Mobileciti Pty Ltd v Vodafone Pty Ltd & Anor

Court of Appeal (NSW)|2011-02-17|Before: Giles JA, McColl JA, Hamilton AJ

Judgment 1GILES JA : The central issue on appeal was whether Mobileciti Pty Ltd ("Mobileciti"), a Vodafone dealer, made "material misrepresentations" regarding a Vodafone mobile phone service plan, the Super Cap plan, in advertisements placed in Chinese community newspapers. For the reasons which follow, the trial judge correctly held that it did. Other issues in the appeal and cross-appeal do not arise. The appeal and the cross-appeal should be dismissed, with an order for costs against Mobileciti.

The contractual background 2In March 2000 Mobileciti became a dealer in Vodafone mobile phone services under a dealer agreement with Vodafone Pty Ltd ("Vodafone"). In April 2004 Vodafone made Look Mobile Pty Ltd ("Look Mobile") its distribution manager under a Distribution Manager Partner Agreement ("the DMP Agreement"), whereby Look Mobile was interposed between Vodafone and its dealers. This required rearrangement of the direct dealership between Vodafone and Mobileciti. In July 2005 Mobileciti and Vodafone entered into a Transition Deed by which the direct dealership was terminated but Mobileciti remained entitled to trailing commissions so long as its dealership under Look Mobile was in force. Mobileciti and Look Mobile entered into a Look Dealer Agreement ("the LDA") making Mobileciti a Vodafone dealer under Look Mobile. 3The DMP Agreement provided - "3.3 Vodafone may require removal of a Dealer (a) Vodafone may, by notice to [Look Mobile] and on reasonable grounds, require [Look Mobile] to terminate the appointment of a Dealer immediately. (b) The reasonable grounds referred to in clause 3.3(a) include, but are not limited to: ... (5) if there have been material misrepresentations by or concerning the Dealer. ... provided [Look Mobile] has a contractual right pursuant to its contract with the Dealer to terminate the Dealer's appointment." 4Look Mobile did have the contractual right, as referred to in the proviso in cl 3.3 of the DMP Agreement, under the LDA. The LDA provided - "22.2 Termination for cause [Look Mobile] may, in its absolute discretion and without affecting the accrued rights and obligations of the parties as at the date of termination, terminate this agreement immediately by notice to [Mobileciti] if: (a) Vodafone requires [Look Mobile] to terminate [Mobileciti's] appointment on reasonable grounds, including but not limited to ... (4) if there have been material misrepresentations by or concerning [Mobileciti] ... ".

Look Mobile terminated at the direction of Vodafone 5In the latter part of 2005 Vodafone undertook an investigation of the conduct of a number of Vodafone dealers, including Mobileciti. On 30 November 2005 it wrote to Look Mobile - "Vodafone's investigation into the activation activities of this dealer has now been completed. The investigation has revealed that this dealer has been engaged in making material misrepresentations regarding Vodafone's Super Cap plan to a substantial number of customers. In these circumstances, Vodafone requires you to terminate this dealer's appointment with immediate effect. This notice is given under clause 3.3(a) of our DMP Agreement." 6On 2 December 2005 Look Mobile wrote to Mobileciti - "Vodafone has recently completed an investigation into your activation activities. Vodafone have concluded from this investigation that you have been engaged in making material misrepresentations regarding Vodafone's Super Cap plan to a substantial number of customers. In these circumstances, Vodafone requires us to terminate your dealership's appointment with immediate effect. This notice is given under Clause 22.2(a) of your Dealer agreement." 7It was common ground that Look Mobile's letter terminated the LDA. As well as losing its dealership, by the terms of the Transition Agreement Mobileciti ceased to be entitled to trailing commissions as a result of the termination of the LDA. On 8 December 2005 Vodafone wrote to it so stating.

Mobileciti's proceedings 8On 20 December 2005 Mobileciti brought proceedings against Vodafone and Look Mobile. 9As against Vodafone, Mobileciti alleged that Vodafone engaged in misleading or deceptive conduct in contravention of s 52 of the Trade Practices Act 1974 (C'th). The misleading or deceptive conduct was Vodafone's assertion to Look Mobile in the letter of 30 November 2005 that Mobileciti had made material misrepresentations regarding Vodafone's Super Cap plan. On Mobileciti's case, it suffered loss by that conduct because Look Mobile acted on it in terminating the LDA, as it was obliged to do if required on reasonable grounds. Also as against Vodafone, Mobileciti alleged that the same conduct of asserting that it had made material misrepresentations regarding the Super Cap plan constituted breach of an implied term in the Termination Deed that Vodafone would not require Look Mobile to terminate the LDA except on reasonable grounds. 10For both causes of action, it was necessary that Mobileciti had not made material misrepresentations regarding Vodafone's Super Cap plan. If it had, Vodafone's conduct was not misleading or deceptive; and, assuming the implied term, Vodafone's requirement that Look Mobile terminate the LDA was on reasonable grounds. 11As against Look Mobile, Mobileciti alleged breach of the LDA by wrongful termination. On its case, the termination was wrongful because Mobileciti had not made material misrepresentations regarding Vodafone's Super Cap plan, and so Vodafone's requirement that Look Mobile terminate the LDA was not on the reasonable grounds of material misrepresentations. 12Again, it was necessary for the cause of action that Mobileciti had not made misleading misrepresentations regarding Vodafone's Super Cap plan.

The advertisements 13Over the material period Mobileciti, which also used the name Xian Da Telecommunications, had two shops in Parramatta. The material misrepresentations on which Vodafone relied were in advertisements placed in Chinese community newspapers circulating in the area. 14There were a large number of advertisements. The proceedings focussed on advertisements placed after 22 July 2005, when the LDA came into effect, and the trial judge took one advertisement as a sample representative of the rest. On the same basis the argument on appeal was addressed to that advertisement, published in the Australian Chinese Weekly for the week 6-12 August 2005. It was not disputed that, if in that advertisement Mobileciti had made material misrepresentations regarding Vodafone's Super Cap plan, the misrepresentations had been made "to a substantial number of customers" as asserted in the letters of 30 November and 2 December 2005. 15The advertisement was largely in Chinese with some parts in English. A copy of the full advertisement and a translation of the Chinese is annexed to the trial judge's reasons ( Mobileciti Pty Ltd v Vodafone Pty Ltd [2009] NSWSC 899), and I do not reproduce it. 16The trial judge, Hamilton AJ, said of the advertisement - " [24] The advertisement, as contained in the annexure, is in black and white only. But the advertisement as published prominently featured the colour red. Red was used by Vodafone in its publicity and the evidence is that the staff of the Mobileciti shops dressed in red. The advertisement in its top right hand corner refers to Mobileciti, giving its telephone number and location. That reference is against the background of a large quotation mark, turned on its side. The quotation mark was a Vodafone logo. The advertisement contains numerous references to Vodafone. At the foot of the left hand column on the second page of the advertisement, containing 'Terms & Conditions' set out in English, is a Vodafone card and again the large quotation mark. [25] In the 'Terms & Conditions' it is stated that connection to a Vodafone mobile service is required. In a prominent position on the first page of the advertisement, under the reference to Mobileciti, there is a heading 'No Contract, no change of phone number', together with reference to existing Vodafone customers. In the bottom left hand corner of that page, is a reference to the Vodafone Super Cap plan. On the second page of the advertisement, in the large box second from the top, the following appears: ' Special price for access with BYO handset $0/month Free $20/month call cost (free for six full months) Free: only charge $79 cap for call value $500 Call rate $0.01/sec (calculated by per second), connection free $0.20 per call, minimum monthly spend $20, $130 refund at the end of six full months usage' After reference to a considerable number of available handsets, in the last box at the foot of the broad first column on the second page of the advertisement, the following appears: 'Including $80 / call cost (*20/month x 4 months *Need to pay upfront $80, refund after 4 months). Above mobile phones are on special, offered together with Vodafone Super Cap plan.'" 17To this account may be added that -

the "Vodafone card" to which his Honour referred contained the words "premium dealer";
the "Terms and Conditions" read - "To approved applicants only Terms & conditions apply Connection to a Vodafone mobile service required Exclusions apply Minimum monthly spend is $20 Additional charges are payable for excluded services and usage on top of your $500 value Unused $500 value is forfeited at the end of the month. To approved applicants only All prices are subject to change All products while stock last Store reserves the rights to withdrawal these deals at any time and advertisements are not intended to provide full details of deals. The store reserves the right to explain all deals in detail."
The reference to Vodafone's Super Cap plan on the first page was in a box more fully reading - "Select following cap plans for interest-free supply of mobile phone
Super value recommendation: Vodafone Super Cap with minimum monthly spend $20, only charge $79 for call value up to $500.
Vodafone Mega Cap with minimum monthly spend $79, only charge $149 for call value up to $1200
Special price this week: (call rate $0.01/sec, calculated by per second, plus connection fee $0.20)"

Were there misrepresentations? 18Mobileciti invited customers to sign up to a Vodafone mobile phone service plan. The relevant offers were the offer of a "Special price for access with BYO handset" and the offer of handset on special together with the Vodafone Super Cap plan, set out by the trial judge at [24]. 19The trial judge concluded that there was misrepresentation "that the 'cash back' payments referred to in the advertisements were a part of the [Super Cap plan] contract or package actually being offered by Vodafone": at [56]. The "'cash back' payments" were the "$130 refund at the end of six full months usage" and the $80 "refund after 4 months" part of the pricings in the two offers. Although the trial judge did not so state, the "'cash back' payments" underlay the references to free $20 per month call cost and to inclusion of $80 call cost, and the misrepresentations found could also have been expressed as misrepresentations as to call cost in the pricings. 20Vodafone's Super Cap plan was launched in August 2004. A feature, and a key selling point for Vodafone, was that a customer was not "locked in" for a minimum period. Vodafone's brochure included - "You won't get locked in 'With Vodafone red SIM there is no lock in contracts and no exit fees so you get total freedom to come and go as you please" 21Under the plan, the customer paid $79 per month for standard calls and other stated services to the value of $500. If the customer used less than $79 in services, only the usage was paid with a minimum of $20, and if the customer used more than $500 in services, the excess was paid on top of the $79. Further services were charged on top of the $79; presumably that is where Vodafone expected to make money. The customer was billed for the $20 or higher charge monthly in arrears. The $130 refund and the $80 upfront payment and refund were not part of Vodafone's Super Cap plan; nor did the plan have a free $20 per month call cost or an included $80 call cost if the customer remained signed up for six or four months. 22The $130 was in fact to be paid to the customer by Mobileciti, and the $80 was in fact to be received from and paid to the customer by Mobileciti. Mobileciti received a commission for getting a customer to subscribe to the plan, initially $140 and we were told increasing to $165, but it would be "clawed back" if the customer disconnected within 90 days. By the offer of a "'cash back' payment" Mobileciti minimised the risk of customers disconnecting within 90 days with consequential clawback of commissions; moreover, as explained by the trial judge - " [19] In this way, Mobileciti passed most of its commission payments from Vodafone on these deals back to its customers, but in return it enjoyed benefits including: cash upfront paid in effect as a returnable, interest-free bond; a growing number of new customers, all of whom entitled Mobileciti to new payments from Vodafone; and a growing number of return customers, who would cancel existing plans after a few months and sign up for new plans (thus entitling themselves and Mobileciti to new payments from Vodafone)." 23Mobileciti submitted that the advertisements were obviously placed by Mobileciti rather than Vodafone, and that they carried offers by Mobileciti rather than Vodafone: this, it said, appeared from the many mobile phone handsets offered, from a reference to collecting a "Loyal Customer Reward" from Mobileciti, and from the reference in the Terms and Conditions to the necessity for connection to a Vodafone mobile service and in particular to the words, "Store reserves the rights to withdraw these deals at any time and advertisements are not intended to provide full details of deals. The store reserves the right to explain all deals in detail." It submitted, as encapsulated in its written submissions - "17. In the circumstances, not only a person reading the entire text of one of these advertisements, but also a person only glancing at the more prominent aspects of the advertisements, would gain the impression that the advertisement had been placed not by Vodafone but by a Vodafone dealer called 'MobileCiti' and/or 'Xian Da Telecommunication', and it was that dealer rather than Vodafone who was offering a cash back arrangement and a free mobile phone. Mobileciti was indeed offering such a deal, and thus the advertisements contain no misrepresentation." 24Undoubtedly Mobileciti placed the advertisements, but it is also obvious that it was a Vodafone dealer. It was not a provider of mobile phone services, and in offers of mobile phone services was purporting to describe Vodafone's services. In making the relevant offers, Mobileciti described the mobile phone service packages to which customers bringing (in one case) or buying (in the other case) a handset could sign up with Vodafone. It is of some significance that the special price of which the $130 refund was part was offered to customers who brought their handset. The price would ordinarily be understood by a potential customer as the price charged by the provider of the mobile phone services. 25Mobileciti's submissions were not particularly to the point. In making them, it may have been diverted by the trial judge's statement of the relevant question, at [53], as "whether, on a fair reading of the advertisements, a reasonable person would believe that Vodafone was making these offers". The question was a little different, namely, whether in the offers by Vodafone's dealer of mobile phone service packages, it was misleadingly conveyed to a reasonable reader that the Vodafone Super Cap plan included the respective upfront payment and refund components, and the associated free $20 per month call cost and included $80 call cost if the customer remained signed up for six or four months. 26The first offer was of a "price for access" to customers who brought a handset. The package did not accompany a handset sold by Mobileciti. It was identifiable as the Vodafone Super Cap plan from the dealership and the reference to $79 for call value of $500, the latter correlating with the earlier description in the advertisement of "Vodafone Super Cap with minimum monthly spend $20, only charge $79 for call value up to $500". That reference would appear to the reader as part of the service provider's package, and the call rate, connection fee and minimum monthly spend which followed were all also part of the service provider's package. The $130 refund was presented, and would be understood by a reasonable reader, as part of the same package, as would the consequence of a refund of $130 after six months, namely that the monthly spend of $20 would be recovered so that that cost was free. 27This understanding would not be removed by the reference to the store's deals in the Terms and Conditions. On one view the reference to the deals only applied to the purchase of a handset, see "Connection to a Vodafone mobile service required", but it did not detract from the misdescription of the Vodafone plan part of any deal. In my opinion, there was misrepresentation regarding Vodafone's Super Cap plan. 28In the second offer the Vodafone Super Cap plan was specifically stated as the plan with which the handsets were offered. The "Including ... " preceding the statement that the handsets were offered together with the Vodafone Super Cap plan could link the upfront $80 and the refund with the sale of a handset, and no parts of a service provider's package were stated such as call rate and connection fee. That the Vodafone Super Cap plan included the upfront $80 and its refund might be thought to be contra-indicated by the reference in the first offer to a $130 refund after six months, with no upfront amount. 29However, the link with the sale of a handset could only be through the cost to the handset's purchaser of the associated Vodafone Super Cap plan. The purchaser would obtain no capital benefit from paying $80 and getting a refund after four months. The benefit was that having pre-paid four months of $20 per month, readily seen as the minimum monthly spend of the Vodafone Super Cap plan, the purchaser would get back $80 and so would be better off by $80 in the cost of the plan. The payment and the refund were presented as to and by Vodafone. The reader of the advertisement would not proceed on the basis that the Vodafone Super Cap plan had only one refund option, and there could be one option for six months and a different option for four months. In my opinion, the upfront $80 and the refund would be understood by a reasonable reader as part of the Vodafone Super Cap plan together with which the handsets were offered, and again there was misrepresentation regarding the plan. 30The trial judge correctly found misrepresentations regarding the Vodafone Super Cap plan.

Were the misrepresentations material misrepresentations? 31The trial judge considered that the person to whom the misrepresentations must be material was Vodafone, and that they were material because "of substantial import or of consequence to Vodafone": at [61], [64]. The substantial import or consequence lay in Vodafone regarding it as important that dealers offer its plans in the form in which Vodafone formulated them, and in particular that the key selling point of not being "locked in" not be controverted, and his Honour referred to clauses of the LDA by which Mobileciti should promote and obtain orders for services only on the Customer Contract Terms specified by Look Mobile from time to time (cl 4.2); was not to use any advertising or point of sale material other than as provided or approved by Look Mobile (cl 8.1(a)); and was not to conduct any marketing campaign or promotion in relation to the products or services unless it obtained Look Mobile's prior written approval (cl 8.2(a)) (at [61]). 32Mobileciti submitted that there was a "deficiency in logic" in the trial judge's reasons. It said that, while Vodafone might dislike a system of cash rebates, that "does not address at all the materiality of the misrepresentation the trial judge found was made by Mobileciti, being that the cash rebates were being offered by Vodafone rather than Mobileciti". 33This appeared to take as the materiality that the "'cashback' payments" promoted churn, as described by the trial judge at [19]. However, the relevant materiality to Vodafone was that its Super Cap plan was represented as what it was not, a plan with components of refund or of upfront payment and refund and consequential free call cost components; and moreover, components the practical effect of which was that persons who had signed up would consider themselves locked in for the six or four months. Vodafone could be subject to claims for refunds by persons who had signed up to the Super Cap plan, which it would reject at the cost of damage to its customer relations and reputation, or accept in the interests of customer relations and reputation but at financial cost. The prospect of legal proceedings founded on misrepresentation by Vodafone's dealer would be real; even a credible accusation of misleading advertising would be commercially undesirable, at the least. 34Materiality could also be addressed by the materiality to readers of the advertisements. Even if they did not sign up to the Super Cap plan under a misunderstanding of the plan, they could well be unimpressed by what would appear to be misleading advertising. If they did sign up, they would expect refunds from Vodafone but would not be entitled to them under the Super Cap plan. Mobileciti submitted that it would not matter to a customer whether a refund was to be paid by Mobileciti or by Vodafone. However, apart from the customer's dissatisfaction an entitlement to a refund from a major player in telephony, probably by an account entry, would be likely to be seen as substantially preferable to an entitlement to a refund from a dealer which might be unable to pay. 35Mobileciti accepted the test of substantial import or consequence. In my opinion, subject to the matters next considered the test was satisfied and the misrepresentations were material misrepresentations. 36Mobileciti submitted that in assessing the import or consequence of the misrepresentations, it was necessary to look to any system in place to correct a potential customer's misunderstanding. It relied on evidence of Mr Huang, the principal of Mobileciti, that Mobileciti had a system in place whereby customers were informed of the terms of the Super Cap plan and its major features. It said that "the system would likely correct in the mind of a potential customer the idea that cashbacks or similar special deals were part of the Super Cap plan offered by Vodafone". 37In determining whether a person has engaged in misleading conduct, the whole of the relevant conduct must be considered: see for example Butcher v Lachlan Elder Realty Pty Ltd [2004] HCA 60; (2004) 218 CLR 592 at [39], [109]; Campbell v Backoffice Investments Pty Ltd [2009] HCA 25; (2009) 238 CLR 304 at [25], [114]. If there has been misleading conduct, however, it is not cured because the true position may or will be corrected in the future: Medical Benefits Fund of Australia Ltd v Cassidy [2003] FCAFC 289; (2003) 205 ALR 402 at [43] and cases cited. Similarly, while the whole of the relevant conduct must be considered in determining the import or consequence of a misrepresentation, later correction does not of itself remove materiality. 38For at least two related reasons, Mobileciti's reliance on Mr Huang's evidence was misplaced. The first reason is the deficiency of the evidence. 39Mr Huang gave evidence that he instructed sales staff to provide every customer with the Vodafone brochure and go through the features of the Super Cap plan, and then to "provide customers with additional incentives by offering them with [sic] a cash back entitlement or free mobile phone handsets as a loyalty reward once they have signed on and stayed on the Vodafone connection for not less than 3 months". He said that from his "personal observation at the Mobileciti shop" in August-October 2005, all the sales staff did this. 40There were fourteen sales staff. None gave evidence. The trial judge thought it clear that Mr Huang "did not overhear the vast majority of conversations between staff and customers", and considered that "it is not established on this evidence that the misrepresentations were corrected with all or most of the customers" (at [66]). 41Mobileciti accepted that Mr Huang did not overhear the majority of the conversations, but submitted that it should have been found that the system worked to correct any misunderstandings in at least the great majority of customers prior to their signing up with Vodafone. 42Mr Huang's evidence provided a basis for inferring that the sales staff generally did as he had instructed (although he spoke only of one shop: this may have been a slip). If he did not observe failure to follow the instruction, failure when he did not overhear was probably not common. But the instruction as he explained it did not, or at least did not necessarily, clear up any misunderstanding. The additional incentive was apparently offered as a supplement to the Super Cap plan, and the customer could well have understood it as an incentive offered by Vodafone through its dealer. So far as a corrective system bore upon materiality of the misrepresentations, I do not think Mr Huang's evidence sufficed for correction in the potential customer's mind. 43The second reason is that, even if there was a system in place to correct a potential customer's misunderstanding, the misrepresentations would still be material to Vodafone. It may be noted that there was no evidence that Vodafone knew of the system. For that reason the materiality was unchanged. Even if it knew Vodafone would be exposed to a section of the public gaining a misunderstanding of the Vodafone Super Cap plan, notwithstanding that some may have had their misunderstanding corrected (although they may well think poorly of Vodafone) depending on what I have said about the first reason. Of more importance, however, Vodafone would be dependent on Mobileciti's proper implementation of the system and effective correction of all potential customers' misunderstandings, despite the importance seen in the clauses of the LDA abovementioned in oversight of advertising whereby a need for correction would not arise. This in itself would be of substantial import or consequence to Vodafone; it was material to it that a need for correction, for which it was dependent on Mobileciti should not arise. 44Mobileciti submitted rather in passing that the fact that Vodafone did not act to require termination of the LDA for some time indicated that any misrepresentations were not material. The evidence as a whole makes clear that Vodafone placed great store on correct advertising of its mobile phone packages. It spent time in investigating. I do not think the passing of some months detracts from finding materiality of the misrepresentations. In my opinion, even with a system for correction the misrepresentations in the advertisements would be material to Vodafone. 45Although for reasons differing in some respects from those of the trial judge, in my opinion his Honour correctly found that the misrepresentations were material misrepresentations.

Disposal of the appeal 46It follows that Vodafone did not engage in the misleading or deceptive conduct alleged by Mobileciti, and that if the implied term was to be implied Vodafone was not in breach of the Transition Deed. Nor did Look Mobile wrongly terminate the LDA.

Other matters 47A number of other matters were within no less than 23 grounds of appeal, 12 grounds in a notice of contention and 16 grounds of cross-appeal. The principal matters were - (a)whether it was an implied term of the Termination Deed that Vodafone would not require Look Mobile to terminate the LDA except on reasonable grounds; (b)whether Vodafone or Look Mobile had been entitled to require the termination of or terminate the LDA on a great many grounds other than material misrepresentations regarding Vodafone's Super Cap plan; (c)As part of (b), whether the trial judge had wrongly excluded certain customer survey evidence; (d)whether Vodafone or Look Mobile had waived any entitlement in (b) or elected against termination; (e)associated with (d), the effect of a non-waiver clause in the LDA; (f)whether the trial judge had erred in finding that it had not been established that Mr Huang was told by Mr Kerr of Look Mobile that he had shown the advertisements to Ms Crothers of Vodafone and she had no objection to them; (g)as part of (f), whether the trial judge had erred in failing to apply the rule in Browne v Dunn ; 48Mobileciti relied on the asserted non-objection to the advertisements only as an answer to one of the additional termination grounds. The additional termination grounds would take the appeal and cross-appeal into much evidence with which the trial judge did not fully deal. The reach of Shepherd v Felt and Textiles Australia Ltd (1931) 45 CLR 359 to the present circumstances is not clear, and was not fully argued. In my opinion, it is plain that the appeal should be dismissed on the basis of material misrepresentations regarding Vodafone's Super Cap plan, and this Court should not go into the many other matters that do not arise. 49The cross-appeal was defensive. It should be dismissed, but with costs against Mobileciti.

Orders 50Look Mobile had gone into liquidation, and did not participate in the appeal. I propose orders that the appeal and cross-appeal be dismissed and that Mobileciti pay Vodafone's costs. 51McCOLL JA : I agree with Giles JA's reasons and with the orders his Honour proposes. 52HANDLEY AJA : I agree with Giles JA.

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: 28 March 2011

At a glance

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Judgment (11 paragraphs)

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Cases Cited (8)