It was contemplated that the last post would go live on 21 October 2015.
Again, it is not easy to understand Advangen's complaint in relation to the social influencer component of the Media Plan. The suggestion in its final submissions appears to be that according to the Media Plan the two blogs "were due to go live from 30 August 2015". However, all that the Media Plan indicates is that activity in relation to those blogs was due to commence on that date. Having regard to the nature of the activities, it must have been contemplated that the activities would occur over a period of time. In fact, it is apparent from the evidence that substantial work had commenced on the first blog for each site by early September. It also appears from an email dated 9 September 2015 from Ms Gemma Ruting of Ikon to Ms Chen that, at the request of Ms Chen, the posts were delayed and spaced so that they were approximately six weeks apart to give readers of the blog a little longer to try the products and form an opinion on them. As a result, it was planned for the blogs to go live on The Organised Housewife on 28 September, 20 October and 3 November 2015, and on Hair Romance on 29 September, 13 October and 3 November 2015.
There is no suggestion that the blogs failed to meet that revised timetable. There is no evidence from which it could be concluded that Ikon failed to meet the Standard by planning for the blogs to appear later in the campaign. Although it was intended that different aspects of the campaign would build on one another, there is no evidence before the Court from which it can be concluded that Ikon fell short of the Standard by not proposing that the social influencer activity occur earlier than it did.
Advangen did rely on evidence from Professor Jim Macnamara, who is Professor of Public Communication at the University of Technology Sydney. Professor Macnamara made two points in relation to the social influencer aspect of the Media Plan. First, he expressed the opinion that according to the Media Plan, the blogs were due to be posted by 30 August 2015, whereas they were not. Second, he pointed out that there was a proposal to conduct a user trial in connection with The Organised Housewife blog which was delayed and ultimately not completed.
However, Professor Macnamara's comments do not depend on any expertise he has in marketing or advertising. His first point is that on his interpretation of the Media Plan, it required the blogs to go live by 30 August. That does not involve an expression of an opinion based on any marketing or advertising expertise. Moreover, for the reasons I have given, it is incorrect. Professor Macnamara may have been able to say something about the relationship between the screening of the TVC and the blogs and whether they would have been more effective if they had been launched at precisely the same time. However, he said nothing on that subject, and it is not obvious that that is the case. As a general proposition, it is common ground that the campaign needed to be coordinated to achieve maximum effect. However, the campaign was planned to last over a period of a year; and it is simply not obvious from the evidence that "coordinated" in this context meant every aspect of the campaign launching on the same day.
As to Professor Macnamara's second point, there is evidence that there was a plan for a trial in conjunction with The Organised Housewife blog. Again, it is difficult to see how any opinion expressed by Professor Macnamara on that subject was based on his expertise. His point simply was that the trial was delayed. Necessarily, the results of that trial would be delayed because it appears that it was proposed to conduct the trial over a 12 week period. It is not possible on the evidence to determine the causes of the delay in commencing the trial. Nor is it possible to reach any conclusions on the effect of the delay on the campaign. On any view, the results of the trial would not have been available until after the campaign was cancelled. The absence of a trial did not affect the blogs themselves. In my opinion, Advangen has not proved that Ikon breached the Services Agreement in this respect.
[16]
Social media content amplification
According to the Media Plan, work on this aspect of the campaign was due to commence in the week commencing on 6 September 2015. Social media content amplification in the present context involved the promotion of the content of évolis's website and influencer blogs through paid Facebook advertisements. Ikon recommended that this aspect of the Media Plan not be implemented until évolis's own blog was up and running on its website. There is no suggestion that that recommendation was inconsistent with the Standard. However, there were delays in establishing évolis's blog and consequently delays in implementing the social media content amplification part of the campaign. Accordingly, whether those delays involved a breach of the Services Agreement is tied up with whether Ikon breached the agreement in relation to delays in developing évolis's website. That issue is dealt with below.
[17]
Updating the évolis website
One strand of the Media Plan was concerned with search engine optimisation (SEO), which involved increasing the ranking of the évolis website in the results obtained from internet searches using key words associated with hair loss. One strategy to achieve that was for the évolis website to host a blog. Another was to create a Google shopping feed as an add-on to the website, which meant that the website could appear as a result of a search using the Google shopping search function. A third, as I have mentioned, was to "amplify" évolis's website through social media, and Facebook in particular.
There is no question that there was a delay in updating the évolis website. The question is whether Ikon bore responsibility for that delay.
According to version 10 of the Media Plan, work in relation to "SEO and Blog Content" was to commence in the week starting 2 August 2015 and continue until the end of the campaign in June 2016. Ikon prepared a detailed calendar for the publication of blogs commencing on 14 September 2015, which involved the publication of 24 blogs from then until 8 August 2016, with 10 blogs being published in the last quarter of 2015 and 7 being published in the first quarter of 2016. Prior to the preparation of the Media Plan, Ikon had, on or about 29 June 2015, sought and obtained passwords to obtain administrative access to the évolis website.
On 27 July 2015, Ms Musico, the then chief of Creative Services at Ikon, met with Mr John Chaplin, a director of Fusion Enterprises Pty Ltd (Fusion), a company specialising in web design that was associated with Ikon, to discuss the requirements for developing évolis's web platform to incorporate a blog and Google shopping feed. Following that meeting, Mr Chaplin reviewed the évolis website and discovered that there was no UAT (User Acceptance Testing) site associated with the website to allow testing of the modifications to the website before they went live. In an email dated 4 August 2015 to Ikon, he expressed the view, which does not appear to be controversial, that "it will be hard to test a blog on the live site". Although the position is not clear, it appears that Ikon raised the issue with Advangen and Advangen arranged for its website developer, Mr Emir Ruzdic of Jaden Social, to set up a staging website.
On 6 August 2015, Ms Musico sent Mr Chaplin a brief setting out what enhancements to the website were required. The brief proposed a fee of $3,960 plus GST. Mr Chaplin responded to that brief on 7 August 2015. In that response, he said that the proposed budget would not be sufficient to cover various work including deployment of the plug-ins to the live site.
Mr Ruzdic completed work on the UAT site on 1 September 2015. In the meantime, Ikon finalised the terms on which Fusion would configure and set up the blog and the Google Shopping plug-ins. On 28 August 2015, it provided Advangen with drafts of the first two blog articles. It also provided recommendations on updating the site's metadata to optimise its ranking. Nothing was done to address the costs of deploying the work to the live site. Although the position is not clear, it appears that Ikon was operating on the assumption that the work involved in deploying the plug-ins to the live site would be minor.
On 2 September 2015, Ms Chen requested that the tone of the articles for the blog be changed. It appears that that happened and, on 17 September 2015, Ms Gemma Ruting, an employee of Ikon, sought Ms Chen's approval for the two articles that had been "mocked up in the staging website". That request was repeated in an email dated 28 September 2015.
Following completion of the UAT, Fusion undertook the work to configure the plug-ins on the test site. That work was completed on 9 September. At that time, Fusion estimated that the cost of deploying the plug-ins to the live site would be $3,000 (excluding GST) and would take ten hours to complete. There was then a delay while Advangen considered whether the work was covered by Fusion's initial quote to configure the plug-ins (it concluded that it was not) and whether it would retain Fusion or Mr Ruzdic to do the work. Eventually, on 28 September 2015, it chose Mr Ruzdic, who completed the work within a couple of days for $800. Ms Chen left Advangen on 30 September 2015 and there were further delays in obtaining Advangen's approval for the two blog articles that had been drafted by Ikon. Eventually, Advangen approved an article relating to male hair loss on 12 October 2015. It did not approve any other articles before Ikon was instructed to cease work.
I am not satisfied that Ikon breached either of the terms Advangen relies on in relation to the delays in modifying évolis's website.
The obligation to "[e]nsure campaigns are set up and go live on time" cannot be interpreted as an absolute obligation. The obligation must be interpreted as an obligation on Ikon to do everything on its part to be done to ensure that the campaigns were set up and ready to go live on time. It would make no commercial sense to interpret the obligation as an absolute one. To interpret the clause in that way would involve the imposition on Ikon of obligations not placed on it by the Services Agreement. For example, in the present context, it would presumably place on Ikon an obligation to ensure that the évolis website was configured to provide a blog. Plainly, that is not the case. There is nothing in the Services Agreement by which Ikon agreed to undertake website development services.
In the case of the blogs to be posted on the évolis website, it was Ikon's task to prepare proposed blogs for Advangen's approval in a timely manner. It was not under an obligation to do anything else under the Services Agreement. The responsibility for any website development work to enable blogs to be posted rested with Advangen. However, it could contract with Ikon to undertake that work. If it did, it is plain that para 2.3 of the Revised Proposal (which was incorporated into the Services Agreement) provided that that work would be done by Fusion and charged at the hourly rates set out in that document.
The plan prepared by Ikon contemplated that the first blogs would be published on 14 September. However, that necessarily assumed that the website would be configured to publish the blogs. In fact, Ikon had prepared two blogs by 28 August, which was well within time. Those articles were not approved by Advangen; and there were substantial delays in obtaining Advangen's approval to the publication of any articles on the blog. There is no material before the Court from which it could be concluded that Ikon was responsible for that delay. It was not suggested that the initial drafts prepared by Ikon were so obviously unsatisfactory that Ikon ought to have appreciated that Advangen would not approve them. There is no material from which it could be concluded that Ikon delayed unreasonably in submitting redrafts.
The principal source of the delay was the website development. As I have said, it was plain from the terms of the Services Agreement that that work was not covered by the agreement and that if Advangen wanted Ikon to undertake it, the work would be done by Fusion at the rates set out in the Revised Proposal.
Ikon appreciated that work would need to be done on the website to install plug-ins for the blog and Google shopping feed. It approached Fusion about that work in late July 2015 and submitted a proposal in early August. Bearing in mind that it was working towards a deadline of mid-September, it appears to have allowed a reasonable amount of time for the work to be done. On the evidence, the work could have been completed well within time had Advangen agreed to Fusion doing the work. The delays were caused largely because Advangen wanted its own web designer to set up a UAT site, which took several weeks, and was slow in making a decision whether to retain Fusion to do the work necessary to transition to the live site.
Advangen does not explain how Ikon fell short of the Standard in relation to the blog. It commenced work on the blog within the time contemplated by the Media Plan and provided Advangen with a detailed plan for producing articles over the whole period that the blog component of the media campaign was to last. There is no evidence that what it proposed fell short of the Standard in some way or another.
Ikon was not obliged to conduct developmental work on the website. Nonetheless, it offered that service and took steps to undertake the necessary developmental work within a timeframe that was consistent with the timetable it had proposed. The only thing that it appears that it did not do was explain to Advangen that some additional costs would be incurred if Advangen wanted Ikon to take responsibility for transitioning the plug-ins to the live site. Those costs were small compared to the total costs of the campaign. There is no evidence before the Court from which it could be concluded that the failure to explain that some additional costs would be incurred in transitioning the plug-ins meant that Ikon fell short of the Standard.
It follows that Ikon was not in breach of the Services Agreement because the blog and Google shopping aspect of the campaign were delivered late.
[18]
The charge for creative deliverables
This aspect of Advangen's claim arises from an inconsistency between the amount stated to be the charge for the creative deliverables - that is, $170,325 - and the table that Ikon provided to Advangen showing how that fee was calculated. Although that table shows a total cost of $170,325, calculated by reference to a figure of $168,170 plus administrative costs, the amounts shown on the table add up to $84,850. The problem arises because the total shown for the "Executive Creative Director" is $102,920. However, the table states that the Executive Creative Director would do a total of 56 hours work at $350 per hour, making a total of $19,600.
Ms Wales, who prepared the table, gave evidence that it contained a mistake. She was unable to say with any certainty how the mistake occurred. However, she said that she had copied the table from a spreadsheet she had prepared and believed that a row had dropped out when it was copied into the documents provided to Advangen.
Although Ms Wales was cross-examined on whether it really was the case that the Executive Creative Director (Mr Martin Murphy) would have done 294 hours work to justify a fee of $102,920 and whether the error ought to have been disclosed to Advangen as soon as Ikon discovered it, none of that seems to me to be relevant. The only relevant question is what objectively the parties agreed the fee would be.
In my opinion, the answer to that question is that they agreed that the fee would be $170,325. The Services Agreement specifically states that that is what the fee for creative services would be and it sets out how that fee was to be paid. The table itself shows that that was the fee. It is plain from the terms of the Services Agreement that that fee was intended to be a fixed one that did not depend on the precise number of hours that the relevant employees of Ikon actually spent on the task. The table was simply provided as additional information for Advangen on how Ikon had arrived at the fee. The fact that it contained an obvious error - that is, that the amounts set out in it do not add up to the fee - does not mean that the fee was other than the amount specified in the Services Agreement.
[19]
Damages
Having regard to the conclusions I have reached, it is not strictly necessary to deal with Advangen's damages claim. However, I should say something about it.
[20]
Damages for misleading and deceptive conduct
There is nothing surprising in the way in which Advangen puts its claim for damages for misleading and deceptive conduct. It says that if the conduct had not occurred, it would not have entered into the Services Agreement or, in the case of post-contractual conduct, signed the MBA. If it had not signed the agreement, it would not have paid or incurred a liability to pay any amounts under it. If it had not signed the MBA, it would not have paid or incurred a liability to pay any amounts due under that document. It claims the amount it has paid or is liable to pay as damages, which it can set-off against Ikon's claim.
In calculating the damages suffered by Advangen, it would need to give credit for the value of what it received in return for the payments made for which it was liable. However, the onus is on Ikon to prove that Advangen received something of value in exchange for the fees it paid or was liable to pay: Tyco Australia Pty Ltd v Optus Networks Pty Ltd [2004] NSWCA 333 at [255] per Giles JA and at [264] per Hodgson JA; Ruthol Pty Ltd v Tricon (Australia) Pty Ltd [2005] NSWCA 443 at [52]-[53] per Giles JA (with whom Santow JA and Hunt AJA agreed); E K Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 at [195] per White J. Ikon did not seriously advance any argument that Advangen received something of value for which Ikon should be given credit. It did point to the fact that there was some anecdotal evidence that sales of the évolis product improved during the advertising campaign. So, for example, it appears from an email Ms Foley sent to Ms Chen on 17 September 2015 that Ms Chen had told Ms Foley that "sales are going well". Similarly, it appears from an email Ms Foley sent to Mr Evan Rees, an employee of Ikon, on 24 September 2015 that Mr Rees had told Ms Foley that an uplift in sales was occurring. On 27 October 2015, Advangen made an announcement to the ASX which said:
National advertising campaign commenced in September as planned and early indicators show that both brand awareness and sales are increasing. For the first time évolis products have measurable market share amongst topical hair loss treatments.
Advangen itself produced very little evidence concerning the effect, if any, of the advertising campaign. It did point to evidence from its MYOB accounting system showing the value of sales from January 2015 to February 2016 as evidence that there had been no improvement in sales. Those sales were as follows:
January 2015 $25,479.99
February 2015 $5,927.67
March 2015 $4,527.90
April 2015 $252,960.75
May 2015 $35,469.43
June 2015 $44,957.96
July 2015 $99,048.51
August 2015 $9,031.45
September 2015 $25,949.91
October 2015 $20,573.49
November 2015 $20,275.79
December 2015 $13,749.30
January 2016 $43,732.04
February 2016 $81,085.23
[21]
However, the difficulty with relying on these figures is that they show the value of sales to wholesalers, not the value of retail sales. Although there will be a correlation between the two over time, it cannot be assumed that the correlation is immediate. For example, it may be the case that some wholesalers stocked up on the product in the first half of 2015, experienced a poor level of sales, started clearing their excess stock following commencement of the campaign and started increasing orders again in January and February 2016.
The result is that there was very little evidence before the Court concerning the effect, if any, of the advertising campaign on sales. Ikon did not suggest that Advangen received other benefits that had a monetary value. Consequently, in my opinion, Ikon failed to discharge its onus of proving that Advangen received some value from the Services Agreement. It follows that if Advangen's case based on misleading and deceptive conduct had succeeded, I would have concluded that it was entitled to the damages it claimed.
[22]
Damages for breach of contract
Normally, damages for breach of contract are assessed as the amount which will, so far as money can do it, place the innocent party in the position it would have been in if the party in breach had complied with its contractual obligations: Robinson v Harman (1848) 1 Ex 850 at 855; 154 ER 363 at 365 per Parke B; Commonwealth v Amann Aviation Pty Ltd (1991) 174 CLR 64 at 80 per Mason CJ and Dawson J. Applying that principle in this case, Advangen's damages would be assessed by comparing the position it is in now with the position it would have been in if Ikon had produced a TVC that met the contractual standard and had delivered on time the services which on the current hypothesis were delivered late.
A number of submissions made by Advangen were directed at establishing that Advangen had not suffered a loss by that measure. So, for example, Ikon pointed to evidence that the campaign was a success and evidence that, to the extent sales had not improved, that was a result of factors unconnected with the campaign - such as the failure of Advangen to put in place an appropriate sales force.
However, as I have said, that is not the way Advangen seeks to put its case. Rather, relying on the decision in Amann, it claims as its loss the money it threw away on the campaign - which it submits includes the amount it has paid or is liable to pay Ikon together with costs it incurred in engaging FarmaForce, a firm of contract salespeople, which totalled $1,058,477 plus GST.
The principle on which Advangen relies was stated in these terms by Mason CJ and Dawson J in Amann (at 81):
If the performance of a contract would have resulted in a plaintiff, while not making a profit, nevertheless recovering costs incurred in the course of performing contractual obligations, then that plaintiff is entitled to recover damages in an amount equal to those costs in accordance with Robinson v. Harman, as those costs would have been recovered had the contract been fully performed. Similarly, where it is not possible for a plaintiff to demonstrate whether or to what extent the performance of a contract would have resulted in a profit for the plaintiff, it will be open to a plaintiff to seek to recoup expenses incurred, damages in such a case being described as reliance damages or damages for wasted expenditure.
In such a case, the defendant bears the onus of proving that, even if the contract had been performed according to its terms, the plaintiff would not have recovered the wasted expenditure: ibid at 90.
However, in my opinion, this principle has no application in the present case. The principle applies "where a plaintiff has incurred expenditure either in procuring the contract or in its performance" to use the words of Deane J at 126 in Amann. In the present case, Advangen did not incur any expenditure in procuring the Services Agreement or in its performance. It simply agreed to pay a sum of money in return for certain services. The agreement to pay that sum of money was not itself a cost that Advangen incurred in performing the contract. Nor was the engagement of Farmaforce an expenditure Advangen incurred in order to obtain the Services Agreement or discharge some obligation it owed under that contract. Rather, it was an independent expenditure incurred by Advangen in order to promote and sell the évolis product.
In certain circumstances, a party who pays money under a contract may be entitled to recover it in accordance with restitutionary principles, such as where there has been a total failure of consideration: see Amann at 117 per Deane J. However, there is no suggestion that those principles apply in this case.
For those reasons, had I found that there had been a breach of contract, I would have concluded that Advangen's claim for damages failed.
[23]
Conclusion and orders
It follows that Ikon is entitled to judgment for $939,055.65 together with interest on that amount in accordance with the Services Agreement and that the cross-claim should be dismissed.
I direct that the parties bring in short minutes of order within 14 days of today's date that give effect to the conclusions I have reached and, if costs can be agreed, that give effect to that agreement. If agreement cannot be reached on the terms of the short minutes of order within 14 days, the matter should be relisted by contacting my Associate to deal with any outstanding issues.
[24]
DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.
Decision last updated: 05 November 2018