In Australian Competition and Consumer Commission v Singtel Optus Pty Ltd (No 4) [2011] FCA 761 Optus was ordered to pay to the Commonwealth a pecuniary penalty of $5.26 million for misleading advertisements (Optus 1 was previously discussed here).

The penalty followed previous orders for injunctions and corrective advertising in Optus 2 and Optus 3.

Judge Perram considered the mandatory and non-mandatory factors relevant to determining a penalty, including the deliberateness of the conduct including its failure to adequately review its compliance program as previously underaken. Although there was no deliberate fraud, it is clear that Optus’ compliance program was ineffective. Judge Perram examined the process in detail (see below).

It is instructive to understand how the penalty was calculated as well as the implications of Optus failing to implement an effective advertisement vetting process.

On the calculation of the penalty Judge Perram said:

The maximum penalty for any single contravention… is $1.1 million which will mark the appropriate penalty for the most serious of contraventions. This immediately then raises the question of just how many separate contravening acts the present case presents. The Commission submitted that there were 11, one for each advertisement. Although Optus agreed 11 contraventions were found, it submitted that the vice in each advertisement was the same and that, in substance, there was but a single contravention.

I do not think the vice in each advertisement was the same. The deceptions were not identical and the breadth of exposure for each advertisement differed. The television commercials were, in terms of deception, much worse than the other elements in the campaign. The flyers and newspaper advertisements were less, although still, serious. The billboard even less so. On the other hand, the Think Bigger internet commercial was by far the most persistent format. Less serious was the Supersonic internet commercial, by reason, in part, of its duration. I conclude therefore that each advertisement represented a distinct item of conduct separate from, and different to, the others. It would not be consistent with the overall seriousness of the matter to treat this as but a single contravention just as it would be manifestly excessive to proceed on the basis that each individual instantiation of the commercials was itself a contravention. Consistently with what I regard as the objective seriousness of the matter I approach the question of penalty on the basis that there were 11 contraventions, one for each advertisement in each media. …

The totality principle requires one to reflect upon whether the sum of $5.26 million adequately captures the total wrong-doing implicit in the contraventions. In my opinion, it does. It is not, therefore, necessary to decide in this case whether the totality principle should be applied both at the level of determining the number of contraventions which occurred and again as a check at the end of the process. Importantly also I observe that the penalty represents a substantial proportion of the overall profits that Optus can expect to make from the plans. I will not publish those profits but no-one need be in doubt that this penalty has a significant and adverse effect on the economics of the campaign and on the profits expected to be made by Optus over the life of the plans. Such a penalty will operate as an appropriate deterrent not only to Optus but also to other traders who might be tempted by the thought that misleading advertising is a profitable strategy. These penalties will demonstrate that it is not.

On Optus’s vetting of ads Judge Perram said:

The real question, however, turns on the circumstances which permitted the advertisements to find their way into the public domain at all. In that context, what is known is that Optus intended all of its advertisements to be screened by its legal department and that this was, in fact, done.

Optus placed before me evidence of its compliance programme which applied in 2009/2010. Under that programme, all of Optus’ permanent employees and contractors were required between 1 July and 30 June to undertake an on-line training programme dealing with each employee’s obligations under the Act. This programme was administered by the Human Resources Department. It consisted of two modules: one relating to anti-competitive conduct; the other to consumer protection. The modules concluded with a computer administered test. Each employee sitting the module was required to pass the test and, in the event of failure, was required to continue sitting the test until it was passed.

The consumer protection module consisted of basic principles of consumer protection law under the Act. I will not set it out given its extensive nature. It suffices to note that employees were warned about misleading and deceptive conduct and the perils posed by the use of words such as ‘unlimited’ and ‘free’. Real examples were given. Despite its extensive nature the module did not, however, refer to the difficulties inherent in headline advertising and employees were not required through the means of this programme to be familiar with it or its pitfalls.

This last aspect is important because part of Optus’ undertaking to the Commission was to review its compliance programme ‘to ensure that appropriate procedures and systems are in place to address the specified advertising practices’. This does not appear to have been done. No system was in place to ensure that employees and contractors were trained about headline advertising. The systems which were in place were not updated to include components dealing with headline advertising notwithstanding Optus’ undertaking to the Commission that they would be. Optus submitted, however, that this was wrong, and that information about headline advertising was available to employees. It is true that there was available on the legal section of Optus’ staff intranet a document entitled ‘Tips and Pitfalls for ad copy – November 2009’ and that this set out, in some detail, the problems of headline advertising; indeed, it even referred to the undertaking given only two months before.

The difficulty with this document – possibly adequate in its own terms – is that staff and contractors were not required to be aware of it and it did not form part of its compliance programme. Staff were not educated about it and they were not tested on it. It was available but knowledge of its contents was not mandatory. Had it formed part of the balance of the consumer protection module of the compliance programme this would not have been an issue. But the short fact is that it did not. I was not taken to anything which indicated that employees of Optus were required to visit the legal section of the intranet nor was there any evidence to suggest that it was their practice to do so. The absence of such a practice would not be difficult to understand.

The appropriate conclusion, therefore, is that an adequate compliance programme in relation to headline advertising was not in place. The ‘Tips and Pitfalls’ document available on the intranet was not a compliance programme. These matters are, of course, ones of substance and are not to be resolved by mere labels. But the highest Optus’ evidence about this rose was that the document was ‘available’ and this, I think, will not do.

There being no fixed programme designed to catch headline advertising it is unsurprising that the present campaign occurred. No education had been required of staff to prevent it occurring. I infer this occurred in contravention of the undertaking to update the compliance programme to deal with headline advertising.

That, however, is only half the picture. The compliance programme which did exist very clearly required all advertising copy to be cleared by Optus’ legal department. The evidence suggests, and I accept, that this aspect of the compliance programme was effective in the sense that the advertising in question was sent to the legal department for vetting. Ms Perez, one of Optus’ corporate counsel, explained in evidence what happened once advertising copy arrived in the department. There were two steps:
(a) a lawyer would review the material within 48 hours, subject to length and volume;
(b) the material would be signed off or remitted back to the relevant business unit.

In the case of this campaign, it was Mr Derber who reviewed the television, print, billboard and flyer advertisements for the Think Bigger plans. The on-line material for both the Think Bigger and Supersonic plans was vetted by a lawyer seconded to Optus, Ms Booth. Mr Derber swore an affidavit but was not cross-examined. I do not know, therefore, how his knowledge of the undertaking or the ‘Tips and Pitfalls’ documents intersected with these commercials. I do not know anything about his reasoning process in vetting the advertisement. Ms Booth was not called at all and similar difficulties arise. The Commission, however, did not submit that I should draw any inferences from the failure of Optus to lead evidence about these matters and I do not.

Rather, the Commission pointed to the evidence of Ms Perez as throwing light on the real problem. Her evidence was that Optus had five lawyers whose principal duties were to vet such material. She also gave evidence that this team reviewed 450 to 700 different advertisements each month. To that I would add that vetting was expected to be done within 48 hours. In the year running between October 2009 to September 2010 this team of five reviewed 7,421 advertisements or, on average, 1,484 advertisements per lawyer which is 28 per week (provided that they worked 52 weeks) or just under six per day.

The Commission submitted that it was here that the problem lay; that the evidence showed that Optus did not allocate sufficient resources to the vetting process and that systemic failures were therefore inevitable. Optus submitted, on the other hand, that the rarity of breaches found by the Courts showed the absence of a problem. I do not agree with this last submission. In a short space of time there have been two headline advertising breaches by Optus: those in this case and those in the proceedings before North J; the undertaking prepared in consultation with Optus’ own in-house lawyers appears to have been overlooked by those self same lawyers. Further, it was not just one lawyer who vetted the advertisements in this instance; it was both Mr Derber and Ms Booth. That fact reduces the plausibility of the notion that what occurred was a mere aberration.

I draw the inference that the Commission suggests should be drawn: that Optus does not, despite its protestations to the contrary, take this issue sufficiently seriously to put proper resources into its resolution. I do not, therefore, regard this as a case of a ‘wrong call’ as Optus submitted but rather as the inevitable consequence of failing to implement the undertaking.

In that regard, nothing was placed before this Court to throw light on the vetting procedure. One obvious question about this arises: how did both of the lawyers responsible for the materials’ vetting overlook the enforceable undertaking given to the Commission? Optus made oral submissions to the effect that there was in this case an error of judgment in vetting the advertisements, about which reasonable minds can and do differ. I do not accept this submission. Because these advertisements are obvious examples of the practice, the only explanation which makes any sense is that Mr Derber and Ms Booth were unaware of the undertaking.

This is consistent with what appears to have happened in the proceedings before North J where again one can only ask how lawyers aware of the undertaking could have authorised the ‘unlimited’ advertisements there in suit. This suggests, and I find, that those responsible for the implementation of the enforceable undertaking not only failed to ensure that the compliance programmes were updated but, more significantly, that there was a lack of basic understanding of the undertaking within the legal department. It bespeaks on Optus’ part a failure to take compliance seriously. While this does not necessarily show the conduct was deliberate, it discloses an approach to the Act on Optus’ part which requires condign sanction.