| Report 465 | 20 October 1998 |
In the advertising industry, advertising agents are ``gatekeepers''. These gatekeepers must consider whether advertising material prepared by them for their clients complies with consumer protection legislation. This was the lesson in a recent Federal Court decision.
Charges were laid against the Nissan Motor Company and its advertising agent in South Australia. The charges related to an advertising campaign. Under the campaign, a Patrol RX Turbo Diesel was advertised for sale at a price of $39,990. The model of the vehicle displayed in the advertisement was in fact a Nissan Patrol RX 4.2 litre Diesel, styled with over fender flares and wider wheels, and not the Patrol RX Turbo Diesel which was offered for sale in the advertisement.
The Australian Competition and Consumer Commission submitted that Nissan had falsely represented that the goods were of a particularstyle and model, in contravention of sec 53(a) of the Trade Practices Act 1974 (Cth). The advertising agent, W, was charged with aiding and abetting Nissan.
Nissan and W both pleaded guilty, but gave evidence that the mistakes were not deliberate and that there was no intention to mislead or deceive. The error occurred because the picture of the relevant motor vehicle was not available during the advertising campaign.
Although the ACCC had informed Nissan that there was a complaint against their advertisement, the same photograph continued to be used by Nissan in a later advertising campaign. The only difference was that Nissan added a disclaimer saying that the picture was used for ``illustration purposes only''. The disclaimer was added on W's advice. W was under the impression that such disclaimers were common practice in the industry and had been approved by the Motor Traders Association. However, the Office of Business and Consumer Affairs in South Australia said that the use of a disclaimer was only appropriate when advertising second-hand vehicles.
Von Doussa J imposed penalties totalling $130,000 against Nissan and $10,000 against W. To depict a vehicle in an advertisement which showed a model or accessories different from the vehicle being offered for sale was misleading or deceptive. The misleading or deceptive feature of the advertisement was not removed by a disclaimer such as the one used in the offending advertisements because the disclaimer did not notify the reader that the vehicle offered was a different model, or that the actual model did not include the accessories depicted in the advertisement's photograph.
His Honour took into account Nissan's cooperation with the ACCC and the fact that there was no intention to mislead or deceive. He noted that Nissan had taken a responsible corporate attitude to its obligations under the Act by volunteering a compensation package to potential victims of the false advertising. Nissan had also devised a compliance program to ensure that errors of the kind which occurred would not happen in the future. It was also significant that the offences in question concerned only the South Australian market and resulted from an aberration in the application of compliance measures which were in place elsewhere in Australia.
His Honour accepted W's evidence that he believed that the disclaimer would have prevented a breach of the law occurring. However, that belief was the result of a want of adequate thought or consideration on W's part. Had W reflected on the situation, he should have realised that the disclaimer he inserted in the advertisement would not draw attention to the misleading or deceptive features of the representation of the vehicle: Australian Competition and Consumer Commission v Nissan Motor Company (Australia) Pty Ltd & Anor (1998) ATPR ¶41-660.
The very descriptiveness of certain words ensures that they are not distinctive of any particular business. This means that they can be applied to other similar businesses without misleading the public.
A question arose in an alleged passing off case as to whether the word ``triathlon'' was a descriptive word. A long established magazine called ``Triathlon Sports'' had a masthead which included the word ``Triathlon'' printed prominently above the word ``Sports''. A new magazine was launched by another publisher (``S & I'') which was called ``Triathlon & Multi Sport Magazine''. Its masthead also included the prominent positioning of the word ``Triathlon''.
The publisher of ``Triathlon Sports'' (``ASLS'') succeeded in obtaining injunctive relief against S & I under the Trade Practices Act 1974. Moore J held that the prominent use of the word ``Triathlon'' in the magazine published by S & I created something more than mere confusion or uncertainty. There was a real possibility that purchasers of triathlon magazines believed that the magazine published by S & I was the magazine owned by ASLS.
His Honour further held that the word ``Triathlon'' was descriptive in the sense that it described a sport and, when found on the cover of a magazine that was overtly a sports magazine, could be descriptive of the contents of the magazine and the type of magazine it was. It was not a word over which a monopoly of use could be asserted in the name of a magazine. However, in the present case, a singular feature of ASLS's magazine was its masthead featuring prominently the word ``Triathlon''.
As a result, the manner in which the word was portrayed rendered it distinctive. Until the publication of ``Triathlon & Multi Sports Magazine'', the use of the word portrayed in this way, distinguished ``Triathlon Sports'' from other magazines in the same field. There was direct evidence that this characteristic was of significance to consumers, and the dominant use of the word ``Triathlon'' provided a point of distinction at the time of purchase between the magazine owned by ASLS and other magazines generally dealing with the same subject matter. Accordingly, the adoption of the same word and its prominent display by S & I constituted a representation that its magazine was the magazine owned by ASLS: Australian Surf Life Saver Pty Ltd v S & I Publishing Pty Ltd (1998) ATPR ¶41-661.
The purchasers of a residential property have failed in a claim for damages for misleading or deceptive conduct which occurred during an auction. The Court held that the purchasers could have corrected any misrepresentation but failed to do so, thereby severing any connection between the conduct and the loss.
The purchasers, Dr and Mrs Garvey, attended an auction for a property in Bellevue Hill, Sydney. During the bidding, a price of $600,000 was reached and then bidding ceased. Dr Garvey then spoke with a director of the respondent real estate agent and discussed a price of $650,000. The purchasers claimed that, as a consequence of the conversation with the agent, they had been induced to make an offer of $650,000 in the belief that such an offer would be accepted by the vendor and that the auction would not resume. In fact, the offer was taken to be a bid and the auction continued. The property was ultimately purchased by the Garveys for $690,000.
Dr and Mrs Garvey alleged that the agent had contravened sec 52 and 53A of the Trade Practices Act and that as a result they had suffered loss and damage. The Garveys contended that their loss and damage was the difference between the price which they paid and the reserve price or $650,000, together with additional costs incurred in raising another $40,000 by way of loan. They were unsuccessful at first instance and appealed.
The New South Wales Court of Appeal dismissed the appeal.
Handley, Sheller and Powell JJA found that the agent knew that what he was getting from the Garveys was a bid, but he did not tell them that. His conduct was in breach of sec 52 and 53A because the representation was misleading and concerned the price payable for land.
It would, however, have been clear to the Garveys that the auctioneer appeared to treat their offer of $650,000 as a bid in the auction process. Dr and Mrs Garvey were in a position to correct the misrepresentation and withdraw from any negotiations. Their failure to correct the agent when he announced to the auctioneer that the $650,000 was a bid severed the connection between the agent's statement and the damage which the Garvey's claimed to have suffered: Garvey & Anor v Vamamu Pty Ltd (t/a Raine & Horne Woollahra) (1998) ATPR ¶41-656.
A restraint of trade clause which prevented Pepsi from using information about a competitor's product has been upheld as valid.
The plaintiff in this action was Stokely-Van Camp, Inc (``Stokely''). Stokely owned all the rights over the well-known ``Gatorade'' sports drink. In June 1993, Stokely made an agreement with the defendant, who traded as Pepsi-Cola Bottlers Australia (``Pepsi''). That agreement was terminated in May 1998.
Clause 7.6.3 of the agreement contained a restraint of trade which survived termination of the agreement. It basically provided that, on termination, Pepsi could not process, manufacture, distribute, market, promote or sell a product competing with Gatorade in the relevant Territory for a full selling season (ie September to March) after the date of termination, unless Stokely and Pepsi agreed to this.
Stokely sought to enforce the restraint. There was no doubt that, unless restrained, Pepsi would have marketed a competing sports drink called ``All Sport''. Stokely submitted that the licensing agreement gave Pepsi full access to information about Gatorade and that the agreement very properly restricted use of that information by imposing the ban in clause 7.6.3.
Pepsi argued that the restraint was against public policy as an impermissible restraint of trade. It contended that, depending upon when termination took place, the period of restriction would vary markedly. It was possible on one interpretation that the restraint would be for a period of 18 months. It was also submitted that there was no commercial interest to protect after termination. Pepsi further argued that Stokely contravened sec 45(2) of the Trade Practices Act. That section essentially prohibits anti- competitive conduct.
The Supreme Court of New South Wales found in favour of Stokely. Young J found that there was nothing in the length of time of the restraint which of itself would be an unreasonable restraint of trade. Protocols developed by Stokely for Gatorade were supplied to Pepsi in connection with its work of producing the drink. The evidence clearly showed that the Gatorade protocols were utilised by Pepsi for the development of ``All Sport''.
In relation to the sec 45(2) claim, that could only succeed if the parties were competitors at the date of entering into the licensing agreement. In this case, there was no actual competition between the parties because the licensing agreement provided to the contrary. Further, the Court could not find any proscribed purpose in clause 7.6.3. Stokely's purpose was not to prevent or limit the supply of goods, but rather to protect its property in the confidential information: Stokely-Van Camp, Inc v New Generation Beverages Pty Ltd (1998) ATPR ¶41-657.
The Federal Court has declined to grant damages to a purchaser of a shopping centre where the purchaser placed no real reliance on the vendor's misleading statement.
Hanave Pty Limited (``Hanave'') commenced proceedings against Jagar Projects Pty Ltd (``Jagar'') and its directors. The proceedings related to Hanave's purchase of a small shopping centre in Leichhardt, Sydney.
Hanave argued that Jagar, principally by means of the advertisement for the property and via a property report, had conveyed a positive impression about the financial worth of the shopping centre, having regard to the tenants and tenancies. Hanave alleged that the impression created was false. This was because the businesses of three of the tenants (Barbara's Storehouse, Table Eight and Talk the Ted) were failing, and their future as tenants capable of paying the rents described in both the advertisement and the report was doubtful. Hanave contended that to the extent that Jagar knew the true position, it did not tell Hanave but should have. In doing so, Hanave argued that Jagar had engaged in misleading or deceptive conduct in contravention of sec 52 of the Trade Practices Act.
The Federal Court found for Jagar and dismissed the application. Moore J found that Jagar had not made any misrepresentations in respect to Table Eight and Talk the Ted -- these businesses were not failing and it was permissible to describe them as good quality tenants. Hanave had, however, made a misleading statement about Barbara's Storehouse (by describing it as a ``high quality tenant'' when in fact it had been in arrears of rent for some time).
Nevertheless, Moore J found that the statement had had no material influence on Hanave's decision to purchase. Hanave's director, Burke, had not relied on the property report at all. Burke proceeded with the sale unaware of the true position in relation to the circumstances of Barbara's Storehouse because of a combination of complacency and careless disregard for matters of detail and his reliance on his own knowledge and perfunctory inquiries. There was no relevant connection between any damage Hanave may have suffered as a result of purchasing the Leichhardt property and the conduct of Jagar which contravened sec 52: Hanave Pty Limited v LFOT Pty Limited & Ors (1998) ATPR ¶41-658.
A company which had instituted proceedings over alleged misrepresentations about the Eastern Distributor Motorway in Sydney has failed to obtain, via subpoena, documents from the Motorway developer.
Truth About Motorways Pty Ltd (``Truth'') opposed the development of the Motorway as a matter of public interest. Instead of more motorways, it wanted increased spending on public transport infrastructure. Truth instituted proceedings against Macquarie Infrastructure (``Macquarie''), alleging that it had breached various sections of the Trade Practices Act in making representations about traffic flow in a 1996 Prospectus.
Truth made a security for costs application and then issued a notice to produce and various subpoenas to obtain documents in support of its costs application. Truth alleged that Macquarie had not adequately complied with the notice and subpoenas. However, Truth's pleadings were inadequate and parts of its statement of claim were struck out (see Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Ltd (1998) ATPR ¶41-633). The security for costs application was adjourned.
During a later directions hearing, Truth sought orders for discovery, including third party discovery before the hearing of its costs application. The court refused and stated that the documents produced in response to the earlier notice and subpoenas were enough to allow the costs issue to be heard at a later stage. Truth then issued a fresh notice to produce and subpoenas.
Macquarie brought a motion to have the fresh notice and subpoenas stood over or set aside. Macquarie argued that the notice and subpoenas were an abuse of process because they were an attempt by Truth to bypass the earlier orders which refused discovery.
The court disagreed with Macquarie. The orders made during the earlier directions hearing did not have the effect of setting aside the earlier notice or subpoenas. Accordingly, the fresh notice and subpoenas were not an attempt to bypass the earlier orders.
However, the court found that compliance with the fresh notice and subpoenas would effectively involve a 'mini-trial' of the issues in the principal proceedings. Because this would seriously affect the progression of the proceedings, the court ordered the fresh notice and subpoenas to be stood over until a later time: Truth About Motorways Pty Ltd v Macquarie Infrastructure Investment Management Ltd (1998) ATPR ¶41-659.
The ACCC has granted authorisation to the Association of Fluorocarbon Consumers and Manufacturers (AFCAM) for voluntary agreements to limit the imports of hydrochlorofluorocarbon gases. The authorisation also allows a complete ban on the importation or manufacture of disposable containers of hydrochlorofluorocarbon and hydrofluorocarbon gases. Such gases may contribute to the depletion of the ozone layer, as well as to global warming.
AFCAM is the peak industry body for importers, manufacturers and users of ozone-depleting substances and their alternative products. The ACCC accepted that there were a number of public benefits flowing from AFCAM's proposed arrangements. These included a consistent regulatory framework for industry; a limit on imports of ozone-depleting substances leading to reduced emissions of such substances; industrial activity consistent with Australia's domestic ozone protection policies and international obligations; a reduction in the amount of solid waste inherent in large disposable packaging; and the removal of a potentially dangerous form of packaging from the marketplace.
The ACCC was therefore satisfied that the arrangements would produce public benefits outweighing any anti-competitive effects likely to arise from the implementation of the arrangements: Association of Fluorocarbon Consumers and Manufacturers Inc (1998) ATPR (Com) ¶50-266.
The ACCC has recently considered a number of applications for authorisation lodged by the ASX Settlement and Transfer Corporation Pty Ltd (ASTC) and the Australian Stock Exchange Ltd (ASX).
The applications relate to the operation of the Clearing House Electronic Subregister System (CHESS). CHESS is operated by ASTC as the Securities Clearing House approved under the Corporations Law.
CHESS is an electronic system for the registration of legal title to, and the clearing and settling of transactions in, ASX listed securities. CHESS provides for Delivery versus Payment (DvP) settlement which enables ASTC to irrevocably transfer and register legal title to securities in tandem with the irrevocable transfer of funds between the participants in a CHESS transaction.
Authorisation was also sought for various Business and Listing Rules which govern participation in and the operation of CHESS. These Rules include provisions that enable ASTC and ASX to exclude individuals and organisations from participating in CHESS. They enable ASX to require all brokers and issuers listed on the ASX to acquire services from ASTC irrespective of the fees charged by ASTC for those services.
The ACCC accepted that there were substantial efficiency gains associated with the CHESS arrangements. These included the reduction of delays achieved by the removal of paper certificates from the transfer and settlement system, and increased security resulting from the DvP settlement.
However, the ACCC also noted that the extent to which those efficiency gains resulted in benefits to the public depended on the fees ASTC charged for CHESS services. In particular, the Commission noted that the exclusive dealing arrangements between ASTC and ASX gave ASTC considerable power to charge unreasonable fees for mandatory CHESS services. There was little or no competition in the clearing and settlement of security transactions and this lack of competition was compounded by the CHESS arrangements.
After assessing the competing considerations, the Commission granted the authorisation subject to a number of conditions which aimed to reduce the barriers, within the CHESS arrangements, to competition in the clearing and settlement of security transactions: ASX Settlement and Transfer Corporation Pty Limited & Ors (1998) ATPR (Com) ¶50-267.
The ACCC has released a draft guide to declaration of airport services. It is called ``Declaration of airport services -- Section 192 of the Airports Act.''
A package of regulatory measures apply to privatised airports. Under Pt IIIA of the Trade Practices Act and under the Airports Act, the ACCC has primary responsibility for implementing and administering these regulatory measures.
Under sec 192 of the Airports Act, airport services can be ``declared'' for the purposes of Pt IIIA of the Trade Practices Act. Once declared, potential users gain access to the services on terms and conditions which the ACCC can arbitrate.
The purpose of the draft guide, therefore, is to help airport operators and users to interpret sec 192 of the Airports Act.
For information about where to obtain the draft guide, turn to ¶30-135 of ``New Developments''.
The Treasurer has asked the Productivity Commission to inquire into the National Competition Policy's social and economic impacts on rural and regional Australia. In doing so, the Treasurer exercised his power under Pt 3 of the Productivity Commission Act 1998.
The Commission will look at the policy's impact upon the structure, competitiveness and regulation of major industries and markets supplying to, and supplied by, rural and regional Australia. It will examine any differences in the policy's impact upon metropolitan Australia as compared to rural and regional Australia.
The Commission has also been specifically asked to report on any measures which should be taken to facilitate benefits or mitigate any detriments flowing from the national competition policy to rural and regional Australians.
In undertaking the inquiry, the Commission is to have regard to the established economic, social, environmental and regional development objectives of Australian governments. The Commission is to report by September 1999.
The Commission has prepared an Issues Paper on the scope of its inquiry. Details of where to obtain this Paper and where to send any submissions are contained in ¶30-134 of ``New Developments''.
A Memorandum of Understanding between the Reserve Bank of Australia and the ACCC was recently released. This Memorandum outlines the respective responsibilities of each regulator in relation to access and competition in the payments system.
The ACCC has long had responsibility for ensuring that payments system arrangements comply with the Trade Practices Act. While it retains these responsibilities, the Reserve Bank has been charged with promoting competition and efficiency in the payments system since the enactment of the Payments Systems (Regulation) Act 1998.
The ACCC and the Reserve Bank will work together to ensure that regulatory policy in the payments system is consistent. Towards that end, the Memorandum sets out information-sharing and other consultation arrangements.
A full copy of the Memorandum can be found at ¶30-132 of ``New Developments''.
The Minister for Customs and Consumer Affairs has told the ACCC to take action to establish a body of law to protect small business from unconscionable conduct.
In doing so, the Minister used his power under sec 29(1) of the Trade Practices Act to direct the ACCC in the performance of its functions. The direction took the form of a Consumer Protection Notice (No 5 of 1998), gazetted in the Commonwealth of Australia Gazette on 2 September 1998.
The Notice directs the ACCC to initiate, as soon as possible after 1 July 1998, legal proceedings which will establish legal precedent as to the operation of new sec 51AC of the Act (which prohibits unconscionable conduct in small business transactions). The ACCC is to give preference to initiating such proceedings as representative actions.
In addition, the ACCC has been given an additional $480,000 per annum for the next four years to take action against unfair conduct on behalf of small businesses: see ¶30-133 of ``New Developments''.
The ACCC has recently established the Stevedoring Industry Reform Small Business Compensation Fund to compensate businesses which suffered losses during the 1998 waterfront dispute.
The ACCC settled its waterfront litigation on 3 September 1998. The settlement provided for a damages fund of up to $7.5 million, to be funded by Patrick Stevedore Holdings Pty Ltd. The funds were to be available for small businesses damaged by boycotts during the dispute.
The Trust Fund will be administered by the Official Receiver of New South Wales. The Trustee will prepare a claim form for use by prospective claimants.
Those wishing to contact the Trustee in order to make a claim should refer to ¶30-136 of ``New Developments'' for contact details.
This newsletter comes as part of loose-leaf reporting to the Australian TRADE PRACTICES REPORTER.
The reports are prepared by the CCH Trade Practices law writers in consultation with AI Tonking BA, LLB (Syd), LLM (Lond) and Prof R Baxt BA, LLB (Syd), LLM (Harv) and other consultant authors.
This newsletter was written by Jodi Buckle BA, LLB (Qld), Alex Bruce LLB (QUT) and Michele Regan LLB(Syd).
If you have any queries about this newsletter, please contact CCH Customer Support Division on 1 300 300 224, for the cost of a local call anywhere in Australia.