The Jewellery Group Pty Ltd v Australian Competition & Consumer Commission

IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 18 of 2013

BETWEEN: THE JEWELLERY GROUP PTY LTD ACN 124 077 079

JUDGES: GREENWOOD, BESANKO and katzmann JJ DATE: 29 November 2013 PLACE: SYDNEY VIA VIDEO link TO ADELAIDE

INTRODUCTION 1 This is an appeal from orders made by a judge of this Court on 18 January 2013. The judge found that the appellant had in trade or commerce engaged in conduct that was misleading or deceptive, or likely to mislead or deceive, in contravention of s 52 of the Trade Practices Act 1974 (Cth) ("TPA") and, in connection with the supply or possible supply of goods or in connection with the promotion of the supply of such goods, made a false or misleading representation with respect to the price of such goods, in contravention of s 53(e) of the TPA. The trial judge made a declaration to that effect. He also ordered the appellant to pay to the Commonwealth a pecuniary penalty of $250,000 in respect of the contravention of s 53(e) of the TPA and he made orders for corrective advertising by the appellant, and the establishment of a compliance and education/training program. 2 The trial judge delivered reasons for his findings in relation to liability: Australian Competition and Consumer Commission v Jewellery Group Pty Limited [2012] FCA 848. He delivered separate reasons for his conclusions with respect to penalty: Australian Competition and Consumer Commission v Jewellery Group Pty Limited (No 2) [2013] FCA 14. 3 The appellant's appeal is concerned only with liability. The Notice of Appeal contains seven grounds of appeal. The seventh ground of appeal has been abandoned.

BACKGROUND 4 The appellant is a company incorporated in Australia and it carries on business as a retailer of jewellery under various names including Zamel's. At the relevant times it operated between 93 and 101 stores throughout Australia under the name Zamel's. The stores were owned and operated by the appellant. The appellant employs approximately 1,000 people in the Zamel's business. 5 The appellant also operates its retail jewellery business under the names of Mazzucchelli's, Vivien's and Budgens, but the proceeding before the trial judge was only concerned with that part of the appellant's business that operated under the name Zamel's. 6 The proceeding concerned six catalogues and a flyer which were published and distributed by Zamel's between November 2008 and May 2010. The dates of the catalogues and flyer are as follows: Catalogues: Pre Christmas 2008 catalogue February 2009 catalogue May 2009 catalogue July 2009 catalogue Pre Christmas 2009 catalogue May 2010 catalogue Flyer January 2010 flyer 7 The appellant distributed each of the catalogues nationally by letterdrop box. Approximately 3 million copies or more of each catalogue were distributed and an additional 200,000 copies were made available at Zamel's stores. Each of the catalogues was made available to the public on Zamel's website for a period of time. 48,000 copies of the flyer were available at Zamel's stores throughout Australia and the flyer was also available to the public from the Zamel's website for a period of time. The catalogues and the flyer promoted 44 items of jewellery which were the subject of the proceeding before the trial judge. Each item of jewellery was promoted by an image of the item, a number for the item, and a statement of two prices. The trial judge described the information in the catalogues and flyer with respect to the prices in the following way: In some of the catalogues, the higher price in characters was struck through with a line (strike through price), and a lower price in larger and heavier typeface was described as the "sale price" (sale price). In the other catalogues and the flyer, the higher price was struck through with a line preceded by the word "was" (was price), and a lower price in larger and heavier typeface was preceded by the word "now" (now price). Both forms of pricing, "strike through/sale pricing" and "was/now pricing", are sometimes referred to as "dual pricing". 8 The trial judge found that the Strike Through price and Sale price appeared in the first four catalogues, whereas, the Was price and the Now price appeared in respect of items of jewellery in the last two catalogues and in the flyer. 9 Before the trial judge the respondent contended that the information in the catalogues and flyer conveyed a representation which was misleading or deceptive or false or misleading. The respondent's pleading of the representation and the respect in which it was said to be misleading or deceptive or false or misleading was as follows: C. The Savings Representation 65. By each statement of: 65.1 a Strikethrough Price and Sale Price; 65.2 a Was Price and Now Price, in respect of each item of jewellery in a catalogue as set out in paragraphs 21 to 64 hereof, Zamel's represented that consumers would save an amount being the difference between the Strikethrough Price and Sale Price or the Was Price and Now Price if the item were purchased during the relevant catalogue sale period (the Savings Representation). 66. In respect of those items of jewellery the subject of the Savings Representation, contrary to that representation, consumers to whom that representation was made would not have saved an amount being the difference between the Strikethrough Price and Sale Price, or the Was Price and Now Price if they purchased the items during the relevant catalogue sales periods. Particulars (a) In the period immediately preceding the relevant catalogue sale period, the items of jewellery the subject of the Savings Representation were sold either not at all, or only in very limited numbers, at the Strikethrough or Was Price. Relevant sales data in relation to the jewellery items referred to in paragraphs 21 to 64 above have been provided by way of a separate document entitled 'Particulars of Sales Relied upon'; and (b) From at least 10 November 2008, for the items of jewellery the subject of the Savings Representations, Zamel's adopted and implemented a price negotiation policy, pursuant to which its representatives were authorised to sell items of jewellery at prices less than the Was Price or the Strikethrough Price that appeared in each relevant catalogue. 10 The appellant's response to those pleas was as follows: 65. The Respondent denies the allegation pleaded in paragraph 65 of the Statement of Claim and says further that: (a) those items of jewellery the subject of the Savings Representation (as that term is defined in paragraph 65 of the Statement of Claim) were offered for sale at the Strikethrough Price (as that term is defined in the Statement of Claim): (i) immediately prior to the relevant catalogue sale period; and (ii) for a reasonable period of time prior to the relevant sale period; (b) the Savings Representation represented that the Respondent's offer price to consumers was the Strikethrough Price (as that term is defined in the Statement of Claim)): (i) immediately prior to the relevant catalogue sale period; and (ii) for a reasonable period of time prior to the relevant sale period. 66. As to paragraph 66 of the Statement of Claim, the Respondent: (a) repeats paragraph 65 of this Defence; (b) in relation to the 'Particulars of Sales Relied upon' referred to in the particulars to paragraph 66 of the Statement of Claim: (i) says that sales data for jewellery item PLU 953344 for the Pre Christmas 2008 catalogue (as that term is defined in the Statement of Claim) is incorrect, in that the data set out in the applicable table for the period 18 July 2008 to 15 November 2008 is duplicated; but (ii) says that the 'Particulars of Sales Relied Upon' are otherwise an accurate record of the sales by the Respondent of the jewellery item referred to; and (c) otherwise denies the allegations set out therein.

THE TRIAL JUDGE'S REASONS 11 There were two issues before the primary judge. The first issue was whether the information contained in the catalogues and flyer conveyed the Savings Representations pleaded by the appellant and the second issue was whether the representations were or were likely to be false or misleading. 12 The trial judge accepted that the audience for the catalogues and flyer included aware customers and unaware customers. Aware customers were those persons who were aware of the possibility of obtaining a discount below the ticketed price on an item of jewellery because of their knowledge of the appellant's ongoing practice of giving discounts in the jewellery industry. The unaware customers were those persons who were not aware of the possibility of obtaining such a discount. The trial judge referred to the decision of Mansfield J in Australian Competition and Consumer Commission v Ascot Four Pty Ltd [2008] FCA 1295; (2008) 250 ALR 467 ("Ascot Four (Mansfield J)"). In that case, Mansfield J decided that the relevant class in the case before him included reasonable consumers who might purchase the type of jewellery contained in the advertisement and were unaware of any discount culture in the jewellery market. 13 The trial judge said that it was not possible for him to determine whether the majority of the readers of the advertisements were in the class of aware or unaware persons. He said that the aware customers would not be, nor be likely to be, misled or deceived by the advertisements. The unaware customers would understand the catalogues and the flyer in a different way. 14 The trial judge rejected the appellant's contention that the catalogues and flyer only referred to offer prices, not sale prices. He accepted that the Sale or Now price was a representation of the price the customer would pay for the item if the customer went into one of Zamel's stores and asked to purchase the item during the sale period. However, that did not mean that the Strike Through or Was price was only a statement of a previous offer. The trial judge found that the representation in the catalogues and flyer was that the customer would have paid the Strike Through price or Was price for the item before the sale period. The trial judge considered that his approach was consistent with the reasons of Mansfield J in Ascot Four. He noted that the reasons of Mansfield J were approved by the Full Court in Ascot Four Pty Ltd v Australian Competition and Consumer Commission [2009] FCAFC 61; (2009) 176 FCR 106 ("Ascot Four (Full Court)"). The trial judge said that the representation made in the catalogues and flyer was the same representation which was made in Ascot Four (Mansfield J) and was identified by the Full Court in the following passage (at 115 [25]): … But when the reasons are read as a whole it is clear that the primary judge considered that the strike through price meant the price at which the items had been offered for sale and which the relevant consumer of the items would have paid before the sale (in the same sense as explained by Moore J in Prouds Jewellers 75 IPR 306; [2008] FCA 75, namely, the price the consumer would have expected to pay before the sale). This is apparent from the primary judge's focus, in his description (at [100]) of the representation, upon the saving to be made by the consumer him or herself. 15 The trial judge referred to the fact that the appellant relied on the decision of Moore J in Australian Competition and Consumer Commission v Prouds Jewellers Pty Ltd [2008] FCA 75; (2008) 75 IPR 306 ("Prouds Jewellers (Moore J)") and the decision of the Full Court approving that decision in Australian Competition and Consumer Commission v Prouds Jewellers Pty Ltd ACN 073 053 273 [2008] FCAFC 199 ("Prouds Jewellers (Full Court)"). The trial judge referred to various passages in the reasons of Moore J and concluded that the proceedings before his Honour were decided on the applicant's pleadings and the case advanced by the applicant. He also noted the way in which the Full Court in Ascot Four dealt with the decision in Prouds Jewellers (Moore J). The trial judge said (at [57]): I accept the applicant's contention that the savings representation in the catalogues and the flyer is the same as that found by Mansfield J to have been made in Australian Competition and Consumer Commission v Ascot Four Pty Ltd. It follows that I accept the applicant's contention that the unaware potential customer would have understood the strike through and sale prices, and the was and now prices, as representing the saving between the two prices that would have been available to the consumer. That is the same representation found to have been made in Australian Competition and Consumer Commission v Prouds Jewellers Pty Ltd. 16 The trial judge noted that the representation pleaded in Prouds Jewellers (Moore J) was a representation to the effect that the Strike Through price or Was price was the price actually paid by consumers immediately before the sale and that that was different from a representation to a consumer as to the price he or she would have paid had they bought the item before the sale period. 17 The trial judge also rejected the appellant's contention that the respondent failed because it did not lead any evidence from a consumer within the class of persons to whom the representations were made that the consumer understood the dual pricing in the catalogues and the flyer as the appellant contended. He said that the respondent was not bound to call such evidence and he noted that the question of whether conduct amounted to a misrepresentation was a question of fact for the Court and was to be decided by considering what was said or done against the background of all the surrounding circumstances (Taco Company of Australia Inc and Another v Taco Bell Pty Ltd and Others (1982) 42 ALR 177 at 202 per Deane and Fitzgerald JJ). 18 In summary, the trial judge found that the catalogues and flyer by referring to the Strike Through price or Was price conveyed the representation that the item of jewellery would have been purchased at that price before the sale period and, it followed, that the reasonable consumer would make a saving representing the difference between that price and the price at which he or she could purchase the item during the sale period. 19 The trial judge then turned to consider whether the representation constituted conduct which was misleading or deceptive, or conduct that was likely to mislead or deceive. 20 It is convenient to begin our summary of the trial judge's reasons on this matter by describing three exhibits put before the trial judge. 21 The first exhibit is Exhibit A7 and it is a schedule which was prepared by Mr McCarthy who is a Senior Investigation Officer in the Office of Enforcement Operations in South Australia. He was called by the respondent (applicant at trial). His Honour included the contents of Exhibit A7 in his reasons (Schedule B). Exhibit A7 identifies the 44 items of jewellery which were the subject of the proceeding. It identifies the Strike Through/Was price for these items. It identifies the number of sales at the Strike Through/Was price and the number of sales within 10% of the Strike Through and Was price. It identifies the total sales during the four month period before the beginning of the sale period. It calculates a percentage being the percentage of sales at the Strike Through/Was price compared with the total sales. It shows that with respect to a number of items there were no sales at the Strike Through/Was price. 22 The second exhibit is Exhibit R11. There were 55 items of jewellery shown in the May 2010 catalogue with a Was and Now price. The analysis of the respondent focused on 44 items. Exhibit R11 included information as to the other 11 items and showed that as an average, sales of the 55 items at the Strike Through/Was price within 10% thereof constituted almost 6% of total sales in the four month period. 23 The third exhibit is Exhibit ADM 13. That is a schedule prepared by one of the appellant's employees and it purports to show similar information to that shown in Exhibit A7 save that it extends for a period of 12 months and includes details of sales both before and after the sale period. 24 The trial judge rejected criticism of Mr McCarthy's evidence to the effect that his analysis was "skewed or biased" because he had selected 44 items out of the 55 items in the May 2010 catalogue. The trial judge found that Mr McCarthy gave his evidence frankly and honestly and he accepted his evidence. The trial judge said (at [96]): The fact that a higher percentage of some of the 20% of the remaining items sold at the strike through price or was price did not harm the applicant's case. As far as the applicant's case was concerned, those other items were irrelevant. 25 The trial judge considered the evidence of Mr Murphy who was called by the appellant (respondent at trial). Mr Murphy was the chief executive officer of the appellant. He gave evidence about the Zamel's discounting policy. In this context the trial judge noted the following passages from Zamel's pricing guidelines (at [114]): Price Matching We have a policy of Price Matching.  We will match the competitor price when: ◦ The product is identical. ◦ The customer provides a quote card from another jeweller, or advertising evidence (e.g. a catalogue) showing the competitive price. In Store Negotiation Store staff and managers can negotiate with their customers using the following table of maximum discounts: CATEGORY STAFF STORE TOTAL MANAGER GOLD UNDER $1000 10% 25% 35% GOLD OVER $1000 10% 15% 25% ALL SILVER 10% 25% 35% DIAMONDS - BRANDED 10% 0% 10% UNBRANDED DIAMONDS/ 10% 20% 30% PRECIOUS/PEARLS UNDER $2000 UNBRANDED DIAMONDS/ 10% 10% 20% PRECIOUS/PEARLS OVER $2000 WATCHES/CLOCKS 10% 10% 20%

These discounts are off the full Recommended Retail price (not on already marked down price). When an item is on promotion (reduced or advertised) no further discount can be applied unless price matching. Regional Managers no longer have any further markdown ability but no sale should be lost until your Regional Manager has been involved. Interest Free Sales Interest Free sales are increasing in popularity and are forming a major part of our business. It must be noted that the average cost of an interest free sale to the Company is approximately 10% of the financed amount. Please ask early in the sales process as to a customer's payment method & ensure that the extra 10% cost is taken into account when offering discount. That is the maximum discount should include the cost of Interest Free. For example if a customer wants to negotiate a lower price on a gold product under $1,000 it would be a maximum of 25% if interest free is used.  So please consider this early in the sales process when negotiating on price so as to minimize discounting. 26 The trial judge rejected Mr Murphy's evidence to the effect that Zamel's did not have a vigorous discounting policy and that it actively discouraged staff from negotiating on price. The trial judge referred to a document prepared by Zamel's lawyers in July or August 2009 which provided advice on dual pricing. 27 The trial judge considered that Mr Murphy's evidence was quite unsatisfactory in terms of his analysis of Mr McCarthy's affidavit. The trial judge said (at [127]): … He had no understanding of Mr McCarthy's methodology, and indeed no understanding of the criticisms to which he had sworn in his own affidavit. He agreed on a number of occasions that he had not bothered to read Mr McCarthy's affidavit. All he could say was that he would have to refer to Mr Gunn who had done the work within the respondent. Mr Gunn was not called. 28 The trial judge preferred the evidence of Ms Jacquier, the assistant director of Enforcement Operations in South Australia and Mr McCarthy over that of Mr Murphy. He said that he accepted the evidence of Ms Jacquier and Mr McCarthy over that of Mr Murphy where there is a dispute between them. He said that he accepted that it was appropriate for the respondent to analyse the 44 items it selected. The trial judge said that he thought the four month period was appropriate because it was long enough to obtain an understanding of the sales history of the relevant item. It was appropriate having regard to the fact that relevant sales periods occurred more than once a year, so that if a longer period was used, the longer period might include distortions caused by previous catalogue-identified sales periods. 29 The trial judge said that the appellant pursued a vigorous discounting policy in other than the sales periods, and that meant that the 44 items were rarely sold at the ticketed price. As a result of that conclusion, the trial judge concluded that the Strike Through price and Was price was rarely paid by a Zamel's customer. 30 The trial judge considered the size of the advertising budget spent on and in relation to the catalogues and flyer to be significant. He noted that Mr Murphy said that the approximate cost of the production and distribution of a catalogue run of approximately 3 million catalogues was around $400,000. He noted that the campaign planning documents of the appellant that related to the Mother's Day campaign in April 2010 and May 2010 showed a budget that allocated $345,000 to catalogue costs and a total budget of $1,014,500. The catalogue and flyer were also viewable online. The trial judge said (at [147]): If, as Mr Murphy said, 5-10% of people did not negotiate upon price, then the size of the totally unaware class to whom the savings representations were made was approximately 150,000 to 300,000 people. I think it was greater than that figure, but I cannot say by how much. 31 The trial judge noted that it would not be right to assume that all of the increased sales would be purchases by unaware customers. However, the amount spent on the advertising indicated to his Honour that the size of the audience that comprised the unaware customers was at the time of each of the publications, significant. The trial judge said that the Savings Representations contained in the catalogues and flyers were made to a significant unaware audience. He found that the sales recorded in Exhibit A7 were accurate and could be relied upon and he rejected the appellant's contention to the contrary. He said that Exhibit A7 clearly demonstrated that so few sales were made at the Strike Through or Was price "that it must be inferred that almost all consumers, whether aware or unaware, would have purchased the particular item for less than the strike through or was price". The trial judge found that the Savings Representations was false and thereby the appellant engaged in conduct that was misleading and deceptive or, at least, likely to be misleading or deceptive.

ISSUES ON THE APPEAL 32 The appellant submits that the trial judge erred in finding that it had made the Savings Representation. It advanced a number of matters in support of its submission. Before considering those matters it is useful to identify a number of general propositions which were not in dispute. 33 First, the question of the nature of the representation conveyed by words or conduct is a question of fact to be determined having regard to what was said or done considered against the background of all the surrounding circumstances: Taco Company of Australia Inc and Another v Taco Bell and Others. 34 Secondly, where a representation is made to the public, it is necessary to identify an "ordinary" or "reasonable" member of the relevant class for the purpose of determining the effect of the words or conduct. Persons whose reactions are extreme or fanciful are not within this category. In Campomar Sociedad, Limitada and Another v Nike International Limited and Another [2000] HCA 12; (2000) 202 CLR 45 the High Court said (at 86 - 87 [105]): Nevertheless, in an assessment of the reactions or likely reactions of the "ordinary" or "reasonable" members of the class of prospective purchasers of a mass-marketed product for general use, such as athletic sportswear or perfumery products, the court may well decline to regard as controlling the application of s 52 those assumptions by persons whose reactions are extreme or fanciful. For example, the evidence of one witness in the present case, a pharmacist, was that he assumed that "Australian brand name laws would have restricted anybody else from putting the nike name on a product other than that endorsed by the [Nike sportswear company]". Further, the assumption made by this witness extended to the marketing of pet food and toilet cleaner. Such assumptions were not only erroneous but extreme and fanciful. They would not be attributed to the "ordinary" or "reasonable" members of the classes of prospective purchasers of pet food and toilet cleaners. The initial question which must be determined is whether the misconceptions, or deceptions, alleged to arise or to be likely to arise are properly to be attributed to the ordinary or reasonable members of the classes of prospective purchasers. 35 Thirdly, in considering the meaning to be attributed to words or conduct alleged to be misleading or deceptive or likely to mislead or deceive the Court may receive evidence from members of the relevant audience and, subject to the requirements of the laws of evidence, that evidence may include survey evidence and evidence of any complaints made about the words or conduct. Such evidence may be persuasive but it is not essential: Taco Company of Australia Inc and Another v Taco Bell Pty Ltd and Others at 202 per Deane and Fitzgerald JJ; Arnotts Limited and Another v Trade Practices Commission (1990) 24 FCR 313 at 358 - 364 especially at 362. In some cases the behaviour or reaction of a consumer may be generally unknown so that a propounding party may fail in the absence of evidence of consumer behaviour or reactions: WEA International Inc and Another v Hanimex Corporation Ltd (1987) 17 FCR 274 at 280 per Gummow J. 36 Fourthly, there is clearly a difference between an offer and an invitation to treat: Spencer v Harding (1870) LR 5 CP 561; Partridge v Crittenden [1968] 2 All ER 421. The statements in the catalogues and flyer may be more accurately characterised as invitations to treat rather than offers. However, for reasons which will become clear, the difference does not really matter in this case and it is convenient for me to refer to the statements as offers. 37 Fifthly, this is not a case where the alleged falsity lay in the fact that the goods had never been offered for sale at the Strike Through or Was price. That is not how the respondent put its case. The respondent's case at trial was that the relevant items of jewellery may well have been offered at the Strike Through or Was prices, but it had shown that the ordinary or reasonably unaware customer (or a significant portion of that class) would not have purchased at the Strike Through or Was prices if the items had been purchased before the sale period. 38 Sixthly, the respondent's claims at trial involved a claim for a civil penalty under s 76E of the TPA and in those circumstances in determining whether the elements of the respondent's claim were proved, the Court was required to take into account the nature of the subject matter of the proceeding and the gravity of the matters alleged: Evidence Act 1995 (Cth) s 140; Briginshaw v Briginshaw (1938) 60 CLR 336 at 361 - 362 per Dixon J (as his Honour then was). 39 Finally, in this case the Savings Representation as pleaded by the respondent involved implicitly a representation that had the unaware customer purchased the item of jewellery before the sale period to which the catalogue or flyer relates, then he or she would have paid the Strike Through or Was price. In other words, it was incumbent on the respondent to prove this element as part of its pleaded representation. 40 We turn now to the matters the appellant relied on to support its submission that the trial judge erred in finding that the Saving Representation was made. These matters were all related to the Strike Through price or Was price and what the ordinary or reasonable unaware customer would have understood the statements in the catalogues and flyer to mean. 41 The appellant submitted that the Sale or Now price was clearly an offer price and that the Strike Through and Was price should be construed in a similar way. In other words, they were represented to be no more than offer prices. We reject this contention because it seems to us that the Sale or Now price was not only an offer price, but also the price at which the unaware consumer would consider he or she could purchase the item during the sale period. 42 The appellant accepted that there might be a representation in relation to the Strike Through or Was price beyond a representation that it was an offer price and submitted that if that were so it was that it was represented to the ordinary or reasonable unaware customer that if he or she purchased the relevant item at the Sale or Now price, he or she would save the difference between that price and the Strike Through or Was price if the relevant item had been purchased at the Strike Through or Was price. The respondent contended that this argument had not been advanced in the Court below. We do not need to address that contention because we do not think it advances the appellant's case even if it is part of the bundle of representations that arise from the catalogues and flyer. In a sense, it is no more than an extrapolation by the representee of the offer price representation. 43 The appellant submitted that the Strike Through or Was price was no more than an offer price and that before the Court could conclude that it was anything more than that it would need evidence of consumer reactions. In other words, if confined to the "four walls" of the statements in the catalogues and flyer the question is one of construction and the Court should find that the only representation made was of an offer price. The appellant referred to the decision of Gummow J in WEA International Inc and Another v Hanimex Corporation Ltd. 44 The appellant sought to bolster this argument by reference to United States publications which question the conclusions consumers draw from dual pricing (e.g., Kaufmann P, Ortmeyer G and Craig Smith N, "Deception in Retail Sale Pricing" in Raaij WF and Bamossy GJ (eds), European Advances in Consumer Research (Vol 1, 1993)). These articles were given to the trial judge but were not in evidence before him. In the end, we do not think these publications advance the appellant's submissions very far. As counsel for the respondent submitted, they deal with a different jurisdiction and market and with consumers generally and not specifically with consumers of relatively low-priced jewellery. 45 We reject the contention that it was unsafe to find the Savings Representation in the absence of evidence of consumer behaviour or reactions. WEA International Inc and Another v Hanimex Corporation Ltd was quite an unusual case where one of the issues was how consumers would behave if there had been a warning that re-recording unauthorised by owners of copyright would amount to an infringement of copyright. It was in that context that Gummow J made his comments. In any event, Gummow J did not lay a rule, but said that in some cases evidence of consumer habits and attitudes may be necessary in the sense that without such evidence an applicant's claim may fail. The question is whether this is such a case. 46 The appellant contended that the decisions in Prouds Jewellers (Moore J) and Prouds Jewellers (Full Court) strongly support his submission that the Strike Through or Was prices were no more than offer prices. 47 The sequence in terms of when the various judgments were delivered in the Prouds Jewellers and Ascot Four cases was as follows: Prouds (Moore J) 15 February 2008 Ascot Four (Mansfield J) 21 August 2008 Prouds (Full Court) 23 December 2008 Ascot Four (Full Court) 26 May 2009 48 The Australian Competition and Consumer Commission failed (relevantly) in the Prouds Jewellers cases and succeeded in the Ascot Four cases. An important difference between the two cases is the way in which the Commission pleaded its case in Prouds Jewellers. It did not plead the Savings Representation in Prouds Jewellers although what it did plead is something similar. The Commission's pleading as to the meaning of the Strike Through or Was price was that that was what consumers paid to purchase the items immediately prior to the publication of the catalogue. The distinction between that and a representation that the Strike Through or Was price was what the ordinary and reasonable member of the class of unaware customers would have paid prior to the sale period is a fine one, but it appears to be what Moore J had in mind when he said (at 322 [47]): The pleading alleged that the Level of Savings Representations were false because they erroneously represented the amount a consumer would save. As pleaded, the saving falsely represented was the difference between the amount represented by the "now" price and the amount usually paid by consumers in the eight weeks preceding the publication. The case advanced by ACCC was based on the actual sales to consumers which, overwhelmingly in relation to most of the 17 items and entirely for the remainder, were at a sale price less than the "was" price. However, in my opinion, this is not the representation conveyed to the relevant hypothetical consumer by the juxtaposition of the "now" and the "was" price as they appeared, in context, in the catalogue. As I indicated earlier, the hypothetical consumer would not, in my opinion, have contemplated that the "was" price concerned what consumers actually paid if contemplating what savings the particular hypothetical consumer would achieve. That is, the hypothetical consumer would not have taken the "was" price as signifying the price actually paid by consumers including consumers who knew that discounting and bargaining was a feature of the jewellery industry and, accordingly, had negotiated or secured a price less than the regular market price. The hypothetical consumer would, when considering what savings might be made by purchasing during the sale, have viewed the "was" price as the price he or she would have paid had they bought the item before the sale period. Though, as I earlier indicated, this would have involved an erroneous assumption, it is not the case ACCC pleaded and presented. 49 The other point to note about the decision in Prouds Jewellers (Moore J) is that it appears that in that case none of the relevant items were offered for sale at the Was price. 50 On the appeal in Prouds Jewellers the Full Court upheld the decision of Moore J at first instance. In the course of their reasons the Full Court made certain observations which are relied on by the appellant in this case (at [36]): This distinction, for purposes of characterising the "Was" price, between a price at which goods have been offered for sale and the price (or prices) at which they have actually been sold is consistent with the preponderance of authority on "dual pricing" noted at [30]. As a matter of impression, if, as the ACCC contended, we are required to form one, the "Was" price in the present case was likely to have been understood by the relevant hypothetical consumer as referring only to the price at which the item in question had been offered for sale. 51 In Ascot Four Mansfield J did not make an express finding as to the representation conveyed by the reference to the Strike Through or Was price even though he found in the result that the Savings Representation (or a representation very similar to it) had been made. On appeal, that was said to involve error. The Full Court rejected the argument and upheld the decision of Mansfield J. The Full Court made various observations in Ascot Four which support the approach taken by the trial judge in this case (at 115 [25], [26]): … In contrast to Prouds Jewellers, the strike through price was in fact the ticketed price (or offer price) for the items the subject of counts 2 to 11 before the sale period. In this context, the primary judge found that the sale catalogue conveyed a representation that purchasers of the 11 items during the sale period would make a saving of the difference between the sale price and the strike through price. However, there had never been a sale of any item at or approaching the strike through price before the sale period. It may be accepted that the primary judge's characterisation of the representation does not contain an express finding about the meaning of the strike through price. But when the reasons are read as a whole it is clear that the primary judge considered that the strike through price meant the price at which the items had been offered for sale and which the relevant consumer of the items would have paid before the sale (in the same sense as explained by Moore J in Prouds Jewellers 75 IPR 306; [2008] FCA 75, namely, the price the consumer would have expected to pay before the sale). This is apparent from the primary judge's focus, in his description (at [100]) of the representation, upon the saving to be made by the consumer him or herself. … It was open to the primary judge to characterise the dual pricing advertising as conveying a representation involving a saving by reference to the difference between the sale price and the strike through price on the basis (albeit implicit from the reasons) that the strike through price represented (at least to a significant section of the relevant class of consumers) more than a bare offer, namely, the price at which they would have bought the item before the sale period … 52 The support in Ascot Four for the approach taken by the trial judge is seen quite clearly when the Full Court addressed one of the submissions made by Ascot Four. The submission was as follows (at [14]): (iv) A consumer unaware of the discount culture would have treated the strike through price as the price at which that consumer would have bought the item before the sale. Because this type of consumer would not have sought or obtained any discount, the price at which he or she would have bought the item would also be treated as the offer price before the sale period. This approach is consistent with the conclusions of Moore J in Prouds Jewellers 75 IPR 306; [2008] FCA 75 at [38] and [39]. 53 The Court dealt with that submission by saying (at [29(iv)]): The primary judge found that the consumer unaware of the discount culture in this market would not have understood the strike through price as representing a mere ticketed or offer price with no real relevance to the decision to purchase the item during the sale period. This consumer would have expected to save the difference between the strike through price and the sale price, when in fact this anticipated saving was illusory. In other words, while the strike through price did represent an offer price, to many customers it also represented the price they would have expected to have paid before the sale (see [25] above). This cannot be considered a true representation when the evidence shows that no sales had ever been made at or near the strike through price before the sale. It was open to the primary judge to make this finding, which was in fact consistent with Moore J's reasoning in Prouds Jewellers [2008] 75 IPR 306; [2008] FCA 75 . 54 The Full Court in Ascot Four also considered what the Full Court had said at [36] in Prouds and said (at [24]): The Full Court found Moore J's conclusions to be open on the evidence (at [31]). It is true that the Full Court also referred to the "was" price as "referring only to the price at which the item in question had been offered for sale" (at [36] and see also [42]), but this was in the context of deciding whether the "was" price represented an actual sale price or an offer price. The need for this appraisal arose out of Moore J's decision that the ACCC had wrongly relied on the "actual sale price" conception of the "was" price. Preferring the offer price to the actual sale price interpretation, and thereby accepting Moore J's decision, the Full Court was not required to consider whether the offer price was the price at which the goods were in fact offered for sale and thus the price at which they would have been bought (as per Moore J at [37]). 55 With great respect, we do not think those observations entirely reconcile the differences between the two cases. At the same time the effect of the decision of the Full Court in Ascot Four is clear and it supports the approach taken by the trial judge in this case. Although the meaning of words or conduct is a question of fact, the similarities between this case and Ascot Four are such that Ascot Four provides powerful support for the approach taken by the trial judge. 56 The representations found to arise from dual pricing seem to be increasing in sophistication but they have the support of a recent decision of the Full Court of this Court which was followed by the trial judge in this case. We are not persuaded that the trial judge's approach was wrong. 57 We reject the appellant's submission that the trial judge erred in concluding that the Savings Representation had been made in the catalogues and flyer. 58 The appellant submits that the trial judge erred in finding that the Savings Representation was misleading or deceptive or likely to mislead or deceive and that it was a false or misleading representation with respect to the price of goods. It was accepted by the trial judge and the parties that if the representations in the catalogues and flyer were misleading or deceptive within s 52 of the TPA, then they were also false or misleading within s 53(e) of the TPA and it is appropriate to proceed on that basis. 59 Again, it is useful to identify a number of general propositions relevant in this case before examining the particular submissions made by the appellant. 60 First, the respondent bore the onus of establishing at trial that the representation that prior to the sale period the ordinary or reasonable unaware customer (or at least a significant number of unaware customers meeting that description) would have purchased the relevant item of jewellery at the Strike Through or Was price was false. In other words, it had to negate the represented counterfactual. It sought to do that by relying on actual sales at the Strike Through or Was price in the four month period prior to the relevant sale period and by relying on the appellant's aggressive discounting policy. 61 Secondly, the respondent made 44 items of jewellery the subject of its proceeding and all of those items appeared in one of the catalogues - the May 2010 catalogue. There were 298 items of jewellery in that catalogue and 55 items were advertised at a Was and Now price (Exhibit R20). Mr McCarthy excluded the other 11 items from his analysis and he candidly admitted that he did so because they did not support his analysis. The results including the 11 items are set out in Exhibit R11. It is clear also that considering the catalogues and flyer as a whole there were many other cases of Was and Now prices which are not included in the 44 items selected by the respondent. The respondent did not argue that only the matters directly relevant to the 44 items could be considered. It was content to accept that any matter rationally probative of the represented counterfactual can and indeed should be considered. It did not go as far as the trial judge may have thought it did at trial (see [24] above). 62 Thirdly, Mr McCarthy's analysis comprising Exhibit A7 and Schedule B to the trial judge's reasons shows that there were no sales at the Strike Through or Was price in the case of approximately 25 of the 44 items. However, the respondent did not conduct its case by reference to individual items. Nor did it argue in the alternative that if it lost as to the class of 44 items, it should succeed with respect to those items where there were no sales. As we understood it, there were a number of matters to be considered in determining whether the represented counterfactual had been shown to be false. 63 The appellant criticised the respondent's methodology in adopting a four month pre-sale period rather than a 12 month pre-sale period and in not including sales past the sale period. As to the former criticism, this was made before the trial judge and rejected by him for reasons which, with respect, appear to us to be sound (at [144]): I accept the applicant's evidence that it was appropriate to have regard to the actual sales of the 44 items prior to the publication of the relevant brochure or the flyer over a period of four months. That period was appropriate because it was long enough to obtain an understanding of the sales history of the item. The period was longer than that suggested as relevant by the respondent's solicitors who would have used an eight week period to determine the actual sales. It was also an appropriate period having regard to the fact that the relevant sales periods occurred more than once a year, so that if a longer period was used, that longer period might include distortions caused by previous catalogue-identified sales periods. I reject the respondent's evidence to the contrary. 64 As to the latter criticism, there was nothing put to the Court that suggested that a lack of post-sale sales data was likely to have a material bearing on the results of a sales analysis. 65 The appellant submitted that there was insufficient evidence to find that the represented counterfactual was false. Although accepting that the precise size of the class of unaware customers was not established by the evidence, the appellant contended that it was well and truly in the minority. When compared with the sales figures in Exhibit R11 which deals with the 55 items and shows that on average nearly 6% of sales were at the Strike Through or Was price or within 10% thereof and even when compared with Exhibit A7 which dealt with the 44 items it could not be shown to the requisite standard that the representation to the class of unaware consumers was false. In other words, it was reasonable to infer that nearly all of the sales at the Strike Through or Was price were by unaware customers and there was such a correlation between the percentage of such sales and the size of the class of unaware customers that the trial judge should not have been satisfied that a substantial number of unaware customers would have purchased at below the Strike Through or Was price. 66 This argument has a good deal of force if it is correct to conclude that the size of the class of unaware customers is very small. We do not think it is correct to draw that conclusion. The trial judge reached the conclusion that the size of the class was fairly substantial and we are not persuaded that he erred in doing so. 67 Mr Murphy said that the aware customers made up the majority of the appellant's customers. He did not estimate the size of the class of unaware customers. The trial judge did not accept that evidence. The trial judge said (at [37] and [147]): It is not possible to determine whether the majority of those readers were in the class of aware persons or unaware persons, but it is possible to say that the class would consist of both. Once that determination is made the question is: what would the advertisement mean to the two subclasses? It may be, as the respondent has contended, that the aware persons would know that they could buy the advertised jewellery at any time at the sale price or the now price, or at least at a price less than the was or strike through price. I accept that those persons would not be, nor be likely to be, misled or deceived by the advertisements. … If, as Mr Murphy said, 5-10% of people did not negotiate upon price, then the size of the totally unaware class to whom the savings representations were made was approximately 150,000 to 300,000 people. I think it was greater than that figure, but I cannot say by how much. 68 The trial judge referred to the size of and expenditure involved in the advertising campaign and concluded that the Savings Representation was made to a "significant unaware audience". We think that he was entitled to reach that conclusion and in the process to reject Mr Murphy's evidence which he said did not otherwise impress him (at [127] and [141]). 69 Once the conclusion is reached that the trial judge did not err in concluding that the Savings Representation was made to a significant unaware audience, we think it follows, bearing in mind the prior sales at or near the Strike Through or Was price and the appellant's aggressive discounting policy established by the evidence and, in particular, its own Pricing Guidelines, that it was open to the trial judge to conclude the respondent had negated the represented counterfactual. 70 It was put to the Court that the approach of the trial judge was erroneous because it would mean that a trader could not engage in the Was price/Now price form of advertising in circumstances where the trader had difficulty selling goods over a reasonable period and reduced their price in order to sell them. We do not think that is correct because the result will depend on all the circumstances. If there were no sales of the goods over an appropriate period and nothing more, then it is difficult to see how the represented counterfactual would be shown to be false. In other words, it is difficult to see how, in the case of an assumed sale, it could be inferred to the requisite standard that it would not have been at the Strike Through or Was Price. On the other hand, falsity might be shown if there was such a practice of aggressive discounting that it could be safely inferred that the hypothetical sale would not have been at the Strike Through or Was Price. These observations underscore the point that the critical matters in this case were both the lack of sales at the Strike Through or Was Price and Zamel's aggressive discounting policy. 71 We reject the appellant's submission that the trial judge erred in concluding that the Savings Representation was misleading or deceptive or likely to mislead or deceive.

CONCLUSION 72 In our opinion, the appeal should be dismissed with costs. I certify that the preceding seventy-two (72) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justices Greenwood and Besanko JJ.

Associate: Dated: 29 November 2013 IN THE FEDERAL COURT OF AUSTRALIA SOUTH AUSTRALIA DISTRICT REGISTRY GENERAL DIVISION SAD 18 of 2013

AND: AUSTRALIAN COMPETITION AND CONSUMER COMMISSION

JUDGES: GREENWOOD, BESANKO, KATZMANN JJ DATE: 29 NOVEMBER 2013 PLACE: ADELAIDE

KATZMANN J: 73 I agree with Greenwood and Besanko JJ that the appeal should be dismissed with costs. I also agree generally with their Honour's reasons. I only wish to add some observations of my own. 74 The respondent regulator ("ACCC") alleged in its pleading that, by each statement of a "strikethrough" and sale price or a "was" and "now" price in relation to 44 items of jewellery advertised by The Jewellery Group (trading as Zamel's) in a flyer and various catalogues, Zamel's represented that consumers would save an amount being the difference between the "strikethrough" and sale prices or the "was" and "now" prices if the items were purchased during the relevant sales period. This was described throughout the proceedings as "the savings representation". The ACCC contended that, in respect of each of the 44 items, the savings representation was false because consumers to whom it was made would not have saved that amount. The reason the ACCC alleged that the representation was false was twofold: first, in the period immediately preceding the relevant catalogue sale period the 44 items were either not sold at all or only sold in very limited numbers at the "strikethrough" or "was" prices and secondly, from at least 10 November 2008 Zamel's had a price negotiation policy which authorised staff to sell jewellery at prices lower than the "strikethrough" or "was" prices. The primary judge accepted both propositions. 75 On the question of whether the savings representation was made, Zamel's contended that his Honour erred in several respects. In substance, however, its contention was that the prices appearing in the flyer and catalogues were merely offer prices and were not, without more, representations as to savings. 76 There is a fundamental flaw in Zamel's case in this respect. 77 It was common ground at trial, as the primary judge ultimately found, that there were two classes of consumer. One consisted of consumers who were aware of the possibility of obtaining a discount below the ticketed price on an item of jewellery through knowledge of the practices of the jewellery business in general or the practice of Zamel's in particular. The other consisted of consumers who were unaware of the possibility of obtaining such a discount. The primary judge referred to these two classes respectively as the "aware" and the "unaware" class. The flaw in Zamel's argument is that it conflates the two classes. 78 His Honour held (at [38]) that unaware consumers would read (the statements in) the catalogues and the flyer to mean that if they purchased an item of jewellery advertised in them during the period to which the particular publication related they would save the difference in the two prices. His Honour said that that was "the only reasonable reading" available in the case of consumers unaware of the advertising practices of the industry. There is no error in this conclusion. On the contrary, it is difficult to see how any other conclusion is reasonably open. 79 The representations were plainly intended to make the reader think that he or she would receive not just a discount, but a particular discount in the price of the marked goods. The clear invitation was for the consumer to subtract the "now" price from the "was" price or the sale price from the "strikethrough" price as the case may be. The difference in price was shown in the catalogues and the flyer as a percentage saving. It defies common sense to conclude that the unaware customers, at least, (to whom, as the primary judge found, the documents were largely directed) would regard the "strikethrough" or "was" figure as anything other than the price at which the jewellery had been sold. After all, what was the purpose of the designated percentage saving otherwise? Prospective purchasers are interested in the difference between the pre-sale and sale prices; a difference in the value of offers is meaningless to them. They want to know how much money they will save. That is what the brochures were telling them. While Zamel's may have regarded the prices only as offers and while aware consumers may have treated them as such, by definition unaware consumers would be ignorant of this fact. As the ACCC submitted, unless the unaware consumers were fixed with the knowledge of the aware consumers, it is likely that they would "intuitively" think that if they were to buy at the now or sale price they would achieve the savings denoted by the differences in the two figures. Zamel's argument blurs, if it does not altogether obliterate, the distinction between the two classes of consumer. 80 The primary judge was also right to observe (at [49]) that the representations made in the catalogues and the flyer in this case are the same as those made in Ascot Four Pty Ltd v Australian Competition and Consumer Commission (2009) 176 FCR 106 ("Ascot Four") where the same kind of advertising was employed. The very argument that evidence was required before the Court could conclude that the juxtaposition of the "strikethrough" or "was" price with the sale price conveyed the meanings the ACCC alleged or that misleading and deceptive conduct could be established was rejected by the Full Court in Ascot Four (at [34]). Although the facts of the two cases are not identical, the differences are relevantly insignificant. 81 The primary judge's reasoning is orthodox and conforms to the authorities. In effect, Zamel's seeks in this appeal to overturn the Full Court's decision in Ascot Four while stopping short of submitting that it was wrong and ought not to be followed. 82 The question of whether the representations were made was to be answered objectively. I agree with Greenwood and Besanko JJ that it was not unsafe to find the savings representation in the absence of evidence of consumer behaviour or reactions. This was not a case where evidence of that kind was necessary. 83 Nor was it necessary for the ACCC to call evidence (as Zamel's appeared to suggest) as to the actual size or proportion of the unaware category of customers from amongst Zamel's customer base. It was sufficient to show that unaware consumers comprised "a significant section of people who [were] likely to be exposed to the conduct of which complaint [was] made": Taco Company of Australia Inc v Taco Bell Pty Ltd (1982) 42 ALR 177 at 181. On the basis of the evidence called by Zamel's itself, the primary judge found (at [147]) the totally unaware class to whom the savings representations were made was approximately 150,000 to 300,000 people. That finding was not challenged on the appeal. 84 The attack on the finding of the primary judge that the representation was misleading or deceptive was essentially based on the notion that the evidence was insufficient to prove it. Zamel's contended that the proportion of unaware consumers to its total customer base and the sample of sales data were both too small and that there was no direct evidence that any actual customers who were ignorant of the company's discounting practices bought items and paid less than the "was" or "strikethrough" price. 85 There are several difficulties with this part of Zamel's case. 86 First and foremost, the question of whether the representation was misleading or deceptive or likely to mislead or deceive is a different question from whether it did in fact mislead or deceive. The Trade Practices Act 1974 (now the Competition and Consumer Act 1974 (Cth)) ("the Act") requires an answer to the former, not the latter. Direct evidence of purchases by unaware customers at the "was" or "strikethrough" price was not necessary. 87 Secondly, as I have already indicated, the evidence was to the effect that the size of the unaware class was approximately 150,000 to 300,000 people. The primary judge thought it was larger than that, although how much larger he was unable to say. 88 Thirdly, the contention that the sample was skewed must also be rejected. It is based on a false premise. The ACCC's case was not brought on the basis that the advertising of all 1400 items was misleading or deceptive or likely to mislead or deceive. It was that it was misleading or deceptive in respect of 44 (of a total of 55 or 80% of) items in the May 2010 catalogue, 20 of which were advertised also in the flyer and the other catalogues. The ACCC pleaded and proved that there were no or very few sales of the 44 items at the "was" or "strikethrough" price in the relevant period. The finding of the primary judge (at [151]) was that "so few sales were made at the strike through or was price that it must be inferred that almost all customers, whether aware or unaware, would have purchased the particular item for less than the strike through or was price". That was enough to show that the representations were misleading or deceptive. It meant, as his Honour concluded (at [152]), that the savings representation was false. Zamel's point about the size of the sample might have been relevant to the question of penalty or to orders generally (about which the company made no complaint); it is irrelevant to the question of liability. 89 Zamel's submitted that the primary judge erred by reviewing the sales data for the items "chosen by [the ACCC] to be the subject of the proceedings". This submission is equally fallacious. The question was whether the representation made in respect of those items was misleading, not whether other sales data might have revealed that other items were correctly marked. 90 Finally, like Greenwood and Besanko JJ, I am not persuaded that the primary judge erred either in adopting a four month pre-sale period rather than a year or in not including sales past the sale period. In addition to the reasons given by the primary judge extracted by Greenwood and Besanko JJ at [63] I would refer to the pleadings. As I mentioned at the outset of these reasons, the ACCC pleaded its case that the savings representation was misleading based in part, at least, on sales data "in the period immediately preceding the relevant catalogue sale period". In these circumstances it is difficult to see how the primary judge could be criticised for looking at a pre-sale period of four, rather than twelve, months. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Katzmann.